Recovery In Greenback Leads To Gold Slip

The first-quarter report for PRC GDP came in with a higher-than-expected figure: 11.9% annualized. March inflation, year-on-year, was slightly lower than expected, 2.4% as compared with February's 2.7%. Wholesale prices increased 5.9%. It seems likely that PRC monetary officials will not see this data as reason to tighten, even if they indicate an economy that's overheating.

Also on the PRC beat, Rep. Rick Larsen said that it was better for that government to upvalue the yuan under their own initiative rather than being forced to by U.S. governmental action. Private talks should suffice. Larson also said that it would be in the PRC's best interest to rein in the economy by a managed upvaluation.

These items has little effect on gold - a lot less than a drop in the Euro, prompted by fears that the bailout package for the Grecian government will unravel. CDSs for Grecian government bonds widened to record levels, indicating that the bailout package is going to be tested soon. Its constitutionality may be tested soon, by a lawsuit engineered by a group of German professors.

This last event had its effect on gold. Although the metal climbed slightly in evening and night trading (ET), it got only as high as $1,158 in that timeframe. Early-morning trading saw an intermittently interrupted downtrend, which pushed the price down below $1,155 by 3:00 AM ET. The drop reached its low around 5:30, when gold was pushed down to $1,150.20 in a short-lived spike. Since then, the metal's been fluctauating between $1,152 and $1,154. As of 7:56 AM ET, spot gold was at $1,152.40 for a loss of $2.40 on the day. The Kitco Gold Index attributed +$4.20 to predominant buying and -$6.60 to a strengthening greenback. (Both values, which break the daily change into the two associated categories, sum up to the day's change.)

The U.S. Dollar Index went almost nowhere last night as the trading range established in the afternoon was only expanded slightly. Until just before 1 AM, the Index never got above 80.25 or below 80.15. The 1 AM break to the upside didn't last very long, and the Index remained largely quiescent until 3:00. Then, prompted by Greece-related fears, it went on an upwards tear that took it all the way up to 80.75 by 5:50. Since then, after a slight pullback, it's been fluctuating between 80.6 and 80.7. As of 8:04 AM ET, it was at 80.64.

A Reuters report attributes the decline to both the rising greenback and weaker commodity prices. The expert commentary therein was still sanguine, though:

"We saw the upward move last week in gold and... it seems the market is happy with the levels we are seeing," said Deutsche Bank trader Michael Blumenroth. "There is still some demand for gold for safe-haven purposes."

"We should find good support at $1,140-1,150. That has been established as the downside as we take a breather and get some strength for the next upward move. I think $1,180 will be the target next week, and ahead of May."

Also mentioned in the article is Indian physical demand easing, but holdings for the SPDR Gold Shares Trust staying steady. Palladium came off its two-year high.

The greenback was highlighted in a Bloomberg report webbed by Business Week, which also mentions oil's drop as another influencer.

“The stronger influence is the dollar,” said Edel Tully, a precious-metals strategist at UBS Ltd. in London. Oil was “certainly helping,” she said.

The same strong-dollar explanation was the center of this morning's Wall Street Journal report.

Concerns about Greece's and other European nation's sovereign-debt problems are keeping the markets nervous and are weighing on the euro, said Afshin Nabavi, head of trading and physical sales at MKS Finance. Gold is likely to remain in a range of $1,145 an ounce to $1,160 an ounce as a result, he said.

Also mentioned is a report from Barclay's Capital that notes investment in commodities in the first quarter of 2010 is down about 47% from the same period a year ago, although still positive; precious metals investment slowed down too.

Two U.S. economic indicators were released at 8:30; put together, they yield a somewhat inconsistent picture. The Empire State manufacturing index for April jumped to 31.9 from March's 22.9, and the subsidiary data suggest that the jump was no fluke. On the other hand, new jobless claims jumped to 484,000 when a decline was expected. The latter was explained as a fluke, by invoking the Easter season.

The U.S. Dollar Index took well to both; gold didn't. After slumping to slightly below 80.6, the former leapt up to 80.65 on the news. So far, the Index hasn't managed to break above 80.65 sustainably even with that breeze at its back; as of 8:50, it was 80.64. Gold dropped on the news. After regular trading started with the metal fluctuating around $1,153, the announcement pushed the metal down a few dollars an ounce to $1,149.60. That dip didn't last; gold bounced back up to the $1,152 level, slightly below where it was as of the opening of the regular session. As of 8:53 AM, the spot price was at $1,152.90 for a drop of $2.00 on the day. The Kitco Gold Index assigned +$4.10 to the predominant-buying category and -$6.10 to the strengthening-greenback category.

There was a report on the wires that the Grecian government is asking for talks about economic policy, which "'could be supported with financial assistance from the euro-area member states and the IMF, if the Greek authorities were to decide to request such assistance,'" according to a Marketwatch write-up. Copies of the written request was sent to the European Commission, the European Central Bank and the International Monetary Fund. It looks like bailout time's coming...