Strong Dollar Beats Up Gold

Profit-taking and a stronger U.S. dollar dragged gold prices lower Monday, but many experts think gold's safe-haven appeal is intact.

Gold for December delivery lost $22 at $1,725.20 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,746.50 and as low as $1,705.50 an ounce during the session, while the spot gold price was down $18, according to Kitco's gold index.

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Silver prices shed 93 cents at $34.35 an ounce while the U.S. dollar index was jumping 1.31% at $76.07. The currency had been down by as much as 5% versus the yen.The U.S. dollar popped Monday versus the yen after the Bank of Japan intervened in the currency market. The idea would be to sell yen, maybe as much as 10 trillion yen, according to some reports, in order to devalue the currency versus the dollar and help companies repatriate cash at lower levels.The strong dollar was dragging down gold while the metal rose almost 1.7% in yen terms. Typically, a stronger dollar makes gold more expensive to buy in other currencies. According to Kitco's gold index, 100% of gold's drop on Monday can be attributed to the value of the dollar.Currency interventions in the longer-term, however, can highlight the stability of gold as a safe-haven currency. "Confidence in the world's major currencies should drop further accordingly and gold should remain in strong demand as an alternative currency," said Commerzbank. Joe Foster, portfolio manager at Van Eck Gold Funds, also said that if the Federal Reserve launches another round of quantitative easing, and if the dollar and gold keep moving inversely to each other, than gold prices could pop."Couple of the Fed governors have been talking about buying assets like mortgage backed securities ... [we will see this] play out over the next six months hinging on the economy and unemployment levels," he said.Bank of America/Merrill Lynch wrote in a recent note that if the Fed's unemployment forecast for 2014 is above 7% then the Fed will keep monetary policy accommodative in the form of low interest rates well beyond the current target date of mid-2013.

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"Scaled down buying interest from the physical and retail investment sectors should continue to underpin gold and silver," said James Moore, research analyst at FastMarkets.com, who does acknowledge that volatility as well as the need to sell gold for cash to cover losses elsewhere might weigh on gold prices in the near-term.

Gold had been seeing a flight to safety rising almost 8% last week as investors bought gold along with stocks and as they looked for protection against Europe's debt crisis regardless of any plan. According to the latest Commitment of Traders report for the week ending Oct. 25, traders increased their speculative net long positions by almost 7,000 contracts and total net long positions increased by 5,466 contracts.

"Investment flows have turned positive and are key in leading prices higher against a gold fertile backdrop," wrote Barclays Capital in a morning note. "We continue to expect gold prices to be cushioned amid the seasonally strong period for demand." Barclays fourth quarter price target is $1,875 an ounce and $2,000 as a 2012 annual average. However, a significant dip below $1,700 might trigger a deeper selloff. Gold mining stocks were struggling Monday. Kinross Gold(KGC) was slipping 1.84% to $14.44 while Yamana Gold(AUY) was sinking 3.02% to $15.08. Other gold stocks, Agnico-Eagle(AEM) and Eldorado Gold(EGO) were trading lower at $43.24 and $18.91, respectively. -- New York. >To contact the writer of this article, click here: Alix Steel.

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