Gold Sinks In Quiet Overnight Trading, Hurt By Rising Euro

Gold tried to get above $1,210 a couple of times last night, but only bested that level briefly. After slumping to the $1,206 level, the metal stayed between it and $1,208 as morning turned into night. A small jump to $1,210.30 at the time London trading opened, or 3:30 AM ET, failed to be followed through upon: it presaged a drop to $1,202.80 around 5 AM. Gold quickly got back above $1,204, and climbed slowly until slipping a little around 7:30. As of 8:03, the spot price was $1,204.50 for a drop of $3.90 on the day. The Kitco Gold Index attributed -$6.80 to predominant selling and +$2.90 to weakening of the greenback.

The U.S. Dollar Index did fairly well last night, rallying all the way up to 82.5 before pulling back to below 82.4. Renewing its rally, it got up to 82.59 at 2:30 and again at 3:00. Then, it began a decline that took it all the way down below 82.1; despite that drop, largely prompted by a continued recovery in the Euro, gold didn't rally except initially. As of 8:13, the Index was at 82.10.

A Bloomberg report, as webbed by Business Week, said the strengthening euro prompted sales of gold by people who bought it as a safe haven.

“Investors’ trust in the euro currency is back,” said Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland. “Previous gold safe-haven buyers, mostly Europeans due to euro fears, are reconsidering their gold investments as gold prices in euro terms are declining.”...

“We continue to expect gold to tread water if not slip during the summer weeks,” Royal Bank of Scotland Group Plc analysts including Nick Moore said in a report today. “The steady performance in the first weeks of July suggests that price dips are likely to stimulate buying interest. Should we see a more significant selloff we expect decent support at $1,150 an ounce.”

The article also notes the holdings of the SPDR Gold Shares Trust declined a little, by 0.61 tonnes to 1,314.20 tonnes.

A Wall Street Journal report ascribes gold's easing to lack of trader interest because gold hasn't broken above $1,219.

The market seems to be confused about gold's next direction, as the euro's rally has not helped gold as might be expected and more market participants are worried about deflation, said Commerzbank analyst Eugen Weinberg....

"We still expect softer prices. We don't see the inflation debate coming back soon. There are fears that the softer economic data is pointing to deflation risks."

The U.S. CPI data were released, and the raw number showed a 0.1% decline for June; the core CPI rose by 0.2%. The former was below expectations, but the latter was above. The difference between the two was largely accounted for by a drop in gasoline prices. The news added to a decline that sunk the metal below $1,200. Starting when regular trading began, at $1,204, the metal careened down to $1,189.20 before halting. As of approximately 8:56 AM, the spot price was $1,192.11 for a drop of $16.30 on the day. The Kitco Gold Index assigned -$18.50's worth of change to predominant selling and +$2.20's worth to greenback weakness. The U.S. Dollar Index recovered a little, but not by much; as of 8:57, it was at 82.21. The CPI data had no discernible effect on the Index.

With the negative correlation between the greenback and gold failing, the only driver for gold has been discredited; hence this morning's decline. Gold is now back in the lower end of its current multiday range, and is at risk of another plummet driving it further into bargain territory.