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Rising Dollar Trips Up Gold Futures

Simon Constable

Gold prices plunged Tuesday after hawkish comments by U.S. government officials caused the greenback to rally.

Benchmark bullion futures shed $15.20 to close at $948.50 an ounce on the Comex division of the New York Mercantile Exchange.

The climb in gold came as the dollar rose against its major competitors. One euro was buying $1.578, down from $1.589 Monday. The British pound eased to $1.9914 from $1.998 a day earlier, and the yen dropped to 107.2 from 106.7 last time. The price of dollar-denominated assets such as gold tend to depreciate as the value of the dollar improves.

At least part of the problem for gold was that sell-stops were triggered, explains George Gero, vice president of global futures at RBC in New York. That helped turn what was a modest decline caused largely by currency movements into a rapid pullback.

Looking at the longer term, James Moore, an analyst at TheBullionDesk.com in London says, "the financial jitters, the inflation scenario and the economic worries are all supportive for gold," and current market conditions are paving the way for further moves higher, he says.

Worries about the stability of the U.S. banking system are making investors concerned about the staying power of paper investments and has some seeking out hard assets such as gold.

Moore notes that traders have piled into the SPDR Gold Trust(GLD). The fund's holdings of bullion have grown by about 78 tons in the past month and the stash currently totals 706 tons.

The CurrencyShares Euro Trust(FXE) was losing 0.8%, while the CurrencyShares Japanese Yen Trust(FXY) was down 0.6%. The CurrencyShares British Pound Sterling(FXB) was off 0.4% in afternoon action.

In the precious metals patch, Iamgold(IAG) was lower by 2.4%, weighed down by the softer metal price.