Gold Stabilizes In Overnight Trading

The latest mainland Chinese inflation figures give one reason for the recent strike. Year-over-year, the number was 3.1% in May; the corresponding figure for wholesale prices was 7.1%. Both figures were above expectations, and the CPI figure is higher than the PRC government's target level of 3%. The release of that number had little effect on gold, which rose slightly higher in evening and night trading; it overcame $1,220 around 10:30 PM ET. Stabilizing around $1,221, it fell down to $1,215.90 early in the morning but recovered. Subsequently, the metal fluctuated around $1,220 for the rest of early-morning trading. As of 8:00 AM, the spot price was $1,220.40 for a gain of $2.70 on the day. The Kitco Gold Index split the gain into +$2.20 for predominant buying and +$0.50 for weakening in the greenback.

The U.S. Dollar Index spent the overnight session virtualy flat as well. Staying above 87 except for brief dips, the Index hardly got above 87.2. Except for slight periods, it stayed in that range for the entire session. As of 8:08, it was at 87.07.

A Reuters report ascribes gold stabilizing to "price-sensitive" buyers coming in to the market.

"Concerns that the recovery would be derailed by the sovereign debt crisis and China slowing seem to have lessened -- not gone away, but lessened," said Credit Agricole analyst Robin Bhar. "In that sort of environment, gold will struggle.

"It probably needs to consolidate around the $1,200-1,220 range and secure a foothold there," he added. "Demand for gold as a safe haven and an alternative currency remains, though maybe not in the heightened way is was a few weeks ago."

The snap-back rise in the Euro helped push down gold earlier this week, as a lessening of fear also pushed up European shares. Also mentioned in the article is the holdings of the SPDR Gold Shares Trust rising to above 1,300 metric tonnes. Increasing by 7.61 tonnes yesterday, they're now 1,306.14 tonnes. Recently, rises have been less momentum-driven and more price-driven. Except for minor cutbacks, holdings have not been dropping.

Lower prices inducing more buying was the reason given by the morning Bloomberg report, as webbed by Business Week.

“Yesterday’s drop was seen as another opportunity to buy gold,” said Bayram Dincer, a commodity analyst at LGT Capital Management in Pfaeffikon, Switzerland. “Persistent high holdings and new inflows into ETFs at current prices are supporting” bullion, he said....

“What gold is telling you is that the currency system, the debt system, is stretched to its limit, and it doesn’t matter which Western currencies you choose,” Juerg Kiener, Singapore- based chief investment officer of Swiss Asia Capital Pte, said in a Bloomberg Television interview. Gold has a “long way to go” before reaching “bubble territory,” he said....

“There may be more downside risks for gold,” said Wong Eng Soon, Singapore-based analyst with Phillip Futures Pte. Still, “considering that gold was at $1,250 mere days ago, gold at $1,200 will be attractive to investors who will be tempted to take up long positions on bargain-hunting.”

As the last paragraph indicates, another analyst has settled upon $1,200 as a bargain point.

A Wall Street Journal report ascribes gold marking time to ETF-driven demand balancing off a reduction in safe-haven demand.

While the euro's recovery against the dollar should help gold in dollar terms, the rebound in risk appetite is weakening demand for gold as a protection against volatile currency and equity markets.

"Gold is holding its own, but I wouldn't be surprised if it came back," said a senior precious metals trader in London. "There's obviously been some positive tone [in markets] in the past few days."

Gold may initially retreat to $1,215/oz and could dip as low as $1,200/oz, he said.

Analysts said the steady flow of money into gold exchange-traded funds should prevent gold from experiencing a deep correction.

Also quoted is a note from TheBullionDesk.com, which sees support for gold at $1,200.

The recent "phew" rally in U.S. stocks reversed a little as some bad news came through the pipe: retail sales fell a surprisingly large 1.2% in May, with sales at hardware stores, auto dealers, gas stations, department stores and clothing stores being especially hit. The expectation was for a gain of 0.2%. April's sales gains were upwardsly revised from 0.4% to 0.6%, which made May's decline a little worse than otherwise. Although gold was already rising when the news was released, the disappointment added to its jump; the metal managed to leap up to $1,230.20 before its rally ran out of steam. As of 8:52 AM ET, the spot price was $1,226.00 for a gain of $8.30 on the day. The Kitco Gold Index attributed +$10.30 to predominant buying and -$2.00 to greenback strength. As the latter category indicates, the U.S. Dollar Index also gained strength from the news. Spiking up to 87.35 after the release, it pulled back to its former resistance high and then turned upwards. As of 8:55, it was at 87.28.

So far, the signs point to gold's recent spate of declines ending. How far the reversal will go, or how long it will last, remains to be seen - but the bad news has made for a good start. Business as usual for a "bad news bull" asset.