Thursday, July 8, 2010

Gold Slumps To Below $1,200

It was a fairly eventful day in Euroland banking-wise. The Bank of England's Monetary Policy Committee left its rate unchanged, at 0.5%, but the European Central Bank is facing higher interbank market rates that are acting as a synthetic rate hike. The rises are due to uncertainty over the banks' financial condition in the wake of the Eurocrisis. The ECB left its own rate unchanged too, and it may have to intervene in a non-standard way to lower interbank rates. Perhaps paradoxically, European bank shares rose for the second day in a row; the stress tests so far have shown no evident weak points. Over in Asia, the PRC's State Administration of Foreign Exchange said the 'til-recent appreciation in the U.S. dollar has limited the scope for renminbi (yuan) appreciation. The Japanese sovereign debt market saw the PRC government enter to the tune of a new record: $7.9 billion' worth of purchases of short-term bonds.

Despite the events in mainland China, gold wasn't affected all that much last night. A blip-up to $1,205 kicked in around 8 PM ET, but gold stayed steady until just after midnight when fluctuations increased. The fluctuations around the same $1,205 level were replaced by a drop starting around 3 AM. In the next four hours, the metal lost almost ten dollars before the decline ended at $1,197.40. Since then, it stabilized before pulling up above $1,200 again. As of 8:12 AM ET, the spot price was $1,202.00 for a loss of $1.20 on the day. The Kitco Gold Index attributed -$2.65 to predominant selling and +$1.45 to weakening of the greenback.

The U.S. Dollar Index, although down slightly overall, traded in a range overnight. The ceiling was 84.0; as night turned into morning, the floor settled in at 83.80. As of 8:17, the Index was in the lower part of the range at 83.86.

A Bloomberg report, as webbed by Business Week, said that gold's declines have been limited by increases in physical demand.
“We are continuing to see very good physical demand” near the $1,200 level, said Walter de Wet, an analyst at Standard Bank Plc in London. “With markets as volatile as they are, there’s not the momentum yet for gold to move much higher, but it will be supported on dips.”

“Gold bulls will be heartened that gold was able to close above $1,200 yesterday,” said Ong Yi Ling, an analyst at Phillip Futures Pte. in Singapore. “Some investors may also bet that the corrective decline seen earlier had run its course and start accumulating long positions.”
The article also mentions the holdings of the SPDR Gold Shares Trust, which were unchanged yesterday.

A Reuters report said that enthusiasm for gold was dampened by an IMF report saying the risk of a double-dip recession, or "re-recession," was remote although not impossible; still, the metal has held steady.
"I'm still friendly toward gold. We haven't sorted out any of the problems adherent in the economy in terms of sovereign debt, liquidity issues and so on. There will be more of that when the stress tests get underway," said Credit Agricole analyst Robin Bhar.

"I just feel that we could be near the top of the range for gold. Maybe there are factors that will help support it, but I don't think you've got the fear factor any more, the end of the world, Armaggedon to really drive gold significantly higher."
The article also notes a pick-up in physical demand in Indonesia and Thailand.

A brief Wall Street Journal report says gold is hovering, with gains likely to be limited in the near future.
A stronger euro and a greater appetite for risk may dent gold's potential gains, market participants noted.

This week's jobless claim figures for the U.S. economy have come in; they show a drop in initial claims: 454,000, lower than expectations for 458,000. The blip up to $1,202 did not survive the opening of regular trading; nor did $1,200. With the opening of the pit session, the metal slumped to a new daily low of $1,196.10. The release of the jobless-claims numbers went with another blip-up to almost $1,200, which failed to gain traction. Instead, gold slumped down to the $1,198 level before climbing a little again. As of 8:54, the spot price was $1,199.00 for a loss of $4.20 on the day. The Kitco Gold Index assigned -$6.20's worth of change to predominant selling and +$2.00's worth to greenback weakness. The U.S. Dollar Index dipped slightly below its 83.8 floor; as of 8:56, it was at 83.74.

So far, there hasn't been any sustained demand beyond bargain hunting. Resistance at $1,200 may yield again today, but gold's performance has been hobbled by the relative dearth of bad news.

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