Gold Pulls Back On U.S. Dollar Strength

Trading for the week started with a churn that turned into a mild slump; the metal spent more than an hour drifting just above $1,115. Then, at 10:30 PM ET, it pulled up slightly and drifted around the $1,117 range. It remained near that level until just before 2:30 AM, when a rally pushed the price up to $1,124.60 in the space of forty-five minutes. Then, a decline made gold give up all of those gains and more. Starting just before London trading opened, and lasting until about 7:20 AM, the drop took more than thirteen ounces off the price. From the bottom at $1,111.20, the metal advanced slightly afterwards. As of 7:55 AM, spot gold was at $1,112.50 for a drop of $5.40 since the close of Friday's trading. The Kitco Gold Index had a gain of $4.55 due to predominant buying, but a drop of $9.95 due to U.S. dollar strengthening.

The greenback surprised again, this time on the upside. (I have to admit that I was surprised.) The U.S. Dollar Index spent the first part of yesterday evening's session slumping a little, reaching the 80.3 level by 7:15 PM. A short time of indecisiveness preceded a rally that pushed the Index to 80.585 just before 9:45 PM. It spent the next three and a quarter hours in a trading range digesting its gains, only to rally again starting at 1:10 AM. That quick rally was followed by a quicker decline, which took away almost all the session's gains. Then, starting at 4:25 AM, a slow rally turned into a strong one that pulled the Index above 81 before stopping. An announcement by European Union Monetary Commissioner Olli Rehn said that more austerity measures are needed from the Grecian government [details here], which shot the Euro down with respect to the greenback. As of 8:10 AM ET, the Index was at 81.03. At the very least, the reversal of the Euro's bear trend has been put off.

A Bloomberg report contains the explanation above for the greenback rally and its tie to gold's drop this morning. James Moore of TheBullionDesk.com said, '“We expect the euro and broad risk sentiment to provide further direction for gold.”' Also mentioned in the report is a rise in commodities such as copper, which may provide some support to gold, and the fact that spot gold gained 3.4% in February. The last month in which gold gained was November.

An earlier Reuters report, filed before the decline, said that gold hit another record in sterling terms (before it fell back.)

"There's a bit of bargain hunting in gold but it seems to be subsiding now. It's still a ranged market, so I don't expect too much," said a dealer in Hong Kong, adding that gold also faced resistance at the 1-month high around $1,130 hit last week.

That resistance, of course, kicked in later. David Barclay was also quoted as saying that gold was pushed up by strength in other commodities, particularly oil. That tie provides some validity to the future-support opinion quoted in the Bloomberg report.

The start of regular trading saw gold pull up from its low until slumping back a bit, in reverse synch with the U.S. Dollar Index. As of 8:42 AM ET, spot gold was at $1,115.30 for a drop of $2.60. The Kitco Gold Index had $9.20 sliced off the price because of U.S. dollar strengthening and $6.60 put on because of predominant buying. The U.S. Dollar Index was just above the 81 level at the same time.

Gold is still swayed by the greenback, but there's also an underlying rising pattern. The rest of the day will show which will prevail, assuming that the latter keeps holding up. It may not because one of the drivers upwards, the earthquake in Chile and its effect on mine production in the stricken areas, is a one-time-tragedy. Gold production was far less affected than copper production, and may have not been affected at all.

Also hitting the news was the consumer-spending and -income report for January. Spending was up 0.5%, slightly better than expected, but incomes were up a less-than-expected 0.1%. Gold and the U.S. dollar were little affected by the news.