Stock Market Watch

Gold Prices Slip as Dollar Strengthens

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Gold prices slipped in trading today as the U.S. dollar strengthened on worries about the euro zone debt crisis. Technical selling also pushed gold prices lower in trading today. The precious metal is now headed for its second straight weekly decline.

Gold’s technical outlook continues to remain weak as the precious metal has failed to close above $1,700 an ounce this week. Prices are also trading below their100-day moving average, which is a bearish signal.


Frank McGhee, Head Precious Metals Trader at Integrated Brokerage Services, told CNBC that if we do not get substantially higher very quickly, we can see sell off back into the low $1,680s.

In recent weeks, gold has tracked riskier assets such as equities despite the volatility in global markets. However, physical hold held by ETFs rose to a record high this week, which suggests that investors are still seeing gold as a safe haven asset.

Spot gold prices were trading 0.4% lower at $1,687.39 an ounce, at last check. Prices fell to a low of $1,671.59 earlier today. Gold futures for delivery in December were trading $7.20 lower at $1,688.70 an ounce, at last check.

Gold prices fell as the U.S. dollar rose. Gold and dollar have an inverse relationship. The appeal of the dollar has increased due to the debt crisis in the euro zone.

The crisis in the euro zone continued to escalate, with Belgium seeing its credit rating downgraded. Belgium saw its credit rating downgraded one notch by ratings agency Standard & Poor’s. Investors are increasingly worried that the crisis, which until a few weeks ago was restricted to peripheral euro zone economies, is now spreading to core euro zone economies of France and Belgium.

On Thursday, Portugal’s debt rating was also downgraded. Fitch downgraded Portugal’s credit rating to below investment grade. Portugal continues to struggle with high fiscal deficit and public debt. The austerity measures implemented by the country is also hurting growth.

Hungary, a non-euro zone member in the European Union, also saw its credit rating downgraded on Thursday by ratings agency Moody’s. Hungary’s credit rating was downgraded to junk status by Moody’s.

Meanwhile, problems for Italy, euro zone’s third-largest economy, continued today. Earlier today, Italy paid an average yield of 6.5% at an auction of 6-year bonds. This 3 percentage points higher than what the country paid for at an auction held in October. Yields on Italy’s 10-year bonds also rose sharply, crossing the 7% mark again. Mario Monti’s technocratic government, which came into power after Silvio Berlusconi resigned as Prime Minister of Italy, has failed to instill confidence in the market as Italian bond yields have remained at unsustainable levels.

The crisis in euro zone has continued to put pressure on gold prices. However, gold’s losses were restricted in trading today after France and Germany reached an agreement on Thursday to stop arguing over the European Central Bank’s (ECB) role in solving the euro zone debt crisis. France wants ECB make a bigger intervention in the bond market to stem the debt crisis. However, Germany opposes such an idea.

Dennis Gartman, a veteran trader and market commentator, told CNBC that gold’s market fundamentals were still tenuous so long as Germany kept the ECB from buying European sovereign debt.

Reports that central banks bought close to 26 tons of gold last month also restricted losses for the precious metal in trading today. Russia purchased nearly 20-ton of gold last month, according to the IMF. Other countries that bought gold last month included Mexico, Belarus and Colombia.

Apart from central banks, ETFs have also been buying gold, with global holdings of gold by ETFs rising by over 300,000 ounces this week to a record high of 69.978 million ounces. The purchase comes on the back of heavy inflows into ETFs such as SPDR Gold Trust (NYSE: GLD).

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edliston
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.


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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.

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