Gold Falls Through $1,125, Again

Despite the Grecian government pulling back from an ultimatum threatening to seek IMF help if EU aid is not forthcoming next week, the Euro market is still beset by the possibility of the Eurocrisis reflaming. As a result, the Euro was down and the U.S. Dollar Index was up. Gold fell, although the bulk of the fall occurred earlier.

The evening session started off with a dip to $1,125, which was recovered from, followed by a larger drop below $1,125. By 9 PM ET, it was at $1,122. After recovering to above the $1,124 level, reached just before midnight, gold slowly slid down. Another dip to $1,122 at 5 AM was recovered from, but the decline continued anyway. $1,122 was broken through on the downside as of 6:00, and the metal spent some time hovering around that level. As of 8:05 AM ET, spot gold was at $1,122.50 for a drop of $3.40 on the day. The Kitco Gold Index divvied up the loss between $0.80 due to predominant selling and $2.60 due to strengthening of the greenback.

As mentioned above, the U.S. Dollar Index did rise due to a Euro drop. Before the morning part of the overnight session, though, it was in a trading range between 80.2 and 80.35. The rally didn't start until 2:30, and it proceeded hesitantly at first. After drifting back down to the middle of the range by 4:35, it jumped up to 80.5 by 5:00. Forty-five minutes' worth of hestiation preceded another jump, this time to above 80.56 by 6:05. Since then, the Index muddled along around the 80.5 level before pulling up a little. As of 8:15 AM ET, it was at 80.54.

A Wall Street Journal article notes that the pullback in gold has occurred on thin volume as it attributes the drop to worries about Euroland.

Many investors chose to sit out Friday amid uncertainty in Europe over the likelihood of financial aid for Greece. The focus next week will be who rescues Greece and that will keep the euro under pressure, thus limiting gains in gold.

"There is so much uncertainty about where the financial markets are going," said Standard Bank commodity analyst Walter de Wet. "At this stage people are sitting on the sidelines watching."

Also in the article is a portrayal of gold as tugged between safe-haven demand and currency uncertainty.

The same conflict is cited in a Reuters report that says traders were given hope by the small extent of the decline overnight.

"On the one side the dollar is weighing on prices, but on the other we are seeing continued inflows from investors," said Commerzbank analyst Eugen Weinberg. "Gold has been resilient against dollar strength, which is actually a good sign."

"As long as we are trading above $1,120, we will be pretty much rangebound," he added. "Should prices drop below there, we could see some downward pressure developing, but at the moment we are seeing a sideways move on gold."

Also mentioned is a World Gold Council report that expects global recovery to lead to an increase in jewelry demand, and with investment demand.

Regular trading opened with no direction to speak of; gold is still hovering around the $1,122 level. As of 8:46 AM ET, it was at exactly $1,122.00. The Kitco Gold Index attributed all but 10 cents of the decline to greenback strength. As for the U.S. Dollar Index, it made a couple of runs at 80.6, both of which fell back somewhat; as of 8:48 AM, it was at 80.54.

All in all, this morning's decline hasn't been that much. It's still a decline, though, and it may preface more disappointing price action today. The U.S. dollar is still a big influence.