Gold Gains Overnight, Helped By Weaker Greenback

The Grecian government is going to the bond market again; the news trimmed the Euro's gains against the greenback. The U.S. dollar still fell this morning, and that drop helped gold get back up above $1,110 in the same timeframe.

The first night session of the week began with a sizable jump, to above $1,113. That level failing at the time, the jump turned into a spike as the price descended to the $1,110 level. A further descent later in the night (ET) took the price down below $1,105 between 9:00 and 11:00 PM. After bottoming right in the middle of that timeslot, gold pulled up and then dawdled slightly above $1,105 until 2:00 AM. At that time, the metal started a rally that pulled it up above the $1,110 level. Since then, gold has been fluctuating just above $1,110. As of 7:54 AM ET, the spot price was at $1,110.60 for a gain of $3.50 since last Friday's close. The Kitco Gold Index attributed -$1.10 to predominant selling and +$4.60 due to weakening of the greenback.

The U.S. Dollar Index actually started the night session climbing. From 5:45 PM to 8:00, the Index went from 81.25 to 81.6. Subsequently, though, it gave up more than its gains in a slow but accelerating decline that took it down to 81.16 by 4:40 AM. That was slightly after the time that gold made its overnight peak. Since that time, the Index has rebounded into a ragged trading range centered on 81.28. As of 8:07 AM ET, it was at 81.31.

The strenghtening euro, overall, was the cause cited by a Wall Street Journal article, which notes that gold has made a one-week high. Gold isn't the only commodity rising, either. As far as last night's rise is concerned:

While gold lacks momentum it is well-positioned for a rise, said Standard Bank analyst Walter de Wet, who noted speculative longs in gold declined some last week.

Hedge funds in Asia were initially pushing the metal up in an attempt to hit stops in the market, [Commerzbank trader Michael] Kempinski said. Much will depend on the New York open, he said.

So, it seems that there are big boys on both sides of the trade, at least as of now. The ramp-up at the start of the night session was seemingly an attempted short squeeze.

The Euro's rebound was brought up by a Reuters article, which also mentioned "strong physical buying" as another driver.

"The market thinks this Greek problem has been solved. (Also) we saw excellent physical demand last week and it's still continuing this morning," said Afshin Nabavi, head of trading at MKS Finance.

"If we can get above the $1,115 area we should see further short covering."

Also covered is a World Gold Council report forecasting a doubling of Chinese physical demand over the course of this decade. In addition, a terrorist incident in Moscow seemed to add to the price. The SPDR Gold Trust (GLD)'s holdings were unchanged last Friday.

A Bloomberg article, as webbed by Business Week, ascribed gold's rise to a weaker U.S. dollar.

A weaker dollar “is giving a helping hand to gold,” said Afshin Nabavi, a senior vice president at bullion refiner MKS Finance SA in Geneva. “Demand for physical gold continues to be strong,” particularly from Asia, he said.

The Euro's rise was attributed to the carving of a standby rescue package for Greece and any other EU nation that has trouble borrowing. Also included is speculation that gold will stay above $1,100.

Regular trading opened with a jump-up, which turned into a spike as the U.S. Dollar Index began to rally after dipping earlier in the hour. As a result, gold shaved off more than half of a spike-up to above $1,114. As of 8:45 AM ET, the spot price was at $1,112.00 for a gain of $5.30 since Friday's close. The Kitco Gold Index assigned +$1.70 to the predominant-buying category and +$3.50 to the weakening-greenback category. The U.S. Dollar Index, after an initial drop to below 81.25 as of 8:25, managed to rally up to 81.38 by 8:47. As of the next minute, it has pulled back slightly to 81.37.

The optimism is clearly coming back to the gold market, now that $1,100 has been sustainably surmounted. As the bloom is currently off the greenback's rose, due to a near-term resolution of the Eurocrisis, the biggest down-driver to gold has abated. If the $1,115 level is reached, then it'll be an interesting day in the gold market.

However, the possibility of a relief rally for the greenback shouldn't be dismissed out of hand