Overnight drift

After partially recovering from yesterday morning's decline, and drifting back down to near the bottom of that drop, gold spent the rest of the day in a trading range bordered by $1,090 on the downside and $1,100 on the upside. There was no recovery, but there was also no resumption of the drop. The early morning low was $1,089.00, reached briefly prior to 7 AM ET before the $1,090 support level reasserted itself. The Kitco Gold Index shows that gold dropped once the U.S. dollar's movement is factored out.

The greenback itself has weakened somewhat, after reaching a high yesterday at a level not seen since early last September. The U.S. Dollar Index spent last night and this morning drifting downwards, before rallying above 78.4 just before 9 AM ET.

A Globe and Mail report attributes gold's movement to the greenback's, and the recent drop to President Obama's announcement of a partial revival of Glass-Steagall:

“The dollar has been the driving force (for gold),” said Peter Fertig, a consultant with Quantitative Commodity Research.

He said while gold and other commodities had overreacted to the Obama news: “Uncertainty about U.S. financial system regulation is a factor which might be in the market for some time, until there are concrete details.”

It also says that Indian buying will kick in should the metal's price keep falling. "'Traders mostly will look at buying below $1,070,' said one dealer with a private bank in Mumbai."

A Marketwatch report is more bearish in tone. Its feature quote is from a Hong Kong financial executive, who says that the greenback carry trade is unwinding:

"With fear returning to markets and investors' minds after they had previously bought into the recovery story, most assets have been sold off sharply, including gold, helped by interest-rate-hike fears that have encouraged those speculating with borrowed funds in carry-trade currencies -- such as the yen, [U.S. dollar] or also Swiss Franc -- to unwind their positions," said Martin Hennecke, an associate director at Tyche Group Ltd. in Hong Kong.

"This is why we advise clients to stay clear of any form of debt, including mortgages, and not to speculate in any asset class for the short term," he said.

A third report, from Bloomberg, has a hopeful headline: "Gold May Climb in London as Weaker Dollar Fuels Investor Demand." The first expert quoted mentions physical demand as an emerging cushion:

“Yesterday we had a lot of pressure on gold, and overnight we’ve seen some physical demand,” said Afshin Nabavi, a senior vice president at bullion refiner MKS Finance SA in Geneva. “The physical market thinks these prices are fantastic to buy at....

Suresh Hundia, president of the Bombay Bullion Association, is quoted therein as saying that demand will "certainly" exceed last year's depressed level.


The gold-at-a-discount indicator, tracked here on a daily basis, once again didn't come close to the 10 threshold that would indicate an oversold condition. (A reading of below 10 means that an ounce of physical gold is selling at less than the price of ten GLD shares; those shares correspond to an ounce of paper gold.) Yesterday's reading clocked in at 10.20. The last time it dipped below 10 was right on January 1st, just before the early-January rally. In that case, the discount arose because GLD turned up prior to gold itself. This indicator can be checked on a real-time basis by looking at the spot gold price and at the price of a GLD share. Dividing the first number by the second number gives the indicator's value. If it's below 10, then the threshold is reached.


As shown by the above stories, there's some uncertainty about where gold's going. In the past couple of weeks, the main driver down has been PRC tightening. As of last night, no further moves were reported, so gold hasn't been put under any more pressure. However, the rumors floating around point to an all-out rate hike by the People's Bank of China in a month or so. The 8:30 annoucement window has come and gone, and a small decline has taken the price from almost $1,095 to below $1,090 in the last half-hour. As of the time of this post, spot gold's at $1,088.80.