Gold Has Quiet Start To Week

As the trading week opened, gold fluctuated in a fairly narrow range between $1,132 and $1,138, with most of the time spent between $1,133 and $1,136. A small rally that accompanied the opening of trading Sunday evening (ET) turned into a decline that took the price down more than four dollars an ounce. In the overnight session that was, that drop was one of the bigger ones. After spending the rest of the night moving around the $1,134 level, early-morning trading opened with a rally that took the price up to $1,138.70 briefly as of 3 AM ET. A three-stage decline in the next four hours dropped gold to a low of $1,131.90. Support was found at the $1,133 level, though, and the decline ended at that time. As of 8:02 AM ET, spot gold was at $1,135.90 for a gain of $1.60 since Friday's close. The Kitco Gold Index attributed a drop of $1.00 due to predominant selling and a gain of $2.20 due to the U.S. dollar weakening.

The greenback has weakened, although the bulk of that weakening happend last night. For whatever reason, the U.S. Dollar Index can't seem to stay above 80.5 right now. Early morning saw a drift turn into a dip that lasted from about 1:45 AM to just after 2:30; it took the Index down to slightly below 80.1. The climax of the drop turned into a rally that pushed the Index up in a two-stage advance that got it up to about 80.4. After churning for an hour and a half, it pulled back starting at 7 AM. The Index found support at 80.25 but broke through it slightly just before 8 AM. As of 8:13, it was at 80.24.

News that the EU commission is preparing to propose an all-European rescue fund as a rival for the (unwanted) IMF didn't affect either market all that much. The most likely reason is that any such institution would be a long time a'comin, as the Eurocrats like to study things throughly beforehand. Also, it would require unanimous approval from all member States before it could get off the ground. It won't be around to help with the current Grecian crisis, presently on the wane, but it might help with the next one if it gets up and running.

A Reuters report, webbed by the Globe and Mail, explains gold's continued strength as the result of risk appetite. Therein, it contains an eye-opening fact about the long-dollar trade:

Currency speculators cut by more than half their long bets on the U.S. dollar in the latest week, according to Commodity Futures Trading Commission data released on Friday.

That is one large move-out. Some may have gotten out while the getting was good, but that level of shrinkage (combined with how the greenback's done since the Grecian crisis climaxed) suggests a lot of hasty exits. Whatever the motivation, it does show that a lot of the longs were would-be Soroses hoping to profit from the crisis. I have my doubts about how many of them actually did so.

Also in the article is a note that the SPDR Gold Trust increased its holdings on Friday, to 1,116.12 tons. The trust is currently holding more gold than it did as of January 14th.

A Wall Street Journal Online article said that gold's performance has been pedestrian because the Euro has trimmed its gains; there's more investor interest in platinum and palladium right now.

Overall, gold interest remains lackluster, except for trading in euro terms where the metal has been hitting new record highs. A rise last week in the largest gold exchange traded fund, SPDR Gold Trust, remained subdued. And Afshin Nabavi, head of trading and physical sales at MKS Finance, said there isn't much physical buying.

Long positions in the Comex market, or bets that prices will rise, did increase on the week but that was mostly due to technical moves rather than fresh investor interest, said UBS analyst Edel Tully.

In other words, there's little investor enthusiasm right now (outside of the Eurozone) and prices are too high to support bargain buying. Unless a kicker comes, $1,150+ will just have to wait.

This Bloomberg report, webbed by Business Week, is more optimistic; it notes the Euro, despite what the previous article said, did gain against the greenback. Again, the draining of panic over Greece is cited as the cause. Risk appetite is also brought in:

The metal may “benefit from further investor diversification in coming sessions, with dips continuing to be seen as bargain-hunting opportunities,” James Moore, an analyst at TheBullionDesk.com in London, said in a report. “Risk appetite remains steady.”

Also mentioned in the report is the dollar sinking because German industrial output grew only 0.6% in January versus an expected 1.0%. It's hard to remember at times, but the U.S. dollar isn't the only safe haven in the world. (Nor is gold, for that matter.)

Regular trading has opened, and the U.S. Dollar Index wound up finding support at the 80.25 level; as of 8:50 AM ET, it was at 80.26. Gold dropped a little, although the drop was much milder than Friday's at the same time. As of 8:51 AM ET, the spot price was at $1,134.70 for a gain of 30 cents since Friday's close. The predominant-selling category in Kitco's Gold Index has expanded to -$1.80, while U.S. dollar weakness is counted as adding $2.10 to the price.

Maybe the WSJ's more saturnine look at the overnight market is going to be the more accurate one. There does seem to be little bullishness right now.