After Meandering, Gold Sinks

With little news from the pipe, the price of gold stayed virtually unchanged in the first two hours of overnight trading. Slumping down to $1,235 between 8 and 9 PM ET, it stayed at that level until shortly before midnight. Climbing back up, it reversed and sunk to a little below $1,230; $1,227.00 was reached around 3:30. Pulling back up to $1,235, the metal sunk again starting at 7:00. In the absence of any drivers, gold stayed in its re-established $1,220-$1,240 range; a break above was not to be. As of 8:04 AM, the spot price was $1,231.10 for a loss of $5.90 on the day. The Kitco Gold Index split the loss into -$4.10 for predominant selling and -$1.80 for strength in the greenback.

The U.S. Dollar Index slumped in late night trading, down to below 85.6 before reversing. Making a double bottom after rising to 85.7, the Index rose all the way to 86.0 before pulling back to the 85.80 level. Another rise pulled it above 85.9. As of 8:10, it was at 85.96.

A Wall Street Journal report said that gold pulled back in the absence of a driver to push it up.

"With both the dollar and the euro stronger today, gold is under pressure. However the European sovereign-debt situation keeps deteriorating slowly and thus the underlying fundamentals keep strengthening," SEB analyst Filip Petersson said. "We believe that the bulk of the selloff after Monday's high is over and that investors are using the current weakness to position themselves for the next move higher."

Also quoted is James Moore of TheBullionDesk.com, who noted that increased risk appetite is putting pressure on gold in the short term.

The morning Bloomberg report, as webbed by Business Week, ascribed the morning fall to taking gains.

“There could be a bit of profit-taking,” said Afshin Nabavi, a senior vice president at bullion refiner MKS Finance SA in Geneva. “After making new highs early this week, it’s probable we could see a correction down to about the $1,220- $1,225 area. But with all the mess going on in the economy, one has to buy on dips.”...

Gold has “reduced upside potential” as investors seek riskier assets such as steel, Goldman Sachs Group Inc. analyst Vasily Nikolaev wrote in a report dated today. China’s steps to possibly loosen the yuan’s peg to the dollar “could see investors adopt a higher risk appetite, thus putting pressure on defensive gold equities. We see a significantly improved risk- reward in steel after the selloff.”

Also mentioned in the report is the SPDR Gold Shares Trust's holdings remaining where they were, with total holdings of 10 gold ETFs increasing slightly.

Two releases on the U.S. economy came down the pipe at 8:30. Durable-goods orders fell for the first time in six months, by 1.1%, although the drop was not as severe as expected. The big hit came from sliding aircraft sales. Last week's first-time jobless claims number was 457,000, down 19,000 from the previous week's figure. Both gave gold a boost when released. When regular trading opened, the metal had slumped to $1,228 but recovered slightly. At 8:30, it jumped up to above $1,232. As of 8:51, the metal was at $1,233.30 for a loss of $4.00 on the day. The Kitco Gold Index divided the loss into -$3.30 due to predominant selling and -$0.70 due to a strengthening greenback. The U.S. Dollar Index pulled back to just above 85.8 in a decline that started before the releases but was accentuated by them. It then fluctuated in the 85.8-.9 area. As of 8:55, it was at 85.84.

The inverse correlation between gold and the greenback became diffuse last night, but reasserted itself this morning. Due in part to some strength in the latter, the former has been held back. There may be some encouraging action later today, but gold looks like it'll stay in the $1,220-$1,240 zone.