Gold Makes New 2010 High

The gold market has evidently taken a shine to the impending bailout, which is expected to have details added to it by Monday. The metal spent most of the overnight session on a rising track, and made another new 2010 high. Although unrelated to the main event, the Bank of Japan is mulling ways to inject money into the banking system although not making any explicit easing steps at this time. A spokesperson said that any such initiatives would be "unorthodox," which seems to mean some kind of quantitative easing. Japan has had a more than one year spate of outright deflation, although mild: -1.3% over the last twelve months.

That announcement certainly didn't hurt gold. Starting off the overnight session with a rise, which pulled it up to about $1,168, gold added to its gains at about 8:40 PM ET by vaulting up to almost $1,175. Peaking just after 9:00, the metal slid back to the $1,172-3 range until midnight; it fell a little more, but drifted up to that range again. 3:30 saw a drop, to as low as $1,169.50, which proved to be a fake-out. After springing back to $1,171 and muddling along until 4:00, gold took off; it topped at $1,176 an hour later. Pulling back to around $1,174, and remaining there until about 7:00, the metal went for another leap that took it to a new high of $1,179.00 before pulling back once again. That pullback had left the price at above $1,175. As of 8:04 AM, spot gold was at $1,175.10 for a gain of $7.90 on the day. The Kitco Gold Index split the gain into +$4.65 for predominant buying and +$3.25 for a weakening greenback.

After drifting in the night part of the overnight session, the U.S. Dollar Index dropped well below 82. After dipping down below 81.9 in the evening, the Index pulled up to 82.1 by 10:15 and then fell to a little above 81.9 by midnight. An attempted rally after that point turned into a decline that pulled the Index down to 81.7 by 3:15. Subsequently, it fluctuated in a somewhat ragged trading range between 81.7 and 81.8 until testing it on the upside. As of 8:12, it was at 81.80.

The morning Bloomberg report, as webbed by Business Week, ascribed gold's rise to the drop in the greenback as well as safe-haven demand.

“On the one hand, gold is benefiting from dollar weakness, but it’s starting to decouple from currency movements,” said Suki Cooper, an analyst at Barclays Capital in London. “It is very much the safe-haven appeal of gold that is boosting prices.”

Prices of the metal are up 5.5 percent this month, heading for the biggest monthly jump since November, as investors bought gold and the U.S. currency on speculation Greece wouldn’t get loans quickly enough to avoid defaults on its bonds. Gold will probably climb to a record in the third quarter, Cooper said.

Part of the report was devoted to the recent string of increases in the holdings of the SPDR Gold Shares Trust, again increasing to a record high; as of yesterday, it held exactly 1159.00 tonnes. It's on track to having the best weekly gain in its holdings since March of last year. Also mentioned is an unusually lopsided result from a Bloomberg straw poll: " Eighteen of 21 traders, analysts and brokers surveyed by Bloomberg, or 86 percent, said gold may rise next week, the most bullish result since November. Two people expected a decline and one was neutral."

The same two causes kicked off the morning Reuters report, which also noted that gold made a record high in Swiss francs. Like the Bloomberg report, this one notes that gold is on track to make its best monthly showing since last November.

[T]he fear of contagion [from Greece to other Euro nations] was clearly evident in gold, analysts said, with prices now on track to move back toward their December high, a record peak of $1,226.10 an ounce.

"Gold has been trading in a range of $1,160-1,175, and if $1,175 gets taken out, we should be in for a sharp rally," said Afshin Nabavi, head of trading at MKS Finance in Geneva. "We could head for the $1,200 area."

"Precious metals have put in a very good performance this week," he added. "Once the metals show confidence and direction, we see investors coming back in, given the situation in Europe."

Also helping the metal was a recovery in other commodities, including the more industrial-related precious metals.

The morning Wall Street Journal report succintly cites investor demand as the reason behind the new 2010 high. It also mentions a factor that's been overlooked in the focus on the Grecian mess:

Data from the euro-zone showed that inflation in April hit its highest since December 2008. The figure is just below the European Central Bank medium term target of 2%.

Near the end, James Moore of TheBullionDesk.com is quoted as saying that the metal's on track to making $1,200.

The first-quarter real GDP figure for the U.S. economy was released at 8:30; it came in at 3.2%, which matched expectations of the economists surveyed by MarketWatch. An increase in consumer spending and a leap-up in business investments were the main drivers for the increase. Before it was released, there was a small breakdown in gold below $1,175: from above $1,176 at the open of the pit shift, it dropped to just above $1,173. The release of the number reversed that drop. As of 8:53 AM, the spot price was $1,176.90 for a gain of $9.70 on the day. The Kitco Gold Index divided the gain into +$5.80 for predominant buying and +$3.90 for a weakening greenback. After rallying slightly above 81.8, the U.S. Dollar Index fell on the news to the lower end of the above-mentioned 81.7-81.8 range. As of 8:55, it was at 81.74.

Evidently, the implications for the Eurobailout are sinking in to gold's benefit. So far, there's next to no sign that gold will suffer any mishaps during the last regular trading session of the week and month. The metal has it good right now.