Monday, July 26, 2010

After Trending Up, Gold Sinks Below $1,190

After an initial bob-and-weave, gold climbed until hitting around $1,193 shortly before 1 AM ET. A dip preceded a climb up to the daily high of $1,198.80, which itself preceded a reversal of the trend. In a downwards wavy motion, the metal lost fourteen dollars an ounce from top to bottom as it touched $1,184.80 a little after 6 AM ET. A relief rally failed to get it back above $1,190. As of 8:01 AM ET, the spot price was $1,186.60 for a drop of $3.10 since Friday's close. The Kitco Gold Index attributed -$6.40 to predominant selling and +$3.30 to a weakening greenback.

The U.S. Dollar Index, after churning around mostly downwards last night, fell down to below 82.25 by 2:45 AM. Recovering to 82.55, about at last night's mid-level, the Index slumped back down to about the same level as its previous dip. As of 8:11 AM, it had pulled up slightly to reach 82.28.

A Bloomberg report, as webbed by Business Week, said gold may rise on hopes physical demand will increase.
“Physical demand is supporting the market,” said Afshin Nabavi, a senior vice president at bullion refiner MKS Finance SA in Geneva. “In the past two weeks, every time there’s an attempt back towards the $1,185 level, there is good demand coming. The investment side has been relative quiet.”...

“There is physical buying coming in, as prices are below $1,200,” said Chae Un Soo, a Seoul-based trader with KEB Futures Co. “In the longer term, gold has the potential to power higher again, as signs of an economic rebound are likely to provide an excuse for investors to build up positions as an inflation hedge.”
The article also mentions holdings of the SPDR Gold Shares Trust were unchanged last Friday.

A Reuters report points to physical buying as providing the push upwards, but the stress test results drained safe-haven demand.
Traders said prices below $1,200 were boosting bargain hunting from physical buyers.

"The fact that we are below $1,200 has reignited... jewellery demand," said Robin Bhar, an analyst at Credit Agricole. But he added that the results of the stress tests had diverted investors' attention to riskier assets than gold....

"The factors pushing gold haven't gone away," Bhar said, citing sovereign debt, the outlook for inflation and the devaluation of currencies.

"They're just probably not going to be in focus now the stress tests have been done and concerns about the banks and the overall level of debt have been eased for the time being."
The article also quotes another analyst as saying physical buying has been there, but it's been light.

A Wall Street Journal article said gold slid down because of investment demand waning.
"I think people are a bit wary of getting too heavily long in gold, because the technicals below $1,185 an ounce look really bearish," said Walter de Wet, a precious-metals analyst at Standard Bank in London, adding a break below that level could spark a pullback toward $1,145 an ounce....

UBS analyst Edel Tully said speculators have been liquidating gold in Comex gold futures as well, according to latest data from the U.S. Commodity Futures Trading Commission. This reduces the chances of a heavy selloff, but also indicates investors believe the stress-test results and recovery in risk appetite won't spur safe-haven demand for gold.

"Until one of these factors changes direction, gold remains locked in a range-bound state as summer trading conditions permeate sentiment," Ms. Tully said.

Regular trading started for the week on the heels of a dip to $1,186. Jumping up to $1,190 in the opening minutes, gold sunk down a little before resuming its climb. As of 8:53 AM, the spot price was $1,191.10 for a gain of $1.40 sine Friday's close. The Kitco Gold Index assigned -$1.50's worth of change to predominant selling and +$2.90's worth to overall greenback weakness. The U.S. Dollar Index climbed up a little until just before 8:30 but sunk back later. As of 8:56 AM, it was at 82.28.

So far, the gold-greenback negative correlation has not been evident. The metal has shows some strength in early regular trading, and has ascended to levels not seen since 5 AM. It may not continue, but the week has gotten off to a good start in the Comex pits.

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