Thursday, May 20, 2010

Gold Sinks To $1,180

The level of fear seems to be ebbing in the markets overall as gold continues to sink. The price managed to recover to $1,198 in night trading, but tailed off a little after midnight; it bottomed at $1,183. Recovering to the $1,190 level by the time London trading opened at 3:30 AM ET, gold hovered there until Hong Kong trading closed at 5:30. Then, the metal sunk more than 10 dollars an ounce to bottom at $1,177.50. Reached just before 8:00, it was followed by a slight rally that took the price a little above $1,180. As of 8:08, the spot price was $1,180.70 for a drop of $10.70 on the day. The Kitco Gold Index split the loss into -$4.20 for predominant selling and -$6.50 for strengthening of the greenback.

The U.S. Dollar Index managed to recover from its losses yesterday morning and afternoon. Rallying steadily last evening, it got up to above 86.6 before tailing off to 86.4 shortly before midnight. Another run to 86.6 preceded a quick fall to below 86.1. Reversing at 3:00, it went on a ragged but swift rally that took it up to almost 86.8 by 7:50. In that rally, there were signs that the concurrency between gold and the greenback had ended for a time. As of 8:18, the Index was 86.71.

A Bloomberg report, as webbed by Business Week, reports the selling-off seems to have been prompted by cash-raising but pegs that explanation as speculative.
“Gold may have further to correct short term, having pushed to just short of $1,250 last week and been overbought on the charts,” James Moore, an analyst at in London, said in a report. Still, “we expect investors who missed the boat the first time may view the current dip as a buying opportunity.”...

“People are reducing their long positions on metals,” said Paul Yamamura, a Tokyo-based trader at Sumitomo Corp., referring to bets on price gains. “Considering the volume in exchange-traded funds, gold could be vulnerable.”
Yet, as also mentioned, the holdings of the SPDR Gold Shares Trust increased by 3.04 tonnes yesterday to a record high of 1,220.15 tonnes.

An earlier Reuters report, written before the later London decline, ascribes the fall to traders losing faith in the rally.
In the longer term, however, analysts say the metal is poised for further gains.

"When we have had these sell-offs in gold because of market disruption, which we had in October 2008 when it fell by $100 in one day, it has after that found a new level and started to rise again," said VM Group analyst Matthew Turner....

"It has proven to be resilient, and not a market to stand in front of whilst it's motoring," said Peter Hillyard, head of metals sales at ANZ Bank in London.
Neither report mentions anything about short sellers coming back.

U.S. jobless claims for last week, instead of declining as expected, jumped up by 25,000 to 471.000. If anything, the number pushed gold up. Prior to its release, though, when regualr trading opened, the metal fell to a new daily low of $1,174.20. As of 8:53 AM, the post-8:30 recovery pushed the metal to $1,180.00 even for a loss of $11.20 on the day. The Kitco Gold Index divided the loss into -$4.65 for predominant selling and -$6.55 for a strengthening greenback. After making another attempt to rally above 86.8, which was thwarted right after 8:30, the U.S. Dollar Index fell. A resting point at 86.65 gave way to a drop to below 86.5. As of 8:56, it had rebounded a little to 86.54.

There are signs of the old inverseness between the U.S. dollar and gold popping up again, possibly due to the inflation differential between the U.S. and most other developed nations. Benign U.S. inflation numbers, of course, don't help gold all that much. The rest of the day's trading will show how things sort out for the metal.

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