Gold Advances Overnight On Greater Commitment From IMF

The IMF has stepped up its commitment to aid the Grecian government, boosting the bailout package to a maximum of 120 billion Euros over three years. The head of the IMF is complaining that Europolitics has led to delays which have increased the commitment needed; there's talk that offering the Spanish and Portugali governments a similar bailout package would exhaust the fund.

That news got gold up in the early-morning part of the overnight session, after a night where the metal unsuccessfully tried to rise above the $1,165 level. Starting at $1,163.90 at just after 12:00 AM ET, the metal rallied to $1,172.30 in the next four and a half hours. Peaking at that level, gold pulled back below $1,170 but stayed well above $1,165. As of 8:02 AM, the spot price was $1,166.70 for a gain of $1.70 on the day. The Kitco Gold Index attributed +$3.65' worth of change to a weakening greenback and -$1.95' worth to predominant selling.

The U.S. Dollar Index drifted in the early part of overnight trading but sunk later. The decline started at 9:30 PM, and was slow at first. A recovery between 1:55 and 3:10 brought the Index up to 82.35, just below its overnight high. Then started a three-hour drop, which brought the Index down below 82. Recovering a little, it drifted around the 82 level in the next two hours. As of 8:14 AM, it was 81.98.

A Wall Street Journal report ascribed gold essentally holding steady to continued safe-haven demand.

Gold made strides even though the euro is recovering against the dollar, and equities and commodities are higher in a modest improvement in risk appetite....

A senior trader in London said gold's next resistance target is $1,175 an ounce. "If we get above $1,175, the all-time high is back in play."

A near-term pullback to consolidate gains of the past few days may occur but few market participants will want to have short gold positions with the market focused on sovereign debt, he added. "With what's going on at the moment, I don't think (gold's) going to back off far."

Another quoted expert, though, was neutral to bearish in the near term because of IMF/EU efforts to contain the Eurocrisis.

The same reason was given by the morning Bloomberg report, as webbed by Business Week.

“As the risks intensify in Europe, I see further reason to own gold,” said Edel Tully, precious metals strategist at UBS Ltd. in London. “If stocks are under pressure, other commodities are under pressure, gold is performing as you would expect it to perform given external circumstances.”

Also mentioned in the report is yet another increase in the holdings of the SPDR Gold Shares Trust, to a new record. As of yesterday, the new total is 1,152.91 tonnes.

"[C]oncerns over the euro zone's fiscal health" was how the morning Reuters report put it. The first quoted expert is a little skeptical about the current rise:

"With the contagion of Greece, Portugal and Spain coming through, it has given a perfect backdrop for those who view gold as a safe haven," said RBS analyst Nick Moore. "We have had a record gold price in euros, sterling, and Swiss francs."

However, with gold's rise driven solely by sovereign risk fears rather than fundamental factors, the metal is unlikely to justify these levels long-term, he said.

"The European situation will probably rumble on for weeks and months, but further out we know interest rates are going up and the opportunity costs for holding gold will become more expensive," he said. "Once the markets confidence returns, I think gold will be found wanting."

Also brought up is a pledge by the European Council president Herman Van Rompuy, echoed by European Central Bank president Jean-Claude Trichet, that the Grecian government will not default - and the gold market's interpretation of its sureity.

The U.S. jobless-claims number was released, and it matched expectations: a drop of 11,000 to 448,000. The four-week average of continuing claims inched down slightly. Gold didn't react to the datum when it was released, after the price went up slightly when regular trading opened, but did drop five dollars an ounce between ten and fifteen minutes later. After a slight bounce, spot gold was $1,162.30 as of 8:57 AM for a drop of $1.10 on the day. The Kitco Gold Index assigned +$3.30 to greenback weakness and -$4.40 to predominant selling. The U.S. Dollar Index, after sinking down to 81.9, started rallying at 8:40 but barely rose above 82. As of 9:02, it was 82.00

So far, gold hasn't been doing that well in the regular session. That above-mentioned caution about not going short may save gold from simking much further, but it may not. It may also be ignored.