Gold Retreats as Focus Returns to Equities

The Street, Chao Deng

Gold prices pulled back for a second day as investors shifted their focus from global debt concerns to potential upside in the equities market.

After surpassing $1,600 an ounce on Monday, gold began to correct yesterday as long term investors sold off to take profits. Prices plunged about $25 after President Obama hinted that a deficit reduction plan drafted by a group of six Democrats and Republicans was gaining support amongst lawmakers.

On Wednesday, gold for August delivery was slipping $14 to $1,587 an ounce at the Comex division of the New York Mercantile Exchange. It reached as high as $1,593 an ounce and $1,581 on the lower end. Meanwhile, the spot gold price was down by $21.

Silver saw similar downward trends, with prices ticking down $1.71 to $38.51 an ounce on Wednesday.

Riding off the bullish momentum, the S&P and Nasdaq gained in early trading. Weakness in the healthcare sector, however, pulled the overall market into the red. With the Dow down by 0.1% and the Nasdaq and S&P hovering around the flat line, precious metals saw limited losses. Investors scaled back in loading up on more gold as the euro gained 0.16% against the greenback and the dollar index slipping slightly by 0.2%.

Systemic problems in the world financial system continue to underpin precious metals prices and investors remain concerned about inflationary pressures. In the short term, gold will see more setbacks but by the end of the year, prices will reach $1,800 on ounce.

Analysts anticipated the correction in gold given that prices hit a round of highs recently. Gold has been the best performing currency the past year, with a 12% rise in dollar terms so far in 2011. Even as gold ticks down, many forecast prices will climb to fresh highs by year's end.