Monday, May 3, 2010

Gold Rises A Little As Concerns

A measure that rocked the gold market when first applied on January 11th, had no effect this time - just like the last time it was applied. Effective May 10th, the reserve ratio for mainland Chinese banks is going up once again by another 50 basis points. Gold had already sunk a little at the time of the announcement, and didn't fall when it was disseminated.

More effectual was worries about legislative roadblocks of the Eurobailout. The German legislature has yet to approve the German government's commitment, and the package might stall in that body. That potential stopping point primarily benefitted gold.

For most of the overnight session, the metal hovered between $1,177 and $1,179; as night turned into morning, the $1,179 ceiling moved down to $1,178. The metal didn't start rallying until about 5:00 AM ET, and then slowly. The rally picked up steam in the next two hours, peaking at $1,184.00 a little after 7:00 AM. Pulling back, the metal still stayed above $1,182. As of 8:08 AM, the spot price was at $1,182.70 for a gain of $3.40 since Friday's close. The Kitco Gold Index attributed -$3.50 to a strengthening greenback and +$6.90 to predominant buying.

The U.S. Dollar Index was up relative to Friday's close, but the gains were put in place last night. Rallying from below 81.8 starting at 8:00 PM, the Index got above 82.2 by 10:00. Subsequently, it traded in a range between 82.1 and 82.3, whose ceiling lowered to a little above 82.2 after 4:00. The typical inverse relationship between the greenback and gold reasserted itself somewhat overnight. As of 8:15, the Index was at 82.185.

A Reuters report ascribed gold's rise to skepticism over the bailout for the Grecian government, which first benefitted the U.S. dollar.
"The financial aid package is only buying time, the long-term problems still exist. It also seems that market players had expected a larger package," said Daniel Briesemann, commodity analyst at Commerzbank....

"There is still very strong safe haven demand for gold. It seems like investors are still nervous about what still might come despite the package for Greece. I wouldn't rule out that we might touch new highs in dollar-gold as well," a European trader said....
Also included is a forecast of $1261 gold, as based upon Reuters technical data.

The morning Bloomberg report, webbed earlier than the Reuters one by Business Week, was more skeptical, suggesting that gold may fall:
“We might see a bit of consolidation,” said Darren Heathcote, head of trading at Investec Bank (Australia) Ltd. in Sydney. Gold may have “the odd little bit of reversal,” said Heathcote....

“Quite often when we start to see uncertainties in the market, you get contagion across all markets, then you do sometimes see short-term selling,"...

Still, the precious metal is up 7.4 percent this year as “it seems to be benefitting at the moment from almost anything,” Heathcote said.

“Gold has taken on a positive tone and is unlikely to lose that going forward. On the one hand it benefits when we get a stronger euro, risk is on and everyone’s diversifying, on the other hand when things looks a bit unstable then we get safe- haven buying.”
That's what happened subsequently in early-morning trading.

As regular trading opened, gold slumped a bit; the U.S. Dollar Index stayed in its range. Starting at $1,182 as of 8:15, the metal first popped up and then fell to below $1,181. A rebound prefaced another drop to below $1,180.50; a see-sawing pattern took hold which got gold up above $1,181.50 before it pulled back again. As of 8:54, the spot price was $1,180.50 for a gain of $1.10 since Friday's close. The Kitco Gold Index attributed -$4.20' worth of change to a strengthening greenback and +$5.30' worth to predominant buying. The U.S. Dollar Index stayed in its range, although challenging it on the upside: as of 8:56, it was at 82.21.

So far, regular trading has been a bit of a letdown from the gains put on several hours earlier. It may set the tone for the rest of the day as profit-taking settles in.

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