Tuesday, August 3, 2010

Gold Inches Up, Stays Below $1,190

After an initial dip to slightly below $1,180, gold picked up last night but kept below $1,185. The metal stayed between those two values except for blips until 6 AM ET. Although breaking through $1,185, the metal stalled in the high 1180s after touching $1,190.20. As of 7:58 AM ET, the spot price was $1,185.90 for a gain of $3.90 on the day. The Kitco Gold Index attributed -$0.20 to predominant selling and +$4.10 to weakening of the greenback.

As the Euro continues its run upwards, the U.S. Dollar Index is still under pressure. After hovering around 80.95 last night, it made a run up to 81 which reversed around 2:25 AM. Dropping farily rapidly, its decline leveled off for an hour and a half before continuing more slowly; by 6:10, it was below 80.5. After a slight recovery, the Index found itself above 80.6. As of 8:07, it was at 80.63.

A Reuters report ascribed gold's rise in thin trading to a weaker U.S. dollar, plus expectations of Indian jewelers stocking up for festival season.
"I would look at the upside for gold being capped," said Ong Yi Ling, an investment analyst at Phillip Futures in Singapore, who pegged key support at a three-month low of around $1,150.

"And hence, we might actually see gold edging down a little bit if the economic data come in better than anticipated, like the consumer spending and personal income figures."....

"The market is quiet today with light buying interest from investment. But we did see some buying from India as it builds up stocks for the festival," said a physical dealer in Singapore.
The article also notes holdings of the SPDR Gold Shares Trust remained unchanged yesterday.

A more recent Wall Street Journal report also pointed to the weaker greenback.
"It looks like gold is starting to receive support from a weaker dollar and is on its way to re-establish a more normal negative correlation with the [dollar]," SEB analyst Bjarne Schieldrop said....

"Gold has once again started decoupling from the U.S. dollar," said VTB Capital analyst Andrey Kryuchenkov. "Gold's rolling monthly correlation to the U.S. currency fell to around 68% from highs above 85% last month. So, given a further improvement in risk sentiment from here, the correlation is set to weaken even more with gold prices tracking firmer PGMs [platinum group metals]."
The article also cites Edel Tully disclosing that UBS gold sales in India yesterday were the second-highest for any day this year.

U.S. disposable-income and consumer-spending numbers for June came in, and the 0.2% rise in the former and 0.1% rise in the latter [flat after inflation's factored in] matched expectations. The only effect it had on gold was to push the metal down a couple of dollars, which were tacked back on shortly afterwards. As of 8:51 AM, the spot price was $1,186.80 for a gain of $4.80 on the day. The Kitco Gold Index split the gain into +$0.10 for predominant buying and +$4.70 for a weakening greenback. The U.S. Dollar Index slumped back to 80.49, with an earlier decline helped along by the income and spending data. As of 8:54, it had mostly recovered to make 80.58.

So far, gold hasn't moved much. The upside may indeed be capped, as Ong Yi Ling said, but the downside seems capped as well. Although it's too early to say an all-out recovery is in place for the metal, it's looking fairly good as compared to late last month. Gold today might test $1,190, as it did yesterday.

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