Practically the only beneficiary was the U.S. dollar. Gold fell below $1,170 last night, at 9:00 PM ET, although it stayed above $1,165. An early-morning rally pushed it above the $1,170 level by 3:00, but evaporated; the metal fell to a little below $1,165. Another rally commenced, pushing gold up to $1,173.80 around 5:00. Again, the metal sunk back down: this time, to a little above $1,165 before pulling up again. As of 8:06, spot gold was at $1,168.80 for a loss of $3.40 . The Kitco Gold Index split the loss into -$1.00 for predominant selling and -$2.40 for strength in the greenback.
The U.S. Dollar Index did continue to rally, but its rate was much slighter than yesterday's shoot-up. After stalling in the evening, the Index lumbered up before pulling back between 12:30 AM and 3:00; that slide left it below 83.4. Reviving, it slid back to where it was as of 3:00 by 5:10. Bottoming below 83.4, it then climbed up to 83.75 as of 7:40. After that peak, it pulled back a little; as of 8:14, it was at 83.72.
A Reuters report, written when gold had jumped earlier in the morning, ascribed the rise to a statement warning of Eurocontagion.
European Central Bank Governing Council member Axel Weber said on Wednesday there is a serious threat of Greece's problems spilling over to other parts of the euro zone.Also mentioned in the report was a softening of Indian jewelry demand, but continued firmness in investment demand.
His comments helped lift gold from a low of $1,164.70 an ounce, hit in early European trade.
"We think the flight to safety will continue, and we expect to see more inflows into physical gold products like exchange traded funds," said Commerzbank analyst Daniel Briesemann.
"As long as uncertainties on the markets persist, gold should remain well-supported. We have seen record highs in euros, Swiss francs and sterling in the last few days and it should only be a matter of time before gold reaches new record highs in dollars as well."
A Bloomberg report, webbed earlier by Business Week, expresses the risk of gold declining further as the U.S. dollar continues to rise.
“Sentiment across precious metals markets is likely to remain fragile, with risk appetite currently being the major driver,” said Stefan Graber, a Singapore-based analyst at Credit Suisse Group.The greenback, the article notes, is still competing with gold for safe-haven dollars.
From the Wall Street Journal, webbed later, comes the morning report which notes that safe-haven demand offset a decline due to the greenback's rise.
Gold had in recent weeks disconnected itself from its traditional inverse correlation with the dollar, moving higher even as the euro/dollar rate slid. But as the metal is priced in dollars, the correlation is likely to reassert itself if the dollar continues to strengthen against the euro, said Jeremy East, global head of commodities at Standard Chartered in London.Another quoted expert said that gold had sunk because of profit-taking.
"It is going to struggle at the moment because gold does have this correlation to the dollar," Mr. East said. "Either we see gold come off or the dollar start to weaken. And it is looking like the dollar will strengthen."
The opening of regular trading saw gold shoot up to $1,175.10, but fall back as encouraging data about the U.S. economy was released. The private sector added 32,000 jobs in April, and job cuts sunk to a four-year low. Demand for homes, largely due to a last-minute push because of the near-expiry of the tax credit, were up 13 percent in the week ending April 30th. Gold quickly lost about five dollars an ounce after the news was released, and fell below $1,170 after a relief rally. As of 8:56, the spot price was $1,167.80 for a loss of $3.80 on the day. The Kitco Gold Index attributed -$5.50 to strength in the greenback and +$1.80 to predominant buying. As for the U.S. Dollar Index, its rally continued after the pullback ended at 8:15. By 9:02, it had jumped to 84.17.
So far, the day hasn't been that good for gold. There's a chance that the metal will rise later in the day, but it's not very likely that there'll be any sustained jump.