Gold Rises Overnight, Helped By Rising Euro And PRC Inaction

Despite the bulge in mainland China inflation, the People's Bank of China has done nothing as yet to curb it. According to a New York Times article, it's believed that the February jump-up was seasonal; the 12-month rate is still below the government's 3% target rate.

Economists said this week’s data suggested that no shift in policy was in store, but they predicted higher interest rates as China tried to hold down inflation.

While inflationary pressures are clearly building, “current inflation is still modest,” a Citibank economist in Beijing, Ken Peng, said. “Right now, we are still O.K. This is not going to cause any panic among policy makers.”

A Standard Chartered Bank economist in Shanghai, Jinny Yan, said the data did not suggest that the Chinese economy was overheating, despite pockets of speculation, especially in the property market.

The lending frenzy in January abated in February, with loans in the latter month being half of what the former month's were. Also mentioned in the report was an announcement by Prime Minister Wen Jiabao, in which he stated that the lending target for 2010 will be only 78% of 2009's.

The handicapping so far says that the People's Bank of China won't raise the reserve requirement this month. Gold took a little heart from that forbearance, and more from a rise in the Euro; the latter was influenced by a report of a record rise in Euroland industrial production in January. The drop in the greenback had more influence on gold's rise than the official easygoingness about the latest PRC inflation figure.

When evening trading opened, gold traded in a range centered at $1,110. After dipping down to the $1,108 level at 9 PM ET, the metal rallied up to the $1,113 level by the end of the night. It stayed near that level until about 3:30 AM when the industrial-production news boosted the Euro. Gold then sailed up to $1,120.40 before pulling back to the $1,115 level; it later pulled up a bit. As of 8:12 AM ET, spot gold was at $1,116.90 for a gain of $7.30 on the day. The Kitco Gold Index divided the day's gain into $0.60 due to predominant buying and $6.70 due to a weakening greenback.

The U.S. Dollar Index, after a decline that started slowly last night, sunk well below 80 early this morning. It started off last night in a range just below 80.3. An attempt at a rally as of 9 PM got the Index up to 80.325, but it fizzled and turned into a slow decline. After leveling off at 80.2, it fluctuated around that level with increasingly volatility until a swift decline started at 3 AM. That drop took the Index all the way down to 79.67 before it stopped at 5:25 AM. Since then, the Index fluctuated in a range bordered by 79.85 and 79.75 before pulling up a little. As of 8:21 AM ET, it was at 79.86.

A Wall Street Journal Online article attributes the overnight rise in gold to the advance in the Euro.

The euro is trading above $1.37 against the dollar, a figure that was important resistance, said Standard Bank analyst Walter de Wet.

"It has triggered fresh money," Mr. de Wet said, adding gold isn't likely to trade much above $1,130 to $1,140an ounce in the next week due to poor physical demand. In addition, holdings in the largest gold exchange traded fund, SPDR Gold Shares, rose last week but then fell back Wednesday.

Lack of official response to the latest PRC inflation figures was also brought up.

The technical picture was brought in by a Reuters article webbed by the Globe and Mail:

From a technical perspective, gold has key support at $1,115 and $1,104, analysts said, as well as the psychologically important $1,100 level at which it bounced on Thursday.

However, the technical picture overall remains neutral, they added. “Only a close back above $1,131 would inspire renewed calls for higher prices,” said ScotiaMocatta in a note.

The article also mentions the anticipation over February U.S. retail sales fugure. That figure has come in at a 0.3% gain, which put sales up 3.9% as compared with a year ago. It was above expectations, which were for no change. The news pushed the U.S. Dollar Index up to near 80 before it pulled back a little; as of 8:46, it was at 79.91. Gold was dragged down below $1,115 on the news. After fluctuating directionlessly when regular trading opened, the metal sunk more than seven dollars an ounce before recovering a little. As of 8:50 AM, spot gold was at $1,113.40; it still had a gain on the day, of $3.80, but more than all of that gain was attributed to the weakening dollar by the Kitco Gold Index.

Evidently, the good retail-sales news was sized up as bad for gold. Both it and the Euroland industrial-production news benefitted the respective currencies. It's likely that other good U.S. economic news will be seen as good for the greenback and bad for gold, until inflation accompanies it.