Friday, July 2, 2010

Gold Recovers Somewhat After Yesterday's Rout

After closing a little below $1,200 yesterday, gold climbed up above that figure and didn't look back. With little news overnight to affect it, the metal still bounced back to the tune of more than ten dollars an ounce. After a steady rise during the night, and stalling at just below $1,210 in early morning, it resumed the climb a little after 3 AM ET. Making it to $1,214.40 around 4:00, the metal slid back to $1,210. A climb to $1,212 a couple of hours later failed to last, and the metal fell down below $1,210 again. As of 8:06 AM ET, the spot price was $1,215.50 for a gain of $6.10 on the day. The Kitco Gold Index split the gain into +$4.20 for predominant buying and +$1.90 for a weakening greenback.

The U.S. Dollar Index also recovered a bit last night and early this morning, but those gains did not hold. Peaking at just above 84.75 around 2:30, the Index dropped but recovered shorly afterwards only to slide down below 84.5. As of 8:13, it was at 84.37.

A Wall Street Journal report ascribed the recovery to physical buying.
"In early London [trade], we've seen a lot of demand for physical [gold], so that's putting a bottom on the market for the time being," said Afshin Nabavi, head of physical trading and sales at Swiss trading house MKS Finance.

Gold's heavy losses Thursday took some by surprise, even though many analysts have been warning the market was overly long and vulnerable to a correction.

Nabavi said he expected gold will rebound to $1,220 an ounce, but others were less willing to take a position, saying further selling could trigger heavy stop-loss selling. "If it carries on running, it will be a huge slide," a London-based trader said.
The article also cites another analyst who said the jobs numbers would have to be significantly worse than expected for gold to be routed again.

A Reuters report concurs with the WSJ one regarding physical buying.
Afshin Nabavi, head of trading at MKS Finance, said demand for physical gold at lower prices had been "very, very good."

"We had a big correction, but there has been no change of the fundamentals, political or economic," he said. "It's a good opportunity to take up some gold."
The report also said that physical buying in India picked up smartly as a result of yesterday's fall, but part of the reason for the drop was the diminished appeal of gold as a safe haven now that the Eurozone appears to have overcome its troubles.

A Bloomberg report ascribes the rebound to buyers coming in because they thought the drop went too far.
“We’re seeing a lot of physical demand coming in at these levels,” said Bernard Sin, head of currency and metals trading at bullion refiner MKS Finance SA in Geneva. “People are still considering gold as a safe haven. Europe is still not in a good shape and the U.S. is still not in a good shape.”...

“Gold has on occasion been caught in the crossfire of steep liquidation actions in other markets, with the need to raise cash for margin calls sending gold into a tailspin,” Edel Tully, an analyst at UBS AG in London, said in a report. “The positive for gold right now is that physical demand is starting to perk up in regions that have been quiet for some time.”...

“Comparing the Comex turnover volume with the ETF outflow suggest that rational investors were not big sellers,” said Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland. Some of the sales may have been automatic based on “technical signals,” he said.
The article also notes the holdings of the SPDR Gold Shares Trust fell 1.22 tonnes to 1,319.22 tonnes.

The jobs report was released, and it showed private-sector employment went up by 83,000; expectations were for 115,000. The unemployment rate, which was expected to remain steady at 9.7%, dropped to 9.5%. Gold fell to $1,200.90 just before the number was released, but rebounded to above $1,205 once the report came through. The metal fell back down to a little above $1,202 before pulling up again. As of 8:55, the spot price was $1,205.30 for a gain of $5.90 on the day. The Kitco Gold Index divided the gain into +$1.10 for predominant buying and +$4.80 for greenback weakness. The U.S. Dollar Index did not take to the news all that well. Falling below 84.25 right after the news, it continued to fall before fluctuating between 84.2 and 84.3. As of 8:59, it was at 84.25.

Gold has managed to hold on to some of its gains from the overnight session, but the start of regualr trading did shave off a fair bit. There may be an echo of yesterday's rout today, but any such aftereffect is likely to reverse.

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