After Reaching Record Yesterday, Gold Pulls Back

There was little news out of the Eurozone trouble spot last night; the main story was about the Portugese Socialist-led goverment putting together an austerity package through a combination of tax hikes and civil-service salary cuts. Since the Socialists are in a minority, they need the support of the main opposition party to get the austerity pacakge through. The Spanish government is trying to institute similar measures.

As things have quieted down on the disaster-watch front, at least for now, gold tailed off in the overnight session. Initially fluctuating between $1,235 and $1,240, the metal drifted to the upper end of the range in early morning ET before sliding downwards during the time when European markets opened. The drift-down was fairly gentle, given the recent excitement in the gold market, and didn't contain any major spikes either way. As of 8:00 AM ET, spot gold was at $1,232.20 for a drop of $4.90 on the day. The Kitco Gold Index split the loss into -$3.60 for predominant selling and -$1.30 for a strengthening greenback.

The U.S. Dollar Index spent the night trending down, but that drop was reversed in the early morning. The turning point came at 3:00, with the Index just above 84.5, and the reverse was fairly sudden. Two hours later, it was just below 85.15. After that run, the Index sunk back to 84.5 before heading back up again. As of 8:15, it was at 85.00.

A Marketwatch report ascribes the pullback to profit-taking combined with a decrease in safe-haven demand.

"Gold came under initial pressure in Asia yesterday [Wednesday] as profit-taking emerged following the overnight gains," wrote analysts at TheBullionDesk.com.

The morning Wall Street Journal report conveyed the impression that the pullback was just a dip.

Spot-gold prices pulled back on Thursday after hitting a record high in the previous session.

However, analysts and traders say that lingering worries over the European Union governments' response to sovereign-debt troubles in the region and renewed fears over inflation should support the precious metal....

"It's not just sovereign default that bond investors fear, resurgent inflation is also a worry," said Standard Bank currency analyst Steve Barrow. "There may be some very early signs that these concerns could be realized in Europe."

Also mentioned is another rise in the holdings of the SPDR Gold Shares Trust, to 1,209.50 tonnes as of yesterday, on an unusually large increase of 17.35 tonnes.

The latest weekly jobless-claims figure for the U.S. economy came in at 444,000, which made for an unchanged number once a revision to the prior week's number was made. The release of the data coincided with the end of a more than seven dollar run-up in the price of gold, starting at 8 AM, which ended at $1,239.50; since then, it trended up a little. As of 8:53 AM, the spot price was $1,240.20 for a gain of $3.10 on the day. The Kitco Gold Index attributed +$6.85 to predominant buying and -$3.75 to strength in the greenback. The prime beneficiary of the data was the U.S. Dollar Index, which took a ride up to 85.17 shortly after its release. As of 8:59 AM, after a pullback, it was at 85.13.

Gold may extend its run today without support from an overnight run-up, but it may fizzle. The day's trading, particularly in late morning, will tell.