Friday, July 23, 2010

Gold Inches Above $1,200

After staying largely flat last night (ET), around $1,195, gold perked up after a dip down to $1,193.50 around 2:00. The rally wasn't that great in extent; it peaked at $1,202.90. The subsequent pullback never got back to $1,195. Moody's has put Hungarian sovereign debt under review, which has led to a drop in the forint as well as the price of those bonds. The situation was quite different for two other European countries: the U.K. saw GDP growth that well exceeded expectations, and Munich's Ifo business climate index jumped instead of declining. Results from the bank stress tests have yet to be delivered.

The pullback in gold, after bottoming at $1,197 around 7:00, ended with a climb back up to $1,200. As of 8:11 AM ET, the spot price was $1,201.60 for a gain of $7.10 on the day. The Kitco Gold Index split the gain into +$5.50 due to predominant buying and +$1.60 due to weakening of the greenback.

The U.S. Dollar Index also dawdled last night, with a jump above 82.7 providing the impetus for gold's dip. That jump gave way to a spill that took the Index down to 82.2 by 4:45, mirroring gold's run-up. Since then, the Index has recovered to levels seen last night. As of 8:18, it was at 82.52.

A Reuters report ascribes the rise to a return of the traditional negative correlation between gold and the greenback.
"Post the start of the Greek crisis, gold and the dollar were two classic safe havens, and from then until the last few days, there has been actually a pretty strong positive correlation," said RBS analyst Daniel Major.

"Historically, you should get a negative correlation with the dollar and I think that a bit more of a normalization in the risk environment (will lead to that)," he said. "(Investors) are slightly less concerned about the Armageddon scenario and the double dip, and that is taking the edge off safe-haven flows."
The article also mentions a drop in holdings of the SPDR Gold Share Trust: they declined by 6.07 tonnes to 1,302.05 tonnes.

An earlier Bloomberg article, as webbed by Business Week, said last night's lassitude was due to diminishing demand.
“Gold has currently lost the support which helped drive prices to a record,” Wang Huijia, an economist at China Merchants Futures Co., said from Guangzhou. “The Europe debt crisis seems to have calmed down, however, gold’s declines will be limited as a resolution is far from over.”
The article also noted 12 out of 27 traders, investors and analysts surveyed by Bloomberg expect gold to rise next week.

An article in said gold rose on low volume while awaiting the results of the stress test for European banks.
"The dip buying interest seen in gold over the past few days is an encouraging indicator and suggests ongoing diversification from fiat currencies by investors looking for more tangible assets," says James Moore, analyst at in his daily metals report. "However, the continued failure to clear overhead resistance around $1,200 leaves the metal vulnerable to stale liquidation."

With regular trading open, the recovery ended; gold slumped from $1,205.00 to below $1,197. The recovery in the greenback has its influence. As of 8:55 AM, the spot price was $1,197.30 for a gain of $2.80 on the day. The Kitco Gold Index divided the gain into +$2.30 for predominant buying and +$0.50 for overall greenback weakness. The U.S. Dollar Index continued its recovery, rising above 82.6. As of 8:58, it was at 82.65.

Today's disappointment on the opening of the pit session was worse than those of the past couple of days, so a resumed rally might not kick in later this morning. Still, gold did get above $1,200 and stayed there for some time. The metal might try again today.

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