Gold Decline Continues Overnight

After dawdling a little above $1,155, gold declined into an $1,150-$1,155 trading range starting at 9 PM ET; it remained there until early morning. An attempted breakout on the upside right after 3 AM got the price briefly to $1,156.00, but it fell back into the range shortly afterwards. More successful for a time was a breakdown below $1,150, which lasted from just before 5:00 until 6:00. The low reached, as of just after 5:00, was $1,147.20. From it, a rally ensued that took the price to above the middle of the range before it pulled back. As of 7:55 AM ET, spot gold was at $1,153.90 for a drop of $2.10 on the day. The Kitco Gold Index attributed -$3.80 to predominant selling and +$1.70 for a weakening greenback.

The U.S. Dollar Index spent most of the overnight session drifting in a range of its own. Although ragged, the 80.5-80.62 trading range held for most of the session. Once it was broken, on the downside, the volatility increased but the overall directionlessness didn't disappear. Since 6:45, the Index has been in a tighter but slightly lower ragged-bordered range between 80.45 and 80.5; as of 8:03, it was at 80.49.

A Wall Street Journal article attributed the overnight decline to profit-taking and a bump-up in supply.

"I think some guys are starting to think it's overcrowded and are profit-taking," said Standard Bank analyst Walter de Wet....

A pick-up in sales of scrap gold since gold prices rose above $1,150/oz last week has also weighed on gold, Mr. de Wet said. "For the first time in a couple of months, we're seeing decent scrap levels coming into the market."

Also mentioned is the effect of the bailout package for the Grecian government, which cooled safe-haven demand.

The morning Reuters report said that the last stage of last week's rally was prompted by technical buying, in part by people who has missed out on the earlier stages and jumped in so as not to miss any more, which is often a sign that the rally's about to fizzle:

"The latest gains on Friday and early Monday morning in Asia were due mainly to technical buying, and such a rally usually paves the way for a technical correction," said Kaname Gokon, deputy general manager of the research section at commodity brokerage Okato Shoji Co.

"The market could test the next support levels of $1,140-$1,130 by the end of this week," he said.

The article also mentions physical selling as a depressant of the rally, but also notes that the holdings of the SPDR Gold Shares Trust were unchanged yesterday.

The same theme is contained in the regular Bloomberg article, as webbed by Business Week: gold was due for a downturn anyway. Some, however, pointed to the greenback:

The “gold price is dictated by a stronger dollar,” said Bayram Dincer, a commodity analyst at LGT Capital Management in Pfaeffikon, Switzerland. “Not overcoming the $1,170 four-month high indicates a short-term consolidation mode. The Greece euphoria factor also signals that risk aversion is lower.”

With regular trading open, gold moved up to almost $1,156 before pulling back as of just before 8:30. The U.S. trade deficit number was released at that time; it was a wider-than-expected $39.7 billion. The import price index rose 0.7%; the consensus expectation was for 1.1%. Both results added to downwards pressure on the metal, which was shaken off as of 8:40, as well as exerting some downward pressure on the greenback. As of 8:46 AM, spot gold was at $1,155.20 for a loss of $0.80 on the day. The Kitco Gold Index assigned -$3.10 to the predominant-selling category and +$2.30 to the weakening-greenback category. The U.S. Dollar Index, after breaking through 80.5 for a time, started slumping before the data were released but fell further when they were. As of 8:49, the Index was at 80.42.

The decline in gold is continuing, but it's moderating. Today may see some churning rather than an unambiguous drop.