Precious Metals Overview

Tuesday, July 6, 2012

Gold futures eased on Thursday as investors moved to the U.S. dollar after the announcement of interest-rate cuts from the European Central Bank. The most actively traded gold contract, for August delivery, fell $12.40, or 0.8%, to settle at $1,609.40 a troy ounce on the Comex division of the New York Mercantile Exchange. Gold had gained earlier this week in anticipation that world central banks would ease monetary policy in an effort to steady the financial system after global growth slowed. Some investors turn to precious metals as hedges against the inflation that can result from such policies. But there were few surprises from the European Central Bank in its rate cuts announced on Thursday, and gold sold off as traders flocked to the dollar. The move may stoke inflation down the line, said George Gero, vice president and precious metals strategist with RBC Capital Markets. But for now, it is “a signal of a snail’s-pace recovery” and unlikely to bring rising prices soon. “The [gold] market had priced” the ECB’s moves, said Frank McGhee, head precious metals dealer with Integrated Brokerage Services. “The interest-rate cut is weakening the euro. That re-creates the race of who can run their currency down the fastest.” With the Bank of England and China’s central bank also announcing monetary easing steps on Thursday, the U.S. dollar seemed to be losing that race. The ICE U.S. Dollar Index, which tracks the dollar against currencies of some major U.S. trading partners, jumped to the highest level since early June on Thursday as the easing steps elsewhere raised the prospect that those currencies would weaken. Gold can move inversely to the dollar, as a rise in the dollar makes dollar-denominated gold appear more expensive for buyers using other currencies. After dipping below the psychologically important $1,600 an ounce mark early in New York floor trading, gold futures pared their losses as the euro bounced from its lows against the dollar. Comex floor trading was closed on Wednesday for the U.S. Independence Day holiday.
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