Gold Rebounds Above $1,140

Things seem to be calming down, for the nonce, in Euroland. Despite yesterday's jitters, a short-term auction of Grecian government bonds went well. Although the paper was only three months' duration, the yield was lower than expected: 3.65%. The Greek Public Debt Management Agency was hoping for 3.6-3.9%, and most watchers were expecting more than 4%. The talks between the European Commission, the IMF and the same Greek government are expected to take place tomorrow; they're expected to last two to three weeks. Although the subject is the Grecian government's austerity plans, a bailout cheque should be cut if asked for. Another EU item is more directly inflation-related: as reported in the Guardian, the surge in U.K. inflation means that savers are getting drained once taxes are taken into account. The only way to break a little more than even is with a non-taxed account. We're still a long way from debt instruments again being known as "certificates of guaranteed confiscation," but...

Thanks largely to the calming effect of the short-term debt sale, and perhaps the indirect implications of the bond market letting up on the Grecian government in advance of the talks, gold made it above $1,140 in the wee hours of the morning. When evening trading began, the metal initially fluctuated around the $1,135 level with a slight upward bias kicking in after 8:00 PM ET. From just after then 'til a little before 3:00, the metal hovered between $1,135 and $1,137. Then, it took off. Pausing at $1,140 and backtracking a little, the metal jumped up further; by 4:00, it was at $1,142. Between that time and 7:00, it climbed slightly before pulling back to the $1,141-2 range. As of 7:59, spot gold was at $1,141.30 for a gain of $6.10 on the day. The Kitco Gold Index split the gain into +$5.50 for predominant buying and +$0.60 for a weakening greenback.

The U.S. Dollar Index did sink a little overnight, but not by much. The night part of the session saw it rallying a little, starting at 9:00 PM. From below 80.9, it drifted up to reach 81.125 by 2:30. Then, its rally reversed in the next three hours; by 5:30, it had sunk below 80.8. The rest of the pre-regular session saw the Index recover a bit; as of 8:06 AM, it was at 80.893.

A Wall Street Journal article ascribed the recovery to yesterday's gains in equities along with some bargain-hunting.

Gold traders said the dip in prices brought out bargain hunting and physical demand, a bullish sign that there is pent-up demand for gold.

"All these dips are getting bought. Physical demand is picking up," said the head of precious-metals trading at a London-based investment bank. If prices remain near current levels or lower, physical demand, choked off by April's rally, is likely to come back to the market, said VTB Capital analyst Andrey Kryuchenkov.

"[We] still believe that the latest selloff will be positive in the long run as it is likely to lure physical traders back, while the fundamentals catch up with the market," Mr. Kryuchenkov said in a report Tuesday.

The article also notes that gold moving with equities seemingly contradicts its status as a safe haven, but makes sense given that the recovery is accompanied by reflation.

The morning Reuters report said gold's rise was caused by risk appetite returning, along with a slight rise in the Euro. (There's another connection between the revival in equities and gold, as both were shot down by the SEC charges against Goldman, Sachs.)

"Technical signals are still fairly supportive for all precious metals. Momentum and trend ratings are still positive," said Tobias Merath, head of research at Credit Suisse. "And we have seen the euro-dollar creeping higher."

"Since the beginning of April yields have been coming off, and that is supportive for gold," he added. "You don't get any yield from your investment in gold, so when yields drop, then other investments become less attractive."

Also noted in the article was a partial recovery in the price of oil.

Despite a continued (if slight) rise in the U.S. Dollar Index, gold remained largely unchanged as regular trading opened. Fluctuating around $1,141 as the session began, the metal popped up above $1,142. As of 8:52 AM, the spot price was $1,142.80 for a gain of $7.10 on the day. The Kitco Gold Index attributed a -$0.60 change to the greenback-strengthening category and a +$7.10 change to the predominant-buying category. The U.S. Dollar Index continues to inch up, although it has not reached 81. As of 8:54, it was at 80.96.

The recovery in gold has come, and it may stick for the rest of the day. So far, the recently perilous morning session hasn't eroded the early-morning gains. That may reverse over the next several hours, but there's no sign of such a drop so far.