The European sovereign debt crisis, which seems far from a resolution despite leaders preparing for the G-20 meeting this weekend, is a mixed bag for gold. Worries could prompt safe haven buying but also could prompt liquidation as investors remain tentative and are quick to liquidate any asset that has outperformed. Gold will also remain a slave to the U.S. dollar as the inverse correlation continues. The U.S. dollar is rallying slightly Thursday after hitting a three-week low, which was pressuring gold. If the European Central Bank is forced to pump more money into the system as a backstop to recapitalize European banks, then the euro might sink pushing the dollar higher and consequently gold lower. On the flip side, more stimulus is inflationary as prices in the Eurozone already rose 2.5% in September and could trigger safe-haven buying as investors look for an alternative to paper currencies. "We've already seen the Bank of England release another round of quantitative easing," says Will Rhind, head of U.S. operations for ETF Securities, "and the liabilities are such in Europe that one would expect any kind of bailout package or rescue package to involve more stimulus from the Central Bank and others." Rhind thinks that gold prices will head higher towards the end of the year, but without a catalyst it's hard for gold to shake itself out of its current trading range. "Gold is caught in a little bit of a hybrid push and pull," says Rhind. With the number of people filing for jobless claims falling only 1,000 last week and the week before revised up to 405,000, a lackluster macro environment will keep spilling over onto the gold market. Phil Streible, senior market strategist at MFGlobal, is prepping for a correction in the gold prices as stocks flounder. "
Alix Steel in New York. >To contact the writer of this article, click here: Alix Steel.