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Gold Firmer on Bargain Hunting and a Weaker U.S. Dollar

Comex gold prices registered modest gains in early trading on Wednesday, a dynamic supported by bargain hunters bringing demand to the market as they buy the recent dip in prices. A weaker U.S. dollar index, largely a product of the strengthened euro, is also bringing demand to the market as holders of foreign currencies take advantage of the temporary weaker dollar.

According to Reuters, precious metals bulls are looking to regain the upside technical momentum, but have their work in the near term cut out for them. Gold futures for December delivery gained $4.60 to $1,750.90 per troy ounce. The spot price of gold rose $1.40 per troy ounce to $1,750.25. Comex silver for December delivery gained $0.106 to $33.06 per troy ounce.

Overnight trading saw Asian and European stock markets rise, partially an effect from Moody’s announcement that it will not downgrade Spain’s credit rating, a move that has eased concerns about the latest emanation of the European debt crisis. Fears over Spain’s credit rating had been occupying markets for weeks as the nation is expected to formally request a bailout from the European Union, but has delayed the official request. Reports of late have indicated Spain is moving closer to the formal request. Meanwhile, Spanish bond yields fell to six-month lows overnight, indicating greater consumer confidence in the Mediterranean nation. The euro gained strength in currency markets on these developments.

The German government has cut its economic growth forecast for 2013 while slightly raising projections for growth in the current year. Among reasons cited for the cut, the German economic minister said the European Union debt crisis is dampening economic growth in Europe. His forecast places German economic growth at 1 percent in 2013, a revision downward from a previous forecast at 1.6 percent. The 2012 economic growth rate gained to 0.8 percent from a previous rate at 0.7 percent.

Investors and market watchers expect key economic data on Thursday, including China’s third-quarter domestic product data. The EU leaders’ summit also begins Thursday.

The U.S. dollar index is trading solidly lower on Wednesday morning as the U.S. dollar bears have the near-term technical advantage and have gained new downside momentum this week. Typically, a weaker U.S. dollar benefits the gold market as holders of foreign currencies take advantage of the lower prices denominated in U.S. dollars.

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