Gold Up Slightly After EU-IMF Deal Announced

The EU has agreed to a joint rescue effort for Greece with the IMF, which helped push the Euro up a little. Its gains were limited by forex traders not thinking much of the arrangement, even though the expected fall in the Euro didn't happen as a result.

After hovering around the $1,090 level when evening trading began, gold moved up to $1,094 starting at 10 PM ET. After holding just below $1,095, the metal broke above that level as of 1:30 AM and, after a blip followed by a smal decline, started hovering at the $1,097 level. The gain from the agreement announcement was muted, but there was one. Starting at 7:00, the metal made a run at $1,100; the price touched that level, but failed to surmount it. As of 7:57 AM ET, spot gold was at $1,098.60 for a gain of $7.60 on the day. The Kitco Gold Index split the gain into +$1.40 for predominant buying and +$6.20 for a weakening greenback.

Although the agreement had its influence, the U.S. Dollar Index had dropped almost continuously overnight. After reaching 82.20 as of 6:55 PM, the Index underwent its steepest decline of the overnight session; by 8:10 PM, it was slightly below 82. After a pause, the decline continued at a slower but steady rate. The above announcement of the EU-IMF rescue package deal didn't hasten the decline, but made it more uneven. As of 7:10 AM, the Index reached its nadir at just above 81.6. Since then, it's recovered a little. As of 8:80 AM ET, it was at 81.75.

A Reuters report, webbed by the Globe and Mail, credited the rise of the Euro for gold's own rise, along with increased risk appetite. The gains for the latter were muted because the deal provides no immediate aid; the Grecian government still has to borrow at still-high market rates:

“The EU agreement means that no money will be forthcoming immediately, but at least there will be a back stop should Greece have financing difficulties over coming weeks,” said Credit Agricole in a note....

“The fact Greece will have to borrow money only at market rates, ongoing worries about other EU countries' fiscal problems and ECB President Trichet putting somewhat of a dampener on sentiment by criticizing IMF involvement in the deal (have) kept the euro under pressure.”

Two other items were mentioned that tie in with gold's relative strength recently. The SPDR Gold Trust (GLD)'s holdings increased 4.568 tons yesterday, suggesting bargain-hunting buying, and Asian physical demand is thriving.

Despite gold's resilence, a survey of traders found that ten out of twenty believe that gold will drop next week. As reported by a Bloomberg article, webbed by Business Week,

Ten of 20 traders, investors and analysts surveyed by Bloomberg, or 50 percent, said bullion would fall next week. Six forecast higher prices and four were neutral.

One reason cited for a continued drop in the gold price was expected weakness in the Euro despite the deal.

“The underlying problems of heavily indebted euro zone economies are overshadowing everything at the moment and weighing heavily on the single currency,” Andrey Kryuchenkov, an analyst at VTB Capital in London, said in a report. “The euro will still suffer and could still drag gold a tad lower.”

The opening of regular trading saw a slump in gold, even though a slight run upwards to $1,099 was prompted by a lowering of fourth-quarter U.S. GDP growth from 5.9% to 5.6%. The expected number was 5.7%. That bump-up turned into a spike as gold fell back to $1,097. The U.S. Dollar Index was unaffected, continuing its recovery from overnight decline. As of 8:43 AM ET, spot gold was at $1,097.60 for a gain of $6.60 since yesterday's close. The Kitco Gold Index shaved the part of the gain attributed to greenback weakening to $5.10, but increased that part attributed to predominant buying to $1.50. The U.S. Dollar Index was at 81.80.

Again, the loss potential below $1,100 was muted overnight, although the gains due to U.S. dollar pullback have also been muted. It's possible that demand for gold will pick up now that this iteration of the Eurocrisis is being solved, but such demand isn't that evident yet. Today's session will show whether gold can hold its strength at these lower levels.