Wednesday, July 28, 2010

Gold Stays Steady After Yesterday's Tumble

After being hammered down to $1,160, gold stayed in a range between that level and $1,165. Last night saw a drift upwards, which came to a halt as night turned into morning. A dip at 1:30 AM ET led to a daily low of $1,160.70, after which the metal recovered and moved close to $1,165 in the next two hours. The daily high of $1,167.00 was made at around 5:00, but above-$1,165 didn't last; the metal descended to the middle of the range afterwards before pulling up again. As of 8:09 AM ET, the spot price was $1,163.40 for a gain of $1.80 on the day. The Kitco Gold Index split the gain into +$1.40 for predominant buying and +$0.40 for weakening of the greenback.

The U.S. Dollar Index, after inching up to 82.3 last evening, descended to a little below 82 by 3:10 AM. Subsequently, it bobbed with decreasing volatility as it veered in around the 82.1 level. As of 8:14, it was at 82.12.

A Wall Street Journal article said gold was steadied by physical buying.
"There's some very good physical demand here," said a senior trader in London.

But physical buying may not be strong enough to overcome investors' dwindling lack of appetite for gold, analysts said. A recovery in confidence across equity markets and the euro's stronger outlook have negated two key factors that had underpinned gold's rally to a record high of $1,249.40 on May 14.

"People seem to be a little bit more confident about matters economic and are taking on risk again," said the trader in London.
The article also said the short sellers have come back in force.

An earlier Reuters article said part of the reason why gold has been declining has been deflationary pressures, or lack of inflationary pressures.
With increasing market scrutiny on nations' fiscal health and doubts over the effectiveness of ultra-low monetary policies in supporting the economy, governments around the world are facing difficulties finding fresh ways to stimulate the economy and beat deflationary pressures, said Koichiro Kamei, managing director at Tokyo-based researcher Market Strategy Institute Inc....

"Reasons supporting investor buying of gold have weakened recently, and options-related technical selling could undermine sentiment in the short-term as investors seek fresh clues for direction," Kamei said.
The article also mentions holdings of the SPDR Gold Shares Trust dropped yesterday to 1,300.83 tonnes.

The stabilization didn't hold up with the beginning of regular trading. After a recovery from a descent to $1,161, gold fell to a new daily low of $1,158.50 on the heels of a durable-good report saying orders dropped by 1%. Expectations were for a 1% rise. As of 8:57, the spot price was $1,159.90 for a drop of $1.70 on the day. The Kitco Gold Index attributed -$2.30 to predominant selling and +$0.60 to greenback weakness. The U.S. Dollar Index continued fluctuating and made no lasting gain or loss from the report. As of 8:59, it was at 82.12.

Bad news has once again become bad news for gold as the deflationist meme recovers. The metal may recover today, but the start of the pit session hasn't been that inspiring.

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