Gold Makes Another New 2010 High

The all-time record is again in sight. Despite news that mainland China's inflation rate is up to 2.8%, banking lending surged, and real rates have tipped into negative territory, gold didn't do much last night; it fluctuated around the $1,202-3 level. Starting just after midnight ET, however, that lassitude changed. Bailout relief is gone, and the consequences are being assessed. European stocks were down sharply, in part because Moody's is threatening a significant downgrade of the Grecian government's debt. This kind of environment revitalized the gold market, sending the metal up to near $1,220.

As noted above, the rally began just after midnight. It proceeded fairly smoothly except for a pullback between 4:30 and 6:00 AM, which took the metal down to about $1,208. Starting at 6:00, the rally accelerated; gold shot up above the $1,210 level it failed to best at 4:30, and $1,215 was surmounted within an hour. A pullback at just above $1,218 left the metal hanging, prior to a mild pullback. As of 8:08 AM ET, spot gold was at $1,218.00 for a gain of $15.30 on the day. The Kitco Gold Index attributed -$4.65 to strengthening of the greenback and +$19.95 to predominant buying.

The concurrency between the U.S. Dollar Index and gold continued overnight, indicating that the common driver for both is still the Eurocrisis. The Index spent the overnight session rising fairly steadily, although it was choppy in places. An early-evening run-up to 84.5 failed to take hold, and the Index slid down to below 84.15 just after 9:00. During that time, gold dipped a little but was restored. The rest of the Index's rise was sometimes laboured, but the overall direction managed to pull it above that 84.5 level. As of 8:16, it was at 84.61. I note as an aside that, although gold made another 2010 high this morning, the Index has failed to do so.

The morning Wall Street Journal report notes that the latest run-up was driven by concerns about sovereign debt issues that the Eurobailout has not allayed.

Euro-zone finance ministers said Monday they had created a €750 billion ($959.1 billion) support plan for countries facing financial meltdown, including funds from the International Monetary Fund. The European Central Bank also said it would buy government bonds.

But Commerzbank bank precious-metal trader Michael Kempinski said this only provided a temporary curb to the debt fears and gold resumed rising Tuesday while investors sought to hold physical metal, particularly in Europe.

HSBC said the debt package was bullish for gold because it underlines the urgency of maintaining financial stability in the 16-nation euro zone.

Also mentioned is the continuing rise of the SPDR Gold Shares Trust's holdings. A new record was made, leaving the holdings at 1,192.15 tonnes. It was the second trading day in a row that those holdings rose, making for new records both last Friday and yesterday. Yesterday's rise of 3.65 tonnes added on to Friday's rise of 2.71 tonnes, which had left the holdings at 1,188.50 tonnes.

The morning Reuters report ascribed gold's rise to a post-euphoria hangover, as a more sober assessment of the bailout's implications crept into the marketplace. Interestingly, the report characterized yesterday's strong rally in stocks as a relief rally.

"The euphoria we saw yesterday has almost ended. Gold has remained well supported on safe-haven demand, and we think it will drive further from here," said Commerzbank analyst Daniel Briesemann.

"Market participants are still concerned about the financial positions of a number of countries of the euro zone and their debt problems, despite last weekend's aid package."

Investment demand continues to be a driver, even though physical buying in Asia is fading.

A Bloomberg report, as webbed by Business Week, suggests that the concern over the bailout has been prompted by a cautionary stance from some of the authorities themselves.

Marek Belka, the director of the International Monetary Fund’s European department, said he doesn’t consider the rescue package a “long-term solution.” European Central Bank council member Axel Weber said the bank’s purchase of government bonds poses “significant” risks, Germany’s Boersen-Zeitung reported.

There are “doubts about the effectiveness” of the package, James Moore, an analyst at TheBullionDesk.com in London, said in a report. Gold “could be poised for a fresh challenge higher to target last year’s all-time high.” Bullion reached a record $1,226.56 on Dec. 3....

“Gold remains in favor as investors haven’t regained full confidence that Greece and debt-ridden countries will survive with the package,” said Steve Chun, a trader with Hyundai Futures Co. in Seoul. “China’s higher inflation is also adding to alternative demand for gold.”

Also mentioned is the fact that gold has gained about 11 percent so far this year, primarily due to the Eurocrisis. The benefit the yellow metal enjoyed overnight did not extend to the more industrial-based white metals.

The opening of the pit shift coincided with the above-mentioned pullback ending at $1,215. Subsequent to the bottoming, at 8:25 AM, the metal reversed course and shot up above $1,220. Gold came within five dollars of its all-time high in U.S. funds. As of 8:53 AM, the spot price was $1,220.90 for a gain of $18.20 on the day, The Kitco Gold Index assigned +$22.10' worth of change to predominant buying and -$3.90's worth to strength in the greenback. The rise in gold accompanied a stalling of the U.S. Dollar Index, which failed to make it above 84.65. As of 8:56, it was at 84.57.

Again, gold has a real shot at besting its all-time high in greenback terms, joining records already made in Euro, pound and Swiss franc terms. Givem the internationalization of the gold market, such a record may be anticlimactic...