From the June 01, 2012 issue of Futures Magazine • Subscribe!

Gold melting in Eurozone heat

After making a record high late last year, gold has steadily given up gains. This may surprise some, given the continued uncertainty out of Europe and gold’s traditional role as a safe-haven, but analysts say things are changing for the yellow metal.

Travis Rodock, market strategist at efutures, says gold is tied to moves made in the dollar and the euro with a negative correlation to the dollar. “When the euro is higher, gold typically is higher. When the euro gets hit or sells off, gold typically follows suit,” he says.

With little reason for optimism coming from Europe, Rodock expects gold to continue in a negative trend. “For the time being, gold is negative in the near-term until they can come up with some sort of plan to issue bonds or some other way to finance and stabilize the economies of Greece, Spain and Italy,” he says. In the short-term, he says $1,550 will be an important number  and says as long as that holds, gold may push toward $1,600 as resistance.

Bill Baruch, market strategist at iiTrader, says investor attitudes played a role earlier in the year. “Stocks had a great run to start the year, which took a lot of the focus off of gold with people finding return elsewhere,” he says.

Ultimately, Baruch says the latest pullback in gold is just a correction and expects it to work higher later in the year, but technical signals likely will play the biggest role in the near-term. He expects gold to head higher with a target of $1,613 and then $1,680; support is at $1,523. Baruch warns, though, that if gold continues to fall and breaks $1,500, it easily could give up another $150.

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