Portugal Sinks Gold Prices

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"The increase in ETF holdings yesterday is encouraging."

Gold prices were sinking on growing European debt fears.

Gold for April delivery was falling $12.60 to $1,091.10 an ounce at the Comex division of the New York Mercantile Exchange. Prices have traded as high as $1,106 and as low as $1,087.60. The U.S. Dollar Index was rising 1.18% to $81.78. Gold's spot price was down over $10, according to Kitco's gold index.

Portugal is now in the spotlight after Fitch downgraded its rating to "AA-" from "AA" with a negative outlook. The news pressured the euro, lifted the U.S. dollar and weighed on gold prices.

The EU's summit begins Thursday and investors will be looking for a resolution to the Greek sovereign debt crisis. Although Greece has yet to ask for aid, if the EU doesn't come through with financial help then Greece would be forced to turn to the International Monetary Fund. With more European countries now at risk of some kind of default, the euro/U.S dollar correlation will be dominating commodity trading in the short term.

Gold prices Tuesday broke through the $1,100 area to settle at $1,103.70 an ounce. Despite short-term pressure, some indications point to strong bargain hunting at around $1,090. The physically backed ETF, SPDR Gold Shares (GLD), added almost 5 tons Tuesday. The addition is the first inflow in almost two weeks as investors bought the precious metal as an alternative investment.

"The increase in ETF holdings yesterday is encouraging," says James Moore, analysts at thebulliondesk.com in his daily metals report. "The scale of buying around and below $1,100. . .suggests further pockets of investment diversification will continue to underpin prices."

Silver prices were falling 32 cents to $16.70 while copper was down 3 cents to $3.34.

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