Gold Can't Hold Gains
08/23/06 - 03:16 PM EDT
Simon Constable
Updated from 11:32 a.m. EDT
A choppy gold market got a minor boost early Wednesday from a sliding greenback, but gains were reversed by midmorning as investors struggled to find direction. Soft housing market data showing a 4.1% drop in July home sales vs. June reported by the National Association of Realtors points to a decreased likelihood of additional rate hikes by the Federal Reserve. Housing has been a key component in the economic expansion, and any changes in the sector weigh disproportionately on overall growth prospects. The U.S. dollar was losing ground in reaction, trading at 116.43 yen vs. 116.55 late Tuesday. The greenback was off its early lows vs. the yen, but gaining against the euro, which was recently changing hands at $1.2783 vs. $1.2801. Prices of gold for December delivery closed lower by $1.20 at $632.80 an ounce, having traded to a high of $639.80 earlier in action on the Comex division of the New York Mercantile Exchange. Bullion prices tend to move higher when the dollar weakens, and the opposite moves of the dollar vs. the yen and the euro likely contributed to the muted response from the yellow metal. Longer term, however, gold investors will want to keep a close eye on the U.S. economy as a key driver of foreign exchange markets. "I forecast the U.S. economy is entering a recession, and that implies lower growth and lower interest rates," says Nouriel Roubini, professor of economics at the NYU Stern School of Business. He notes that a slowing economy in America compared with the rest of the world will likely cool investor appetite for dollars.
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