Although European leaders are committed to coming up with a plan, which was supported by the G-20 over the weekend, they still have to find one and the devil will be in the details. A spokesperson for German leader Angela Merkel on Monday warned that progress would be slow and a definitive solution might not show itself this weekend at the European Union meeting Sunday. The disappointment led investors to dump stocks and gold as the two have been moving side by side of late. Disappointment drags on the euro, boosts the dollar and hurts gold prices or vice versa. If investors feel less confident about stocks then they might have more need to liquidate good performing assets like gold. When investors feel better about their risk tolerance then they have less need to sell gold. This tug-of-war will likely dominate trading in the week ahead. "Open interest shows traders are in and out at the drop of a hat or remark from Europe," says George Gero, senior vice president at RBC Capital Markets. Net long positions only increased by 3,737 contracts in the week ending October 11th, according to the latest Commitment of Traders report. Speculative short positions decreased by 2,856 contracts, which means part of last week's rally can be attributed to short covering, traders unwinding positions where they were betting against the gold price. Kitco's Gold Index, however, points to stronger physical demand with the gold price actually up $2.75, but with those gains tempered by a stronger U.S. dollar. India's famous Diwali season starts next week. The festival of lights marks a tradition of gift exchanges and shopping particularly for gold jewelry. Buying goods, especially during the first five days of the festival, is considered good luck and many experts are looking for a ramp up in physical gold purchases. "For the moment gold continues to build a base above the $1650 mark with physical demand, particularly from India," says James Moore, research analyst at FastMarkets.com. "Inflation remains stubbornly high in India, over 9% for the 10th month in a row," says Mark O'Byrne, executive director at GoldCore, a bullion dealer, "and this is leading to continuing store of wealth demand from Indian buyers." Gold mining stocks were sinking Monday. Kinross Gold (KGC - Get Report) was losing 2.26% to $14.30 while Yamana Gold (AUY - Get Report) dropped 1.84% to $14.92. Other gold stocks, Agnico-Eagle (AEM - Get Report) and Randgold Resources (GOLD - Get Report) were trading lower at $57.19 and 100.55, respectively.
Alix Steel in New York. >To contact the writer of this article, click here: Alix Steel.