Gold Slumps On More Bad News From Greece

This time, U.S. dollar bulls have a little more than speculation to feed on. A Eurostat audit of the Grecian government's deficit has found that its deficit may be 0.5% more than the reported 13.6% of GDP. The European Commission is calling for efforts from the Grecian government to implement austerity measures that should shave off a full 4% from the deficit-GDP ratio; that body says that the government is on track so far this year. As the dirty laundry seeps out, the Euro keeps falling and the greenback keeps benefitting. Gold hasn't.

After a sag down to $1,145, the metal did show signs that it would. Attempted runs above $1,147 last evening were eliminated by a further drop down to $1,145. Starting around midnight, however, the metal went on a run that carried it all the way up to $1,150.30 as of just before 4:00 AM ET. The EU news, and its effect on the greenback, took the steam out of that rally and turned it into a decline. In the next two hours, ten dollars was sliced off the gold price before a bounceback brought it back up to the $1,142 level. A slight relief rally followed, which drained away for a time as the price sunk to the $1,141 range. As of 8:02 PM ET, though, spot gold was at $1,144.20 for a drop of $2.00 on the day. The Kitco Gold Index attributed +$0.40 to predomainant buying and -$2.40 to strength in the greenback.

As noted above, the U.S. Dollar Index went for a run once the bad news from Greece was disseminated. It was, however, declining a little beforehand. After an aborted slump between 7:20 and 9:05 PM, which took it down below 81.15, the Index recovered to the 81.2-81.25 level. Then, it declined in a more sustained way until 3:50 AM and 81.05. That drop ended when the news hit and was replaced by a swift rally that had the Index up to 81.45 by 6:15. After holding between that level and 81.4, it pulled back a bit starting at 7:40. As of 8:11, it was at 81.38.

The regular Bloomberg report, as webbed by Business Week, attributed the fall to the above-mentioned Grecian dirty laundry.

“Gold is responding first to a stronger U.S. dollar or weaker euro as deficit figures for the EU are coming in,” said Bayram Dincer, a commodity analyst at LGT Capital Management in Pfaeffikon, Switzerland. “The second response could be risk aversion.”

The morning Wall Street Journal report was webbed before the decline, but contained some hints of trouble that panned out:

The Greek situation remains the dominate driver in the gold market, said SEB Commodity Research analyst Filip Petersson....

James Moore of TheBullionDesk said gold and the precious metals in general will be in a "volatile mood" in the coming days with meetings of G20 members and between International Monetary Fund and Greek officials underway.

Investors that are particularly pessimistic about debt issues are buying gold as an insurance policy, [Commerzbank trader Michael] Kempinski said, noting decent buying when the metal dips.

The opening paragraph noted that traders were still cautious just before the opening of the talks.
A Reuters report did manage to catch the decline, with the same reason mentioned.

Such fears sometimes benefit gold as a haven from risk, but currencies are currently to the fore. In the longer run, concern over sovereign debt may lift gold, analysts said.

David Wilson, an analyst at Societe Generale, said gold's correction on Thursday notwithstanding, it had trended higher on a number of occasions despite a strengthening dollar.

"The relationships and the drivers for gold are changing over time," he said. "There is enough nervousness out there in terms of what is happening in Europe to spark some degree of support for safe-haven assets."

"That is why we are seeing the dollar supported, and for the same reasons we should see gold supported."

Again, there's the same optimism for the period passed the initial storm. It did kick in during yesterday's regular session.

Regular trading opened with a five-dollar decline in the gold price, which started at opening and ended at 8:40. The PPI data was released at 8:30, showing a 0.7% increase mainly because of higher prices for vegetables. The core CPI, excluding food and energy, was up only 0.1%. Also released was the weekly new jobless claim figure, which dropped 24,000 to 456,000 last week. The U.S. Dollar Index took well to the news, rallying above 81.5 by 8:40 and staying there. As of 8:58, spot gold was at $1,139.20 for a drop of $7.10 on the day. The Kitco Gold Index split the loss into -$2.50 for predominant selling and -$4.60 for U.S. dollar strength. As of 8:59, the U.S. Dollar Index was at 81.53.

So far, at least, the resilence I myself expected for gold hasn't been there. The U.S. dollar is still benefitting from the Eurocrisis, and is picking up some steam from U.S. economic data. It looks like the metal is going to have a tough day.