Gold Pulls Back Below $1,130

The pullback started yesterday evening, but it was added to by the news that the Grecian government wants to renegotiate the standby rescue package so as to cut out an IMF contribution. That, plus the news that big Grecian banks were losing deposits, helped pressure the Euro and add some strength to the U.S. dollar.

The metal stayed between $1,130 and $1,132 until 8 PM ET, when it fell to the $1,128 level. There it stayed until 3 AM, at which point it lost more than five dollars an ounce due to that above-mentioned pressure. Fluctuating between $1,124 and $1,126 after a recovery from its $1,122.20 low made around 5:00, gold managed to pull up to the $1,128 level around 8:00. As of 8:03, spot gold was at $1,128.20 for a loss of $2.60 on the day. More than all of that loss was attributed to greenback strengthening by the Kitco Gold Index; it subtracted $5.00 for that reason and added $2.40 for predominant buying.

Thanks to the lastest blip in the Eurocrisis, the U.S. Dollar Index added to yesterday's gains overnight - but not by that much. The bulk of the gains were made last night. After drifting downwards until 7:35 PM ET, the Index jumped up from the 81.05 level to above 81.35 by 9:40. From that time until 3:40, it spent its time in a widening trading range centered around 81.28; afterwards, it narrowed its range at a higher level. By 4:40, it was ranging between 81.35 and 81.45. As of 8:16 AM, it had broken above to reach 81.48.

A Reuters report attributed gold's drop to the continued recovery in the greenback, and the not-unexpected decision by the Australian central bank to keep tightening by raising rates further.

RBS Global Banking & Markets analyst Daniel Major said while he sees the $1,100 an ounce level providing strong near-term support, in the longer run, the metal may struggle to maintain such prices.

"Longer term, we think we will see further dollar strength, and we are going into a seasonally weaker period for jewelry demand, as well as a period that is likely to be less supportive from the investment sector," he said.

Further interest rate rises, after Australia's decision to lift rates overnight, may also raise the opportunity cost of holding gold, he added. "The risks are to the downside in terms of the gold price," he said.

Also mentioned as adding to the greenback's strength was an echo effect from yesterday's positive U.S. economic data.

The same cause was highlighted by a Bloomberg report, as webbed by Business Week:

The dollar gained against the euro for a third day amid concern European countries including Greece will struggle to raise funds to pay off maturing debt. Gold, which yesterday climbed to the highest intraday price since March 8, typically moves inversely to the U.S. currency.

Gold is “lower as a result of dollar strength,” James Moore, an analyst at TheBullionDesk.com in London, said in a report. Precious metals may consolidate after “profit taking” following holidays at the weekend, he said.

The article also notes that the metal has made another record high in Euro terms, hinting at one possible source for the predominant buying.

A Wall Street Journal report started off with the same cause, and added fears that the rescue package may fall apart.

[T]he weaker euro Tuesday is weighing on the precious metals. "In the short term, another run on the euro could send gold lower," said Jeffrey Nichols, senior economic advisor to Rosland Capital. "Europe's currency crisis is far from over. Credit default markets are again signaling rising anxiety, not only over Greek debt but also over the sovereign debt of Portugal, Spain and Italy."

Another analyst noted, though that physical demand in Asia remains robust.

As the U.S. Dollar Index's strength continues, gold fell back a little during the opening of regular trading - but not by that much. Starting above $1,128, it didn't get below $1,126 as the session started up; the market settled near the $1,127 level. As of 8:47 AM, the spot price was at $1,127.40 for a drop of $3.40 on the day. The Kitco Gold Index still has predominant buying pushing up the metal ex-greenback, in the amount of $3.00; the drop due to a strengthening greenback widened to -$6.40. After breaking through 81.45, the U.S. Dollar Index went on a bit of a run that took it up to slightly above 81.6. After a pullback, it went on another run that put it above 81.6 again; as of 8:52 AM, it was at 81.62.

So far, the day has smiled upon the greenback but not on gold. Still, the $1,125 level has held even if it doesn't look likely that $1,130 will be reached again today.