Gold Prices Settle Higher Following Japan Tragedy

TheStreet.com

NEW YORK (TheStreet ) -- Gold prices rose tentatively higher Monday as gold's tug-of-war took center stage. Safe haven buyers bought the metal as protection against escalating devastation in Japan but profit takers sold gold to cover losses in other assets. Gold for April delivery added $3.10 to settle at $1,424.90 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,433.50 and as low as $1,418.20. The spot gold price was rising more than $6, according to Kitco's gold index.

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Silver prices settled down 9 cents to $35.84 an ounce.

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Gold prices struggled to gain upward momentum as profit taking weighed on the metal. Gold was 1% higher in early trading, then sold off to session lows, and has since rebounded, higher even still in post-market trading. Primarily gold is seeing selling from Japanese investors as they raise cash to deal with the aftermath of Friday's earthquake and tsunami. Phil Streible, senior market strategist at Lind-Waldock, says that Japanese investors tend to buy assets that they can get a better return on versus the yen which returns 0%. A favorite trade is short yen, long gold, for example, says Streible, and now they are "selling their gold and their silver to try and raise back capital ... but that will reverse at some point." Strieble believes gold is "definitely going to make new contract highs again." The death toll in Japan is expected to top 10,000 and the country reported another explosion at one of its nuclear plants, its second since Saturday. The Bank of Japan has also pumped money into the system to keep the economy going. The central bank offered 15 trillion yen, or $183 billion, to the banking sector and will grow its current bond buying program to 40 trillion yen, or $486.4 billion. More money in circulation makes gold a safe bet for an investor looking to preserve wealth, but Japan has a lot more on its mind then buying gold. The loss of wealth in the country -- AIR Worldwide estimates insured property losses could reach $35 billion not counting the damage inflicted from the tsunami -- also leaves citizens with little to no buying power. "Short-term the complex may be vulnerable to further pockets of liquidation," says James Moore, research analyst at FastMarkets, "however we expect gold & silver will remain underpinned and potentially poised to retest recent highs as investors again look to diversify into safe-haven assets." Global crises are still bubbling even without devastation in Japan. Unrest in the Middle East-North Africa region is escalating again as police clashed with Shiites in Bahrain. Saudi Arabia has sent forces in to help with security and police fired at protesters in Yemen. Eurozone debt fears are mounting as EU leaders took steps to help struggling countries. At a series of summits, which will culminate March 25th, Eurozone officials increased the current bailout fund to €440 billion, requiring states to put up more cash. The fund is allowed to buy government bonds. Greece received a 1% discount on its interest payments for its bailout loan. Ireland received no such treatment as it refused to increase its corporate tax rate. The debate is still on as to setting up a permanent bailout facility when the current one expires in 2013. Although the euro was rising against the dollar on the news, a bigger bailout fund means more euros in circulation and highlights just how bad leaders are expecting the debt crisis to be. Gold will also take its cue this week from the Federal Reserve and its FOMC meeting on Tuesday. Interest rates are expected to stay low but the key is likely that any change in the Fed's inflation expectations will be based on high oil prices. The Fed is widely anticipated to continue its $600 billion bond buying program until it expires in June, but what the central bank does after that remains in question. A fear of slowing growth out of China, triggered by the country's surprise trade deficit last Thursday, and a dicey economic recovery in the U.S., which could be hurt as commodity prices soar, have the Fed in a tight spot. A QE3 might help support a global economic recovery but also lead to higher oil prices, ballooning costs at the pump and squeeze emerging market economies, which are already battling high inflation. Any signs that the Fed might further ease its monetary policy would be good for gold as investors would seek the metal as an inflation hedge. Gold mining stocks, a risky but profitable way to buy gold, were struggling as the broader stock market dragged on miners but higher gold prices buoyed them. Yamana Gold was falling 1.65% at $12.52 while Harmony Gold was down 1.36% to $12.30. Other gold stocks, New Gold and Gold Fields were trading at $10.02 and $17.43, respectively.
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--Written by Alix Steel in New York. >To contact the writer of this article, click here: Alix Steel. >To follow the writer on Twitter, go to http://twitter.com/adsteel. >To submit a news tip, send an email to: tips@thestreet.com.
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