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Gold plummets as the dollar firms

By Ben Rooney, staff reporter


NEW YORK (CNNMoney.com) -- Gold prices plunged Thursday as the dollar surged against the euro amid concerns about the economic health of certain European nations.

February gold fell $28, or 2.5%, to settle at $1,107.40 an ounce after falling to a low of $1,098 an ounce earlier in the session. The retreat came two weeks after gold settled at an all-time high of $1,218.30 an ounce.

Click the chart for current gold prices.

Carlos Sanchez, a precious metals analyst at CPM Group in New York, said the selloff was "definitely attributable to the stronger dollar, and some stop-loss selling."

The dollar jumped 1.3% against the euro to $1.4346, its highest level since early September. The euro came under pressure after Standard & Poors downgraded Greece's credit rating, raising concerns about the health of other strained euro zone economies like Ireland.

A stronger dollar tends to weigh on the price of gold, since the precious metal is traded in U.S. dollars around the world.

The buck was also supported by a Wednesday statement from the Federal Reserve that said U.S. economic conditions continue to improve, even as the central bank held interest rates near historic lows.

Sanchez said a firm move below $1,100 an ounce could pave the way for a brief retreat toward a range near $1,050 an ounce. However, he expects the weakness to be short lived.

Gold, which has gained about 24% this year, has been on a tear over the last few months as the dollar has weakened substantially.

While the dollar has regained ground in recent days, many traders expect gold prices to push higher into next year amid strong investor interest and the outlook for low U.S. interest rates.

In a research report out Thursday, analysts at Morgan Stanley raised their forecast for gold prices next year by 20% to $1,200 an ounce. The investment bank also raised the outlook for 2011, but reduced forecasts from 2013 onwards.  To top of page

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