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Friday, June 10, 2011

Gold and silver prices fell Friday June 10 2011 as the Bank of Korea raised interest rates and the U.S. dollar strengthened

Gold and silver prices fell Friday June 10 2011 as the Bank of Korea raised interest rates and the U.S. dollar strengthened : Gold (-GC) for August delivery was down $13.30 to $1,529.40 at the Comex division of the New York Mercantile Exchange. Gold has traded as high as $1,546.50 and as low as $1,526.70. The spot gold price was shedding $14.80, according to Kitco's gold index.

Silver (-SI) prices were down 73 cents to $36.69 an ounce, while the U.S. dollar index was adding 0.5% to $74.55.

Thursday the broader markets snapped a six-day losing streak, with the Dow Jones Industrial Average ($INDU) finishing up 75 points. The rally and Friday's subsequent sell-off drew many investors' attention away from metals.

The Bank of Korea also unexpectedly raised interest rates 25 basis points to 3.25%. Higher interest rates can dampen gold and silver prices, as higher rates support the local currency and make the metals less attractive as stores of wealth. Gold and silver have been shaking off such moves, however, as inflation, which stands at 4.1% in Korea, has outpaced interest rates.

The European Central Bank, on the other hand, signaled that an interest-rate hike in July isn't a sure thing, which weighed on the euro and supporting the dollar.

James Moore, a research analyst for FastMarket, says to expect choppy trading and mixed sentiment in gold and silver. "However, continued concerns surrounding debt levels, the threat of further downgrades and rising inflation will continue to bolster demand for gold, and to a lesser extent silver, as a store of wealth."

U.S. rating agencies Moody's and Fitch have said that if the U.S. fails to raise the debt ceiling by Aug. 2, then its triple-A credit rating will be on review for a downgrade. Continued uncertainty could be positive for metals, but investors might want to sit on the sidelines.

The markets are also unclear as to what will happen when the Federal Reserve ends its $600 billion bond-buying program, known as QE2, at the end of June. It is widely anticipated that the Fed will keep reinvesting money from interest payments and maturing bonds back into the market, but some experts say the end of stimulus isn't yet baked into the gold and silver markets.

Jon Nadler, a senior analyst at Kitco.com, thinks both metals have more room to fall. "We certainly haven't had a sizable 30%-plus correction going back to the days of 2008, so clearly there would be room for a pullback to the low to mid-$1,100's eventually." Nadler doesn't see this kind of correction during summer. It would also push silver to the low $20s.

Nadler takes a lot of heat for his bearish stance, but he isn't the only one issuing conservative price targets. Mark Arbeter, the chief technical strategist at Standard & Poor's, is calling for gold prices to hit $1,250, a more than 18% correction from current levels, within the next couple of months.

"When you look at gold and silver, one has to first look at what will happen with the dollar." Arbeter thinks that the U.S. dollar index has put in an intermediate-term bottom and that it could rally to as high as $80-$82. More importantly, Arbeter thinks all the potential headwinds -- like global rate hikes, which boost foreign currencies and weigh on the dollar, and low interest rates from the Federal Reserve -- are already priced in.

Longer term, however, Arbeter is bearish on the dollar: "I think once this correction ends . . . we'll go to $2,000-plus on gold." Silver prices, Arbeter says, could hit $75 an ounce.


Gold mining stocks, which struggled all week, continued to slump Friday. Barrick Gold (ABX) was falling 1.9% to $43.55, and Newmont Mining (NEM) was down 1.9% at $51.92. Goldcorp (GG) was shedding 2.3% at $46.49, and Eldorado Gold (EGO) was tumbling 3.3% to $13.99. For the latest updates PRESS CTR + D or visit Stock Market news Today

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