After Drift, Gold Pulls Up

The strikes in Greece turned violent yesterday, with three people killed in a bank when it was set on fire by violent strikers. There's now talk about contagion risk affecting UK and other European banks from Moody's, and eyes are on the European Central Bank. The latest worries had gold climbing up after a night spent drifting downwards.

After a bump-up when overnight trading began, gold drifted back to $1,175, where it centered at until 2 AM ET, when it started dipping. Reaching $1,172.00 an hour later, the price turned up; it reached $1,178 by 4:00. Hovering a little below that level, the metal bumped into it a few times before shooting above it as of 6:00. A quick run to $1,185 was followed by a pullback that left it well above $1,180. As of 8:04 AM ET, the spot price was $1,181.80 for a gain of $6.20 on the day. The Kitco Gold Index attributed +$10.20 to predominant buying and -$4.00 to a strengthening greenback.

At first pulling back, the U.S. Dollar Index also rallied early in the morning. The pullback started at 8:15, and got the Index down to below 84.0. An attempted rally followed shortly afterwards, but faded; a more durable rally didn't start until midnight. In two stages, the second more rapid, the Index got all the way up to 84.5 by 3:05. Its rise was the force that initially pulled gold down, in what proved to be a fake-out before the metal took off on its own. Pulling back again, the Index fluctuated between 84.2 and 84.4 until it broke out definitively at 7:50. As of 8:13, it was at 84.48.

The morning Bloomberg report, as webbed by Business Week, said that gold climbed due to alternative-investment demand in counterpoint to non-U.S. currencies and stocks.

Bullion denominated in euros, British pounds and Swiss francs rose to a record, and holdings of metal in the biggest gold-backed exchange-traded fund increased to an all-time high. The metal also has advanced this month to the highest level in yen since February 1983. Concern about governments’ ability to control their debts has helped to lift prices.

“Gold will become more and more of a safe haven, as people just want safety,” David Thurtell, an analyst at Citigroup Inc. in London, said today by phone....

Gold has gained against the euro on concern about the possible spread of Greece’s financial turmoil. Investors in the country and elsewhere in Europe are buying bullion coins, raising premiums by as much as 6 percent in the past two weeks, Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland, said today in an e-mail.

Just before noting that buying panic, the article mentions that the holdings of the SPDR Gold Shares Trust rose 7 metric tonnes; its new total is a record 1,166.00 tonnes.

A Reuters report ascribes the rise to fear of contagion from the Eurocrisis.

Gold is becoming increasingly attractive as a hedge against sovereign risk and the resulting volatility in the foreign exchange markets, analysts said....

"People are concerned about sovereign credit risk and this is going to stay around for some time. This type of risk is not solved in a week, or a month," said Standard Bank analyst Walter de Wet. "Gold has performed very well, and it is going to continue to perform well if things get worse."

He said, however, that persistent strength in the dollar, weakness in jewelry demand and the weight of scrap returning to the market are likely to cap gold's gains in the longer term....

Also noted was a bullish report from Morgan Stanley that cited further sovereign-risk fears as a driver for the metal.

The morning Wall Street Journal report said that gold bucked a falling commodity complex for the second day in a row; it mentions the greenback as the pusher-downer of the metal before it rose on its own.

Participants were moving out of the euro and gold and into the dollar as a preferred refuge after Moody's placed Portugal on watch for a downgrade and Greek austerity protests turned deadly. Shortly after gold closed, the euro was down 0.6% at $1.2860, while the ICE U.S. Dollar Index was up 0.8%.

The shift in gold came when the metal hit its intraday low. Some began viewing that level as support from which to buy because it was right around the 20-day price average for the metal, a closely watched technical factor, said Charles Nedoss, senior market strategist with Olympus Futures.

"Technical buying held the market together, and safe haven buying came in," he said....

"The underlying nature of sovereign risk is allowing gold to stabilize," said Jim Steel, senior vice president and metals analyst with HSBC.

Also noted was that some participants still see gold as a risk asset.

Preferring reflation to currency boosting, the European Central Bank held its rate at 1%. In a press conference, ECB central bank president Jean-Claude Trichet said that the inflation outlook was still benign, but the ECB expects further growth and is keeping an eye out for inflation rising. He also said that EU money-supply growth was moderate, and he included a scold for EU nations to get their deficits down. More data was released that covered the U.S. economy: initial jobless claims fell 7,000 to 444,000. Nonfarm productivity rose 3.6% in the first quarter, slowing from 4Q '09's 6.3% figure. Unit labour costs fell.

The news didn't do much for gold, which fell below $1,180 as regular trading began. A slight rally at 8:30 didn't hold, and the metal sunk further. As of 8:55, it was at $1,175.70 for a gain of $0.90 on the day. The Kitco Gold Index assigned +$5.90 to predominant buying and -$5.00 to strength in the greenback. The U.S. Dollar Index churned around 84.5; as of 8:57, it was at 84.51.

So far, the pit shift has been a letdown. Gold may continue to rise in the day, but that tendency has not been evident so far.