Gold Sinks In Late Night Trading, Fails To Recover

After hovering once again when evening trading got rolling, the metal tumbled once the Hong Kong market opened. By midnight, the metal's price was at $1,210.

Events in Europe provided a boost to gold, as stocks fell in response to Angela Merkel's plan for temporarily banning naked short selling in European government bonds and bank stocks. She called this morning for an EU-wide ban on the same practice. The lift in gold, which started at 3:00 AM ET, carried its price up to $1,221.40 but that run fizzled a little before 5:00. In a little more than an hour, selling pressure had driven the price down to $1,201.20. Following that bottoming, a relief rally brought it up above $1,205 but the price failed to best the $1,210 level. As of 8:00 AM, spot gold was $1,207.80 for a loss of $15.10 on the day. The Kitco Gold Index attributed -$17.70 to predominant selling and +$2.60 to a weakening greenback.

The U.S. Dollar Index, although pulling back a little, basically hovered over the course of the overnight session. Essentially, it was in a trading range bordered by 87.4 on the upside and 87 on the downside. As of 8:06 AM, it was at 87.11.

A Reuters report says that gold was dragged down by other assets in part because it's being used as a piggy bank to meet margin calls for other assets [i.e., Euro longs, oil, possibly stocks.]

"We notice clear signs of nervousness in the gold market, taking into account the overnight developments in euro zone," said Pradeep Unni, senior analyst at Richcomm Global Services.

"Investors seem to be taking their money out of bullion partly to lock profits, but more importantly to pay the margin calls arising out from other markets."...

Gold could correct further before resuming any uptrend, technical analysts at Barclays Capital, who study charts of past price moves to determine the future direction of trade, said.

"Gold has corrected lower as momentum and sentiment unwind from recent extremes," they said in a note. "Having reached our initial $1,210 target, the correction could extend further."

"However, as price approaches the $1,183 May 10 low and the 21 day average at $1,187, we are looking for reasons to reload bullish positions, as the bigger picture still points to significantly higher levels later in the year," they added.

Holdings in the SPDR Gold Shares Trust were unchanged yesterday. Also mentioned was the collateral damage done to the Euro, assuming that a lower Euro is unwanted in Euroland, as a result of Merkel's proposals.

The morning Wall Street Journal report ascribed the drop to a lack of new safe-haven buying.

"There's a little bit of stability in Europe and that's taken the edge off financial markets," said Bill O'Neill, a principal with Logic Advisors in Upper Saddle River, N.J.
Participants sold after gold's recent rise to records approaching $1,250 last week....

In other words, the kind of panic that benefits gold is ebbing; so is the price.

A Bloomberg report says that profit-taking, along with using gold as a piggy bank, drove down the price.

“It could be that some people are taking profits to cover losses” in other markets, said Jesper Dannesboe, a senior commodity strategist at Societe Generale SA in London. “We’ve had a really good run for gold, and it’s a bit of a correction. We’re still expecting some buying on dips. There’s still the perception that gold is a safe haven.”...

“Some investors are taking profits on recent gains, which is exerting a little pressure on gold,” said Park Jong Beom, a trader with Tongyang Futures Co. in Seoul. “Psychologically, gold still remains attractive, as European fiscal woes have yet to ease.”

Also quoted are two optimistic intermediate term forecasts, one for $1,350 gold and another for $1,500.

The April CPI numbers were released, and the core number showed a lower value than what was expected. The raw number dropped 0.1%, while the core number was unchanged. It didn't have that much of an effect on gold, which pulled up from $1,204 when regular trading began. The run took the metal up around $1,210 before abating. As of 8:55 AM, the spot price was $1,208.90 for a drop of $15.20 on the day. The Kitco Gold Index assigned -$21.25's worth of change to predominant selling and +$6.15's worth to a weakening greenback. The U.S. Dollar Index broke through the 87 support level, sharply, around 8:10. A relief rally that brought it back to 87.05 was followed by a further decline to similar levels reached by the initial break. As of 8:58, it was at 86.75.

For the last few days, regular trading has provided relief from declines in overnight trading, leaving gold stuck around $1,225. Today's session will show if the same tendency exerts itself.