Gold Sneaks Up In Overnight Trading

Gold was little changed in the overnight session overall, but the metal did manage a slight gain. News that a record number of mainland Chinese households think inflation and real estate prices are too high didn't affect the metal much one way or another; not did a drop in the banker's confidence index. After climbing to above $1,233 in evening trading, the metal drifted around that level until early morning when Hong Kong trading was nearly closed: from $1,234, it dropped to below $1,232. That decline reversed around 5:00 AM ET, pulling the metal's price up a little above $1,235. As of 8:02 AM, the spot price was $1,235.20 for a gain of $4.70 on the day. The Kitco Gold Index attributed -$1.80 to predominant selling and +$6.50 to weakening in the greenback.

The U.S. Dollar Index, after a drift-like rise that pushed it up to 86.5 at the end, started tumbling down at 3:20 AM. When the drop ended at 6 AM, the Index was below 85.7. Exhausted afterwards, it drifted slightly upwards since then. As of 8:09 AM, it was at 85.76.

A Wall Street Journal report says gold is in a range between $1,220 and $1,240, which it's currently struggling to break.

Analysts said gold's likely to remain range bound between $1,220-$1,240 a troy ounce, underpinned by strong safe-haven demand, given the concerns about euro-zone finances and the potential impact on economic growth, but capped by sales of scrap gold and a lack of new bullish factors

The article also quotes Standard Bank precious metals analyst Walter de Wet as saying physical buying kicks in when gold hits the bottom of the range, which is capped by sales of scrap gold.

A Reuters report says gold rose as the Euro stalled.

"Even though some of the apprehension about Europe's fiscal issues and so on has faded, I believe there's still a core of investors that are concerned about that," said David Moore, commodity strategist at Commonwealth Bank of Australia in Sydney.

"But I think the gold price has risen so much. At these very high levels, you're getting a lot of caution," said Moore.

The report also notes that holdings in the SPDR Gold Shares Trust are still steady, suggesting that would-be investors are waiting for another driver before putting money into the ETF. (Given the timing of recent additions, the reason could be that gold prices are still too high.)

A Bloomberg report, as webbed by Business Week, ascribed the rise above $1,235 to renewed concerns about Europe - specifically, Spain.

Spain’s central bank said yesterday it planned to publish the results of stress tests to counter speculation it needs international aid. European Union leaders meet today in Brussels to discuss the region’s economies and the so-called stability and growth pact....

“The metal continues to be seen as a safe haven by investors,” said James Moore, an analyst at TheBullionDesk.com in London. Prices should “remain supported by investment dip buying and could trade to a fresh record high should broader risk appetite decline again.”...

“Gold’s trading more as the preferred currency,” David Baker, a managing partner of Baker Steel Capital Managers, said today in a Bloomberg Television interview. People are “seeing what’s happening in Europe with the issues in Greece and now Spain and potentially Portugal and they’re looking for an alternative. Gold’s the safest port of call,” he said.

That same analyst called for a a possible peak for this year between $1,450 and $1,470.

The two main releases gauging the U.S. economy were enough to warm a deflationist's heart. First-time jobless claims were up 12,000 to 472,000 seasonally adjusted, although total claims fell. Also, the May CPI fell 0.2% after falling 0.1% in April; the core rate rose by 0.1%. Those declines put the twelve-month rate down to 2%; the corresponding core rate is 0.9%. Perhaps surprisingly, gold rallied before and after the start of regular trading. The bulk of the rally occurred before the data were released, pushing gold slightly above $1,240, but an additional four dollars was put on afterwards - enough to push the metal well above $1,240. As of 8:50 AM, after the rally exhausted itself, the spot price was $1,243.60 for a gain of $13.10 on the day. The Kitco Gold Index split the gain into +$7.00 due to predominant buying and +$6.10 due to U.S. dollar weakness. As for the U.S. Dollar Index, it reacted little to the news. In the midst of ragged trading, a slight upward bias turned into a slight downwards bias. As of 8:54, it was at 85.77.

Although the correlation isn't tight, gold is still moving in opposition to the greenback. The break above $1,240 may not hold; if it does, then today will end up heartening.