Gold Continues Its Slump Overnight

Yesterday saw more talk from the Fed about raising the Fed Funds rate, with Thomas Hoenig again taking the lead. He's the only voting member of the FOMC to suggest it, which he's been doing for some time, but yesterday saw two non-voting members of the FOMC join in. Hoenig also sounds more reasonable than he used to, suggesting that he sees a moment where his views could influence his fellow voting members of the FOMC. The reason given for raising the Fed Funds rate to 1% and/or selling some securities was the improving economy. As of now, Ben Bernanke hasn't indicated any influence this argument has had on him. Based upon yesterday's reports, and performance late yesterday afternoon, what Hoenig and other had to say did not influence the gold market. As yet, anyways.

It does gibe with gold's continued lowering, though. After staying down yesterday afternoon, and closing around $1,208, the gold price drifted downwards but very slowly last night; it stayed above $1,205. A slump below that level had to wait until 1:00 AM ET. Bottoming at $1,203, the price stayed at the sub-$1,205 level for two hours. The rebound didn't last as gold resumed its sink when London trading opened; by the time it was over, the metal had bottomed at $1,196.10. Recovering, it crept above $1,200 and spiked to $1,210.30, but sunk back to below $1,205. As of 8:10, spot gold was at $1,204.90 for a loss of $3.30 on the day. The Kitco Gold Index attributed +$3.20 to predominant buying and -$6.50 to a strengthening greenback.

The U.S. Dollar Index managed to break above 87.5 after drifting for most of the overnight session. Going almost nowhere last night after reaching 87.25 yesterday afternoon, the Index went into a slump early in the morning. The subsequent drop pushed it slightly below 87 before ending a little after 5:00 AM. Then started a rise that turned into a rocket-up around 7:00; peaking a little after 8:00, the Index reached above 87.8 before pausing. As of 8:21, it was at 87.77.

A Reuters report says that gold traders are continuing to shy away as the U.S. non-farm payrolls data is awaited.

"There are compelling reasons to believe that the jobs data today will beat market expectations, and President Obama's comments on this, a day ahead of this release, is forcing the markets to believe that U.S. recovery is on a scheduled path," said Pradeep Unni, senior analyst at Richcomm Global Services.

"Ideally such data should boost the dollar, trigger diversification to riskier assets and sink bullion, but with debt concerns mounting in the euro zone, the degree of sell-off in gold could get limited to $1,195-$1,184."

Despite yesterday's drop, or perhaps because of it, holdings in the SPDR Gold Shares Trust leapt up 21.3 tonnes to a new record of 1,289.84 tonnes.

A hint of the old inverse correlation between the greenback and gold showed up in a Wall Street Journal article, which said gold had paused while traders awaited the payrolls data.

"A number in line with or above expectations is likely to boost the dollar and reduce the fear level and thus put gold under pressure," said Swedish bank SEB in a report Friday.

Slackening demand for gold bars and bullion over the past week has removed one recent leg of support for gold. UBS said demand has fallen "from its frenzied level in May" as investors are unsure whether risk appetite is due for a recovery.

A Bloomberg report, as webbed by Business Week, starts off like the Journal article by describing gold as little changed.

Gold, little changed in New York today, may fall for a third day as some investors sell the metal to lock in gains after a rally....

“Gold was pretty much on a one-way street, and it is only natural that we see a bit of a correction,” said Afshin Nabavi, a senior vice president at bullion refiner MKS Finance SA in Geneva. “In the medium to long term, this may be an opportunity to buy into dips.”...

“Gold feels jaded for now,” Edel Tully, an analyst at UBS AG in London, said today in a report. “There’s a general lack of conviction as investors appear to be struggling to make up their minds about risk appetite.”

The article also quotes other analysts to the effect that the current slump is a pause in a longer-term uptrend.

That long-awaited non-farm payrolls data were released, and the number was actually below expectations. 431,000 jobs were added, and 411,000 of them were temporary census-worker positions. The unemployment rate did drop to 9.7%, but that was mostly due to people dropping out of the labour force. After slumping from $1,207 to $1,202, gold spiked up again to a little below $1,208 right after the news was released. That spike-up didn't last as the metal fell further to touch $1,200, but another one drove it back up above $1,205. As of 8:53 AM, the spot price was $1,205.30 for a loss of $2.50 on the day. The Kitco Gold Index assigned $5.40's worth of change to predominant buying and -$7.90's worth to greenback strength. As for the U.S. Dollar Index, it flailed about on the news but ended up advancing overall. As of 8:56, it was at 87.81.

So far, gold looks on track for another drop on the day. Although the payrolls report was a dud with respect to the equity markets, the metal wasn't helped all that much by the disappointment. Whether gold will end up rallying in consequence remains to be seen. Hoenig's moment may have been lost.