Gold pushes higher despite stronger dollar
China’s promise to buy euro-backed assets and a bounce in the French economy help bolster the metal.
Updated at 2:44 p.m. ET
Gold prices were rising Wednesday along with the euro after China promised to keep buying euro assets and as France's economy bounced back modestly in the fourth quarter.
Gold (-GC) for April delivery settled up $10.40 at $1,728.10 an ounce at the Comex division of the New York Mercantile Exchange. Gold traded as high as $1,739.20 and as low as $1,720.30 an ounce while the spot price was adding $6, according to Kitco's gold index.
Although not a big celebration, France's economy grew 0.2% in the first quarter and 1.4% versus a year ago. The numbers were a positive surprise, as was China's announcement that it would continue to buy euro-backed assets like bonds from the European Financial Stability Fund (temporary bailout fund) or the European Stability Mechanism (permanent bailout fund).
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The news lifted the euro somewhat, taking gold along with it, but the metal has still been stuck in a trading range between $1,700 and $1,750 an ounce. Both gold and the U.S. dollar gained traction as haven assets later in the day, after U.S. industrial production came in flat for January compared with a 0.4% gain the month before.
"Gold faces further overhead technical resistance between $1,742-$1,763," says James Moore, analyst at FastMarkets.com. Moore also says that physical demand has been waning of late and it might drag the metal down to $1,700 an ounce.
Stan Dash, vice president of applied technical analysis at TradeStation, thinks gold looks really good technically. "Gold has worked off its overbought conditions and remained positive." Dash thinks gold will make it up to its recent high of $1,765 an ounce. "It probably needs to pick up some steam to really punch it, but I think its set up to do that."
Dash warns that gold prices may stall again at some point especially with traders gearing up for a long weekend in the U.S., but that within the next week gold could test those recent highs. "If we can get through these highs the next level is $1,805, but let's take it one step at a time."
"It looks to me like gold is just trying to form a real strong base to move higher," argues Chuck Butler, president of EverBank World Markets. "I still think that gold is going to come back to at least its previous highs of last year . . . I really do think that gold is the anti-dollar if you will."
Butler firmly believes that as long as the U.S. doesn't have a balanced budget or rising interest rates then gold will be the de facto haven currency of choice. "The people who really buy gold look at it more vs. the dollar more than anything else."
Butler thinks any signs of another quantitative easing program from the Federal Reserve will break gold out of its "slumber." Many experts are looking for more bond buying between April and June, but others are more skeptical. Deutsche Bank thinks there is a good chance the unemployment rate could drop to 7.6% by year end, strengthening the case for a rate hike in 2013. Also, weekly initial jobless claims have been falling steeply -- as low as 358,000 for the week ending February 4th, the lowest reading since April 2008.
"In the past, claims have also been an excellent signal for when the Fed tightens, although monetary policymakers would surely argue this time is different," says Joseph LaVorgna, managing director and chief U.S. economist at Deutsche Bank.
LaVorgna says that for the most part the Fed has tightened when claims have broken below 350,000, albeit maybe not immediately. "The economic backdrop is much different than any (other) period, but another three years seem too long to stay on hold with negative real rates if claims break that critical 350,000 mark."
On the other end of the spectrum, the Federal Reserve in its latest FOMC minutes said that a few members think more asset purchases, or quantitative easing, could be warranted this year. More money in the system coupled with low rates is typically good for gold as a safety play against a weaker currency.
Gold investors were also digesting news of big-name fund managers dumping some gold positions in the fourth quarter. John Paulson sold 2.9 million shares of the SPDR Gold Shares (GLD), but remains the largest holder with 17.3 million shares. The move does help explain gold's 5% selloff during the same time period. He also sold some shares in gold stocks like AngloGold Ashanti (AU) and Gold Fields (GFI), but ramped up his shares in NovaGold (NG), Randgold (GOLD) and Barrick Gold (ABX) as well as some others.
George Soros, on the other hand, added 37,100 shares to his GLD position, which is still small at 85,450 shares. On the whole JPMorgan (JPM) was a big seller of gold dumping positions in the GLD as well as the iShares Gold Trust (IAU) for a total of 6.1 million shares, while Bank of America (BAC) added 8.3 million shares combined to both ETFs.
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