Gold rises in tandem with the euro

Prices head higher as positive economic news out of Europe boosts the euro and weighs on the dollar.

By TheStreet Staff Dec 20, 2011 10:07AM

TheStreetImage: Gold (© Anthony Bradshaw/Photographer)By Alix Steel


Gold (-GC) was trading higher Tuesday as the euro climbed against the dollar and as bargain-hunters stepped in to take advantage of lower prices.

 

Gold for February delivery was up $16.50 at $1,613.20 an ounce at the Comex division of the New York Mercantile Exchange. Gold has traded as high as $1,615.40 and as low as $1,594.10 an ounce while the spot price was up $13, according to Kitco's gold index.

 

Silver (-SI) was adding 50 cents at $29.38 an ounce while the U.S. dollar index was shedding 0.6% at $79.89.


Gold was up Tuesday after Spain said it raised more than 5 billion euros in its latest debt auction and saw strong demand and lower borrowing costs. The news lifted the euro and weakened the dollar -- making gold, a dollar-backed asset, cheaper to buy in other currencies. Also helping was news that Greece raised more than 1 billion euros for three months at relatively stable borrowing costs.


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Investors looking to buy gold at cheaper prices also stepped in to take advantage of gold's 7% decline last week. "Good physical demand for gold has again been seen overnight," said James Moore, research analyst at FastMarkets.com, "and will provide background support."

 

Moore warned of strong resistance around $1,600 an ounce as traders keep selling rallies. The 200-day moving average, the level that was breached last week, has eluded gold for now. Prices need to break above $1,620 for many traders to feel better about a sustained rally.

 

Phil Streible, senior commodities broker at R.J. O'Brien, still believes gold can hit $2,000 an ounce in 2012. "People are going to look at 2012 for a new asset allocation strategy" and gold might be appealing considering its "attractive levels," he said.

 

"From a fundamental point of view nothing has really changed," said Nick Barisheff, president of precious metals investment company Bullion Management Group. "They haven't solved the problem in Europe . . . the U.S. debt situation is the same and growing as it has always been . . . the fundamental drivers of gold are all still there."

 

Barisheff said that since gold is a thinner market than other asset classes, big swings like last week's correction are more dramatic. "I think it's getting close to being over at this point, but it will be only in January that things will start getting back to normal," he said.

 

Gold should continue to trade inversely to the U.S. dollar as traders flock to the paper currency in times of real panic and as bad headlines erupt out of Europe.

 

Gold mining stocks struggled Monday. Barrick Gold (ABX) lost 0.73% at $44.60 while Newmont Mining (NEM) was down 1.82% at $61.05. Other gold stocks including Goldcorp (GG) and NovaGold (NG) closed significantly lower at $44.42 and $8.42, respectively.

 

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