Gold Drops Again, Stays Above $1,175

Right after overnight trading began, gold tried to get above $1,185 but failed to do so. Dropping to $1,180, it then rebounded to about half-way between those two levels by midnight ET. Sidling up closer to $1,185, it then dropped starting at 5:00. $1,180 was broached on the downside around 5:30, but the decline tailed off long before $1,175 would have been reached. Short-term sovereign debt sales by the Grecian, Spanish and Irish governments went well, providing further justification for the belief that the Eurostorm has passed. The Hungarian government had some trouble selling theirs, which put some pressure on the forint.

The pre-8:00 overnight low was made around 7:30, when gold touched $1,175.60; afterwards, it recovered somewhat to around $1,177-8 before making a new low at $1,175.10. As of 8:12 AM, the spot price was $1,176.20 for a drop of $7.90 on the day. The Kitco Gold Index split the loss into -$2.20 due to predominant selling and -$5.70 due to a strengthening greenback.

The U.S. Dollar Index drifted downwards a bit last night to stabilize at around 82.5 between 11 PM and 2 AM. Then, it went on a tumble that took it below 82.2. If that wasn't action enough, a reversal starting at 2:25 pulled it up all the way to 83 and a little beyond. As of 8:17, the Index was still climbing at 83.04.

A Bloomberg article, as webbed by Business Week, ascribes the drop to expectations of investor demand weakening.

“Gold’s safe-haven appeal has started evaporating following a strong rebound in the euro,” Andrey Kryuchenkov, an analyst at VTB Capital in London, said today in a report. “Unless we see a renewed flight for safety, it is unlikely that gold would retest the June highs anytime soon.”

When prices fell below $1,190 on July 16[, though,] “the buying response from the traditional physical hubs was quite significant and volumes to India were the sixth largest our sales desk in Switzerland experienced so far this year,” UBS AG analyst Edel Tully said today in a report. “Physical buyers are prepared to buy gold on a day when the metal experiences a large intraday negative swing.”

The article also notes that the holdings of the SPDR Gold Shares Trust were unchanged yesterday and the collective holdings of ten gold ETFs actually rose by 1.6 tonnes.

A Wall Street Journal article says gold is being pressured by holders chasing returns from other assets: other commodities and equities.

Société Générale analyst David Wilson said there has been "a bit of sentiment reversal", with a lack of demand for the precious metal as a perceived safe haven having led to repeated selloffs in Europe, and on the Comex in New York, in recent days.

"Momentum has eased and triggered stops below technical levels, and will continue to pull back until decent technical support is held, possibly around the $1,170/oz level," London-based broker Triland Metals said.

The article also references a Barclays Capital note, which anticipates further pullbacks but says the long-term bull market is still intact.

U.S. housing starts were lower than expected, according to the report for June. They dropped 5% due to the end of the housing subsidy, when expectations were for a drop of 3%. Gold started to move up beforehand, when regular trading opened, but the news gave an added boost to the metal. As of 8:53 AM, the spot price was $1,182.80 for a drop of $1.50 on the day. The Kitco Gold Index attributed +$2.40 to predominant buying and -$3.90 to greenback strength. The U.S. Dollar Index failed to hold 83, descending a little after the news. As of 8:56, it was at 82.94.

The metal is still floundering, but the reaction to the housing starts number shows there's still some handicapping of another quantitative-easing program in reaction to a slumping economy. Also, the above-mentioned jump in physical demand is lending some support. Gold may continue to languish, but the unlikelihood of a plummet is growing.