Monday, July 12, 2010

Gold Drifts Down, Stays Above $1,200

Opening after the weekend, gold failed to keep the momentun shown last Friday. A couple of jumps above Friday's close failed to take hold, and the metal drifted down below $1,210. After midnight ET, a stabilization just below that price turned into a downward drift punctuated by a spill that pushed the metal down below $1,205. Recovering to about $1,207, the metal turned downwards again just before 8:00. As of 8:05, the spot price was $1,214.00 for a loss of $7.40 on the day. The Kitco Gold Index split the loss into -$3.40 for predominant selling and -$3.30 for strengthening of the greenback.

The U.S. Dollar Index, in recovery mode, made it above 84.5 in an overnight rally whose fits and starts changed into a more consistent rise as night turned into early morning. Slumping back to 84.15 in after making it to almost 84.3, the Index lumbered up to 84.44 before pulling back to levels seen a couple of hours after midnight. As of 8:12, it was at 84.25.

A Bloomberg report, as webbed by Business Week, said gold's rise was curbed by an increase in risk appetite and a stronger greenback.
“Given the increase in broader risk appetite, gold may be vulnerable to further long liquidation,” said James Moore, an analyst at TheBullionDesk.com in London. Still, “we expect further dip-buying interest below $1,200 an ounce from physical and investment players.”...

“To some extent gold prices are trading lower due to a stronger dollar,” said Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland. Gold typically moves inversely to the greenback....
Also mentioned is the source of the recent decline in pessimism: an unusually strong export report from mainland China. Holdings of the SPDR Gold Shares Trust declined by 1.52 tonnes last Friday to 1,314.51 tonnes. The article also notes that holdings of ten gold ETFs hardly changed over that same day.

A Reuters report ascribed gold's pullback to the same causes.
"Gold continues to consolidate beneath the 50-day average (now $1,218)," said technical analysts at Barclays Capital. "Such price action is bearish, and a break below $1,183 would likely resume the downtrend to $1,155/65."
A Wall Street Journal report said gold softened in light trading as it looks for direction from upcoming economic data.
Gold is encountering selling on rallies towards $1,215 an ounce, while dips towards $1,200 an ounce are triggering physical purchases, said Afshin Nabavi, head of trading at Swiss trading house MKS Finance in Geneva. "I think there's profit-taking around the $1,215-ish level."

However, Mr. Nabavi said the latest Comex gold market positions data shows that longs have reduced their exposure to gold, making the metal less vulnerable to heavy profit-taking or long liquidation.
Also quoted is Commerzbank analyst Eugen Weinberg, who expressed concern over gold slipping to $1,150 if it broke below $1,200.

The beginning of the pit session saw gold slip to $1,200.60 but recover. After jumping to $1,205, the metal pulled back to $1,203 but it continued to rise afterwards. As of 8:51 AM, the spot price was $1,205.90 for a loss of $5.50 on the day. The Kitco Gold Index divided the loss into -$1.40 due to predominant selling and -$4.10 due to greenback strength. The U.S. Dollar Index climbed a little in the same timeframe, but it carried little conviction. As of 8:55, it was at 84.30.

The start of this week's trading has seen a pullback in gold, but $1,200 has held even when the metal was most pressured. Bargain hunting has not really kicked in as yet, but a sub-$1,200 price would call some forth. The metal looks like it'll mark time overall today.

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