Rally on Spanish bank bailout fizzles, though losses are limited
By Myra P. Saefong and Chris Oliver, MarketWatch
SAN FRANCISCO (MarketWatch) — Gold prices edged lower Monday as a rally on news of a bailout for Spain’s ailing banks fizzled out, failing to fully ease investor concerns over debt-crisis contagion in the euro zone.
Gold for August delivery GCQ2 +0.11% lost $1.50, or 0.1%, to $1,589.90 an ounce on the Comex division of the New York Stock Exchange. It tapped an intraday low of $1,582.70, marking a reversal from a high above $1,609 during European trading hours.
July silver SIN2 -0.02% also pulled back, falling 4 cents, or 0.1%, to $28.43 an ounce.
Spain on Saturday said it would seek assistance from the European Union of up to 100 billion euros ($125 billion) in financial aid for its struggling banking sector from the European Union. 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 -1.1353% turned lower against the U.S. dollar, buying $1.2494 after a high of $1.2647 and versus $1.2512 late Friday. The dollar index DXY +0.07% , meanwhile, moved higher to trade at 82.535 versus 82.439 late Friday, 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 to pare euro’s gains against the dollar was 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 to $1,566 and $1,544, Karnani said.
Looking ahead, “currencies will continue to prevail in the coming days and we will closely monitor the EUR/USD,” Panizzutti 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.”
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 $13,50 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 some of their end-of-week losses.
July copper HGN2 +1.80% tacked on 5 cents, or 1.5%, to $3.33 a pound.
July platinum PLN2 +1.59% traded at $1,444 an ounce, up $18.90, or 1.3%, while September palladium added $9.45, or 1.5%, to $621.45 an ounce.
Myra Saefong is a MarketWatch reporter based in San Francisco.
Chris Oliver is MarketWatch's Asia bureau chief, based in Hong Kong.
