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Bargain Hunters Buy Gold, Prices Volatile

Stocks in this article: KGC GLD

NEW YORK (TheStreet) -- Gold prices Wednesday were volatile as bargain hunters bought gold at discount prices after an earlier sell-off.

Gold Prices Will Recover




Gold for June delivery was adding $5.60 to $1,174.80 an ounce at the Comex division of the New York Mercantile Exchange. The gold price Wednesday has traded as high as $1,177 and as low as $1,156.20. The U.S. dollar index was giving up some of its gains and rising only 0.62% to $83.82 while the euro continued its slump falling 0.83% against the dollar. The spot gold price was up over $2, according to Kitco's gold index.

The euro plummeted past its one-year low of $1.30 as European sovereign debt fears plagued the market. Despite the IMF/European Union's joint 110 billion euro bailout for Greece, investors panicked as the debt crisis threatened to spread to Spain and Portugal and three were found dead after a series of protests in Greece. Markets nosedived Tuesday with the Dow Jones Industrial Average falling over 200 points as investors sold their gold to raise cash.

Gold prices had been slipping earlier Wednesday but bargain-hunters came out in full force and bought the precious metal after gold's selloff. Gold is an appealing investment during times of financial crisis and currency debasement as a form of money that doesn't lose value. Analysts expect gold's tug of war to continue tempering gold's run to $1,200 an ounce. Prices will be torn between investors' need for cash and bargain hunting, profit-taking and good buying opportunities.

"A slight recovery ensued in the first half-hour of trading and observers were on the lookout for possible bargain-hunters to make an appearance," says Jon Nadler, senior analyst at Kitco.com in his daily metals report. But a stronger U.S. dollar hurt gold's appeal as the metal became more expensive to buy in other currencies. "Gold is ... fighting for its credibility as a safe-haven asset," argues Nadler, "and was seen as once again being grouped with risk assets and sold in favor of the U.S. dollar," which is perceived to be the strongest global currency.

Portugal looks to be the next eurozone country on the chopping block with its debt levels reaching 77% of gross domestic product which is still a far cry from Greece's debt, which is 115% of GDP. Moody's announced that it will put Portugal's double A credit rating under review which prompted more speculation that Portugal is the next European country at risk for default. However, Portugal's 10-year bonds are currently yielding 5.7%. At the height of Greece's economic crisis bond yields soared over 10%, so for now investors are still willing to lend money to other struggling eurozone countries.

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