Gold Prices Edge Lower

Gold prices slipped for the second successive day on Tuesday after firmer dollar and growing fears on whether the lawmakers in Washington succeed in reaching a deal which would avert ‘fiscal cliff’ capped gains despite of progress being made by international lenders concerning the Greek debt crisis.

U.S. gold futures for December delivery slipped $7.30 an ounce or 0.4% to settle at $1,742.30 and spot gold also edged down 0.4% to close at $1,741.86 an ounce.

The SPDR Gold Trust (ETF) (NYSE: GLD) ended the day 0.42% lower at $168.71.

A data provided by Reuters showed that the trading volume was more than 50 percent above the 250-day average mainly due to a combination of expiration of most active options on Tuesday and contract rollover ahead of first-notice day Friday.

Earlier on Tuesday, market participants took a sigh of relief after both the International Monetary Fund (IMF) and euro zone leaders agreed to release $57 billion to shore up Greece’s financing needs, in return Greece is required to cut its debt level in accordance with lenders’ requirements. The next tranche of funding is likely to be released in second week of December.

Nevertheless, the euro continued to remain weak against the greenback. Even though the euro, climbed as high as $1.3007 against the U.S. dollar, following the euro zone leaders and the IMF deal, it gradually retreated and traded last at 1.2928.  According to analysts the overall economic environment is still wobbly in the euro zone and that is the reason why investors prefer to seek safety in greenback.

“There is a lot of apathy towards the Europe situation right now,” commented one Hong Kong-based trader while speaking to Thomson Reuters on Tuesday.

“There are a lot of ifs and maybes in the statement put out by the eurogroup, And in the end, we got a bit of everything, though much of it is on a conditional basis.  So, the market seems unconvinced by the Greek deal,” wrote,  Ben Traynor, chief economist at BullionVault in a note to investors.

Meanwhile, the ICE dollar Index, a gauge on U.S. unit’s performance vis-à-vis a basket of six major currencies, rose to 80.411 on Tuesday from 80.227 in late North American trade on Monday. Strength in the U.S. dollar curtails the demand for dollar priced commodities since holders of other currencies find them more expensive to buy.

However open interest, a measure on total long and short positions on gold futures remained near 2012 high after Friday’s sharp gains, suggesting that investors are still bullish on gold. The metal rallied almost 1.5% and touched its one month high on Friday.  According to Reuters, analysts expect that bullish positions held now could help extending the rally.

In a research note, HSBC’s metal analyst, James Steel wrote, “We believe gold and silver prices will tend towards consolidation, as investors await further developments on the U.S. fiscal cliff negotiations.”

However, metal’s prices could come under pressure if series of spending cuts and tax increases are set off by the U.S. government—in case lawmakers fail to reach a consensus on how to trim down nation’s fiscal deficit before the Christmas. Economists fear that if the ‘fiscal cliff’ is set off then the U.S. economy could plunge into recession which in turn will hurt gold’s inflation-hedge appeal.

On Tuesday, the Organization of Economic Cooperation and Economic Development urged the lawmakers in Washington to find a middle path during congressional negotiations which could help avert the ‘fiscal cliff’.   The OECD urged both sides for a “smooth” implementation for tax increases, spending cuts and higher debt ceiling in the near to midterm even as it warned that massive spending cuts in an event of failure to reach a consensus would not only drag the U.S. economy into recession but also badly impact the global economy.

In some other precious metal markets, silver fell 0.4% to close at $33.98 an ounce. In platinum group metals, platinum ended almost flat at $1,608.74 an ounce while palladium edged up 0.7% to close at $665.25 an ounce.

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Post Written By: Ed Liston Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing in his yacht.