Gold Hits Another Record High Overnight

With little news from the usual Eurozone trouble spot, except for sluggish growth in both the Euro area and the entire Eurozone over the first quarter, gold still had enough post-bailout momentum to make another record high early in the morning. Sliding down to below $1,230 last night, it broke above at 12:30 AM ET and moved upwards to $1,234. Remaining in a trading range between that level and $1,229 until 5:00, the metal pushed up to $1,242 by 6:00. A pullback to $1,240 set up the run to the new record high of $1,245.70, reached at about 7:00. Although the momentum tailed off afterwards, with gold sinking below $1,240, the metal still stayed above yesterday's closing level. As of 7:55 AM ET, spot gold was at $1,238.50 for a gain of $7.10 on the day. The Kitco Gold Index split the gain into +$4.10 due to predominant buying and +$3.00 due to weakening of the greenback.

The U.S. Dollar Index actually was up a little last night while gold slid back. Advancing in the early evening, it settled into a range centered at around 84.75 for the rest of the night. After a one-hour run starting at midnight, which took it up above 84.9, it declined in an accelerating downturn until bottoming at below 84.2 as of 4:45. Partially reversing the decline, it made its way up to 84.66 as of 7:20 before pulling back to a little below the 84.5 level. As of 8:06 AM, it was at 84.48.

The morning Wall Street Journal report ascribes the new record high to "a swell of bullish sentiment and a flight from currencies to the safe haven of gold." The swelling is chalked up to its momentum.

Gold's strength indicates investors view the European Union and International Monetary Fund rescue package as a short-term fix that doesn't reduce uncertainty on how governments will reduce their high debt levels.

"I think the package crystallizes some of the longer-term risks," said Mr. Jansen. "For the European Central Bank to monetize the debt of Greece is a huge worry for a number of people."

The article also mentions technical analysts who think in U.S. dollar terms are watching $1,250, while those who think in Euro terms are concentrating upon €1,000. Given the demand for gold in Europe, and the especial significance of the switch from three digits to four, it's arguable that the latter number will prove to be more significant.

As an aside, the WSJ's "The Source" blog has an entry entitled "Gold: A Low Risk Bet in a High Risk Environment" posted this morning. Because of the longer-term effects of the Eurocrisis, gold is referred to as "a low risk, blue sky asset" near the end. I'll confine myself to noting that the enthusiasm is understandable, given gold's ascent to a record high in U.S. dollars, but its message doesn't gibe too well with gold being overbought at the moment.

A Marketwatch report credits safe-haven demand for gold's continued gains.

"The gold price has been supported over the past days by safe-haven demand on the back of ongoing concerns about Europe," said Anne-Laure Tremblay, metals analyst at BNP Paribas in London.

"While Monday's announcement of an EU fund calmed immediate fears about risks of contagion of the Greek crisis, markets remain doubtful about the capacity of governments to cut their deficits swiftly," Tremblay said in emailed comments.

Although the Spanish government is taking steps to reduce its own deficit, overall skepticism about such efforts and the longer-term effect of the Eurobailout is keeping the gold price up. Another article mentions that the Spanish government is seeking a 5% wage cut to be borne by government employees.

Becuase of the record high reached yesterday, news on gold has spread to normally closed channels. The morning Reuters report, as webbed by ABC News.com, highlighted diversification from European government bonds as fears of the Eurobailout's inadequacy spread.

"Safe-haven flows are going to continue for the time being, people are digesting news about the package," said Dan Smith, analyst at Standard Chartered. "This is something of a wake-up call in terms of how safe sovereign debt really is."

Investors and many traders think the scale of Greece's fiscal problems could make it tempting for the country to default, despite the package, which could start a run on the debt of countries such as Spain, Portugal and Italy.

That was partly offset by news that European central banks were buying Portuguese, Irish and Greek government bonds, but investors and analysts are not convinced.

"Gold is benefiting as euro zone government bonds lose some of their safe-haven appeal. With governments tightening budgets, it will take the pressure off central banks to hike," said David Thurtell, analyst at Citi.

"With interest rates around the world set to stay relatively low, the opportunity cost of investing in gold will remain low."

The article also mentions that gold hit new record highs in pound and Swiss-franc terms, and that high prices have bumped up scrap sales in Asia.

Trade data for the U.S. economy were released; for the month of March, both imports and exports jumped up to levels not seen since October 2008. Exports grew slightly faster than imports, but the trade deficit increased anyway. Gold, after jumping up a little before regular trading began, sunk just before the news to $1,238 and dropped another dollar an ounce when the news was released. As of 8:54 AM, the spot price for the metal was $1,236.10 for a gain of $4.70 on the day. The Kitco Gold Index divided the gain into +$2.85 for predominant buying and +$1.85 to overall weakening in the greenback. The U.S. Dollar Index continued to rise on the trade data, after reversing its earlier decline just before 8:10. As of 8:57, it was at 84.58 after pulling back from the 84.65 level.

Although the metal has pulled back, gold's still in a strong position momentum-wise. It may continue to be so today if its overboughtedness doesn't catch up with it.