Steady Gold Went

The $1,075 support level held last night, as gold drifted slightly downwards before halting at around that level. A slight rise to about $1,079 was aborted just after 2 AM ET, and gold drifted back down to that same level. A downward test at about 5:30 AM ended with gold reaching $1,071.90, but that decline was quickly replaced by a rise to well above $1,080. Since then, until about 8 AM, gold has wavered around the $1,080 level. As of 7:59, gold was at $1,078.50 for a gain of $0.90. According to the Kitco Gold Index, gold had $2.80 taken away from its price due to strength in the U.S. Dollar and $3.70 added due to predominant buying.

The greenback did recover somewhat, although less than in last night's action. After regular trading ended, the U.S. Dollar Index entered into a narrowing corkscrew pattern centered around 79.8 before embarking on a rise that lasted from 9:15 PM to 12:50 AM. In that time, it went slightly above the 80 level but failed to hold. A two-stage decline got rolling right afterwards, which carried the Index down to 79.65. After vacillating between that level and 79.8, a double bottom was made just before 6:25 and the Index began climbing. As of 8:11 AM ET, it reached 79.96.

A Wall Street Journal Online article quotes traders as saying gold was held in a range due to uncertainties about any aid package for Greece.

Germany is expected to outline its view later Wednesday, but uncertainties linger over the extent of the aid and its implication for other euro-zone countries struggling with high sovereign debt levels.

That uncertainty over an aid plan for Greece along with a falloff in physical demand for gold, was keeping gold locked in a narrow range, traders said.

The rest of the article quotes a Commerzbank analyst as saying physical demand is on holdback, and notes that gold looks listless from the technical end.

Over at Business Week Online, a Bloomberg report holds out hope that "Gold May Gain on Speculation a Weaker Dollar Will Spur Demand." One upcoming influence may be Fed chair Bernanke's testimony to Congress about unwinding the Fed's monetary-stimulus programs. Ann-Laure Tremblay is quoted as noting, "“Investment demand in 2010 is progressing at a more modest pace relative to the second half of last year, judging by more subdued exchange-traded-fund inflows." The SPDR Gold Shares Trust (GLD)'s holdings were unchanged yesterday.

Regarding the usual driver of the gold market, Reuters quotes advisor Yuki Sonada as to whats' being watched for as eyes turn to D.C.:

"On the surface, the currency market is a main driver for now in the gold market and causing ups and downs in prices," said Yuki Sonoda, an adviser at Daiichi Commodities Co in Tokyo. "But what people really want to know is the fate of proposed regulations on U.S. banks, because that will determine money flows of risk-taking funds, and whether or not President Obama will make compromises and how," he said, referring to stalled financial regulatory reform plans....

Imposing tighter regulations on U.S. banks as proposed could send gold well below $1,000 per ounce, Sonoda said.

The regulation he's referring to are bans and/or restrictions on proprietary commodity trading - although it's a bit of a toss-up price-wise because restrictions may be placed on their commercial-trading activities too. The banks are normally commercial-shorts, sometimes heavily so.

These two charts, both from Stockcharts.com, make for an interesting contrast. The first is the six-month price of gold itself, and the second is the gold price divided by the U.S. Dollar Index:





Late last month, while gold itself was double-bottoming, the ratio chart showed a new bottom being made at a lower level than the previous one's. The two put together provide a rough gauge of the U.S. dollar's influence on the gold price. That lower bottom meant that the U.S. dollar outpaced gold in that timeframe, which can be seen as a sign that gold held up well in other currencies. It did warn of trouble ahead, but it won't if gold drops for reasons other than a U.S. dollar bull trend.

As 9 AM approaches, the U.S. Dollar Index's recovery continues; it was bumping up against the 80 level as of 8:57. Gold took a bit of a tumble right after regular trading began: starting at 8:30, the metal lost about five dollars an ounce before the slump ended. As slumps go, this one's been pretty mild for the timeframe. It drove gold down to $1,073.20 for a loss of $4.30 on the day.

Will the $1075 level end up holding today? That remains to be seen.