Gold Drifts After Evening Bump-Up, Mostly Downwards

A pledge to loan the Grecian government up to 30 billion euros for three-year terms at 5% from other EU governments was announced over the weekend, and jacked up the Euro more than 1%. That pledge isn't operational, because it requires unanimity from the others, but it was good enough to send shorter-term rates for Grecian government debt plummeting. It was also good enough for a spike in gold at the opening of weekly trading; the metal reached almost $1,170 before pulling back. Also, the risk of a tightening by the People's Bank of China was diminished by a report that mainland Chinese lending was slowing down; so was the growth in U.S. dollar holdings. There's still the risk of further tightening this month.

After surging and then pulling back, gold hovered around $1,165 until early morning. Increasing its fluctuations around that level, its tracking ended a little after 4 AM ET when the metal slumped down to $1,160.80 by 6:30. A pull-up from that level brought the price up to $1,165 again but the decline resumed a little after 7:00. As of 7:47 AM, spot gold was at $1,062.00 for a gain of $0.60 since Friday's close. The Kitco Gold Index attributed -$2.80 to predominant selling and +$3.40 to a weakening greenback.

The U.S. Dollar Index took the opportunity to plummet on the bailout-package news, reaching below 80.2 by 7:15 PM. A recovery to 80.37 ended at about 9:30, followed by a decline that climaxed as of 1 AM at 80.06. That bottom changed decline to rally, and the Index managed to retrace most of the ground it lost in the evening: a two-stage rally pulled it up to almost 80.7 before a slight pullback. As of 7:59, it was at 80.63.

A Wall Street Journal report attributed gold's overnight gain to the surge in the Euro, which also boosted risk appetite.

Technical analysts said gold's outlook continues to improve, and charts indicate its next upside target is the December record high. Barclays Capital Monday said the recovery in sentiment toward gold and the increasing level of long positions in Comex gold futures suggest gold's bull trend has resumed.

And yet, as also mentioned therein, Goldman, Sachs cut its three-month price target for the metal to $1,155 - a level below its present one. There were no reasons given.

From Reuters comes the same overall explanation, but also a highlighting of another rise in SPDR Gold Shares Trust holdings to another record high: 1,141.041 tonnes.

"The market is technically bullish and that may spur fund buying, so I expect a bit more upside for gold," said Yuichi Ikemizu, Tokyo branch manager for Standard Bank....

Koichiro Kamei, managing director at research firm Market Strategy Institute in Tokyo, said many players were waiting to see whether funds would push prices above $1,170.

"If prices fail to rise above that level, physical buyers will likely come in to take profits, pushing prices lower to levels attractive for buying again," Kamei said.

Except for the buying-opportunity bounce, that's what happened last night.

A Bloomberg report pegs the current run as gold's best performance in seven months, and pegs the latest phase as a result of diversification away from the U.S. dollar due to a drop in the Index.

The U.S. Dollar Index, a gauge against six counterparts, fell as much as 1.3 percent to the lowest level since March 18. A weaker U.S. currency makes gold denominated in dollars cheaper for investors holding other monies and some investors use the metal to hedge against further declines in the dollar.

“There is a broad diversification away from the dollar,” James Moore, an analyst at TheBullionDesk.com in London, said by phone. “There’s been a broad sidestep towards gold.”

This article differs with the Wall Street Journal's concerning Goldman's 3-month price target: Bloomberg says $1,165, not $1,155. Also mentioned is a forecast that Indian gold imports for this year will exceed last year's figure.

The opening of regular trading has extended the decline down below the $1,160 level. After pulling up to about $1,164 just after 8:15, the price dropped to $1,158.80 before rebounding up to $1,160.50 briefly. As of 8:49 AM, spot gold was at $1,159.60 for a drop of $1.80 on the day. The Kitco Gold Index apportioned -$5.50 to the predominant-selling category and +3.70 to the weakening-greenback category. The U.S. Dollar Index has been directionless, fluctuating between 80.58 and 80.68; as of 8:53 AM, it was at 80.63.

This morning's decline looks like a sell-the-news pullback. Certainly, given how much gold ascended last week, it wasn't unexpected. What remains to be seen is how far down it will go, not just for today but over the next week or two.