Monday, May 17, 2010

Gold Rises, Then Slumps

With West Texas Internediate oil dropping below $70, and copper prices falling, it's not terribly surprising to see gold slump too. The rush to gold as a safe haven has lessened as the 1000 Euro barrier was bested.

Initially, when gold trading opened for the week, it climbed. After a pullback near the open, the rise was fairly steady until the metal reached $1,243 around midnight ET. Then, it entered a decline. Less steady than the rally, it nevertheless erased all the gains that gold had put on since Friday's close. After bottoming at $1,224.50 a little after 6 AM, the metal rose up to the high 1220s. As of 7:57 AM, spot gold was at $1,228.00 for a loss of $3.40. The Kitco Gold Index split the loss into -$1.70 for predominant selling and -$1.70 for strength in the greenback.

The U.S. Dollar Index fell a little itself this morning after rallying last night. After starting off last evening trading sideways, the Index rallied starting at 8:15 PM. A slow rise turned into a a spike that shot it up above 87 as of 10:30. Since then, the Index slowly declined; again, the concurrency between gold and the greenback showed, although to gold's cost more than the Index's this morning. As of 8:05, the latter was at 86.37.

A Bloomberg report, webbed by Business Week, pegged the morning drop as a letdown after the metal advanced on the Euro dropping to a four-year low.
“There’s been a bit of profit-taking,” said Afshin Nabavi, a senior vice president at bullion refiner MKS Finance SA in Geneva. Still, “investment demand is still very much in the market. The market is still very nervous about the euro.”...

“Given the push to record levels and increase in scrap sales in some centers, the metal is vulnerable” to selling as some investors free up cash, James Moore, an analyst at in London, said in a report. “Investors are concerned about the effects of debt contagion and as a result will continue to diversify towards safe-haven assets.”
Noted is the fact that gold got more than 1% over the 1,000 euro barrier at its peak last night. The article also mentions that the holdings of the SPDR Gold Shares Trust increased on Friday to a new record of 1,214.06 tonnes.

The morning Wall Street Journal report ascribes the morning drop to profit-taking.
"The market is still pretty bullish to gold," said Standard Bank commodity analyst Walter de Wet. "The key today will be U.S. equities. If they open higher after the massive selloff last week, gold could test lower towards support around $1,220/oz."...
He said that risk aversion is still dominating sentiment in Europe where investors remain concerned about the way governments are addressing sovereign-debt issues and the risk that the problems will hamper growth....
An earlier Reuters report, written before the decline started, chalks the rise up to fear about the Eurobailout hindering recovery.
"Of course gold still looks bullish. I don't know what the ceiling is. People talk about $1,300, $1,400. We have to break $1,250 to see new highs," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.

While dealers noted short covering from investors, some jewelers sold back their holdings from cash but in small quantity, Leung said. "There's a bit of selling in the physical side. They will be more aggressive when we see a new high."
Also mentioned is a sharp drop-off of demand during this year's Akshaya Tritiya festival in India, attributed to too-high gold prices.

With regular trading open, gold continued its recovery after a drop beforehand. Rebounding from its low of $1,223 just before 8:15 AM, the metal made it up to above $1,230 before pulling back a little. As of 8:50, it was at $1,229.50 for a loss of $1.90 since Friday's close. The Kitco Gold Index assigned -$2.45's worth of change to a strengthening greenback and +$0.55's worth to predominant buying. After a recovery rally to 86.53, reached just before 8:30, the U.S. Dollar Index slid back; as of 8:54, it was at 86.41.

Gold's round trip has left it almost unchanged since the end of last week. There isn't a sign of the rally resuming, but there's no portent of a serious decline either. This overall directionless may continue for the rest of the day.


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