Through Long Weekend, Gold Rises

This Presidents' Day, as it turned out, was good for gold. There was a bit of a rally to start off the Sunday session, which didn't last. Monday, however, saw a real upswing as gold sailed to the $1,100 level and, in the evening, beyond. By Monday night, gold was bumping up against the $1,105 level, besting it just after 11:30 PM ET. A second climb, starting just after 2 AM, moved the metal to a little below $1,110 and, after a pulback, above $1,115. It crested at the early-morning high of $1,117.80 around 3:30 AM ET. Since then, a slight downdraft has pulled the metal's price back a bit; as of 8:02 AM ET, spot gold was at $1,111.60. The $12.20 gain on the day has been divided up by the Kitco Gold Index into $2.55 due to weakening of the U.S. dollar and $9.55 due to predominat buying.

Seemingly, some of that predominant buying has come from Euroland. Despite the greenback being the immediate beneficiary of the Eurocrisis, gold has benefitted too. In Euros, gold has set a new all-time record. The high of 816.33 bested December 3rd's 812.43. So, the pullback in U.S. dollar terms can be ascribed to strength in the greenback.

The U.S. Dollar Index went for a bit of a ride Monday morning, but failed to hold at that level. A triple top at the 80.51 level between 1:15 and 2:10 AM presaged a bumpy early-morning drop that ended just below the 80.2 level as of 7:05. After a comeback rally that stopped at 80.47, the Index slumped to the 80.35 level. A slow climb, interrupted by a Presidents' Day trading hiatus, ended at 80.41 as of about 7:30 PM. Since that point, until 3:20 this morning, the Index dropped, reaching the 79.95 level. Since then, it rebounded slightly into a trading range bordered by 80.05 and 80.15. As of 8:17 AM ET, the Index has poked slightly above the top of that range to reach 80.16.

This Marketwatch report notes the rise, but points out that it may have been exaggerated by low volume. It wasn't just the American holiday that dampened volume; it was also the Chinese New Year holiday. This explanation was given in the report:

Gold gained "on the back of the stronger euro," said James Moore, an analyst at TheBullionDesk.com, in a note to clients.

"The metal is vulnerable to a euro-related pullback and now needs to clear resistance around $1,125 to cement more bullish sentiment," Moore said.

The record Euro high was mentioned early on in a Wall Street Journal Online report. The two quoted gold watchers were more optimistic than was Moore:

"It looks like safe haven buying is coming back into the market," said Michael Kempinski, a precious metals trader at Commerzbank in Luxembourg. "People are afraid of paper currencies and inflation."

A trader in London echoed a similar view, saying the euro's status as a safe currency has been damaged by fears of debt defaults in Greece and other euro-zone countries. "The two major reserve currencies are weak, so why not buy gold?"

Despite that optimism, the article ended with the prediction of a near-term consolidation phase. In an unrelated Euroland development, reported inflation in the U.K. has shot up to 3.5% on an annual basis. The main explanation given was a rise in the VAT rate and in items that the U.S. statistics consider to be non-core. Bank of England governor Mervyn King said that the rise above the 1-3% Bank of England target range was temporary.

The strength of gold in other currencies is shown in this chart of the Kitco Gold Index (KGX) over the last six months:



Ever since the December 3rd high, gold's been in a channel if the influence of the U.S. dollar is factored out. The KGX was actually at its worst in late December even though gold hit a 2010 bottom almost two weeks ago. Of note is that fact that the KGX is up more in percentage terms than gold itself since mid-August.

Regular trading has opened, and gold has bested its earlier high. In a departure from the recent usual, gold climbed as soon as the COMEX session got rolling. The early-morning high mentioned above was bested; the new high of $1,119.60 was made at 8:45 AM ET. Since that jump, gold has pulled back a little: as of 8:52 AM ET, the spot price is $1,115.80. The U.S. Dollar Index has stayed in the above-mentioned range, pulling back to 80.06 around that same 8:45 before recovering to 80.10 as of 8:52 AM.

Despite the continued high level for the U.S. dollar, the vim is back in the gold market. How long it will continue to be so, remains to be seen.