Gold prices retreat from highs

Gold prices see wide swings as stocks tumble on worries about a global economic slowdown.

By TheStreet Staff Sep 6, 2011 11:19AM

Gold © Comstock Images/JupiterimagesBy Alix Steel, TheStreetTheStreet

 

Updated at 4 p.m. ET

 

Gold prices took a roller coaster ride on Tuesday, touching a new record high intra-day as fears of global economic weakness sent investors flooding into the haven asset, but the strengthening U.S. dollar served as a market counterweight and led to an afternoon retreat in the precious metal. 

 

Gold (-GC) for December delivery closed down $3.60 at $1,873 an ounce at the Comex division of the New York Mercantile Exchange. Gold set an intraday record of $1,923.70 and has dipped as low as $1,861.80. The spot gold price was down $25, according to Kitco's gold index.

 

Silver (-SI) prices closed down $1.20 at $41.86 an ounce. The U.S. dollar index rallied 0.8% to $75.85.

 

As investors were dealing with carnage in stock markets, gold's popularity as a haven asset increased -- with one adverse result: higher volatility.

 

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A $65 move in the gold price is almost unprecedented, said Ross Normal, the chief executive officer of Sharps Pixley. "Huge volatility in gold reflects what is going on in the rest of the markets."


Gold started off the day vaulting more than $20, but then slowly gave up gains throughout trading as investors took profits in the metal and bought stocks, which were bouncing off their lows. A stronger than expected August ISM non-manufacturing index gave some confidence to investors despite a tough macro environment.

 

In the U.S., the jobs market is center stage, with zero jobs growth in August putting pressure on a deadlocked Congress to stimulate growth. In Europe, the sovereign debt crisis is threatening to take down Italy and Spain, where yields on 10-year bonds are close to 7%, the same level yields that Greece had when the country went hat in hand to ask for a bailout.

 

With Christine Lagarde, the new head of the International Monetary Fund, calling for more stimulus ahead of the European Central Bank meeting on Thursday, and Robert Zoellick, the leader of the World Bank, warning of a dangerous period, investors are scared, and that fear manifests as volatility in all asset classes.

 

Gold benefits more than most as a haven, especially as other safe assets are dwindling. The Swiss National Bank, or SNB, announced Tuesday that it would set a minimum exchange rate of the Swiss Franc to the euro at 1.2 in an effort to stop the currency's rapid rise in value.

 

Investors have been piling into the Swiss franc, the Japanese yen and gold, while governments of both Japan and Switzerland have been trying to stop this flow of money. A higher currency means that a country's exports become more expensive, eating into profits and growth potential.

 

Norman categorizes the move of the SNB as a plea: "Please don't pick me as a safe haven currency." It is hard to say how many more investors will now buy gold as a result, but Norman says it will probably help.

 

The biggest risk to gold now is its high price. Many analysts had been expecting a bigger pullback to the $1,650 area, but it hasn't come. This chart gap is a "crack in the building," says Norman, but it's not a killer as long as the VIX, the volatility index, stays over 30. If the VIX falls, meaning investors feel better about stocks and the economic outlook, and gold still is in overbought territory, then lower prices could ensue.

 

Norman thinks the next $150 for gold will be to the upside, but whether it's sustainable is the question. "It depends on how gold got to $2,000."

 

If gold prices shoot higher, then speculative investors -- those traders who jump in when momentum is to the upside -- will pile into gold. Those buyers tend to be unhelpful to gold in the long term, as they are the last ones in and the first ones out, meaning if sentiment turns, they dump and run.

 

"If Comex traders got behind this, they could push gold to $2,500 by end of the year," argues Norman, who says a steadier more methodical rise in gold would make high prices more sustainable.

 

Another factor supporting higher gold prices is strong physical buying from India and China, the world's two largest consumers of gold. Fall is a seasonally strong buying period in both countries as festivals and weddings kick off.

