Dollar’s Rise Sends Gold Dipping but ETFs Holding Up

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on Oct 9, 2012

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Dollar’s Rise Sends Gold Dipping but ETFs Holding Up

Precious metals remained in negative territory in a thin trade on Monday (8 October 2012) with the US dollar strengthening and weighing on the bullion.

Last week, data showed the US economy generated more jobs than expected, while the jobless rate fell by a surprisingly large margin, which ignited optimism over the outlook for growth. The pickup in the labour market translated into strength in the dollar against a basket of currencies on Monday. The deepening crisis in Spain and Greece also contributed to the rise of the dollar with the greenback’s safe haven allure attracting investors during economic distress. The dollar index (XAY) rose as much as 0.5 per cent to 79.711 on Monday morning before stabilising near 79.60 later in the day. A stronger dollar is a negative force for commodities like gold, as it makes them more expensive for holders of other currencies, and as a result the yellow metal traded lower during its Monday session.

!m[Precious Metals in Negative Territory with Dollar Strength Weighing on Gold ](/uploads/story/545/thumbs/pic1_inline.png)The most actively traded gold contract, for December delivery, closed down $5.10, or 0.3 per cent, to $1,775.70 per ounce at the Comex division of the New York Mercantile Exchange. The gold price traded between $1,782.50 and $1,768.20 per ounce, while the spot price fell $7.30, according to Kitco’s gold index. And while momentum in gold buying has slowed, longer-term demand, reflected by continued inflow of gold into exchange-traded products (ETPs), remains healthy. Holdings of gold in ETFs touched a new record of 74.725 million ounces by Friday’s close. So far in 2012, holdings have risen by a net 5.7 million ounces, 4.5 million of which have flowed in over the past two months alone.

Amongst other precious metals’ performance on Monday, palladium was down 0.5 per cent to $653.47 per ounce, while platinum fared worse – down 0.9 per cent at $1,689 per ounce – even with production paralysed across South Africa’s platinum belt, home to the world’s largest platinum reserves, as a series of wildcat strikes raged on.
Silver was also down, with the Comex December contract ending lower by $0.55, or 1.6 per cent, at $34.02 per ounce and bringing the loss in value over the last two days to more than 3 per cent , which wiped out the gains of the last two weeks that took the silver price to seven-month highs.

Shares of most gold and silver companies remained modestly lower alongside the metals, as the Philadelphia Gold & Silver Index (XAU) closed with a loss of 0.8 per cent at 190.09. Amongst gold mining stocks, two of the largest decliners on Monday were Canadian gold producers Eldorado Gold (TSE:ELD) and IAMGOLD (TSE:IMG) which dropped by 1.3 per cent to $14.72 per share and by 1.3 per cent to $16.24 per share, respectively. As for silver stocks, Pan American Silver (TSE:PAA) slid 2.5 per cent to $21.50 per share while Silver Standard Resources (TSE:SSO) retreated by 2.2 per cent to $15.30 per share.