This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Greece Debt Woes Hammer Gold Prices (Update 1)

NEW YORK ( TheStreet ) -- Gold prices were hammered Friday as Greece was unable to secure its second bailout, violence erupted in Athens and as China imports slowed in January.

Gold for April delivery shed $15.90 at $1,724.10 an ounce at the Comex division of the New York Mercantile Exchange. Gold managed to close off of its session lows. The gold price has traded as high as $1,737.20 and as low as $1,706.40 an ounce while the spot price was down $10, according to Kitco's gold index.

Silver prices lost 31 cents at $33.60 an ounce while the U.S. dollar index was up 0.62% at $79.13.

The bad news mounted for gold Friday. Leading the charge was a weaker euro and stronger dollar as uncertainty swirled around Greece's ability to commit to its debt deal. This weekend is shaping up to be D-day for the country. Its parliament must pass austerity measures, agreed upon by leadership, in order to secure its second bailout. European leaders need to see the government approve these measures before they will give the green light for the second 130 billion euro bailout, which Greece needs by March 20th when it has 14.5 billion euros of debt maturing.



"Failure of eurozone ministers to approve the bailout and headlines of strikes and continued worries about banks having to raise capital temporarily removed buyers who were looking to add to positions," says George Gero, senior vice president at RBC Capital Markets. Gold is still trapped between a range of $1,700 and $1,750 an ounce, he says.

Standard & Poor's also downgraded the credit rating of 34 Italian banks, which further exacerbated the anxiety in the market as well as traders' needs to even out gold positions on a Friday. "The relationships of gold, the euro, crude and base metals like copper are beholden to an economic recovery," says Gero, "which could be impacted by a Greek default."

Adding more pressure on gold was news that China's imports slowed 15.3% in January while exports fell 0.5%. On the one hand, imports most likely slowed because of the Lunar New Year holiday which basically shuts down business for a week. However, it also underscored fears that Chinese growth is slowing. With China a big buyer of gold, slowing growth could be a problem.

Adrian Ash, head of research for the BullionVault.com, says the number wasn't much of a shock as there is typically "an economic pause for China because everyone is on holiday for the New Year." Ash does think the bigger issue for China will be how to shift from being an export-led economy into an economy led by internal demand. Ash thinks there will be a "shift towards a higher proportion of GDP going to households."

If China wants to stoke domestic demand, people need more money, says Ash, and in the absence of a welfare state those "people are going to make their own provisions," that is they will buy gold as a wealth preserver. The downside to this is China is forced to import a lot of gold. The country consumes all its gold produced internally and still must rely on imports, 427 tons in 2011, which essentially amounts to exporting GDP to "satisfy internal demand," says Ash.

Ash thinks the thirst for gold will outweigh any downside for now as the country is still in the accumulation phase. Indeed China still has a trade surplus with the U.S. of $23.1 billion, which could spur even more gold buying from China's central bank.

Local companies that trade with the U.S. wind up with dollars. Those companies then exchange dollars for yuan with the central bank. Then the central bank winds up buying a lot of Treasury bills with that money. The more dollars it accumulates, the more gold the country will have to buy in order to keep its asset ratio consistent. This buying will be key in supporting higher gold prices.

What gold is ignoring Friday was the news that the CME lowered margin requirements on trading gold futures contacts by 12% to $10,125. The move makes it cheaper to trade gold. The CME typically raises rates when there is a lot of volatility and it wants to shake out speculators, and conversely lowers rates when it wants to induce buying.

"Gold and silver volumes have both be down the past quarter into this year," says Jeffrey Wright, senior research analyst at Global Hunter Securities. "The CME is now more concerned with their own volumes, revenue and profitability margins and less with contra-party risk of smaller speculators."

Wright says this will be a mild positive over the long run for gold but that it would not create a big rush into the metal. Margin moves, however, can create more volatility in the metal. When the CME raised margin requirements on gold in August of 2011, gold fell 7% on the day.

Gold mining stocks were struggling Friday. Kinross Gold (KGC - Get Report) was down 1.69% at $10.78 while Randgold Resources (GOLD - Get Report) was almost 1.65% lower at $112.57.

Other gold stocks, Agnico-Eagle (AEM - Get Report) and Eldorado Gold (EGO - Get Report) were trading lower at $34.72 and $13.47, respectively.

Occupy Wall Street - Top Videos of 2011


-- Written by Alix Steel in New York.



>To contact the writer of this article, click here: Alix Steel.

Related Articles:


Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AEM $32.11 0.17%
EGO $5.53 1.65%
GOLD $79.00 0.34%
KGC $2.77 0.73%
AAPL $130.42 1.26%

Markets

DOW 18,214.42 -10.15 -0.06%
S&P 500 2,110.74 -3.12 -0.15%
NASDAQ 4,987.89 +20.7530 0.42%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs