Gold Falls for Fifth Day as Dollar Strengthens; Silver Advances
By Pham-Duy Nguyen
Feb. 27 (Bloomberg) — Gold fell, capping the first weekly loss in three, as the dollar strengthened to the highest level since April 2006, eroding the appeal of the precious metal as an alternative investment. Silver advanced.
The U.S. Dollar Index rose against the currencies of six major trading partners on demand for a haven after the U.S. bailed out Citigroup Inc. for a third time, stoking concerns that the credit crisis and the recession may deepen. U.S. stocks fell for a third straight day and the Reuters/Jefferies CRB Index of 19 commodities dropped as much as 1.9 percent.
“The demand for dollars has outweighed the demand for gold in terms of safe-haven flows,” said Ralph Preston, a commodity analyst at Heritage West Futures Inc. in San Diego. “Gold is turning into a currency and competing with the dollar. It’s the battle of the safe havens.”
Gold futures for April delivery fell 10 cents to $942.50 an ounce on the Comex division of the New York Mercantile Exchange. That left the metal down 6 percent for the week, the first decline since Feb. 6 and the biggest since Dec. 5.
Gold and the dollar generally move in the opposite direction. The correlation hasn’t held this year as demand for both the U.S. currency and gold have risen because of the financial crisis. The dollar index has gained 1.7 percent this week.
“The gold price will remain supported into the second quarter as fears towards world growth persist,” analysts at Deutsche Bank AG said today in a report. “However, we remain concerned that the gold price rally is based on shaky foundations as it has not been accompanied by a weakening of the U.S. dollar.”
Gold-Dollar Moves
Gold and the dollar last moved in tandem in 2008, when the Dollar Index gained 6 percent and gold rose 5.5 percent. Before last year, gold gained 18 percent in 2005 and the Dollar Index rose 13 percent.
Still, gold may be a better bet than the dollar as U.S. government spending and corporate bailouts eventually spark inflation and erode purchasing power, some analysts say.
The U.S. government has pledged more than $9.7 trillion to helping ease the recession and credit crisis. Investment in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, reached a record 1,029.3 metric tons yesterday.
“The safe-haven trade is the major reason people are buying gold now,” said James Turk, founder of GoldMoney.com, which has $608 million of gold and silver in storage for investors as of today. “Within six months or so people will be buying gold for another reason — to protect themselves against inflation.”
Silver Outlook
Silver may rise as a cheaper alternative to gold, analysts have said. Before today, the metal had lost 31 percent in the past year while gold had declined 0.7 percent.
Gold reached $1,007.70 on Feb. 20, the highest price for a most-active contract since March 18. Gold touched a record $1,033.90 on March 17.
Silver futures for May delivery rose 13.5 cents, or 1 percent, to $13.11 an ounce in New York. The most-active contract fell 9.5 percent for the week, the first decline since Jan. 16.
Platinum futures for April delivery rose $32.20, or 3.2 percent, to $1,085.30 an ounce on Nymex. The most-active contract fell 0.9 percent for the week, the first drop since Jan. 16.
Palladium futures for June delivery fell $2.45, or 1.2 percent, to $195.70 an ounce.
Source: http://www.bloomberg.com/apps/news?pid=email_en&refer=&sid=aIyIUD2GhIOQ
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Dunno about you but my holdings have had 6 straight weeks of gains and as long as I have tracked weekly averages as in years, I have never seen that happen other than once before when it did 6 straight weeks in adjusted local currency. But as for 7, never…and I mean never in years of doing this. A correction was overdue and healthy. The only question is how deep and my guess as many experts alike, is probably not going to be very deep.
There are contrarians out there that are expert in DOW theory that have projected a mass drop still needed to do the final flush out in precious metals. They talk about the 9 year cycle and marvel that gold/ silevr have held up so well. They care nothing for fundamentals but purely chart orientated. To be fair to them they predicted a fairly substantial drop last year and they were right but even as we watch this massive money printing right now, acknowledge that to trust on a big drop in metals amidst events as such today is potentially risky.
And at the other extreme we have people crying death to the US dollar yet it seems to have held up very well and by some of the best guys I follow its considered the best looking beauty in a leper colony and who knows, all of 2009 could well be a year in which shorting the US dollar could be a very dumb move so to watch as we have lately – the US dollar climb on its index and gold and silver climb as well, to me surely demonstrates the monetary characteristics of all currencies being suspect.
Final thought, that comment in the article
Investment in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, reached a record 1,029.3 metric tons yesterday.
Where are they getting the gold from in such a tight market… hmmm!, I believe the suggestion they are using derivatives (colloquial for futures contracts and similar) to hedge positions just to show on there books they have what they say…makes the ETF’s highly suspect and should global financial melt occur, look out.
Duncan Cameron
Affiliate
The Anglo Far East Company
