Gold prices declined in spite of weakness in the U.S. dollar

The gold price traded slightly lower Wednesday, off $3.70 at $1,648 per ounce. Gold prices declined in spite of weakness in the U.S. dollar, which fell against most of its foreign counterparts. The U.S. Dollar Index (DXY) slid 0.28 to 80.83. The euro rallied against the dollar following news that the International Monetary Fund was set to propose raising its lending capacity by $500 billion. Bond yields on Portuguese, Spanish, and Italian debt all moved lower as sovereign debt concerns eased on rumors of the potential boost in IMF firepower.

The gold price held firm yesterday after Standard & Poor’s downgraded the European Financial Stability Facility (EFSF) to AA from AAA. The ratings agency cited the weakening creditworthiness of several nations providing financial guarantees to the EFSF as a key reason for the downgrade. RBC Capital Markets’ George Gero wrote in a note to clients that “The downgrades of the euro-zone countries means fiscal stimulus is not far behind.” Gero added that the price of gold will continue to be supported by currency devaluation concerns emanating from such stimulus measures.