Gold, silver drop as oil prices fall
The precious metals tumble as traders cash out of commodities.
By Alix Steel, TheStreet
Updated at 2:38 p.m. ET
Gold and silver prices fell with oil Tuesday as investors took advantage of recent highs to lock in profits.
Gold for June delivery settled down $14.50 to $1,453.60 an ounce at the Comex division of the New York Mercantile Exchange. Gold traded as high as $1,468.50 and as low as $1,445. The spot gold price was down $11.80, according to Kitco's gold index.
Silver prices slid 55 cents to $40.07 an ounce after Bloomberg reported Monday that an options trader holds a $1 million bet that the iShares Silver Trust (SLV) will fall 37% by July. Currently 22.6 million shares of the silver ETF are sold short.
According to Anthony Neglia of Tower Trading, the metals were getting bullied by Goldman Sachs (GS). The investment firm issued a note Monday urging clients to sell commodities to lock in profits, noting that the broad rally might not last as high oil prices eat into demand. All commodities were taking a hit Tuesday -- oil prices were down almost $4 -- especially after mixed earnings from Alcoa (AA).
"Silver is the stronger of the two (metals), with investors seeking the investment demand and also the fundamental industrial demand for the silver market," says Phil Streible, a senior market strategist at Lind-Waldock. Streible thinks the gold-to-silver price ratio, which was around 34 on recent highs, will rise. For the ratio to rise, gold prices would have to catch up to silver's rally or silver prices would have to cool off.
Streible thinks that $42 is the short-term top for silver and that gold could fall to $1,450 an ounce. Long term, however, $45 for silver and $1,500 for gold are still in the cards.
"If you see things start to deteriorate in the Middle East again," Streible says, "or if you see the shorts start to really scramble . . . if earnings start coming in fuzzy . . . gold and silver could continue to rally as a safety play."
Scott Redler, the chief strategic officer for T3Live.com, who shorted SLV on Monday, was looking to add to his short position on silver Tuesday and recommended that long-term investors wait for the recent volatility to shake out before getting more heavily invested.
The U.S dollar index was retreating 0.2% to $74.93, but it wasn't enough to bring gold and silver buyers into the market.
The International Monetary Fund also released growth and inflation forecasts for 2011, which are a mixed bag for gold and silver. The IMF's global growth forecast was lowered to 4.4%, with the EU predicted to grow the least, at 1.6%. The downgrade was due to high oil prices and even higher budget deficits. Slower growth would tighten demand for commodities, which could hurt gold's recent rally.
On the flip side, the IMF said the EU's inflation rate for 2011 will be 2.3% and the U.S. will hit 2.2% -- both only slightly above the 2% target, which signals central banks might not have to raise rates. Cheap paper money is good for gold, as the hard asset becomes a more attractive investment.
The U.K.'s 2011 inflation, according to the IMF, will hit 4.2%, higher than the current March rate of 4%, which could point to rate hikes, although the Bank of England has been resisting that move.
Gold mining stocks, a risky but potentially profitable way to buy gold, were mostly lower Tuesday. Barrick Gold (ABX) was down 1.5% to $52.30, Randgold Resources (GOLD) was losing 0.8% at $85.19, and AngloGold Ashanti (AU) was falling 0.3% to $49.09. Newmont Mining (NEM) was edging up 0.6% to $57.30.
Silver Wheaton (SLW) was dropping 3.3% to $42.65 Tuesday after CEO Peter Barnes announced that he will step down. Barnes will be replaced by president Randy Smallwood.
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