Gold Prices Lose Steam, Edge Higher
NEW YORK (
) --
made a run at breaking $1,400 an ounce Thursday amid U.S. dollar weakness and continued eurozone debt worries.
Gold for February delivery settled $1 higher at $1,387.60 an ounce at the Comex division of the New York Mercantile Exchange. The gold price traded as high as $1,399.70 and as low as $1,385.10 during Thursday's session.
The
was slipping 0.67% to $80.20 while the euro was rising 0.58%to $1.32 vs. the dollar. The spot gold price was adding $2.80, according to Kitco's gold index.
It was a volatile session as momentum traders jumped into the market but profit takers emerged and held gold prices below the $1,400 resistance level.
George Gero, vice president at RBC Capital Markets, said gold was getting hit as traders allocated funds to other markets "due to strength in stocks after indications of an improving economy."
Better-than-expected retail sales for November as well as a 10% surge in existing home sales in October improved risk appetite and led traders' flight into stocks.
The first time gold crossed $1,400 was Nov. 8 as investors bought the metal as a delayed reaction to the
Federal Reserve's
$600 billion bond-buying program.
Although prices hit an intraday high of $1,424.30 an ounce and reached a record close of $1,410.10, prices have since corrected more than $70 as gold was unable to find the momentum and volume to push prices higher.
"The recent breakout after the Federal Reserve meeting was not really a strong breakout," says Jeb Handwerger, editor of goldstocktrades.com. "I thought it would be a fake breakout ... because of the negative divergence with momentum."
The worry among some investors is that this run to $1,400 might be the same.
Goldman Sachs
(GS) - Get Report
said in a note Wednesday that although prices might rise in 2011, gold will peak near $1,750 in 2012.
Video: Should You Buy $1,400 Gold? >>
Jon Nadler, senior analyst at Kitco.com, has been echoing these sentiments for a few months. "We will probably face continued volatility in the first two quarters
of 2011 ... thereafter, however, I believe the conditions in the market might change as players start to reassess both the QE environment as well as the Fed's eventual extraction of liquidity from the market." Nadler expects a top before 2012 at $1,425 and $1,580.
Video: How to Trade Gold Futures in 2011 >>
There are certain market conditions that could push prices higher in the short term. First, the eurozone debt crisis is keeping investors tied to the precious metal as a safe haven. Despite a recent improvement in risk appetite and a rush into stocks, the fear that Portugal, Belgium, Spain and Italy will be squeezed out of the debt markets and be unable to finance is still on the table.
The European Central Bank left interest rates unchanged Thursday, which was expected, to keep liquidity in the market, and extended its lending facility through the first quarter of 2011.
President Jean-Claude Trichet gave no specifics on its bond buying program, which has been modest compared to the United States, but he did say policies would remain "accommodative" and "temporary in nature." Speculation circulated that the ECB had been buying Portuguese and Irish bonds, which was propping up the euro.
Trichet also said he expected real gross domestic product growth in the fourth quarter, but that recovery expectations remained dampened due to balance sheet issues of weaker nations.
Any relief in euro tensions, similar to what was seen on Thursday, will push the euro higher and the dollar lower and be good for gold, as the two move inversely to each other. If a debt crisis flares up again and default is floated as an option for some countries, the euro could plummet in value and take gold with it. Safe haven buying, however, should create a floor of support for gold prices.
Gold will also take its cue from the Labor Department's November jobs report Friday. Expectations are for modest growth in the private sector, while the unemployment rate is expected to rise to 9.7%. A better-than-expected number could trigger a rush into stocks and pressure gold while a worse number could prompt another flight to safety as well as profit-taking, as investors might be forced to sell gold to cover losses elsewhere.
settled up 15 cents to $28.57 while copper closed up 3 cents at $3.97.
, a risky but potentially profitable way to
, were soaring.
Goldcorp
(GG)
was up 1.33% to $46.76 while
Freeport McMoRan Copper & Gold
(FCX) - Get Report
was 2.37% higher at $108. Other gold stocks
New Gold
(NGD) - Get Report
and
Gold Fields
(GFI) - Get Report
were trading at $9.74 and $12.44, respectively.
--
Written by Alix Steel in New York.
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