Gold Rises on Deficit Fears

Source:

"Gold prices were recovering Monday as the U.S. dollar sank."

Gold prices were recovering Monday as the U.S. dollar sank.



Gold for April delivery, the most actively traded contract, was rising $5.2 to $1,089 an ounce at the Comex division of the New York Mercantile Exchange. Prices have traded as high as $1,090.80 and as low as $1,077.20. The U.S. dollar index was sinking 0.29% to $79.23.

Gold prices found support Monday after President Obama unveiled his budget with a record deficit of $1.56 trillion. The news put short term pressure on the dollar. A weaker dollar makes gold less expensive to buy in other currencies sparking demand and raising prices.

Gold's rally could be short lived, "[the rally] could [just] be the Monday exuberance," argues George Gero, vice president of global futures at RBC Capital Markets. "Perhaps we are in a tired market that needs recycling."

The dollar could see more upside on the back of European credit fears, a weak Euro and China monetary tightening. Manufacturing activity in China was reportedly 55.8 in January. Although this figure signifies growth, it is lower than the December reading of 56.6 indicating that constriction of bank lending is impacting the growth of the country. "It is likely that the continued tightening of the Chinese monetary base will negatively impact metal prices over the near-term," says Anthony Rizzuto, Jr. managing directing at Dahlman Rose & Co. in his daily metals and mining note.

Silver prices were rising 13 cents to $16.32 while copper was flat at $3.05. Platinum and palladium were both stronger at $1,525.40 and $425.55, respectively.

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