Gold Takes Overnight Round Trip

Shortly after the overnight session began, gold began climbing up. Rolling with the widespread anticipation yesterday, the PRC foreign exchange authorities allowed the renminbi's value to appreciate by 0.4%. Early this morning, that gain halved as renminbi were sold for U.S. dollars. The pullback was interpreted as meaning the PRC government will not allow a one-way smooth upvaluation.

Gold peaked around midnight ET, at just above $1,240. Then, it slid down to $1,235 briefly before recovering to the high 1230s. Recovering to $1,240, and peaking at $1,241.40 around 5:00, the metal dropped back to $1,235 and continued to slide lower. As of 8:05 AM, the spot price was $1,233.30 for a gain of $0.80 on the day. The Kitco Gold Index attributed +$3.20 to predominant buying and -$2.40 to a strengthening greenback.

The U.S. Dollar Index, except for some brief backtracks, advanced overnight. Touching 86.1 both late last night and early this morning, it advanced well above that level by 5:50 AM; it entered into a range bordered by that same 86.1 on the downside and 86.2 on the upside. As of 8:12, it had risen slightly above the top end to reach 86.21.

A Bloomberg report, as webbed by Business Week, holds out hope that gold will increase as European banks funding troubles are seen.

“Some banks have started facing increasing funding problems,” the ECB [Governing Council's Christian] Noyer said yesterday. “The situation reflects a general state of uncertainty which, left unchecked, could have significant consequences on financial stability.”...

Gold “is profiting from its status as a safe haven and is likely to remain in strong demand as long as doubts persist about the chances of successfully resolving the debt crisis in Europe,” Eugen Weinberg, head of commodity research with Commerzbank AG, wrote in a report. “Investors are therefore still trying to protect their investments with gold.”...

“Gold may come under additional pressure if greater renminbi flexibility is seen as an indication that the Chinese authorities envisage a more stable global economic climate,” HSBC Securities analyst James Steel said in a report.

The article also mentions that the holdings of the SPDR Gold Shares Trust ETF were unchanged yesterday, but holdings for 10 gold ETFs collectively dropped by 0.5 tons. Also noted is that decline is the first one in two weeks.

The morning Wall Street Journal article characterizes overnight action as gold stabilizing after its tumble yesterday.

Concerns over the euro-zone's sovereign debt load and a poor outlook for currency yields will continue to support gold prices, analysts said.

"Overall, the prospects for monetary tightening and an improving yield on major currencies, like the U.S. dollar and the euro, are becoming ever more distant which is supportive for the bullion as an alternative asset to currencies," said VTB Capital analyst Andrey Kryuchenkov.

A Reuters report characterizes the night turnaround as an expression of continued confidence in gold's protective efficacy as a safe-haven asset.

"This is a rebound after the sell-off last night," said VTB Capital analyst Andrey Kryuchenkov. "We should consolidate here. The uptrend is still intact."

He said in the medium term, gold was supported by safe-haven related buying and uncertainty escalated by the euro zone debt crisis, as well as a slowdown in the U.S. economic recovery.

"Improving sentiment and a lower dollar would also support gold in the short term, though to a lesser extent," he added.

Also quoted is UBS analyst Edel Tully, who wrote that lingering fears over sovereign debt should continue to support gold.

With regular trading open, gold's decline reversed somewhat. After dawdling around $1,233, it rose to $1,237 before pulling back a bit. As of 8:51 AM, the spot price was $1,235.70 for a gain of $3.10 on the day. The Kitco Gold Index assigned +$3.90's worth of change to predominant buying and -$0.80's worth to greenback strength. The U.S. Dollar Index, after blipping up above the top of the above-mentioned range, fell below it. As of 8:56 AM, it was 85.99.

The decline has halted, leaving reason to hope for a recovery that may pan out. As of now, though, gold's still back in a range with a $1,240 ceiling. The overnight attempt to break through didn't pan out, and that resistance may defeat any such attempt today.