Gold Drifts Down After Yesterday's Rocket-Up

Perhaps the letdown was inevitable. In the night part of the overnight session, gold drifted downwards to $1,165 before pausing around that level. In the morning part, $1,165 was initially clung to, but dips below it made for a new range between $1,165 and $1,160. An hour-long dip starting around 3:00 AM ET took the price down to below $1,163; a more sustained decline, starting a little before 5:00, took the price all the way down to $1,160.20 by 6:40. A recovery put the price back near $1,165, but failed to ford above that level. As of 8:02 AM ET, spot gold was at $1,164.80 for a drop of $3.60 on the day. The Kitco Gold Index attributed -$5.00 to predominant selling and +$1.40 to weakness in the greenback.

The U.S. Dollar Index did see a pullback, but not before it reached another near-year high. The night part of the overnight session saw the Index drift down to below 82.1, but the morning part saw it pick up again. Beginning slowly, it rallied on further fears of another European blow-up erupting. By 4:50 AM, it had reached slightly above 82.5. Stalling at that level, its rally evaporated and it pulled back to below 82.2 before recovering a little. Of note is the fact that gold did not benefit from any jitter rally in the same timeframe. As of 8:12 AM, the Index was at 82.21.

A Wall Street Journal report starts off by noting that gold hit a new record high, interday, in Euro terms.

"At the moment, the propensity on the part of European investors, and perhaps even governments, to own euro- or sterling-denominated assets is reduced, while their propensity to move euro-denominated assets into something 'harder' is higher and is rising," said Dennis Gartman of the Gartman Letter.

As a result, he said he favors owning gold in non-dollar terms.

"We are seeing good safe-haven buying, and some investors shifting money from bonds and other investments over to gold," said Michael Kempinski, a trader at Commerzbank.

Gartman warned that gold could be hit by investors liquidating positions to fill margin calls.

That warning is consistent with the air pockets that gold has hit over the last several months. Also noted is the fear that the two downgrades yesterday, of Grecian and Portugali sovereign debt, indicate more trouble coming.

The morning Bloomberg report, as webbed by Business Week, pegs gold's pullback as the result of speculation that economic recovery will drain demand for the metal. There's concern expressed over higher interest rates coming.

“In the short term, there may be safe-haven buying, but I don’t think that will be as important in the weeks ahead,” said Daniel Smith, an analyst at Standard Chartered Plc in London. “The Greece issue won’t derail economic recovery.”

Also mentioned is Goldman, Sachs reducing its forecast for gold's average price this year. The number used to be $1,265; it's now $1,165. Economic recovery was cited as the cause for the drop. (I suspect that gold's performance so far this year was another reason. The average price from Jan. 4th to now, encompassing almost a third of this year, would be somewhere around $1,120 or so; it may be lower. I think the analysts are becoming reconciled to 2010 being a less exciting year than was thought at the beginning of it.)

The report also notes that the holdings of the SPDR Gold Shares Trust hit another record high yesterday, but the gain from the day before was fairly small: 0.61 tonnes.

With regular trading open, gold slumped down almost five dollars an ounce before recovering a little. The slump ended at 8:25, and the recovery added about a dollar to the price. As of 8:50, the spot price was $1,162.10 for a drop of $6.30 on the day. The drop in the predominant-selling category widened to -$9.70, while the weakening-greenback category widened to +$3.40. The U.S. Dollar Index is pulling back after fluctuating around the 82.2 level; as of 8:57, it was at 82.07.

Overall, the slump is a letdown drop which will likely stay in place unless there's another catalyst to move gold upwards. So far, there seems to be none of the horizon.