Gold Starts Week On The Uptrack

After a truncated day which saw gold drift upwards, last night's overnight session saw gold climb some more. Manufacturing in mainland China slowed in May, and the Euro continues to tumble. Gold shot up more than five dollars an ounce to $1,220 between 8:00 PM ET and 9:00. Pulling back below $1,220 after midnight, the metal then advanced in a stop-and-go fashion to reach $1,124 before stalling. As of 8:00 AM ET, the spot price was $1,223.70 for a gain of $7.50 on the day. The Kitco Gold Index attributed +$16.60 to predominant buying and -$9.10 to a strengthening greenback.

The U.S. Dollar Index spent most of yesterday drifting, but it lifted off from the 86.5 level last night and stayed above 86.7. After an early-morning pullback to 86.55, which ended at 2 AM, it took off in a strong rally to almost 87.5 before hovering just below that level for more than an hour. Later, starting at 6:45, it pulled back but still stayed well above 87. As of 8:10, it was 87.14.

A Wall Street Journal report ascribed gold's latest gain to worries about loan losses in European banks and the dip in mainland Chinese manufacturing.

The European Central Bank Tuesday said euro-zone banks may have to write off loans totaling €195 billion this year and next, raising concerns that tighter credit markets may hamper the region's growth....

The ECB's comments triggered a flurry of safe-haven demand for gold, said Afshin Nabavi, head of trading and physical sales at Swiss trading house MKS Finance. "We continue to see some investment type of buying in gold."

Data showing that China's manufacturing sector slowed in May also strengthened demand for gold, as the data added to worries that the global economy's recovery is slowing, said Swedish bank SEB.

The article also mentions that scrap gold sales are likely to increase along with increasing prices, which could dampen further gains.

An earlier Reuters article mentions worries over the mainland Chinese economy, despite it still being in growth mode, and concerns about Europe. Also noted was warnings from the PRC economic authorities about Europe, which added to the pressure on the Euro.

"Since the start of the problems in Greece and Spain, gold's become ultra-sensitive to unfavourable economic news," a metals dealer in Sydney said."This should keep up the support today."...

The European Central Bank warned Monday that euro zone banks face potential loan losses of up to 195 billion euros over the next 18 months due to the financial crisis, and disclosed it had increased purchases of euro zone government
bonds.

The warnings came after China had cautioned that the global economy remained vulnerable to sovereign debt risks.

Also, despite Monday's market holidays in the United States and Britain, bullion found some added support as it became evident that global market turbulence over the euro zone debt crisis had hit Argentine bond prices, which fell 5.4 percent on
average in May.

Argentinian government bonds sinking represents something new on the horizon.

A Bloomberg report, as webbed by Business Week, pointed to declining equity prices as well as the worries over the Eurozone.

“The fear factor is still in the marketplace and fleeing to gold is due to its safe-haven properties,” said Bayram Dincer, a commodity analyst at LGT Capital Management in Pfaeffikon, Switzerland. “Investors will likely reduce equity exposure which makes gold investment a reasonable alternative.”...

Europe’s “got some deep structural issues that aren’t going to be solved any time in the near-term,” said Toby Hassall, a commodity analyst at CWA Global Markets Pty in Sydney. “So you’ll have a camp of investors out there that believe that things might get worse and they’re continuing to put a bid under gold.”

Also mentioned in the story are two new records: gold made a new high in Swiss francs, and GoldMoney.com surpassed $1 billion in holdings.

Just before regular trading opened, gold surmounted $1,225 and almost made $1,230 at the peak before pulling back with regular trading's opening. That decline pushed it down about four dollars, but $1,225 held. As of 8:53 AM, the spot price was $1,225.50 for a gain of $9.30 on the day. The Kitco Gold Index assigned +$16.80's worth of change to predominant buying and -$7.50's worth to strength in the greenback. The U.S. Dollar Index, after an initial rise, slumped down to 87.0 before bouncing back a little; as of 8:57, it was at 87.03.

If gold stays up, it'll be on track for a seventh daily gain in a row. Quite a way, a fairly unusual way, to begin June.