Stock Market Watch

Gold Prices Slip on Euro Zone Downgrade Risk

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Gold prices slipped for a second straight day today as investors reacted to the downgrade warning from rating agency Standard & Poor’s.

Late Monday, S&P warned that it may downgrade the credit rating of euro zone countries, including triple-A rated Germany and France, if European policymakers do not come up with a concrete plan to contain the debt crisis at this week’s European Union summit in Brussels.


The announcement from S&P came shortly after the French President Nicolas Sarkozy and the German Chancellor Angela Merkel called for a tighter fiscal union among euro zone countries. If euro zone countries do not agree to the plans outlined by Sarkozy and Merkel at this week’s summit, the S&P is likely to cut the credit rating of entire euro zone. Triple-A rated countries such Germany, Finland, Netherlands and Austria are likely to seek their credit rating downgraded by one notch, while France may see its credit rating downgraded by two notches.  S&P said that it will review the credit ratings of euro zone countries after the summit on Friday.

Although the move from S&P has been criticized by leaders of France and Germany, analysts say that the fear of a downgrade could push European policymakers to strike a deal at the summit. However, analysts also caution that if the summit falls short of expectations, it could lead to a harsh market reaction.

Georgette Boele, Global Head of FX and Commodity Strategy at ABN Amro, told CNBC that investors could begin to close out positions ahead of the year end if they are disappointed about the summit this week.

Investors are also keeping an eye on the European Central Bank (ECB) meeting, which will take place a day before the start of the summit in Brussels. The ECB is likely to cut interest rates in the euro zone to 1% or lower. A rate cut could boost gold as monetary policy easing raises inflation outlook.

In a research note, analysts at Credit Suisse today said that $1,750 is a tough resistance to break and the market is in need of strong fundamental impetus to break above this mark. Credit Suisse analysts believe that Thursday’s ECB meeting could provide such an impetus.

Spot gold prices fell 0.1% to $1,723.49 an ounce today, following Monday’s sharp decline. Gold futures for delivery in February on the Comex division of the New York Mercantile Exchange fell $2.70 to settle at $1,731.80 an ounce.

Gold prices also came under pressure from technical selling today. Carlos Perez-Santalla, Precious Metals broker at PVM Futures Inc., told CNBC today that technically the longer0term charts have been favoring the bears and consolidation looks to be the mode with last week’s range of $1,700-$1,760 as the boundaries.

Meanwhile, the SPDR Gold Trust (ETF) (NYSE: GLD) ended the day 0.51% higher at $168.18, the Market Vectors ETF Trust (NYSE: GDX) ended the day 2% higher at $59.02, and the iShares Gold Trust (ETF) (NYSE: IAU) ended the day 0.54% higher at $16.87.

Silver prices rose sharply in trading today. At last check, spot silver prices were up 1.5% to $32.53 an ounce. The iShares Silver Trust (ETF) (NYSE: SLV) ended the day 2.83% higher at $31.93, the ProShares Ultra Silver (ETF) (NYSE: AGQ) ended the day 5.82% higher at $60.22, and the ProShares UltraShort Silver (ETF) (NYSE: ZSL) ended the day 5.71% lower at $12.05.

Palladium jumped 5.71% to $666.25 an ounce today, after touching a three-week high. Palladium prices were boosted by short-covering following Monday’s losses. Platinum, meanwhile, dropped 0.2% to $1,519.99 an ounce in trading today.

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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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