Gold Continues To Slump Overnight

As it turned out, yesterday's close marked a high that was barely surmounted in overnight trading. Instead, gold slumped to the $1,222 level after dawdling slightly below the $1,224 close. Rising a little early in the morning, the overnight close was briefly bested around 3:00 AM ET as the metal spiked up to $1,225.60. Lasting only briefly, the metal ended up falling back down to $1,222 and further: two hours later, it lost a quick four dollars an ounce. Hovering between $1,216 and $1,218 subsequently, the metal failed to recover as it dipped further. As of 8:03 AM ET, the spot price was $1,215.60 for a loss of $8.80 on the day. The Kitco Gold Index attributed +$0.30 to a weakening greenback and -$9.10 to predominant selling.

The U.S. Dollar Index, after an early evening rally, went on a decline that stretched over night and early morning and didn't end until the Index reached 86.35 as of 2:00. Subsequently, it rallied all the way back up to the level it had reached as of 7:15 PM more than twelve hours later. Peaking at just below 86.85, the Index slumped back a little and settled near the 86.7 range. As of 8:10, it was at 86.69.

A Bloomberg report, webbed by Business Week, ascribed gold's fall to increased risk appetite as equity markets look more appealing.

“In the short term, strength in equities could suppress gold prices,” said Bayram Dincer, a commodity analyst at LGT Capital Management in Pfaeffikon, Switzerland. “If risk aversion is declining, this will not attract new buyers in gold.”...

“Gold is in a unique position” to benefit from declining currency values, said Edel Tully, precious metals strategist at UBS AG in London. “We would need more heightened risk aversion to move significantly higher.”

There was also some speculation about the central bank of Iran buying gold with some of the proceeds it will receive for getting rid of $45 billion' worth of Euros. Rather than being a political statement, the central bank is interested because the gold price is trending up. The article notes that the Russian, Indian, Mauritian and Sri Lankan central banks have all bought gold recently.

A Reuters report notes that declining risk aversion was largely balanced off by physical demand, limiting gold's overnight losses.

"Better macro sentiment, equity markets higher and the euro is off its lows -- all of this is contributing to some risk appetite coming back," said analyst Robin Bhar at Credit Agricole.

"In that sort of environment, you'd expect gold to be slightly less attractive," he added....

But the underlying interest in gold remained intact, Bhar said. "The retail appetite is definitely there ... Maybe more dip demand as prices come back."...

In India, the world's top physical gold market, some jewelers stocked up as bullion prices dropped from a two-week high, while selling from other consumers in Asia also slowed, keeping premiums for gold bars steady.

"I think we need some news to push up gold. Otherwise we'll get stuck in a range of $1,200 to $1,225," said a bullion dealer in Hong Kong.

The article also mentioned that holdings for the SPDR Gold Shares Trust increased, marginally, to a new record high of 1,268.54 tonnes.

A Wall Street Journal report concurred with the others regarding an increase in risk appetite.

"As the euro has gone into a more stable phase versus the dollar, and rebounding equity markets stimulate risk-taking, the environment has become less favorable for gold," said Swedish bank SEB commodity analyst Filip Petersson.

However, support for physical gold investments remains, and sentiment is fickle and could reverse in the coming days to again spur gold buying depending on data releases, traders and analysts said.

Also quoted was TheBullionDesk.com's James Moore, who cited the Iranian central bank as a possible driver of higher gold prices.

Two U.S. jobs metrics were released at 8:30: the ADP private-sector jobs figure and the weekly new-jobless-claims number. The former showed a gain of 55,000 jobs in May, making last month's figure the fourth in a row with an increase. Nevertheless, it was below expectations of a 100,000 gain. The latter figure showed 453,000 new claims in the latest week, down 10,000 from the previous week; that number was slightly better than expected. The data came on the heels of a slight recovery in gold as regular trading began: from a low of $1,215, it inched up above $1,218. As of 8:53 AM, the spot price was $1,218.30 for a loss of $5.90 on the day. The Kitco Gold Index assigned +$0.40's worth of change to greenback weakness and -$6.30's worth to predominant selling. After an attempt to get above 86.8, which fizzled, the U.S. Dollar Index slumped to below 86.7; as of 8:55, it was at 86.67.

So far, my call yesterday evening for a gain on the day has not matched up with gold's real performance. Although declining, the drop was limited by continuing buying interest. The regular session may contain a rebound, but it would be a surprise.