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Wednesday, July 14, 2010

Gold turned moderately lower in late trade on Wednesday, chasing the euro and U.S. equity markets down after the Federal Reserve issued a report saying it should be ready to take additional measures to combat a softening economy if necessary.

Spot gold pared gains to $1,209.05 by 2:42 p.m. EDT from a high at $1,217.85 an ounce, compared with the previous session's late quote at $1,210.65.

August COMEX gold futures finished $6.50 lower at $1,207 on the COMEX metals division of the New York Mercantile Exchange.

Gold was pushed off earlier highs, reached as investor concern over the U.S. economic outlook prompted a jump in the euro. When the euro and U.S. equity markets turned lower in afternoon trade, gold prices followed.

All three markets were responding to lessening investor interest in taking on risk after the Federal Reserve's meeting minutes revealed its concern about a weakening U.S. economy.

The euro pared gains versus the dollar after the Federal Reserve felt last month that it should be ready to consider additional steps to boost the U.S. economy if the outlook took a noticeable turn for the worse.

Major U.S. stock indexes also fell after the release of the Federal Reserve's meeting minutes.

"As a result of the change in financial conditions, most participants revised down slightly their outlook for economic growth," minutes of the June 22-23 meeting of the Fed's policy panel released on Wednesday said.

Because the Fed minutes came out after most gold traders had completed their transactions for the day, some sellers may hit gold again on Thursday, said Sterling Smith, analyst at Country Hedging Inc in St. Paul, Minnesota.

Earlier, gold rallied after sales at U.S. retailers fell in June, for the second straight month, adding to evidence the economic recovery was proceeding at a moderate pace.

But the softer U.S. growth outlook underlying the Fed's message also suggested a tame outlook for inflation, which could hurt gold's upside potential.

"More than fear, inflation is gold's food," said Smith.

Despite the fluctuations, gold remained within the range that has been developing since July 1, with factors limiting both its up and downsides.

"You have got to be frightened to want to be long of gold. But we still have uncertainties," said Credit Agricole analyst Robin Bhar.

"There are still worries about debt, about currency devaluation, about inflation becoming higher. That is all supportive of this notion of there being a fairly solid floor for gold," he added.

"The risk is now for a choppy move higher toward $1,225/27. However, in the least, a recovery above $1,235 is needed to suggest that gold is primed to post new 2010 highs," said Barclays Capital in a note.

Among other precious metals, silver rose by over 1 percent to $18.44 an ounce, but then pared those gains to $18.29 compared with $18.20 in the previous session.

The gold-silver ratio -- how many ounces of silver are needed to buy an ounce of gold -- hit a two-week low of 66.5 on Tuesday as silver outperformed gold in a rising market.

"We require a close below 65.55 to bring in fresh selling of the ratio," said ScotiaMocatta in a note.

Elsewhere, spot palladium at $463.50 per ounce was barely up from $463 previously.

That's all for now.

“(Gold) is cheap. Gold is up 33.7% this year. Copper is up 125.7%. Lumber is up 45.3%. Heating oil is up 73.3%. Palladium is up 92.7%. Silver is up 64.1%. Unleaded gas is up 98.5%. And you're telling me that gold is in a bubble? You haven't seen the gold bubble yet.” – Richard Russell (Dow Theory Letters) December 1, 2009