Through Shifts In PRC Monetary Policy, Gold Stays Stable

The People's Bank of China has begun to make moves consistent with tightening. Despite the resistance shown to U.S. governmental pressure to get the PRC to upvalue the renminbi, the PBoC is planning to sell some three-year bonds; that move would drain money from the system. There's talk that interest rates will be hiked too. Forwards on the renimnbi have risen to an 11-week high on anticipation that a managed float will be put in place.

Through it all, gold hardly moved last night. It fluctuated around the $1,135 level all through the night, not moving much from that level until 12:30 AM ET. That move was upwards, but only by a few dollars an ounce despite a brief spike up to $1,139.60. After dawdling between $1136 and $1,138, the metal returned to the $1,135 level at 3:30. Spending an hour and a half just above $1,133, it returned once again to $1,135 after jumping up to $1,137. This time, the return was only for a brief time as the metal climbed again - although not by much. As of 7:56 AM ET, spot gold was at $1,136.00 for a gain of $1.70 on the day. The Kitco Gold Index attributed -$3.90 for strengthening of the greenback and +$5.60 for predominant buying.

The U.S. Dollar Index spent most of the overnight session rising. After an early-evening dip to 81.3, completed at 7:20 PM, the Index quickly rallied to just below 81.5. A sustained attempt to break above that level had to wait until 1:30 AM. Confounded for a time by a sell-off at 3:00, the Index didn't make another rush at 81.5 until 6:30. That attempt was more successful; it carried the Index up to 81.7 before a pullback. As of 8:07 AM ET, the value was 81.635.

A Wall Street Journal report said that gold's overall listlessness was explained by a balance between expectations for a weaker euro and a strong technical picture for the metal.

In euro terms, gold is trading near Tuesday's record high. Its strength suggests gold's rally over the past week isn't due to dollar weakness but investor demand for hard assets, said Commerzbank precious-metals trader Michael Kempinski.

Mr. Kempinski said demand for gold from funds or institutional investors has picked up, with one order of over 200,000 ounces going through the market Tuesday.

It added that further greenback strength remains the biggest risk to the current short-term rally.

The regular morning Reuters piece notes gold's strength in the face of a rising U.S. dollar, while also noting that the metal pulled back slightly from a record high in Euro terms. Indian demand is mentioned as being strong:

"Yesterday good demand from India for physical (gold) continued," said Afshin Nabavi, head of trading at MKS Finance.

"We are currently flirting with important resistance in dollar terms. Should we be able to take out the $1,145-1,150 area, we should be ready for a big move toward the $1,200 level."

Traders report Indian jewelers are stocking up as the wedding season begins in the world's largest gold consumer.

Also mentioned is the recent Euro slide prompted by Greece-related nervousness, and the surmise that economic trouble is helping gold overall due to concern over fiscal deficits.

Gold does seem to be drawing strength from fears about recovery, according to the regular Bloomberg report as webbed by Business Week.

“Because of all the uncertainty in the euro region, gold is still a good safe haven investment,” said Bernard Sin, head of currency and metals trading at MKS Finance SA, a bullion refiner in Geneva. “On any dip physical traders will come in.”

The release of the Fed minutes yesterday afternoon showed some FOMC members worried about increasing borrowing costs too soon as the recovery seems threatened by tight credit and high unemployment. The Eurozone's economy has stalled.

Regular trading's opening pulled gold back down to $1,135, but left the metal in a range between that level and $1,137. Overall, a sideways direction was established. As of 8:39 AM, spot gold was at $1,135.10 for a gain of $0.80 on the day. The Kitco Gold Index assigned -$4.40 to U.S. dollar strength and +$5.20 for predominant buying. The U.S. Dollar Index, after making another run above 81.7, pulled back a little again; as of 8:43, it was at 81.66.

Although gold's performance was not spectacular overnight, it didn't decline all that much in the face of bearish pressures. Today's action may result in a disappointment for the metal, but it would be a surprise given gold's recent action.