After Drifting, Gold Advances Slightly

After jumping up a little, gold drifted downwards to the $1,220 level last night. Reaching it around midnight, the metal began climbing up until it established a range between $1,222 and $1,224. U.K. inflation for May came in at 0.2% above April, but the year-over year rate remained at an above-target 3.4%; that number was slightly below expectations, and was lower than April's year-over-year. The Bank of England's target rate is 2%. Another central bank, the Bank of Japan, announced it's injecting up to 3 trillion yen by loans to financial institutions, although the impression is that it's pushing on a string. Through all the news, gold hardly budged overall. As of 8:07 AM ET, the spot price was $1,223.40 for a gain of $2.00 on the day. The Kitco Gold Index attributed -$1.75 to predominant selling and +$3.65 to weakening in the greenback.

The U.S. Dollar Index spent last night and some of early this morning drifting upwards, reaching 86.85 just after 3:00 AM. Turning down after an aborted spike upwards, its dive took it down below 86.5 by 6:00. Spending some time in a range centered around 86.45, the Index failed to make it above 86.5 again. As of 8:17, it was at 86.44.

A Reuters report ascribes gold's stabilization to the aftereffects of the Moody's downgrade of Grecian sovereign debt.

While analysts said Moody's downgrade of Greece's government bond ratings into junk territory was expected, it reminded investors that Europe's debt crisis was not over.

"There is every reason to think gold is going to continue to be supported by this general nervousness over Europe and, much further out, the issue of dislocation created by fiscal stimulus plans," said Societe Generale analyst David Wilson.

The article also notes that Asian physical demand firmed, and Indian scrap sales moderated.

A brief Wall Street Journal report highlights the same cause.

Traders said any selloff would likely be shallow as previous corrections this week have stopped around $1,216/oz, where strong buying has emerged.

"It feels like there are people who are waiting for lower prices to get long again," said Afshin Nabavi, head of trading and physical sales at MKS Finance in Geneva.

Gold managed to ford above $1,225 briefly, spiking up to $1,228.20 before pulling back below $1,225 when the run-up ended. The metal recovered later after turning at $1,224.50. As of 8:53 AM, the spot price was exactly $1,226.30 for a gain of $4.90 on the day. The Kitco Gold Index assigned +$4.90's worth of change to greenback weakness and none to predominant buying/selling. The U.S. Dollar Index fell below 86.4, and almost to 86.3, before settling in around 86.35. As of 8:57, it was at 86.34.

The gold market has been quiet so far, but the metal's still pulling up. Its rallying may continue through the rest of the day if the returning optimism stays.