Gold Plunges on Stronger Dollar
Gold plunged again Friday, closing out its worst week in 2 1/2 years as the dollar strengthened and stocks stabilized, reducing the metal’s allure as an alternative investment.
Gold for August delivery fell $6.40 to $303.40 an ounce on the Comex division of the New York Mercantile Exchange, the lowest closing price for a most-active contract since April 19. The loss for the week came to 6.4%--the biggest one-week drop since December 1999.
The greenback, meanwhile, had its biggest weekly gain against the euro and yen in more than a year, making gold more costly for buyers using those currencies. And the Dow Jones industrial average had its first weekly increase in three weeks, although the outlook for the overall market remains murky.
This week’s decline in gold prices has been “mainly because the dollar looks like it’s stopped falling and is going to bounce back a bit,” said John Bridges, an analyst at J.P. Morgan Chase & Co. in New York. “For now, there’s less concern about the general markets,” Bridges said.
Gold stocks also fell. The Philadelphia gold and silver index slid 6.3% to its lowest level since Jan. 3. Gold prices jumped this year as the worsening stock market meltdown prompted investors to seek relative safety.
The metal peaked at a 2 1/2-year high of $331.50 an ounce June 4. Gold, still up 8.7% for the year, may have difficulty holding on to the gain, traders said.
“Safe-haven buying in gold never lasts long,” said Leonard Kaplan, president of Prospector Asset Management. “When people see the stock market go up and down drastically like it has, they just want to get out of all of the markets.”
Conversely, investor demand for greenbacks climbed as the three most closely watched U.S. stock indexes gained, analysts said. The dollar has moved in the same direction as stocks on nine of 10 days during the last six months.
“The dollar is pretty much in step with the equity market,” said Brian Taylor, head trader at Manufacturers & Traders Trust Co. in Buffalo. Foreigners will have “a lot more confidence” to invest in the U.S. if stocks continue to fare better than European shares, he said.
The dollar strengthened 2.4% against the euro this week, its biggest weekly gain since March 2001. It closed Friday at 98.8 cents per euro, down from $1 on Thursday.
The greenback had fallen to a 2 1/2-year low against the euro July 19 as declines in U.S. stocks reduced demand for the currency.
The dollar also had its biggest one-day jump in 14 months against the yen, rising to 118.85 yen from 116.49 on Thursday.
“With the rebound in U.S. stocks and the poor performance elsewhere, we are seeing more investors repatriating their money back to the country,” said Ben Ghalmi, a Europe specialist at Alliance Capital Management.
A drop in Japanese stocks Friday pushed the Nikkei-225 stock average to its biggest weekly decline in almost 1 1/2 years.
The increased investor interest in gold was reflected in a rise in sales of American Eagle gold coins to a six-month high of 26,500 ounces in June, the U.S. Mint said this month.
“What we’re seeing is an erosion of the false sentiment which pushed prices up,” said Howard Patten, an analyst at Barclays Capital in London. “There wasn’t a great deal of fundamental strength to gold prices” at the levels they had reached, he said.
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Bloomberg News was used in compiling this report.
