Gold Retreats As Stocks Tumble

by Peter A. Grant

March 10, a.m.
(from USAGOLD.com) --

Gold has come under intraday selling pressure after stocks fell sharply in the wake of a bigger than expected rebound in initial jobless claims for the week ended 05-Mar, and a larger than expected widening in the Jan trade deficit. The plunge in stocks spurred flight into the dollar, but reportedly also prompted investors to liquidate profitable oil and metals positions in anticipation of margin calls on leveraged stock positions. That in turn resulted in more general profit taking in oil, gold and silver. The Fed does not have any POMOs scheduled for today, as they will be announcing the details for the next phase of QE2. Fed POMOs tend to be supportive to stocks, but that support won's be forthcoming today.

The market was already on edge before the US data came out, after China announced a surprise $7.3 bln trade deficit in February. This was the first deficit for China since last March and the largest in 7-years. Slowing exports along with still robust imports were cited as the reason. However, there were also rumors circulating that the Chinese data had been manipulated in advance of upcoming trade talks with the US. Nonetheless, the yuan eased and put a bid under the dollar, taking some of the shine off gold.

Additionally, Moody's downgraded Spain's sovereign debt to Aa2 with a negative outlook. This comes in the wake of Moody's big downgrade of Greece earlier in the week. Renewed and rising concerns about the EU sovereign debt crisis weighed on the euro, offering further support to the dollar. The situation in Europe, amid skepticism that discussions planned for the weekend will provide any additional support for the troubled PIIGS, is likely to prove to be a limiting factor on the downside for the metals.

Providing additional underpinning for the metals and oil markets is the raging civil war in Libya and uncertainty surrounding the "day of rage" that is scheduled for tomorrow in Saudi Arabia. If anti-government protests gain traction in Saudi Arabia, oil will likely push on to new 31-month highs...and gold will follow.

Peter Grant is USAGOLD's resident economist and a well-known analyst globally in the forex and precious metals markets.

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