Friday, May 14, 2010

Gold Inches Above $1,250 In Overnight Trading

No immediate news drove the price up, but post-Eurobailout jitters were enough. Thanks to an early morning run, which topped out at just above the magic number, gold made a new record high of $1,250.40 early in the morning Eastern time. Momentum-driven it may be, but the momentum hasn't gone yet. In retrospect, yesterday's decline looks like a puase that refreshed.

The rallying started right after overnight trading began. Climbing up to $1,235 by 6:30 PM ET, the metal made $1,238 a little after 9:00 before sliding back to the $1,235 level. It fluctuated around there until a little after 3:00 AM, when it took off. Pausing for a while at $1,240, the metal made it all the way up to its new record by 6:45. Afterwards, it pulled back to above $1,245. As of 8:05, the spot price was $1,247.10 for a gain of $14.60 on the day. The Kitco Gold Index attributed -$3.50 to a strengthening greenback and +$18.10 to predominant buying.

The U.S. Dollar Index's momentum continued overnight, as it made another 13-month high. Stuck in a trading range between 85.3 and 85.5, it initially broke through on the downside as of 1:25 AM. Pulling back up to near the top of the range, the Index continued to sink until bottoming below 85.2 as of 3:05. Shaking off the decline, it rallied along with gold until its own peak at 85.84 came a little more than three hours later. Tailing back subsequently, it slid down below 85.6. As of 8:13, the Index was at 85.57.

This morning's Bloomberg report ascribes gold's latest run to aversion to European debt and other safe-haven needs.
The euro fell to a 14-month low against the dollar amid speculation that debt-cutting measures by European nations will undermine economic growth.... Gold advanced to records in European currencies.

“A lot of people still believe it’s going to be very difficult to resolve the European debt” situation, said Bernard Sin, head of currency and metals trading at bullion refiner MKS Finance SA in Geneva. “Gold has detached itself from other financial instruments. It’s basically trading all by itself.”
Also noted was a threat by the French government to leave the Euro unless the German government approves its part of the Eurobailout. Another quoted analyst expects the current run to peak at $1,300, to be followed by a $1,100-$1,300 range in the summer season.

The cause given by a Reuters report is similar: hedging against sovereign-debt and foreign-exchange risks.
Gold priced in euros, sterling and Swiss francs extended the record highs they have already set this month as investors concerned about the outlook for the European currencies chose gold as an alternative asset.

"The gold price has benefited from strong safe-haven demand linked to fiscal issues in the euro zone, and a pull-back from the euro as a reserve currency," said BNP Paribas analyst Anne-Laure Tremblay.

"We expect incremental safe-haven demand to ebb as the Greek crisis subsides," she added. "However, gold will remain a much sought-after hedge should fiscal concerns over Greece or other EMU countries mount again."
Also mentioned is the possibility of Indian gold imports sinking for a third year in a row this year due to high prices.

The morning Wall Street Journal report mentions demand caused by the Euro weakening to an 18-month low, below $1.25 in U.S. funds, and the risk of higher inflation in Euroland.
"Gold behaves like a currency in periods of economic uncertainty and more like a commodity in period of stability," said Numis Securities analyst Cailey Barker. "It is now acting as an alternative currency."
Also quoted is Dennis Gartman, who notes the historically unusual concurrrence of gold rising along with the greenback.

April retail-sales numbers were released, and they came in stronger than expected. Instead of the anticipated decline of 0.2% overall, the main number was an increase of 0.4%; ex-auto sales, from which a 0.2% gain was expected, the rise was also 0.4%. Around the time of the release, gold blipped up to $1,247.50 but then stumbled down to a little above $1,243. As of 8:52, the metal was at $1,243.80 for a gain of $11.20 on the day. The Kitco Gold Index assigned +$11.50 to predominant buying and -$0.30 to strength in the greenback. The U.S. Dollar Index continued sinking after blipping up right after 8:30; as of 8:55, it was at 85.45.

Gold's rally has stalled so far, but that's not been unusual recently; nor has it been indicative of how the metal will trade in the rest of the regular trading session. The metal might continue rallying later.

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