Gold Drifts Up Slightly

There was little overnight news pertaining to gold, and little action in the metal itself overnight. Gold drifted up to $1,185 last night, and stayed around that level until 3:30 AM ET. A blip up to $1,188.40 turned into a fall, which brought the metal down to its daily low of $1,181.70 reached at a little before 7:00. A reversal of that fall brought gold back to around $1,185. As of 8:00 AM ET, the spot price was $1,185.10 for a gain of $3.00 on the day. The Kitco Gold Index split the gain into +$0.50 due to predominant buying and +$2.50 due to weakening of the greenback.

The U.S. Dollar Index, after moving up slightly last evening, dropped slightly below 82 later. Recovering somewhat, it then fluctuated around the 82 level until a more sustained rally kicked in around 3:15 AM. Making it to 82.25 by 5:30, the Index then reversed course and fell back down below 82 again for a new overnight low. As of 8:09, it was at 81.86.

A Wall Street Journal report said physical demand is offsetting reduced investor demand, keeping gold in a tight range.

"It seems people are moving a bit out of gold," said Jeremy East, global head of commodities trading at Standard Chartered in London. "Financial meltdown and all the rest of it seems to be disappearing."...

UBS analyst Edel Tully said gold ETF holdings in July are having their worst month since February. Holdings in gold ETFs are up just 219,000 ounces, well below the average monthly inflows of 2.44 million ounces for March to June, Ms. Tully said in a report Tuesday.

The falloff puts pressure on jewelry demand to make up the slack, and it may not emerge until prices are significantly lower.

The article further quotes East as saying second dips encourage physical buyers to shy away, even though they come in on the first dip.

An earlier Bloomberg report, as webbed by Business Week, says bargain hunters may take heart from the first monthly decline in gold prices since March.

“For the past two or three weeks we’ve seen good buying in the physical market” at current prices, said Walter de Wet, an analyst at Standard Bank Plc in London. Still, “if gold doesn’t move higher, physical buyers will probably adjust their expectations lower.”...

“The regional physical markets are still seeing bargain hunting, which is helping to underpin values,” David Wilson, an analyst at Societe Generale in London, wrote in a report yesterday. “The continued uncertainties in the markets, including the mixed reaction to the results of the European Union stress tests, is expected to sustain investment interest in the market for the medium term and we look for further price gains as the year wears on.”

The article also mentions holdings of the SPDR Gold Shares Trust declined 0.3 tonnes yesterday to 1,301.74 tonnes.

A Reuters report says a lower greenback also helped gold but sentiment is softening.

"There seems to be a pause in the gold market, with investors unclear about the immediate trend," said Pradeep Unni, senior analyst at Richcomm Global Services.

"Investment demand has taken a back seat and physical buying is only expected to emerge by the end of this month.

"There is overall weakness in place and it's likely that gold would be dragged slowly and steadily to $1,170, but weakness beyond $1,165 isn't envisaged," he added....

"Given current market momentum, a net redemption ETF trend could well follow through in August," said UBS analyst Edel Tully in a note. "January holds the title of the worst monthly ETF performance in 2010 with 722,200 ounces of net selling action, February follows (with a drop of) 79,600 ounces.

"If gold retains its current dynamics, then it's quite possible that investors will return to early first-quarter activity," she added.

The article also mentions gold is trading more in line with other commodities.

A dip preceded the opening of the pit session, dragging the metal down to $1,181 before a rebound kicked in. As of 8:52 AM, the spot price was $1,183.20 for a gain of $1.10 on the day. The Kitco Gold Index attributed -$0.40 to predominant selling and +$1.50 to a weakening greenback. The U.S. Dollar Index, after some hestitation, rallied to the 82 level. As of 8:57, it was at 82.01.

The doldrums continue, with gold not making much headway above $1,185. As the day unfolds, the short-term interday range is likely to keep in place.