Gold Reverses Direction Overnight

Although gold started trading flat, it picked up steam as the overnight session wore on. Dawdling just above $1,150 until 8 PM ET, the metal went on a rise that carried it up to the $1,155 level by midnight. After making an aborted attempt at rising above, the metal fell back and later took a tumble that brought it down to $1,151.80 around 3:30. Reversing, it rallied all the way up to $1,161.30 in the next two hours. A pullback preceded an attempt to get above $1,160 again, which was foiled. Instead, the metal dropped to the $1,157 level. As of 8:03 AM, spot gold was at $1,158.80 for a gain of $7.70 on the day. The Kitco Gold Index attributed -$0.05 to a strengthening greenback and +$7.75 to predominant buying.

The night wasn't kind to the U.S. Dollar Index, but early morning was. After churning between 80.4 and 80.45, the Index tumbled at 8:15 and ended up sliding down below 80.2 just before midnight. The change from yesterday to today saw the drop change into a rally. Starting slowly, it picked up speed around 2:30; as of 3:35, the Index was above 80.4 again. Falling back to 80.25, it picked up again at 7:05 with a rally that took it above 80.45. Since 7:40, the Index was in the same 80.4-80.45 range; as of 8:09, it had fallen back a little to reach 80.39.

All three reports on gold's overnight action highlight palladium, as that metal reached a 22-month high. The Wall Street Journal wrapup casts gold as following in palladium's wake.

The morning Bloomberg report, as webbed by Business Week, ascribes gold's rise to the weakening greenback spurring demand for the metal.

“People are looking for short-term direction, and currencies will be back as a driver” of gold prices, said Wolfgang Wrzesniok-Rossbach, head of sales and marketing at Hanau, Germany-based Heraeus Metallhandels GmbH. Investors “are looking at the instability of the financial system with regard to debt problems,” weakening gold’s correlation with the dollar, he said.

Summarized was a prediction by Jeffrey Nichols for $1,500 gold by the end of this year. Nichols dismissed day-to-day fluctuations as the result of insutitutional speculation. Also noted is another optimistic forecast from Edel Tully of UBS AG, who believes that gold would benefit two ways from a revaluation of the renminbi: stimulating demand by making the metal cheaper in renminbi terms, and signalling that inflation is a problem in mainland China.

A Reuters report explained gold's rise as the result of bargain hunting and speculation on mainland China's first-quarter GDP figure.

"The GDP should be a good reflection of China's disposable income. If China's consumer demand is good, it's most probable the gold price will be well supported," said Wong Eng Soon, an investment analyst at Phillip Futures in Singapore.

China's first-quarter GDP figures are due on Thursday.

"I think the downside for gold will be limited because I see most of the risky currencies like euro all up at least for the last couple of days. I don't think there is a problem in crossing $1,168 again."

Also mentioned is the anticipated release of more economic data from the U.S.

Two of those items have been released, including the March CPI figures. The overall CPI rose 0.1%, in line with expectations, but the core CPI was unchanged; expectations were for a 0.1% gain too. Raw retail sales for March rose more than expected, by 1.6% instead of the anticipated 1.3%, but sales ex- autos and trucks rose by the expected 0.7%. On a raw basis, retail sales are 7.6% higher than the figure from the same month a year ago.

The prime beneficiary, for a time, was the U.S. Dollar Index. After sinking to 80.35 by 8:18, the Index trundled upwards until the news hit; it then spiked up to 80.49 before reversing and sinking back below 80.4. As of 8:52, the sinking was continuing as the Index hit 80.30.

Gold reacted to the news in an inverse way. When regular trading opened, the metal had rose to $1,159. That rise continued to $1,161.50 before being derailed by the news. Pushed down to below $1,159, the metal quickly reversed course and climbed to a new height. As of 8:52 AM, it was at $1,160.50 for a gain of $9.40 on the day. The Kitco Gold Index split the gain into $7.50 for predominant buying and $1.90 for U.S. dollar weakness.

The metal's two-day decline has been reversed, with quoted analysts notably optimistic for gold's near-term prospects. Part of that sanguinity is the result of journalists quoting those experts whose opinions gibe with the daily move, but there seems to be some optimism afoot that can't be explained by headline-compatible selection. I'd like to believe that the two-day decline spanning Monday and yesterday was the entire pullback, but my own skepticism inclines me to a wait-and-see stance. Today's regular trading may be gainful, though.