NEW YORK (TheStreet) -- Gold prices in New York were slipping Tuesday as profit-taking and a stronger U.S. dollar weighed on the precious metal.
Gold for August delivery was losing $6.30 to $1,234.40 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,241.90 and as low as $1,233. The U.S. dollar index was rising 0.18 to $86.14 while the euro was falling 0.30% to $1.22 vs. the dollar. The spot gold price Tuesday was adding 60 cents, according to Kitco's gold index.
Gold futures, or paper gold, and the spot price were diverging slightly as traders rebalanced their gold options ahead of the quarter's end this Friday, and investors continued to buy physical gold as a safe haven asset.
Helping gold's safety bid was the news that Fitch lowered its debt rating on BNP Paribas, the European Union's biggest bank. The downgrade reminded investors that there is more headline risk to come from the eurozone and that the future of the euro is still uncertain. Physical gold is an appealing asset for investors looking for a safe place to put their money as gold always retains some form of its value.
On the flip side, traders were readjusting their future contracts and also taking profits where they could after Monday's late day selloff.
Gold prices will look toward the Federal Reserve's two-day FOMC meeting, culminating with its Wednesday rate decision. The Fed is expected to keep interest rates low for an "extended period of time," language that has remained consistent since the end of 2009. Low interest rates pump more money into circulation and raise the risk of future inflation, despite the fact that falling prices make deflation a more short-term risk. Investors turn to gold as paper currencies lose value, and low rates could give a boost to prices.
However, one problem the Fed will have to contend with is the need to pump more stimuli into the banking system to free up liquidity and help unemployment vs. curbing the U.S. $13 trillion deficit. Other global economies like Europe have been opting for austerity measures to reduce budget deficits, but the U.S. has been advocating more spending in the short term. Investors will be paying close attention to the language coming out of the Fed in terms of stimulus vs. fiscal restraint as well as growth prospects for the U.S., previously forecast at 3.2% to 3.7% for 2010.
