NEW YORK (
rallied into the close Friday on safe haven buying after Eurozone debt worries resurfaced and dragged stocks lower.
Gold for December delivery settled up $2 to close at $1,859.50 an ounce at the Comex division of the New York Mercantile Exchange. The
has traded as high as $1,889.10 and as low as $1,825.50 while the spot gold price was losing $11, according to Kitco's gold index.
lost 90 cents to settle at at $41.62 an ounce while the
was adding 1.04% at $77.04.
Gold prices had a wild day Friday, starting off in the red after President Obama's jobs speech triggered profit taking, but then rallied into the close after a German European Central Bank board member resigned.
Juergen Stark, Germany's representative on the board, reportedly resigned for personal reasons but rumors bounced around that he was unhappy over the ECB's bond buying program, where it buys bonds of struggling Eurozone nations to help keep the country afloat and interest payments manageable.
If Germany stops committing funds to help prop up Greece, then there is no other country strong enough to hold the EU together. Rumors were flying of a possible Greece default over the weekend, that current bondholders would be forced to take a haircut, which could lead other countries to give money to their own banks and divert it away from Greece.
There are also still issues surrounding its next bailout chunk, as the country will not meet its 2011 budget deficit reductions and IMF, EU, and ECB officials in charge of inspecting Greece's finances to green light the cash are still working on it.
Based on a steep triple digit loss in the
Dow Jones Industrial Average
as well as the economic uncertainty, many would have expected gold to be soaring.
Ross Norman, chief executive officer of Sharps Pixley, says gold is a "confused market at the moment." Norman says that gold prices aren't really making sense right now. With the absence of the Swiss franc as a safe haven -- the central bank intervened to peg its exchange rate to the euro earlier this week -- and lollygagging from central banks on whether to pump more money into system, gold should be higher. It seemed like the U.S. dollar was the bigger winner Friday with some traders saying they were short covering -- buying back shares after previously betting on lower prices.
In the U.S., President Obama's jobs speech was a 50/50 for gold. On the one hand, calling for $447 billion in spending and tax credits/cuts should boost gold as investors worry about the cost of the plan and resulting inflation.
On the flip side, the fact that the president addressed the jobs problem, made a decisive move towards jump starting growth, gave investors less reason to own gold in early trading. "Mr. Obama has addressed what the markets have wanted to see," says Norman. "The message from gold is that Obama has done the right thing."
"Investors seem to wait for dust to settle after most price setbacks and resume buying as bargain hunters await opportunities," notes George Gero, senior vice president at RBC Capital Markets.
The end result for gold is volatility dominated by headlines. "It's really spooking the retail investors," says Jon Nadler, senior analyst for Kitco.com. "The retail crowd is a trend-following flock," meaning that they buy and sell on headlines rather than fundamentals.
Nadler also says that if the volatility continues, the Chicago Mercantile Exchange could hike margin requirements, that is raise the amount of money needed to buy gold contracts something which can shake out skittish investors, but that it "would take a series of hikes in order to really frustrate
traders into exiting" the gold market.
The CME raised margins twice in August by 22% and 27%, respectively, but they have done little to stem gold's volatility. It now costs $9,450 to buy an 100 ounce futures contract and $7,000 to maintain it. The CME waited for a $100 drop in one day to intervene.
Further adding to the confusion in the gold price was the news that inflation in China fell to 6.2% in August, below its 6.5% reading in July. The number is still high which can be good for gold as investors want gold as a safety net. But the number also shows that prices are coming down leaving the Central Bank with two options: to keep raising interest rates in the effort to drain money out of the system but risk crimping growth or to stop monetary tightening.
Jing Ulrich, managing director and chairman of global markets at
China, wrote in a note earlier this week that "there is little chance that the central bank will increase the interest rate or the deposit reserve ratio in the next few months," meaning the tightening cycle might be over.
Interest rates are 3.5%, which means that real interest rates are still a negative 2.7%. If rates stay as such gold still makes a good investment versus the yuan which is work 2.7% less.
were lower Friday.
was down 0.83% to $18.03 while
was sinking 2% at $17.04. Other gold stocks,
were trading down at $70.66 and $21.63, respectively.
Written by Alix Steel in
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