 

"As we enter a seasonally strong period for gold demand, we would expect price dips to find better support from appetite in India, as well as the interest emerging from China," wrote Barclays Capital in a recent note.

Gold mining stocks struggled to maintain momentum Tuesday. Kinross Gold (KGC) finished trading up 0.7% to $17.71 while Yamana Gold (AUY) rose 0.5% to $16.91. Trading in other gold stocks, Agnico-Eagle (AEM) and Eldorado Gold (EGO) was mixed, with Agnico-Eagle down 1% to $70.57 and Eldorado finishing Tuesday at $21.36, or a 2.5% gain.

 

7Comments
Sep 6, 2011 1:18PM
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At the rate governments are printing money, look for $5000 soon!
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At the rate governments are printing money, look for $5000 soon!

But what people do not realize is the dollar will be worthless. Even the mexican peso will soon be worth hundreds of times what the dollar will be worth. As Bernanke continues the failed policy of Greenspan and prints more and more money $12 trillion so far to keep the US dollar a float.

He is doing more harm to asset values than good.
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May DAY May DAY,

Trouble in central banks they are all printing an infinite amount of money now.

All monies are soon to be worth the same as monopoly money.

To see the effect of Bernanke and Greenspan printing an infinite amount of money DOW DEC 1999 was 11,474 Dow today 11,058 what the DOW should be to break even 30,200 due to inflation and drop of dollar vs euro.

2/3rds of the stock market value up in smoke.

The swiss are getting in on the printing game :

Swiss draw line in the sand to weaken franc

September 6, 2011 8:12 AM ET

By Emma Thomasson and Catherine Bosley

ZURICH (Reuters) - The Swiss National Bank shocked markets on Tuesday by setting an exchange rate cap on the soaring franc to stave off a recession, discouraging investors anxious about flagging global growth from using the currency as a safe haven.

Using some of the strongest language from a central bank in the modern era, the SNB said it would no longer tolerate an exchange rate below 1.20 francs to the euro and would defend the target by buying other currencies in unlimited quantities.

The move immediately knocked about 8 percent off the value of the franc, which had soared by a third since the collapse of Lehman Brothers in 2008 as investors used it as a safe haven from the euro zone's debt crisis and stock market turmoil.

Analysts said that the SNB should be able to defend 1.20 as it can print unlimited francs but that long-term success depended on efforts to deal with the euro zone's debt problems.

"The current massive overvaluation of the Swiss franc poses an acute threat to the Swiss economy and carries the risk of a deflationary development," the SNB said in a statement.

"The SNB will enforce this minimum rate with the utmost determination and is prepared to buy foreign currency in unlimited quantities."

The move was seen as a new shot in the currency wars, with Japan expected to try to weaken the yen if the Swiss action diverts more safe-haven inflows into the currency. Gold, which hit a record higher earlier on Tuesday, is also seen gaining.

Fears that the world economy may tip back into recession have spurred investors to dump riskier assets such as stocks and seek the relative safety of gold and the franc and yen.

Sep 6, 2011 3:25PM
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Well the manipulators must not be where they want to be yet; not enough sheeple yet for them to unload and bring the price of gold down thus the sheeple slaughter. -the angry one

The "sheeple" are the ones running into US Treasuries and holding on to the dollar, not the ones preserving their wealth in precious metals.

Sep 7, 2011 10:14AM
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Gold has no long-term future. It is headed to $168.00 per ounce in the next 22 years. 
Sep 6, 2011 5:24PM
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Stock Market crashing, Texas burning and Republicans failing at everything. It doesn't get any better than that folks! Thumbs up HA HA HA HA HA
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[BRIEFING.COM] The stock market finished the Wednesday session on a modestly lower note, but it is worth mentioning today's retreat took place after six consecutive gains. The Dow Jones Industrial Average (-0.1%) and S&P 500 (-0.2%) settled not far below their flat lines, while the Nasdaq Composite (-0.8%) lagged throughout the session.

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