Spanish bank bailout given mixed reaction by traders; copper rallies
By Myra P. Saefong and Chris Oliver, MarketWatch
SAN FRANCISCO (MarketWatch) — Gold futures seesawed between losses and gains Monday, trading mostly below $1,600 an ounce, with traders giving a bailout for Spain’s ailing banks a mixed reaction as they attempted to gauge concerns over debt-crisis contagion in the euro zone.
In recent dealings, gold for August delivery GCQ2 +0.13% rose $1.40, or 0.1%, to $1,592.80 an ounce on the Comex division of the New York Stock Exchange. Earlier, it tapped an intraday low of $1,582.70 as well as a high of $1,609.30.
“Gold’s earlier rally had muscle, but its momentum was slowed and ultimately reversed,” said Seth Rabinowitz, who covers commodities as a partner at Silicon Associates. “However, we are seeing normal aftershocks of its about-face from the halted heated rally, providing some expected latent upward pressure.”
July silver SIN2 -0.07% traded little changed, changing hands at $28.47 an ounce at last check.
Spain said Saturday it would seek assistance from the European Union of up to 100 billion euros ($125 billion) in financial aid for its struggling banking sector. Read more about Spain’s banking sector to receive aid.
“The bank bailout program has been welcomed by the market and added some confidence — this being the reason why [the euro] initially strengthened,” said Frederic Panizzutti, senior vice president at MKS, a Switzerland-based precious metals service provider.
“The fact that they recapitalize the banking system is a good thing,” he said. However, “it remains a bailout so [it’s] nothing really positive.”
Euro, dollar moves key
At last check, the euro EURUSD -1.07% turned lower against the U.S. dollar, buying $1.2497 after a high of $1.2647 and versus $1.2512 late Friday. The dollar index DXY +0.07% , meanwhile, stood at 82.507, up from 82.439 late Friday, a trading pattern likely contributing to weakness in dollar-denominated gold prices. Read more on currencies.
The euro, initially stronger on the back of the Spanish banking liquidity package, “added some support, allowing gold to break over $1,600, but the move was short lived and met with profit-taking” as Europe opened, pushing gold lower, said Panizzutti.
Also helping pare euro’s gains against the dollar, traders played off speculation that “Italy could be on the bailout radar after Greece and Spain,” according to Chintan Karnani, chief analyst at Insignia Consultants in New Delhi.
On a technical basis, gold needs to trade over $1,580.10, the 400-day moving average, to prevent another wave of selling that would carry it to $1,566 and $1,544 an ounce, Karnani said.
“The sentiment for gold remains positive, but its failure to break higher despite a few attempts is resulting in quick profit takings each time it moves a few [U.S. dollars] higher,” noted Panizzutti.
For the short run, $1,640 “remains the key resistance to break,” he said. If broken, upside momentum is likely to kick in.
Monday’s action followed a gain of $3.40, or 0.2%, on Friday, when prices saw support linked to traders’ unwillingness to short the metal ahead of the weekend amid potential market-making developments.
Ed Bugos, director of mining finance at Precious Metals Equity Research, said the “most overlooked risk for gold investors in the short term is the generally bearish sentiment about risk assets, like equities. That is, the danger is a reversal of that sentiment because it is overcrowded.”
“Until it sheds its countercyclical personality, there is in my opinion still a 20% chance that gold might sell off to the $1,350 low before the bull market resumes,” he said. But “that also means I think there is an 80% chance the gold correction is over.”
Also Monday, the other major metals looked to recover losses they ran up against at the end of last week.
July copper HGN2 +1.67% tacked on 6 cents, or 1.7%, to $3.34 a pound.
July platinum PLN2 +1.61% traded at $1,447.40 an ounce, up $22.30, or 1.6%, while September palladium added $11.40, or 1.9%, to $623.40 an ounce.
Myra Saefong is a MarketWatch reporter based in San Francisco.
Chris Oliver is MarketWatch's Asia bureau chief, based in Hong Kong.
