Gold Still Has Momentum

The head of the European Central Bank, Claude Trichet, dismissed rumours that the Grecian government will default on its debt. That government needed the words, as the spread between Greek 10-year sovereign debt and Germany's widened to 4.4 percent; the former touched 7.5% yesterday. Through it all, gold keeps rising.

In the European timeframe, too. There was hardly any movement last night, as the metal stayed just above $1,150 except for a slight dip below that level between 8:00 and 9:00 PM ET. Another run upwards didn't start until just after midnight. Once started, the rise was relatively smooth until it stopped at about $1,157. The early-morning high of $1,159.30 was reached at about 6:30 AM. Since then, gold's tailed off a bit. As of 7:57 AM, the spot price was at $1,156.70 for a gain of $5.50 on the day. The Kitco Gold Index divided the gain into +$3.80 due to predominant buying and +$1.70 due to greenback weakness.

The U.S. Dollar Index showed a little strength last night, but that strength ebbed this morning. After going almost nowhere when evening trading began, the Index took a spill at 7:25 PM, from which it recovered by 8:50. Then followed a slight rise, which took it above the 81.5 level. Peaking at 81.58 as of 1:25, it dropped down below 81.2 by 4:20. Since then, the Index has been recovering in a rolling rise that's still left it well below 81.5. As of 8:06 AM, it was at 81.40.

A Wall Street Journal report attributes gold's early-morning rise to technical factors and a recovery in the Euro against the greenback.

The euro's strength has removed one of this week's drags on gold, leaving the metal free to push higher on the strong upward momentum it has built in its two-week rally, traders said....

Analysts said the resurgence of worries over Greece's debt problems this week have prompted investors to buy gold as a safe haven against currency volatility... A London-based trader said gold's steady climb has yet to trigger any heavy selling, suggesting investment demand for gold is stronger than expected, and some market players are still looking for higher prices before shorting.

The same trader called the rally "'encouraging,'" although there's the possibility that it may be encouraging to shorters. As I've said before, and will likely say again: the tighter the stop, the weaker the hand.

The morning Reuters report not only mentions the Eurocrisis as a driver for safe-haven demand but also an unusually high inflow into the SPDR Gold Shares Trust. Making another 2010 record, and a new record period, the ETF's holdings jumped almost 10 tonnes to 1,140.433 tonnes. Yesterday's inflow was the highest one-day rise since last September.

"The market is overall little bit disappointed with all the problems with Greece," said Afshin Nabavi, head of trading at MKS Finance in Geneva. "A lot of people are turning to commodities as a safe haven.

"We've got a lot of potential still to come in gold," he added. With the metal's break of resistance at $1,155 an ounce, he said, "the path to $1,200 will be open."

Also mentioned was a jump in the holdings of the much smaller Julius Baer Gold Fund, which rose 2.4%. Indian demand is also picking up.

The same main cause also headlines the morning Bloomberg report, which also mentions the SPDR Gold Trust inflow.

“Investment demand in gold is still strong as seen by the surge in the SPDR holdings and this is supporting the gold uptrend,” said Shenzhen-based Wang Xiaoli, an analyst at Citic Futures Co. “Currency movements will continue to dictate fund flows into gold.”

Noted in the piece are two new records gold set: record high prices in Euros and in Swiss francs. James Moore of thebulliondesk.com is also quoted as saying that the rise above $1,134 is "'encouraging,'" but a "'short period of consolidation would be beneficial.'" The metal also set a new record in pound terms, as explained in this Telegraph article.

With regular trading open, gold slumped a bit to the $1,155 level as prompted by a recovering (if struggling) greenback. As of 8:45 AM, the spot price of the metal was at $1,155.60 for a lessened gain of $4.40 on the day. The Kitco Gold Index split the gain into +$3.90 for predominant buying and +$0.50 for weakening in the greenback. The U.S. Dollar Index continued to recover in a staggered uptrend, although it peaked for the moment above 81.475. As of 8:48, it was at 81.44.

If gold simply holds its own today, it'll have made its seventh straight gain. In itself, that performance may be a record; yesterday's six-session gain was the longest string of them in a year. Borrowed time gold may be living on, but for now the tab is easy to draw on. It may continue to be throughout the last session of the week.