Gold Treads Water In Overnight Session

Other than a night dip when Hong Kong trading opened, which drove gold down to $1,208, there hasn't been that much action in the overnight session. That dip, possibly caused by news that Japan's economy is still mired in deflation, was partially reversed by midnight ET as the metal climbed to above $1,210. A futher advance early in the morning saw the metal climb up to $1,215, after which it stalled. Not making it above the $1,215 level exept briefly, gold didn't fall below $1,213 either. As of 8:03 AM ET, the spot price was $1,214.20 for a gain of $1.40 on the day. The Kitco Gold Index attributed -$2.40 to predominant selling and +$3.80 to a weakening greenback.

The U.S. Dollar Index did decline in early morning, but advanced last night. Peaking at 86.5 around midnight, the Index's drop started slowly and unevenly at first but it accelerated starting at 3:55 AM ET. An hour later, it had bottomed at 85.9. That fall was preceded by a lumbering recovery which got it above 86 again. As of 8:12, it was at 86.11.

A Wall Street Journal report says that gold's momentum has drained away, leaving it to drift in advance of the U.S. and U.K. holiday weekend.

"We still favor an upside bias with gold now above $1,200/oz," said Standard Bank commodity analyst Walter de Wet. "To a large extent, the problems in Europe have been priced in, so there is nothing new to drive the gold price in either direction."

But worries that Europe will have trouble making the budget cuts needed to control its debt will support gold prices, he said. He also said there is the potential later in the year for investors to shift attention back to the U.S. and its large deficit, which could also boost the precious metal.

Also quoted was another analyst who said that gold could pull back at these levels if things continue improving for the Euro and stock markets.

A Bloomberg report, webbed by Business Week, was more optimistic.

Gold may gain for a fifth day in London on speculation the debt crisis in Europe will boost demand for gold as a haven....

“The safe haven concept is still there,” said Afshin Nabavi, a senior vice president at bullion refiner MKS Finance SA in Geneva. “A lot of people are still investing in physical gold. But we need a bit of stability in prices to attract more people” to the precious metal, he said.

The article mentions that Citigroup sees a possible run to $1,500 later this year; it also discusses a People's Bank of China official's suggestion that gold products are an effective way to internationalize the renminbi. It also notes that holdings in the SPDR Gold Shares Trust ETF (GLD) increased slightly to another new record of 1,267.93 tonnes, and that holdings in 10 gold ETFs (including GLD) increased 0.6 tonnes to 1,981.8.

A Reuters report says that gold has stalled because risk appetite has returned.

"The stability in the eurozone is a hold pattern for gold," said Rory McVeigh, trader at Commerzbank.

"The flight to gold has stopped, but people are still holding it, they haven't gotten out. They're going to hold it to wait and see where the price action with euro goes," he said....

"Gold has done its bit and now it's a bit struggling to gain traction," said Nick Moore, global head of metals strategy at RBS. "The tensions are switching away from safe-haven and I think that leaves gold somewhat exposed in the near term."

The personal-income data for the U.S. economy were released, and April's 0.4% increase was in line with expectations. Interestingly, consumer spending was flat during that same period; that left the personal savings rate at a fairly high 3.1%. Gold was already in the middle of another decline coinciding with the opening of regular trading; it pushed the metal from $1,215 to a little below $1,211 before letting up. As of 8:56 AM, spot gold was at $1,212.10 for a miniscule gain of $0.10 on the day. The Kitco Gold Index assigned -$0.10's worth of change to greenback weakness and +$0.20' worth to predominant buying. The U.S. Dollar Index fared better, rallying all the way to 86.34 before turning down somewhat; as of 8:59, it was at 86.24.

So far, gold's action has been tepid. It may see its first decline this week, but a mid-morning rise may kick in once again.