Gold closes up as traders mull safe-haven appeal

Gold finished higher on Tuesday as investors went to the precious metal as a safe haven appeal. Gold has been choppy in recent trading due to a stronger dollar and upbeat economic data along with the continuing financial crisis within the euro zone.

Nov. 15, 2011, 2:49 p.m. EST
By Myra P. Saefong
Market Watch

SAN FRANCISCO (MarketWatch) — Gold futures finished higher Tuesday after spending the session wavering between gains and losses, as traders mulled the metal’s safe-haven appeal against a backdrop of pressure from a stronger U.S. dollar and upbeat economic data, and support from growing euro-zone concerns.

For gold, the trading environment is filled with ingredients that make “quite a soup, and one has to watch the various ingredients all the time,” said Steve Gillette, president of Cirrus Commodities Exchange.

For now, “gold support comes from the general safe-haven notion, but waiting for the euro shoe to drop,” he said.

Gold for December delivery GC1Z +0.20% rose $3.80, or 0.2%, to settle at $1,782.20 an ounce on the Comex division of the New York Mercantile Exchange. It touched a high of $1,787.80 and a low of $1,707.20 during the session.

But prices failed to recoup their losses from Monday, when they fell $9.70, or 0.5%.

“Gold is choppy within the recent range as heightened [European Union] contagion risks have bolstered the dollar somewhat,” said Peter Grant, senior metals analyst at USAGold-Centennial Precious Metals Inc.

“Yields have ratcheted uncomfortably higher in both the periphery and in some of the core-European countries,” he said. And “any sense of relief, associated with the recent changes in the governments of Greece and Italy, has quickly dissipated.”

In the euro zone, third-quarter gross domestic product across the region expanded by 0.2% compared with the second quarter and grew 1.4% versus the third quarter of 2010, the European Union’s statistics agency reported earlier Tuesday.

But economists still fear the region’s long-running debt crisis could soon spell a return to recession.

And on Tuesday, the euro weakened, helping to boost the U.S. dollar.

The dollar index DXY +0.53% , which tracks the U.S. unit against a basket of six major currencies, stood at 77.868, up from 77.532 late Monday. Strength in the dollar makes gold and other commodities more expensive for holders of other currencies.

“If there is a disaster in the Italian bond market, the first reaction will be to [move toward] the U.S. dollar and away from gold, but then out of the U.S. dollar into gold,” said Gillette. “If the Italian bond market just continues to slowly deteriorate, then gold will be the first safe-haven choice.”

Prospective actions

For now, currency markets have been generally reflecting the dire euro-zone situation.

“Gold seems to be giving us good transparency through the euro-yen into the true story about the euro zone — which remains quite poor,” said Richard Hastings, a macro strategist at Global Hunter Securities. At last check, the euro EURJPY -0.77% traded around 0.7% lower versus the Japanese yen.

Weakness in the euro against the yen implies that the trouble in the euro zone is not over, “and this is why equities this week are wobbly despite generally good macro data points from the U.S.,” he said. The Dow Jones Industrial Average DJIA +0.14% was up 0.5% at 2 p.m. Eastern.

Meanwhile, U.S. economic data reported Tuesday came in generally better than expected, dulling some investor interest in gold.

The Empire State manufacturing index moved into positive territory, albeit slightly, in November after five months in negative territory, the Federal Reserve Bank of New York said.

Retail sales rose sharply for the second straight month, according to the Commerce Department.

And producer prices for October dropped by the largest amount in 20 months on the heels of a big drop in gasoline and a decline in vehicle prices.

Big investors make moves

Billionaire hedge-fund manager John Paulson’s reported securities holdings shrunk in value by nearly one-third during the last quarter and the closely watched investor cut holdings in the SPDR Gold Trust GLD +0.09% by 36% to 20.3 million shares.

In contrast, billionaire investor George Soros added a call option for 145,000 shares in the SPDR Gold Trust valued at $22.9 million in the third quarter, and he disclosed owning put options on 120,000 shares of the fund worth $19 million.

“Some of the most powerful U.S. funds have shifted their allocations in gold, but drawing conclusions from it remains as difficult as ever,” said Ross Norman, chief executive at London-based bullion broker Sharps Pixley, in note Tuesday.

But if Soros and Comex speculators, who have recently been rebuilding long positions, “are coming back into bullion, then it may only be a question of time before Paulson reverses his recent decision,” said Norman. Silver, copper, platinum

Other metals finished mostly higher, but platinum remained lower on the heels of an industry report that forecast a supply surplus for the metal this year.

Silver for December delivery SI1Z +1.55% closed up 43 cents, or 1.3%, at $34.46 an ounce after trading as high as $34.84. December copper HG1Z +0.23% added 1 cent, or 0.4%, to $3.50 a pound. Copper for March delivery HG2H +0.20% , the contract with the most open interest, ended at $3.52 a pound, up 1 cent.

January platinum PL2F -0.07% lost $1.40, or 0.9%, to $1,642.70, while December palladium PA1Z +0.37% climbed $2.75, or 0.4%, to $667.05 an ounce.

Global demand for platinum may climb close to pre-recession levels for 2011, but the metal’s still expected to end the year with a supply surplus, according to a report from Johnson Matthey published Tuesday.

The palladium market is also poised to be in surplus for the year, though it may be headed for a deficit in 2012.

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