SAN FRANCISCO (Market Watch) — Gold futures finished
higher Friday to score a gain of 3.2% for the week, as lingering concerns over
the potential for U.S. and euro-zone debt defaults helped prices tally a
nine-session gain of nearly $108 an ounce.
Gold for August delivery rose 80 cents to close at $1,590.10 an ounce on the Comex division of the New York Mercantile Exchange. Prices, which have climbed $107.50 since they closed at $1,482.60 on July 1, marked a fresh record settlement price.
Gold has hit a string of record high levels this week, as the possibility of more stimulus
being pumped into the U.S. economy and global debt worries supported buying.
Prices, however, remain well below the previous record high for gold in real terms of
around $2,400 on Jan. 18, 1980, according according to a research note from Capital Economics.
“All of the underlying factors are simply continuing to work in favor of gold,” said Brien Lundin, editor of Gold Newsletter. “It’s enjoying the status as an asset of choice in either a ‘risk on’ or ‘risk off’ environment.”
Results of the European bank stress tests did little to sway gold prices in either direction. After the European markets closed Friday, the European Banking Authority said eight banks failed its stress tests, with a combined capital shortfall of 2.5 billion Euros ($3.5 billion). A further 16 banks narrowly passed the tests.
“As to bank stress tests, it’s the fox rendering opinions on other foxes,” said Steven Evanson, chief executive officer at Evanson Asset Management. “The elephant in the room is the CDS [credit default swap] exposure banks carry and other non-transparent balance-sheet delights.”
Still, “the dollar is essentially flat today, with the stress tests results removing some of the greenback’s appeal as a safe haven for the moment,” according to Lundin.
Gold tends to trade inversely with the U.S. dollar. The dollar was last at
75.122 versus 75.245 late Thursday.
U.S. debt watch
The fall-out from a temporary default by the U.S. government has less serious implications than the euro-zone sovereign-debt crisis, although it would “probably see gold prices spike higher too,” analysts at Capital Economics said.
Late Thursday, new urgency was injected into the ongoing U.S. debt negotiations, when S&P said it put U.S. sovereign ratings on formal credit watch.
The warning came one day after Moody’s Investors Service put the U.S. government’s AAA bond rating on review for possible downgrade because it fears “a small but rising risk” of a short-lived default.
From a market perspective, there are several things hold the precious metals in check right now, not the least of which is the U.S. debt discussion in Congress — that coupled with profit taking, after a $100 streak up since July 1,” said Steve Gillette, president of Cirrus Commodities Exchange.
The U.S. debt ceiling crisis discussions “have begun to crystallize the thinking about what
people have been told with respect to precious metals as an asset class and money alternative,” said Gillette.
The broader metals complex diverged Friday, with silver and copper higher, but platinum and palladium losing ground.
Myra Saefong – Market Watch – July 15, 2011