Gold Gets Above $1,130, Falls Back

The reflationary efforts continue. The Bank of England board agreed unanimously to leave the BoE rate at 0.5%, while the board of the Bank of Japan agreed to keep its policy rate at 0.1% and authorize another 10 trillion yen for loans at that rate. The expansion of its own quantitative-easing program wasn't without controversy, though, as two of the seven board members voted against.

Gold spent all of last night and the beginning of this morning's trading (ET) in a range between $1,125 and $1,130. That range was broken on the upside as of 3 AM, with the price shooting up to $1,134.40 before pulling back. After a two-hour spell at just below $1,130, the metal surmounted that level again at 6 AM. Hanging around $1,132 for another hour, it took a spill below. As of 8:07 AM ET, spot gold was at $1,127.50 for a gain of $1.60 on the day. The Kitco Gold Index divided the gain into $1.60 for predominant buying and $0.00 for the greenback.

The U.S. Dollar Index was all-but flat for all of last night. The fluctuations intensified as night tunred into morning: as of midnight, the Index was just above 79.65. The next two and a half hours saw a run-up above 79.7, followed by a quick spill that ended as of 3:20 AM at just above 79.5. The fluctuations continued in a range bordered by about 79.55 on the downside and 79.75 on the upside. As of 8:18 AM ET, the Index was at 79.66.

A Wall Street Journal article says that the Bank of Japan's decision, although not unanimous, gave a lift to the metal:

Gold shot higher late Tuesday in the lead up to the U.S. Federal Reserve's rate-setting committee meeting. After the group left rates unchanged as expected the metal climbed further, tipping above $1,130 a troy ounce.

Sentiment got a further boost Wednesday following an announcement in Japan of further monetary easing.

Buying physical at recently-made lower levels have added to the boost.

Echoes of yesterday's Fed decision was cited as the cause by a Bloomberg article webbed by Business Week, due to its effect on the U.S. dollar.

“The stronger euro has given the metal a boost,” James Moore, an analyst at TheBullionDesk.com in London, said in a report. Gold prices “are poised to exit their current phase of consolidation and regain bullish direction as speculators and investors continue to diversify away from fiat currencies.”

His underlying optimism was shared by Goldman Sachs analysts: a report issued from that firm forecasts that gold will be at $1,390 twelve months hence.

A Reuters report webbed by Business Day also attributed the rise to the Fed's decision to stay the course and currency effects:

“As soon as the euro-dollar started moved towards $1,38, we saw currency factors,” said Nick Moore, head of commodity strategy at RBS Global Banking & Markets.

“Gold’s inverse relationship with the dollar is such a powerful (influence) that most moves in gold on a daily basis can be explained by currencies.”

The same strategist also mentioned that rate hikes make gold less competitive an asset class, from which it has been spared so far.

The producer-price index numbers were released at 8:30 AM, and the base rate showed a larger-than-expected drop of 0.6%; the expected drop was 0.2%. A big decline in energy costs explains the overall drop; the core PPI, with food and energy excluded, rose 0.1%. For that number, a drop of 0.1% was expected.

Gold was already falling as of the release, but its decline was amplified by the PPI number. After bouncing between $1,127 and $1,129 when regular trading opened, gold dropped to $1,126 just before the number was released. Spiking up at release time, it continued to drop down to $1,123.30 before recovering somewhat. As of 8:53 AM ET, the day's gain had turned into a loss: spot gold was at $1,125.70 for a drop of $0.50 on the day. The Kitco Gold Index apportioned the loss into -$0.20 due to predominant selling and -$0.30 due to strength in the greenback. The U.S. Dollar Index took a liking to the news after five minutes of hesitation, rising ten basis points from 8:35 to 8:46. As of 8:56 AM ET, subsequent to a pullback, it was at 79.68.

$1,125 may be support instead of resistance right now, but gold's still having a tough time getting above $1,130. Today's action may well see a stall instead of a continuation.