Gold Begins An Honest Recovery

Trading didn't go that well for gold once the evening session began, but the opening dip to the $1,060 level proved only to be a spike. The rest of the night (ET), gold slowly rose above the $1,065 level and managed to get all the way up to $1,073 by 2:40 AM ET before pulling back. The pullback, lasting until it faded away as of 7 AM, took gold back down to the $1,065 level. The metal then jumped up, going well beyond its earlier morning high to peak at $1,080.10 before pulling back again,. As of 7:55 AM ET, spot gold was at $1,075.60 for a gain of $14.20 on the day. The Kitco Gold Index split the gain into $7.60 due to predominant buying and $6.60 due to the weakening U.S. dollar.

Weaken, the greenback did last night. The daily high of 80.45, reached at the end of regular trading yesterday, prefaced a decline that started hesitantly but grew faster as night turned into morning. It didn't stop until the U.S. Dollar Index reached 79.99 just before 2:40 AM. A secondary uptrend got rolling shortly afterwards, which ended pulling the Index up to 80.25 by 6:55 AM in the second of two stages. The decline then resumed, swiftly, pulling the Index to slightly below the 80 level. The last stage of the decline kicked in between 7:35 and 7:40 AM, pulling the Index down to 80.07 to 79.975 in that time period. As of 8:05 AM ET, the greenback was marking time slightly below 80.

A Bloomberg report, webbed by Business Week, attributed gold's strength and the greenback's weakness to an easing of the Eurocrisis, as it looks like the Grecian mess will be contained. All of the optimistic quotes therein were hedged, like these ones:

“With European woes easing somewhat, the dollar is retreating and demand for investment assets including gold is coming back,” said Hwang Il Doo, a senior trader with KEB Futures Co. in Seoul. “There are some investors seeking bargains, but the strength in gold appears temporary for now.”...

“We expect gold to stabilize due to current buying interest,” Eugen Weinberg, head of commodity research with Commerzbank AG in Frankfurt, wrote in a note to clients. “The firm dollar is likely to prevent gold from rising sharply.”

The article also contains an intriguing item: China Investment Corp., a PRC sovereign wealth fund, now owns 1.45 million shares of SPDR Gold Trust (GLD). Those shares represent 145,000 oz. of gold and are worth more than $155 million. They represent a small fraction of approximately $10 billion worth of commodity-related assets in the fund, according to its 13-F filing posted last Friday. The date of acquisition wasn't mentioned. GLD holdings were unchanged yesterday after rising slightly last Friday.

A Reuters report has a different take on gold's rise, contained in its first quote from an expert:

Afshin Nabavi, head of trading at MKS Finance in Geneva, said the euro's recovery was an excuse for buyers to get back into the market.

"After Friday's free-fall, markets have been consolidating yesterday and so far today within a range of $1,050-$1,075," he said. "Physical demand is still high out of Far East and India, so (there is) good support in the market."

Whatever the causal chain, trouble in Eurozone has been bad news for gold; a resolution of that trouble should push the metal up.

This six-month chart of the Kitco Gold Index, and of gold's spot price, shows a certain symmetry as of two weeks ago and most of last week:



Six months ago, the three-stage run-up that ended early December was just getting started. On the chart just above, which scales the KGI (blue line) to gold (red line) so that they began at the same point, raw gold outpaced the KGI; subsequent to December 3rd, the differential narrowed over time. As of the beginning of this month, it had been erased competely. Since then, as gold plummeted further, the KGI line has risen above the gold line. Graphically, it shows there's a certain leverage provided by the U.S. dollar - either way. The blue line shows that gold's moving in a channel if the greenback is factored out.

As regular trading proceeds, the U.S. Dollar Index is holding the 80 level after a further slight dip below it: as of 8:55 AM, the Index was at 80.01. Spot gold has sunk back somewhat, to $1,073.00 as of that same time. Again, the day's gain is split roughly evenly between U.S. dollar weakness and predominant buying. All in all, the overnight session was good given what gold's done in the last three trading sessions.