Gold Drifts, Slumps In Overnight Session

The Grecian government is claiming to be on target to reduce its budget deficit from 13.6% of GDP to 8.1%, and there was little news otherwise to affect the gold price overnight. The Euro recovered slightly. With little reason to buy or sell, gold drifted; as morning replaced night, the drift turned downwards. The metal broke through $1,240 briefly last night, but failed to hold much above $1,237. A drift-up as night turned into morning got gold up to $1,240.10, but a slump starting a little before 3:00 AM ET dragged the metal down to $1,230.30 by 4:00. Recovering to above $1,235, the metal went back to drifting until it fell a little just after 7:00. As of 8:01 AM ET, the spot price was $1,233.60 for a loss of $1.20 on the day. The Kitco Gold Index attributed -$4.30 to predominant selling and +$3.10 to weakening in the greenback.

The U.S. Dollar Index rallied for the most part last night, peaking at 88.39 as of 1:35 AM, but reversed in a choppy downturn subsequently. Bottoming at just below 88 between 6:25 and 6:55, it advanced slightly from that level until dropping definitively below 88 just before 8 AM. As of 8:11, it had sunk further to 87.83.

A Bloomberg report, as webbed by Business Week, ascribed gold's relative steadiness to continued safe-haven demand.

Bullion’s gains were capped as European stocks climbed today on increased confidence that the global economy can withstand the effects of the region’s sovereign-debt crisis, as Reuters reported that China’s exports surged.

“In the long run, the trend is still bullish and investors will be keen to throw everything at gold in case matters escalate from here,” said Andrey Kryuchenkov, an analyst at VTB Capital in London. Short-term, “provided we still do not breach $1,250 on a second attempt today, then gold could pull back toward $1,200.”...

“Equity markets are positive, and that’s weighing a little on gold,” said Peter Fertig, owner of Quantitative Commodity Research Ltd. in Hainburg, Germany. Investor sales to lock in gains from the advance to a record “may also be the case for lower prices,” he said.

Also quoted is a Royal Bank of Scotland report that supplies a reason for gold's seasonal weakness at this time: summer is usually weak for jewelry demand. The article also mentions an increase of 12.17 tonnes in the holdings of the SPDR Gold Shares Trust, to 1,298.53 tonnes.

Recovering equities is the reason given for gold's weakness by a Reuters report.

Despite an early rebound, risk appetite remains fragile amid widespread sovereign risk concerns in the euro zone, firmly underpinning gold, analysts said.

"As nervous as investors currently are, panicking very easily, it is not to be ruled out that we will move higher again in gold," said Peter Fertig, a consultant at Quantitative Commodity Research....

The medium-term environment for gold looks set to stay positive, with interest rates -- which represent the opportunity cost of holding non-interest bearing bullion -- expected to remain low. A hike in U.S. rates is not widely seen before 2011.

"Although gold is trading at nominal highs, we are staying long, as real rates are unlikely to move higher anytime soon, and macro concerns are likely to linger," said Morgan Stanley in a note.

The article also mentions that European shares firmed on news of an approximately 50% increase in PRC exports during May.

Rather than characterizing gold as dipping, the morning Wall Street Journal report characterizes prices as being essentially steady.

Gold is trading quietly in a range between $1,230 to $1,240 an ounce, said Afshin Nabavi, head of trading at Swiss precious metals trading house MKS Finance. "I think people are just waiting to seem some kind of direction," he said.

Tuesday's sharp jump to a record $1,251.80 an ounce reinvigorated sentiment after two weeks of range trading. Some market participants speculated a large fund may have bought gold, and whether or not that was true the rally raised hopes that more funds would buy gold.

"I think the fund community is probably not as long as they can be," said Mr. Nabavi.

Also mentioned is forecasts of a rise to $1,275-$1,300, although not quickly.

With regular trading open, gold has continued drifting downwards. A spike-up above $1,235 greeted the start of the pit shift, which evaporated with a decline to $1,231. Recovering somewhat, the metal poked up to $1,233. As of 8:52 AM, the spot price was $1,232.70 for a loss of $2.10 on the day. The Kitco Gold Index assigned -$6.30's worth of change to predominant selling and +$4.20's worth to greenback weakness. The U.S. Dollar Index continued downwards until 8:41, reaching 87.7 at its morning nadir. A recovery to the 87.8 level followed. As of 8:55, it was at 87.81.

The short-term malaise in gold is continuing as things look better on the economic front, but a resumption of the decline late last month doesn't seem in the offing despite some expectations for another one. Gold may continue muddling along today.