Monday, August 13, 2012

Gold Prices Held Hostage by U.S. Dollar

Gold prices pared losses from Thursday but were unable to break out of their trading range as prices were held hostage by the U.S. dollar.

Gold for December delivery rallied $14.50 to close at $1,683 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,685.50 and as low as $1,662.50, while the spot gold price was up $13, according to Kitco's gold index.

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Silver prices settled up 50 cents at $32.17 an ounce. TheU.S. dollar index was down 0.54% at $76.64. Gold took its cue from the dollar and the two-day G20 meeting in Paris. World leaders convened Friday to come up with a decisive solution for the European sovereign debt crisis and Greece's insolvency worries. A definitive plan could boost gold if the metal keeps moving with stocks, as investors have less need to liquidate. But a plan could also prompt a big rush into riskier assets leaving gold, the safe haven, on the sidelines. Gold experts seem somewhat mixed as to gold's next move. Waverly Advisors wrote in a recent note that there could be further downside for prices but only after a sharp spike. "Aggressive shorts will be forced to cover into strength ... [but] we see no justification for increasing long exposure at current levels," Waverly said. Anthony Neglia, president of Tower Trading, which trades gold futures contracts on the Nymex, said gold is "going south hard." Neglia thinks the gold price will target the $1,635 an ounce level. "Gold is a weird animal. When it has nothing to do, it follows everything else." Neglia is noticing that smaller investors want nothing to do with the gold market right now, that the only way to profit in gold is to trade it, which is why prices have been volatile and unpredictable. "Ranges are getting narrower , the volume is half of August and mid-September," he said. Neglia had previously forecasted $2,000 an ounce gold by the end of the year but has pushed out his time line, now saying that it might hit that target in the first half of 2012.

David Banister, chief investment strategist at TheMarketTrendForecast.com, agreed with that time line. Banister thinks gold will keep consolidating for the next seven to eight months and then push higher for a final two- to three-year rally before the bull market totally collapses.

"I think we will see significant currency wars ... and you're going to see countries working to see their currencies devalued faster than the next country. Eventually the gold investors ... will begin to push money back into gold again," he said.

Banister thinks until gold mounts a big rally that prices will trade in a range with $1,725-$1,770 an ounce on the high end and $1,440-$1,450 on the low end. "You cannot correct a 34-month rally in five weeks so investors need to consider that we have multiple months of consolidation," he said. Neglia said he is also watching legendary investor John Paulson who owns 31.5 million shares of the SPDR Gold Shares(GLD). There are rumors Paulson has sold some or all of his shares. He is the No. 1 holder of the GLD and owns a 25% stake. Neglia contends that if Paulson has sold it would cause a panic out of gold. "There is no doubt in my mind that the world is watching what he does ... it will be an enormous sell signal if that is confirmed," Neglia said. 13-F forms won't be made public until November. Gold mining stocks rallied into the close Friday. Kinross Gold(KGC) added 2.82% to $14.58 while Yamana Gold(AUY) rallied 3.48% at $15.18. Other gold stocks, Agnico-Eagle(AEM) and Eldorado Gold(EGO)were trading higher at $59.34 and $17.23, respectively. -- New York.>To follow the writer on Twitter, go to http://twitter.com/adsteel.

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