Gold Prices Plummet on Profit-Taking

NEW YORK (TheStreet) -- Gold prices were plummeting Thursday as profit-taking and momentum selling eroded gold's appeal as a safe-haven asset.


Gold for February delivery was losing $20.80 to $1,365.40 an ounce at the Comex division of the New York Mercantile Exchange. The gold price Thursday has traded as high as $1,387.30 and as low as $1,363.50.
The U.S. dollar index was down 0.09% to $80.15 while the euro was slightly lower to $1.32 vs. the dollar. The spot gold price was up $15.50, according to Kitco's gold index.



Investor enthusiasm for gold might have peaked for the year as traders dumped gold before the Christmas and New Year's holiday. This leaves gold vulnerable to volatility and tight trading ranges as prices are subject to short-term trades and book-squaring.

A key support level for gold is $1,370 which was broken as investors take profits. The $1,370 was a key level and probably activated some sell-stops in which traders must sell some positions to lock in gains.
James Moore, research analyst for thebullionvault.com, is more optimistic and says that "gold and silver are likely to find further support from investor diversification" despite any price pressure.

The broader landscape is still ripe for higher gold prices. Spain is still waiting for a potential downgrade from Moody's ratings agency after Standard & Poor's slashed Belgium's rating. Moody's also has put Greece's Ba1 rating on review for an even further downgrade. Although downgrades would be no big surprise, it would ignite sovereign debt fears, which, during this past year, has been good for gold.

Investors turn to gold during times of market uncertainty or paper currency devaluation. The U.S. dollar is subject to the latter as the Senate passed President Obama's tax deal. The bill has to pass the House, which it is expected to do despite some representatives' gripes, and some analysts have called this bill "stimulus."

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An extension of Bush-era tax cuts, continued unemployment benefits and a lax estate tax, some fear will only widen the government's $13 trillion debt hole and lead to more money printing in the future.

Barclays Capital noted Thursday in its Commodity Daily Briefing that the inverse correlation between the U.S. dollar and gold "has started to become stronger (approximately 30%)" and the metal will be subject to future dollar gyrations. If the dollar takes a hit, if a QE3 comes into the picture to pay for the tax bill, that would only be good for gold.

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