U.S. Dollar Strength Sends Gold (GLD) Lower for Fifth Consecutive Session

On Wednesday, gold (NYSEARCA:GLD) futures for December delivery decreased $31.30 to settle at $1,562.90 per ounce, while silver (NYSEARCA:SLV) futures dropped $1.51 to settle at $27.19.  It was the fifth consecutive trading day that gold settled lower.

Overnight deposits at the European Central Bank increased to an all-time high as regional financial institutions poured in more than 452 billion euros, the most since the euro’s introduction in 1999 and up from the previous record of 412 billion euros a day earlier.

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Last week, the ECB lent 523 banks a record 489 billion euros for three years to keep credit flowing to the 17-nation euro zone during the sovereign debt crisis. The money was lent at a benchmark rate of 1 percent. Banks are depositing excess cash back with the ECB at the overnight rate of 0.25 percent, incurring a loss rather than lending it for more elsewhere.  “The ECB has taken over the intermediary role because the interbank market has seized up, and the size of the deposits mirrors the refinancing operations,” said Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London. “While there may be a seasonal element now as well, it’s going to stay very high as there is simply more cash in the system.”

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The euro sinking to fresh 15-month lows sent the U.S. dollar (NYSE:UUP) higher, and precious metals (NYSEARCA:DBP) lower.  In afternoon trading, the SPDR Gold Trust (NYSEARCA:GLD) fell 2.12 percent, while the iShares Silver Trust (NYSEARCA:SLV) fell 5.2 percent.  Gold miners (NYSEARCA:GDX) such as Yamana Gold (NYSE:AUY) and Barrick Gold (NYSE:ABX) fell 3.6 percent and 2.75 percent, respectively.  Silver miners (NYSEARCA:SIL) fell even harder with Endeavour Silver (NYSE:EXK) and First Majestic (NYSE:AG) dropping more than 4 percent.  Hecla Mining Co. (NYSE:HL), the largest silver producer in the United States, plummeted 6 percent.

To contact the reporter on this story: Eric McWhinnie at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com