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Gold Slips on Road to $600

Economic data support an early rally, but overhead resistance remains a tough obstacle.

Updated from 11:24 a.m. EDT

Inflation news sparked a morning gold rally on Wednesday. But the advance quickly gave way to formidable resistance, and bullion closed down slightly for the day.

The Department of Labor announced that its consumer price index fell by 0.5% for September, lower than the 0.3% fall that analysts had been expecting. However, the drop was driven by plummeting fuel costs, which crashed 13.4%. With volatile food and energy stripped out, the core CPI rose 0.2%, in line with expectations and the same as for August.

Separately the Commerce Department reported September housing starts of 1.77 million in September, better than the forecast of 1.65 million. August figures were 1.67 million.

Gold market professionals say the data present something of a sweet spot for bullion buyers, with CPI figures not seen as high enough to worry the

Federal Reserve

into further monetary tightening action, but still indicative of a generally rising price level.

"We are not going to see a big movement in interest rates, but we still have enough economic activity to worry about inflation," says Jim Steel, a precious-metals analyst at HSBC in New York. He also notes that strong buying out of Asia over the past couple of weeks hasn't declined as the price has edged back toward $600 an ounce.

Despite the bullish outlook, the buying pressure wasn't strong enough to force the price through increasingly stubborn resistance as it approached the $600 level. Some are blaming hesitant market players who are too fearful to hold long positions.

"There is some caution on the part of investors and short-term traders who are not convinced that the short-term selling is over," says Jeff Christian, managing director of the specialty New York-based consulting firm CPM Group. "But when it blows through $600, it will move quickly higher."

After reaching an intraday high of $598.80, contracts for December delivery of gold closed off 90 cents at $592.60 an ounce on the Comex division of the New York Mercantile Exchange. The bullion exchange-traded funds,

iShares Comex Gold Trust

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and

streetTracks Gold Shares

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(GLD) - Get SPDR Gold Trust Report

, followed suit, lower by about 0.4%.

In the gold patch, RBC Capital Markets trimmed its price target on

Freeport-McMoRan Copper & Gold

(FCX) - Get Freeport-McMoRan, Inc. (FCX) Report

to $75 from $78, but reiterated its outperform rating. Freeport shares were recently off 3.2%.

In base metals, Comex December copper contracts closed at $3.496 a pound, unchanged on the day.

The copper market logged a slight surplus in the first eight months of the year, according to new data from the London-based World Bureau of Metal Statistics. Refined metal production reached 11.55 million tons, compared with 11.46 million tons of consumption.

Elsewhere, minerals behemoth

Rio Tinto

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announced it would acquire a 19.9% stake in

Ivanhoe Mines

(IVN)

in a two tranche deal valued at $691 million. The transaction will allow the two companies to jointly develop Ivanhoe's Oyu Tolgoi copper-gold project in Mongolia, according to a company statement.

Rio Tinto also holds rights that allow the company to increase its holdings in Ivanhoe to 40% within five years. Shares of Ivanhoe were soaring 33% in afternoon trading, while those of Rio Tinto were rallying 0.7% recently.