Gold Drops More As Reprecussions Of Goldman Case Spread

Trading for the week opened with gold staying roughly in the same place. Although the $1,135 level was sunk below early in the night session, the price had recovered above that level and stayed there until just after 2 AM ET. Then, the price sunk; at first slowly, the drop gathered momentum until the drop ended around 5 AM at $1,123.00. Since that low, the metal climbed back above $1,125 to almost $1,130. As of 7:58 AM ET, spot gold was at $1,129.30 for a drop of $7.50 since Friday's close. The Kitco Gold Index split the loss into -$2.40 for predominant selling and -$5.10 for strengthening of the greenback.

Thanks to the panic-button reaction that's often benefitted it, the U.S. Dollar Index climbed above 81 last night. From 8:30 to 10:30 PM, the Index rose fairly steadily from below 80.9 to 81.125. Leveling off after a pullback until 2:45, the Index hovered around the 81.05 level while gold began to react. An attempted rise above 81.15 was initially thwarted, but a more sustainable one starting as of 4:45 got the Index from a little below 81.05 to above 81.25. Another slight pullback followed that latest peak. As of 8:07 AM, it was at 81.16.

The morning Bloomberg report, as webbed by Business Week, ascribed the morning drop to Goldman-triggered fears that the commodities market will be more tightly regulated.

Gold dropped to the lowest price in almost two weeks in London on speculation that commodities demand will be curbed by regulations arising from the lawsuit against Goldman Sachs Group Inc. for alleged fraud....

“We may see an increase in calls for trading restrictions by large-scale speculators,” said James Moore, an analyst at TheBullionDesk.com in London. Goldman traders are “active members of the gold market.”...

“Clearly any return of risk aversion that this prompts is, as we have seen, going to be bad news for the gold price, at least in the short term,” Philip Klapwijk, executive chairman of London-based research company GFMS Ltd., said of the lawsuit by e-mail today.

Still, there are some who see the drop as a buying opportunity. The article also mentions the notable fact that, even after Friday's plummet, the holdings of the SPDR Gold Shares Trust were unchanged. Also noted was the possible effect of the volcano-caused flight delays: as of now, no shortages have developed.

An earlier, pre-Europe Reuters report contrast's gold's resilence last night with oil's drop-off.

"Oil took a hit again but gold didn't. That's mainly because gold is maintaining its allure as an alternative to currencies," said Shuji Sugagta, a manager in Mitsubishi Corp Futures Ltd's research team.

Evidently, the reprecussions had not sunk in at that point. What had seemed to be resilence proved to be more air pockety.

When regular trading opened, gold initially fell below the $1,130 level it had reached just after 8:00. That decline reversed quickly, and gold climbed up to $1,134 before pulling back a bit. As of 8:46 AM, the spot price was $1,132.30 for a change of -$3.70 since Friday's close. The Kitco Gold Index attributed a -$4.90 change to a strengthening greenback and a +$1.20 change due to predominant buying. The U.S. Dollar Index did pull up a little in that timeframe, reaching 81.25 at about the same time gold dropped. Since then, it's been hovering above the 80.2 level; as of 8:49, it was at 81.22. As Marketwatch reported, the delays caused by the volcano-caused flight cancellations led to a futher selloff of Grecian government bonds and a renewed drop in the Euro.

The early-morning drop was somewhat unexpected, even if it had meant gold falling in sympathy with other major commodities like oil (and copper.) Although the metal has not completely recovered, its recent rally may be enough to deter another morning plummet today. Maybe.