Gold Slumps A Little Overnight As Greenback Recovers

After closing at just below $1,140, gold eased down by about five dollars overnight; it was just above $1,135 right after 11 PM ET. A pause followed, with $1,135 serving as a floor until 2 AM when that level was tested. Although the metal got down to $1,132, the floor ended up holding as the price rebounded to $1,135 and began rising as of 3 AM. With another pause in the middle, the run took the metal up to $1,142.70 by about 7 AM. At that top, which overlapped the top of a more modest rally yesterday morning at about the same time, gold was almost exactly where it was twenty-four hours earlier. Such was the case after a mild pullback - and for the price relative to yesterday's close. As of 8:04 AM ET, spot gold was at $1,138.80 for a loss of $0.80 on the day. 30 cents of that loss was chalked up to predominant selling by the Kitco Gold Index, and 50 cents of it was put to U.S. dollar strengthening.

A stronger relief rally did kick in for the U.S. Dollar Index, starting late last night. After hanging around the 80 level, at which it was as of yesterday's close, the Index made a couple of false starts before a rally kicked in, at about 10 PM, that carried it up to 80.295 by 3 AM. A pullback in the next hour took it below 80.15, which was only partially erased before the Index took a spill as of about 5:30. By 7:00, it was back down below 80. That level, though, served as a floor. As of 8:12, the Index was at 80.055.

The recently-flowering optimism over gold was absent in a Wall Street Journal Online article that attributed last night's slump to a stronger U.S. dollar. A decline in risk appetite was cited as the consequence of the rising greenback.

"If efforts by the Greek government succeed in further reducing sovereign risk, the focus of the financial markets may begin to shift away from Greek sovereign risk issues," said HSBC analyst James Steel. He said it could improve "risk sentiment" and thus inspire a return to gold buying.

The other expert opinion came from the Royal Bank of Scotland, and it's full of caution:

[G]old still remains vulnerable to developments in the euro zone, and Royal Bank of Scotland analysts said they still forecast price weakness in the next two quarters.

Obstacles to higher gold prices include a slowdown in physical buying, further strength in the dollar, potential interest-rate increases—which will increase the opportunity cost of owning gold—and the psychological impact of the International Monetary Fund selling some or all of the remaining 191.3 tons of gold to the market, RBS analysts said.

A Reuters report attributed gold's steadiness early this morning to a pause in the U.S. dollar relief rally. The quiet that's evident in the WSJ article shows in this one too.

"The pullback in the euro/dollar today is taking a little wind out of gold's sails," said Societe Generale analyst David Wilson. "There is still nervousness over the euro area, particularly with strikes in Portugal over austerity plans."

Also mentioned in the report is the fact that the SPDR Gold Trust (GLD)'s holding have increased for the second day in a row yesterday, to 1,115.511 tons. The European Central Bank acted as expected, leaving its interest rate at 1%. The central bank's expected to announce some modest tightening measures in the coming days, to pull back some of the liquidity put into the European banking system after the '08 financial crisis. Its outlook for growth and inflation remined unchanged. The Bank of England didn't even hint at any withdrawal of liquidity programs as it left its rate at 0.5%. Governor Mervyn King expressed dounts about the solidity of the recovery.

This week's jobless-claims numbers have been released, and they came in almost as expected: 469,000. One of those news-related rallies hit the U.S. Dollar Index briefly at the time the number was released, which was mostly erased after two stabs at rallying. Still, a pre-news rally held; as of 8:54 AM, the Index was at 80.115. Gold slumped a little in counterpoint to the spurt-up in the Index; as of 8:55, it was at $1,138.60 for a drop of $1.40 since yesterday's close. The Kitco Gold Index, however, attributed a gain of 60 cents due to predominant buying ex-dollar. Two dollars' worth of fall was attributed to U.S. dollar strengthening.

Today's action isn't likely to come up with an overall gain for gold, simply due to the exhaustion factor. However, the metal's holding up well so far.