Gold Spills Below $1,170 Last Night, Mostly Recovers

The Eurobailout package moved closer to a done deal as the German lower house passed Germany's expanded share of the expanded package. Also passed, by the American Senate, was retiring Sen. Dodd's financial-reform bill; its version doesn't square with the one passed earlier by the House, so the reconciliation process begins. In inflation news, the latest country to see a higher-than-expected inflation rate is Canada. Although only 1.8%, it's part of a trend that has not visited the U.S. as yet.

All of this news didn't help gold all that much. After hovering in the low 1180s yesterday evening, the metal suffered a quick drop of more than ten dollars an ounce just before 10 PM ET. Hovering around $1,170 afterwards, the price recovered somewhat after midnight. The top of the early morning, until 5:00, was $1,180; two attempts to get above failed until that time. Shortly after 5:00, the metal managed a leap to $1,186.20 and a hover just below $1,185. That new level gave way to a drop to $1,180; after testing that level from just after 6:00 to just before 8:00, the metal rose above it slightly. As of 8:04, the spot price was $1,181.50 for a drop of $1.50 on the day. The Kitco Gold Index attributed -$5.60 to predominant selling and +$4.10 to a weakening greenback.

The U.S. Dollar Index stayed below 86 as the Euro kept rising. A Reuters report says that short positions in the currency are stil being unwound as something of a short squeeze develops. [That selling of gold for margin might well have been to meet margin calls on Euro shorts.] A night decline took the Index down to below 85.15; it ended at 12:25 AM. Subsequently, the Index managed to rally almost to 86, on two occasions, before pulling back; since 2:30, it's been in a trading range between 85.5 and 86. As of 8:13, the Index was at 85.85.

A Reuters report, as webbed by the Globe and Mail, says the slide was halted by some bargain-hunting buying.

Prices earlier fell to a low of $1,166.50 an ounce, down more than 5 per cent from last Friday. Traders say prices are due a period of consolidation after rising 6 per cent in the first two weeks of May to record highs at $1,248.95 an ounce.

“We traded up from $1,125 to the high at $1,248 not even in a month, so it is quite normal that you have a movement against that,” said Commerzbank trader Michael Kempinski.

“There is really too much investor money in there, and the funds are not all interested in the long term performance. Long term, I’m not really worried, I’m sure gold is coming back.”

The correction in prices is also likely to bring more demand for physical gold, in the form of coins, bars and jewellery, Mr. Kempinski said. “It’s good to have a healthy consolidation, so that the physical market comes back into line.”

Also mentioned is the fact that the SPDR Gold Shares Trust's holdings remained unchanged yesterday; other gold ETF holdings are firm.

The morning Bloomberg report, as webbed by Business Week, said that gold declined with other commodities this week but might advance if Eurobailout-related fears come back.

“Many would see the latest pullback as a good opportunity to go long yet again,” said Andrey Kryuchenkov, an analyst at VTB Capital in London. “As long as the flight to safety carries on, gold will perform better than other precious metals and most commodities.”...

“There is a lack of confidence in the euro zone, and people may have to shift portfolio assets to safer vehicles” such as gold, said Bernard Sin, head of currency and metals trading at bullion refiner MKS Finance SA in Geneva. “We think the market is very oversold. Bargain-hunters may come in and support prices.”...

“Long-term-oriented investors are still accumulating gold,” Eugen Weinberg, a Frankfurt-based analyst with Commerzbank AG, wrote in a report yesterday. The recent slump “is probably attributable to profit-taking by speculative investors,” Weinberg wrote.

The parade of experts have lined up with buy-on-the-dips.

A Wall Street Journal report is less sanguine, noting that more selling may come due to more margin calls needing to be met. The report quotes someone bringing up equities plus other markets.

Gold also is struggling against bearish short-term technical factors. Its slide this week broke through several key trendline supports, triggering selling from funds that rely upon technical trading strategies.

"I think there's still more space on the downside," said Commerzbank precious metals trader Michael Kempinski in Luxembourg.

With regular trading open, gold went on another downward slide of ten dollars an ounce; the bottom, reached just before 8:40, was $1,172. The metal then rallied a little. As of 8:54 AM, spot gold was at $1,174.10 for a drop of $8.90 on the day. The Kitco Gold Index assigned -$14.50's worth of change to predominant selling and +$5.60's worth to weakness in the greenback. The U.S. Dollar Index sunk back from 85.9 but didn't broach the lower end of its range; as of 8:57, it was at 85.56.

So far, the bargain hunting hasn't made its appearance in the pit shift. It may later in the day.