Gold and silver prices gave back nearly all of their prior
day's rally and the dollar and yen slid further Friday after
China reported inflation accelerated in December.
Rising inflation reduces the certainty of more economic
stimulus, which traders see as a catalyst for driving precious
metals prices higher.
Spot gold prices lopped off 0.88% intraday to $1,661 an ounce,
giving back the prior session's gains.
SPDR Gold Shares (
), tracking a 10th of an ounce of bullion, tumbled 0.79% to
Market Vectors Gold Miners ETF (
) shed 0.07% to 45.38.
"Gold and silver appear to be falling with materials
generally, trading more like commodities than precious metals, on
negative global economic news," Tom Winmill, manager of Midas
Fund , said in an email.
Gold broke below key support at the 200-day moving average,
falling back into a downtrend. The yellow metal is now trading
below both the short-term 50-day moving average as well as the
long-term 200-day line, which is very bearish. What's more, the
yellow metal broke below a major, long-term uptrend line
connecting the 2008 and 2012 lows, which some technical traders
use as a sell signal. The next levels of price support are the
lows from Jan. 4 and Dec. 20 near 158 on GLD and $1,580 an ounce
"But China has begun and is likely to keep stimulating again,
and that should be positive for gold," Harry Dent, founder of HS
Dent, a stock market and economic research firm in Tampa, Fla.,
said in an email. "U.S. growth is going to slow in the first
quarter and that gives more incentive for China and Europe to
Traders are slamming gold and silver to shake out the weak
hands to create an opportunity to buy back at lower prices, says
Dent. He believes traders should buy the dip on the expectation
that prices will run up to new highs before topping in late
February or May.
Consumer prices in the People's Republic climbed to 2.5% (year
over year) in December from 2% the prior month, marking the
fastest rate in more than six months. If inflation is rising in
China, it's less likely to print more money to juice the economy,
which dampens demand for hard assets.
The gold bulls contend negative real interest rates in the
U.S. and other countries makes gold appealing because the
opportunity cost of holding precious metals relative to cash is
Gold will rise to a new high this year because of the
"continuation of negative real interest rates and heightened
concerns over the direction of monetary and fiscal affairs in all
western democracies," John Hathaway, portfolio manager of
Tocqueville Gold Fund , wrote in a quarterly letter to clients
Friday. "Such concerns will be exacerbated by the continuation of
extremely weak economic activity in 2013 and quite possibly the
resumption of a recession, anticipated by few.
"Most investors seem to expect a gradual acceleration of
economic growth in 2013," he wrote. "We disagree and believe that
the recent tax hike, one of the largest in history, will dampen
economic activity sufficiently to widen the deficit and require
the extension of debt monetization by the Fed for years to
Hathaway concluded: "Investor sentiment on gold is extremely
negative, comparable to the levels of mid-May 2012, when gold was
trading approximately $100 an ounce below current levels.
Historically, extreme negative sentiment levels such as these
have provided excellent entry points for new positions in bullion
and the mining shares."
Gold should find price support at $1,660 an ounce and
resistance at $1,700 in the week ahead, Walter de Wet, an analyst
at Standard Bank, wrote in a commodities report Friday. "If gold
manages to break through $1,700, we would target $1,720," he
Silver prices slipped 1.46% to 30.51.
IShares Silver Trust (
) dropped 1.28% to 29.40.
Silver Miners ETF (
) fell 0.18% to 22.38.
The white metals also broke below its 200-day line after
barely recovering it the prior session, confirming a downtrend.
It also fell below a multiyear uptrend line connecting its 2008
and 2012 lows, which is very bearish.
Yen and U.S. Dollar Dive
PowerShares DB U.S.
Dollar Index Bullish (
), measuring the greenback against a basket of major foreign
currencies, lost 0.39% to 21.72.
CurrencyShares Japanese Yen Trust (FXY), tracking the yen
against the dollar, skidded 0.94% to 110.94, a 2-1/2-year low
after Japan's cabinet approved the island nation's fiscal
CurrencyShares Euro Trust (FXE) added 0.65% to 132.35, a
10-month high. It extended a rally that started Thursday after
European Central Bank President Mario Draghi announced the ECB's
decision to keep interest rates unchanged. In addition, a
surprise increase in China's exports sapped demand for safe-haven
currencies and fueled support for risk assets, according to
Christopher Almeida, an analyst at
Midas' Winmill sees more dollar weakness against the Euro. "We
believe the U.S. dollar is weaker today to the euro following
changing perceptions toward reduced eurozone risks, and we
believe this trend will continue through the first quarter of
2013," Winmill of Midas Fund wrote.
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