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Gold Prices Slip on Euro Zone Downgrade Worries

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Gold prices fell sharply in trading as the U.S. dollar surged against the euro following reports which suggested that Standard & Poor’s will downgrade the credit rating of several euro zone economies.

According to French television channels, which cited a government source, S&P downgraded France’s credit rating.


Gold tracked equities and other riskier assets in trading today. Spot gold fell 0.72% to $1,637.90 an ounce. Gold futures for delivery in February on the Comex division of the New York Mercantile Exchange slipped $12.40 to $1,635.60 an ounce.

Gold had fallen sharply in December on worries about the euro zone debt crisis. However, the precious metal has started 2012 on a stronger note even as worries about the debt crisis persist. Despite today’s losses, gold is nearly 5% higher in the first two weeks of 2012.

Anne-Laure Tremblay, analyst at BNP Paribas, told Reuters today that gold tends to be supported by mild to strong risk aversion, however, when risk aversion rises to very high levels, gold tends to be sold off alongside risky assets. Tremblay also said that sovereign issues in the euro zone are clearly not over and we may see further bouts of price correction in the gold market over the coming months.

The euro today dropped more than 1% against the U.S. dollar, hitting a 16-month low as traders bet against the single currency.

Despite the euro zone worries, some analysts believe that the outlook for gold is good this year. Michael Lewis, analyst at Deutsche Bank, told Reuters today that central banks are diversifying, which is a bigger flow story than exchange-traded fund (ETF) buying. Lewis also expects dollar weakness to comeback. He continues to like the gold story because of negative real interest rates.

Gold has received a boost recently by strong demand from China. However, gold buying in China is expected to ease off as the Lunar New Year celebrations get underway.

Earlier today, UBS said in a research note that it would expect that physical interest will have trailed off significantly out of China by the later of next week. UBS said that nonetheless it is important to highlight that the market doest not have the same expectations for Chinese gold imports in the lead-up to the holidays, compared to those seen last year and as the most recent Hong Kong trade statistics to China revealed, the market shipped in very impressive volumes before year-end, which probably suggests that there is not much of shortage of gold internally to meet local demand.

Gold demand also picked up in India after the rupee rose to its highest level in five weeks against the U.S. dollar.

Gold ETFs also fell in trading today. The SPDR Gold Trust (ETF) (NYSE: GLD) ended the day 0.70% lower at $159.26, the Market Vectors ETF Trust (NYSE: GDX) ended the day 1.22% lower at $54.05, and the iShares Gold Trust (ETF) (NYSE: IAU) ended the day 0.68% lower at $15.97.

Silver prices also fell sharply in trading today. At last check, spot silver was down 2.05% to $29.64 an ounce.

The iShares Silver Trust (ETF) (NYSE: SLV) ended the day 1.71% lower at $28.81, the ProShares Ultra Silver (ETF) (NYSE: AGQ) ended the day 3.36% lower at $47.47, and the ProShares UltraShort Silver (ETF) (NYSE: ZSL) ended the day 3.17% higher at $13.65.

Palladium and platinum also fell in trading today. At last check, spot platinum was down 0.37% to $1,485.49 an ounce, while spot palladium was down 0.31% to $634.25 an ounce.

Despite today’s drop, platinum rose sharply for the week.

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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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