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Gold drops to 8-week low as money goes elsewhere

January 14, 2011 |  4:25 pm

Gold slumped to an eight-week low on Friday, ending just above $1,360 an ounce, in a possible sign that investors are shedding more of their concerns about the global economy’s prospects in 2011.

Strength in the euro, which rose for a fifth straight day against the dollar, undercut demand for gold as a currency hedge.

Also, China’s latest move to tighten monetary policy struck a blow against inflation fears that have rocked much of Asia in recent months.

And stocks rallied on, also siphoning money away from precious metals. The Dow Jones industrial average rose 55.48 points to 11,787.38, its highest level since June 2008, even though the day’s economic data were mixed.

Goldeagle January gold futures in New York slid $26.50, or 1.9%, to close at $1,360.40 an ounce. That’s the lowest the metal has been since Nov. 22.

The price now is down 4.4% from the record closing high of $1,422.60 on Jan. 3.

Gold rallied in 2010 for a tenth straight year, underpinned in part by continuing doubts about the U.S. economic recovery and by Europe’s ongoing government-debt crisis.

Some investors also turned to gold last year as a classic inflation hedge. Inflation pressures have mounted in many emerging-market economies amid continued fast growth. And critics of the Federal Reserve’s program to pump more money into the financial system believe the Fed is setting the scene for a jump in U.S. inflation down the road.

The Fed isn’t shifting gears, but China on Friday took another step to curb inflation there by draining more reserves from the banking system, an effort to slow growth.

Meanwhile this week, worries about Europe’s debt crisis eased after Portugal, Spain and Italy successfully issued bonds, allaying concerns that investors would shun the countries’ securities and force the European Union to ride to the rescue.

The battered euro rallied 3.7% for the week against the dollar, ending Friday at $1.339, up from $1.291 a week ago. Anything that’s good for paper currencies can be bad for gold as a hard-asset alternative.

Silver followed gold lower on Friday, with January futures falling 94 cents to $28.31 an ounce, the lowest since Dec. 8.

Worth noting is that many other commodities --  including oil, copper and corn -- were up on Friday even as gold slid. That would be consistent with the idea that many investors and traders remain bullish on global economic growth.

-- Tom Petruno

 Photo: A 1933 U.S. Double Eagle gold coin. Credit: Sotheby's

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