Gold Prices Lose Out to Riskier Assets - TheStreet

Gold Prices Lose Out to Riskier Assets

Gold prices closed lower Monday as investor sentiment improved, and traders sold gold for riskier assets.
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Gold prices

were slipping Monday as investor risk appetite returned and traders sold gold for riskier assets.

Gold for August delivery was slipping $10.10 to $1,221.10 an ounce at the Comex division of the New York Mercantile Exchange. The gold price Monday has traded as high as $1,235.90 and as low as $1,217.50. The

U.S. dollar index

was falling more than 1% to $86.28 while the euro rallied 1.39% to $1.22 against the dollar. The gold spot price Monday was losing more than $8, according to Kitco's gold index.

With no bad news coming out of the European Union over the weekend, investors' risk appetite improved, and traders tentatively sold gold for stocks.

Global stock markets were posting modest gains

encouraged by the U.S. late-day rally on Friday.

More on Commodities Like Gold? Buy Rhodium

Gold prices were bracing for more volatility ahead as they continue to take their cue from the risk trade. In the short term, a

weaker U.S. dollar

could boost demand for gold as the dollar-backed commodity becomes cheaper to buy in other currencies, and any pullback to the $1,220 level could entice bargain-hunters looking to buy gold at a "discount."

Waiting in the wings for gold is sovereign debt risk from Spain. Although Spain denied rumors last week that it would be the next EU nation to request bailout funds, the country's yields are on the rise. Bond yields rise when the government must sweeten the pot for investors to lend a particular country money.

Currently, the yield on Spain's 10-year bond is 4.59% while Portugal's is 5.33%. These levels are a far cry from Greece's double-digit yield at the height of its financial crisis, but investors are still worried. Any bad news out of the eurozone would trigger a flight to safety into gold as investors buy the metal as a form of money that retains value when paper currencies flail.

Gold bulls hope that prices can conquer their record high last week of $1,254 an ounce. But gold set that record intraday and settled under $1,250 leaving many analysts wondering if this bullish momentum can really be trusted.


Gold hit that high and then sold off pretty sharply and came back down underneath it," says David Morgan, founder of

. "

The market showed me there that it wasn't very sure. There was some quick blip to the high you might say and then it came back down ... I think

gold could break to the downside."

The New York Times

reported today that Afghanistan might have almost $1 trillion in undeveloped mineral resources including gold, iron ore, copper and lithium. It would take the mining industry several years to produce the metals but could attract resource hungry countries like China as well as large mining companies looking to expand their resource base.

The above-ground gold supply has been shrinking since 1999, while gold prices have quadrupled. The above-ground stock of gold grows by about 2,400 tons a year, or 1.7%, which is added to the total supply of 160,000 tons. This deteriorating supply and increasing investment demand have been a fundamental support for higher gold prices. If global gold production increases substaintially in Afghan mines, one worry is that gold prices could suffer.

Most gold analysts seem unfazed, however. J.C. Doody, editor of, doesn't think any minerals will be recovered any time soon and a lack of legal clarity will make things even more difficult. "The ocean has trillions

of dollars in dissolved gold and other minerals ... no economic way to recover

it yet."

Silver prices

were rising 18 cents to $18.41 while copper was rallying 9 cents to $3.

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Gold mining stocks, a more risky and more profitable way to

invest in gold

, were mixed.

AngloGold Ashanti

(AU) - Get Report

was rising 1.23% to $42.80 while

Yamana Gold

(AUY) - Get Report

was falling more than 2% at $10.34. Other large miners

Agnico Eagle

(AEM) - Get Report


Randgold Resources

(GOLD) - Get Report

were trading at $59.64 and $90.03.


Written by Alix Steel in New York


Alix joined TV in February 2007. Previously, she held positions in film and theater production, management, and legal administration. Alix has a degree in communications and theater from Northwestern University.