Quiet As Gold Consolidates Gains

Gold didn't move all that much last night. When evening trading began, the price drifted down to the $1,115 level, reaching it at just before 9 PM ET. It stayed there for more than an hour and then drifted up until about 11:30 PM, at which it bumped up a few dollars an ounce. A pullback to $1,114.30 ended at about 2:30 AM, followed by a jump to the $1,123 level. After a lesser pullback, gold made an early-morning high of $1,124.90 as of 4 AM. That gain didn't last, though, as the metal pulled back to the $1,115 level once again. After bottoming at just before 6:30 AM, the price began climbing again. As of 7:47 AM ET, spot gold was at $1,122.20 for a gain of $3.10 on the day. The Kitco Gold Index had gold down $3.20 due to strengthening of the U.S. dolllar, so a gain of $6.30 was attributed to predominant buying.

The U.S. Dollar Index was also directionless last night, although with a slight upward drift during the first half of night trading. The Index made its nightly peak at 79.72 as of around 8:50 PM. That level was the first of a triple top, made over the course of the next twenty minutes, after which the Index pulled back a little. A drop just before 12 AM put the Index at 79.625 as midnight. Early morning trading saw a rally starting at 1 AM, which bumped up against the 79.67 level before leaping up above it as of 1:40. The peak came as of about 2:05 AM, at 79.79, followed by a drop that took the Index down to its early-morning low of 79.55 as of around 3:15 AM ET. This drop reversed into a stronger rally that started with a double bottoming, but took the Index all the way up to 79.91 as of about 6:35. Since then, the Index has pulled back a little; as of 8:18 AM ET, it was at 79.86.

A Wall Street Journal Online report contains caution, with the first cited expert noting that gold's gains are part of an overall gain in commodities that have accompanied an easing of pressures in Euroland. The second quoted is still bearish:

However, much of gold's recent gains are being attributed to speculative interest.

"The rally is on [a] weak footing," said Commerzbank. "Most of the recent increase was driven by speculators."

Commerzbank predicts gold will trade even lower in the first half of the year, but if the SPDR rise Tuesday is the start of renewed investment interest, that will buoy prices.

However, the first, James Moore of BullionDesk.com, is looking at the $1,140-$1,162 area should gold move and stay above $1,125. Also noted in the report is the fact that SPDR Gold Trust (GLD)'s holdings have gone up, even though they're still below the amount they were at as of the start of this year. (To be specific, GLD now holds 1,118.30 metric tons. Although lower than Jan. 1st's, it is higher than as of a month ago.)

Another report, from the Financial Times, quotes an expert who attributes gold's rise to a sight long sought but little seen: rising global inflation.

James Steel, precious metals analyst at HSBC, said evidence of rising inflationary pressures in both the UK and India, an advanced and major emerging market economy, were an “outright positive” for gold prices.

Mr Steel noted comments from Thomas Hoenig, president of the Kansas City Federal Reserve Bank. Mr Hoenig said that the fiscal outlook for the US economy posed a risk to the Federal Reserve’s ability to achieve its dual objectives of price stability and sustainable long-term growth and even posed a threat to the US central bank’s independence from political authorities. [His remarks are covered in greater detail here. They raises the question of whether or not the Obama Administration's beginning to jawbone the fed a little.]

“The likelihood, however remote, that accumulated debt will force the Fed to monetise US debt and that the Fed could lose some of its independence, is supportive of gold prices, due to its inflationary implications,” said Mr Steel.

Also contained in the report is an excerpt from a World Gold Council report on fourth-quarter demand for gold, which notes that both jewelry and industrial demand were up from the first quarter. The former was at 500.4 tonnes, thanks largely to a partial rebound in the Indian market, but both categories were down 20% and 16% respectively from the fourth quarter of 2008. Overall gold demand, as a Bloomberg report details, was up 2.6% in 4Q '09 to 819.7 tonnes. Investment demand jumped 77%. Also noted is George Soros more than doubling his goldings in GLD in the fourth quarter. GuruFocus has the add at 152.14%, and noted value investor Jean-Marie Eveillard adding to his own position somewhat.

The latest bit of U.S. economic news has housing starts rebounding to a stronger-than-expected 2.8% in January. The news helped strengthen the U.S. Dollar Index somewhat: as of 8:59 AM, it's at 79.94. Gold has pulled back somewhat to $1,119.80, shaving the day's gain to $2.00.

The consolidation phase has arrived, it seems.