Tue, Dec 14, 2010, 2:09PM EST - U.S. Markets close in 1 hr 51 mins
NEW YORK (TheStreet ) -- Gold prices backed down from new highs Tuesday as investors dumped gold for stocks on better-than-expected economic data.
Gold for February delivery was adding 70 cents to $1,398.70 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,408.90 and as low as $1,392.40.
The U.S. dollar index was losing 0.11% to $79.26 while the euro was adding 0.25% to $1.34 vs. the dollar. The spot gold price Tuesday was rising $6, according to Kitco's gold index.
Gold prices have tried twice to break and hold new highs and each time have been met with profit-taking which pulled prices back down under the $1,400 level. The last attempt was Dec. 7, when gold hit an intraday high of $1,432.50 an ounce.
The question for traders: Is the third time a charm?
Prices seemed poised to make a true breakout until better-than-expected economic data out of the U.S. distracted investors and they abandoned their gold positions for stocks.
November retail sales rose 0.8% while the core Producer Price Index grew 0.3%. The CPI data was not high enough to cause inflation worries and was a big sigh of relief after October's 0.6% drop, which had sparked deflation fears.
"I think we will probably probe and test that $1,400 range but really I think we've got to get over $1,416," says Phil Streible, senior market strategist at Lind-Waldock.
"If we get a two day close over that I think we're going to advance making new all-time highs." Streible thinks the new high could be $1,464 whereas his support level is $1,331.
Any close below $1,331, he says, could cause a flurry of momentum selling and gold might be forced to retest its $1,270 support level. But for now gold seems intent on probing new highs helped Tuesday by safe-haven buying.
The gold landscape still seems ripe for safe-haven buying especially with ratings agency Moody's threatening to cut the U.S.'s triple-A credit rating if the new tax cut bill was approved by Congress, which looks set to happen. The dollar has suffered of late after the Obama administration announced its tax-cut legislation which many reports dubbed as more stimulus.
There is also speculation that the Federal Reserve might be forced to issue a third round of quantitative easing to help the government pay for this tax bill and jump-start the economy.
"I think we're going to look at the first half of 2011 and determine that QE2 and probably what is going to follow is QE3 and QE4 were not just necessary but very, very helpful in terms of stemming off deflation," argues Oliver Pursche, co-portfolio manager of the GMG Defensive Beta Fund.
Pursche has sold out of his gold positions, however, calling the market "frothy, at best" and has been reducing positions in silver, platinum and palladium.
The spotlight has once again turned from Europe to the U.S., giving support to the euro, as news that the European Central Bank bought € 2.7 billion in government bonds in the week ended Dec. 10 helped prop up Portugal and Ireland's debt load. This was the largest purchase since July and showed that the ECB was in the market to help struggling debt-laden countries.
Gold will look ahead to this afternoon when the Federal Reserve concludes its last FOMC meeting of the year. No change in key interest rates is expected but investors will be looking for clues on how the Fed will proceed with its $600 bond-buying program. The amount should stay the same but with interest rates on the rise despite QE2 expectations are that there might be some alterations to how the Fed implements the plan.
Investors will also be looking for what the Fed says on unemployment and inflation, which is well below its low end target of 2%. The Department of Labor will release the Core Consumer Price Index for November on Wednesday. Inflation is forecast to rise just 0.1%.
Silver prices were shedding 1 cent to $29.60 after a report in the Financial Times which said that JPMorgan could be reducing its huge silver position in light of a two-year inquiry by the Commodity Futures Trading Commission. The CFTC has been trying to determine if the trading house has been illegally manipulating the price of silver.
Gold and silver manipulation has been a trendy topic this year. Trader Brian Beatty filed lawsuits at the end of October against JPMorgan and HSBC for conspiring to "suppress and manipulate" silver prices on the Comex.
The allegations were particularly noteworthy because HSBC and JPMorgan are custodians of the physically backed exchange-traded funds like the SPDR Gold Shares and iShares Silver Trust, which means the big banks are in charge of storing the metal investors are buying while being accused of manipulating the prices.
Bart Chilton, commissioner of the CFTC, was reportedly pushing the commission to prosecute.
Copper prices were stalling out after hitting a two-year high . Copper was down 1 cent at $4.19.
Gold mining stocks, a risky but profitable way to buy gold, were mixed. Yamana Gold was up 1.04% to $12.63 while Kinross Gold was 1.04% higher at $18.52. Other large gold stocks Agnico-Eagle and Eldorado Gold were trading at $82.27 and $18.32, respectively.
More on Gold Gold Price News How to Invest in Gold
-- by Alix Steel in New York.
>To contact the writer of this article, click here: Alix Steel.
>To follow the writer on Twitter, go to http://twitter.com/adsteel.
>To submit a news tip, send an email to: tips@thestreet.com.
Readers Also Like:
>>Even Buffett Has Investment Lessons to Learn
Independent market research, commentary, analysis and news. Learn more.
Follow Yahoo! Finance on Twitter; become a fan on Facebook.
See all RSS links
Copyright © 2010 TheStreet.Com. All rights reserved.
Quotes delayed, except where indicated otherwise. Delay times are 15 mins for NASDAQ, NYSE and Amex. See also delay times for other exchanges. Quotes and other information supplied by independent providers identified on the Yahoo! Finance partner page.Quotes are updated automatically, but will be turned off after 25 minutes of inactivity. Quotes are delayed at least 15 minutes. All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.
Fundamental company data provided by Capital IQ. Historical chart data and daily updates provided by Commodity Systems, Inc. (CSI). International historical chart data, daily updates, fundAnalyst estimates data provided by Thomson Financial Network. All data povided by Thomson Financial Network is based solely upon research information provided by third party analysts. Yahoo! has not reviewed, and in no way endorses the validity of such data. Yahoo! and ThomsonFN shall not be liable for any actions taken in reliance thereon.
Read Full Article »