NEW YORK (TheStreet ) — Gold prices were stalling out Wednesday despite a hot inflation reading in the U.S. as investors opted for stocks and took profits in gold.
Gold for December delivery was up $3.10 to $1,788.10 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,797.60 and as low as $1,783.60 while the spot gold price was down $1.80, according to Kitco’s gold index. Silver prices were up 35 cents to $40.17 an ounce while the U.S. dollar index was down 0.57% at $73.58.
Gold prices were losing steam Wednesday after almost breaking above $1,800 in overnight trading. The U.S. said producer prices rose 7.2% year-over-year in July while core prices, excluding food and energy, rose 2.5%. The hot inflation reading ahead of the consumer price index Thursday should have provided a boost to gold, but investors seemed more interested in stocks and profit taking.
George Gero, senior vice president at RBC Capital Markets, says there is “less buying interest for gold due to high margins [and a] steadier dollar.” Gero does note that silver prices are catching up. Silver has lagged gold as it is half a safe haven metal and half an industrial metal which could suffer from a worldwide slowdown.
Will Rhind, head of US Operations for ETF Securities, says that there have been more inflows this week into ETFS Physical Platinum Shares(PPLT_) and ETFS Physical Silver Shares(SIVR_). “Perhaps this means that some of our clients are now looking at a prospect of a recovery and are looking at the white metals instead of gold.”
Anthony Neglia, president of Tower Trading, who trades both gold and silver says that if gold can hold above $1,800 for a week, then investors might start looking to silver. “I think silver will trade in sympathy with gold if gold catches a bid up above $1,800 just for the safe haven purposes.” Neglia doesn’t think industrial demand will be a catalyst to get silver over the pivotal $40 an ounce level, where he is short below and long above.
Although gold is making moves towards the $1,800 level, strong physical buying might be a game changer. The middle of August through the end of December is historically a strong buying period for gold as a series of festivals in India trigger jewelry purchases. On average, over the past 11 years, gold has risen 11% during that time frame, which would bring current prices to $1,989 an ounce.
The wild card this time around is high prices. Will consumers pay up for gold or buy less, opt for scrap or move into silver as a cheaper alternative? “That’s difficult to predict at this stage but going back to the basic principle of what’s driving gold at the moment [and] its primarily the investor buyers out of Europe, the U.S. and Asia looking … to protect themselves against paper currencies.” Historically gold jewelry buyers from price sensitive countries like India wait for a dip in gold to buy until they get comfortable with higher prices.
Gold mining stocks closed lower Tuesday. Barrick Gold(ABX_) was down 1% at $50.17 while Newmont Mining was losing 0.50% at $58.72. Other gold stocks, Goldcorp(GG_) and AngloGold Ashanti(AU_)closed lower at $50.68 and $45.44, respectively.
Alix Steel-The Street August 17, 2011