Gold Breaks Above $1,190

There was little accompanying news in this cycle, but gold managed to break above the barrier that's stymied it for the last two days. The metal bumped up against $1,190 for a two-hour stretch starting just after 7 PM ET. The breakthrough came around 9:00, and the metal ascended to $1,193-4. Falling back to slightly below $1,190 by 2 AM, the metal reversed course and rose to the $1,195 level and later beyond. As of 7:59 AM, the spot price was $1,196.40 for a gain of $11.40 on the day. The Kitco Gold Index split the gain into +$10.50 for predominant buying and +$0.90 for weakening of the greenback.

The U.S. Dollar Index actually rallied through most of the overnight session, but shed its gains in early morning. Although jaggedly, with an interrupting spill that erased all of its gains, the Index managed to climb up all the way to almost 80.8 by 4:35. The reversal was also jagged, with a sharp drop followed by a sharp recovery that took the Index back to 80.75, but was enough to take it well below 80.55 before reversing too. As of 8:11, the Index was at 80.59.

A Reuters report said gold rose as a result of the PRC's liberalization of the mainland Chinese gold market and a current damping of the appetite for riskier assets, and was held back by lack of safe-haven demand.

"The initial impetus of safe-haven buying of gold has faded away," said Standard Chartered analyst Daniel Smith. "We are slowly moving to other drivers."

"Ultimately we are going to see more portfolio money coming into gold," he added. "We could see consolidation in the short term, but ultimately on a one to three month view we are going higher."...

The gold market also continued to take support from news that China had taken steps to liberalize its gold trade.

"The international gold market is now paying a lot more attention to China's gold demand, not just from an official reserve asset perspective, but also private demand," UBS analyst Edel Tully wrote in a note.

"Behind India, China is the second-largest physical consumer," she added. "Therefore any step to integrate, liberalize, and expand this market should, in time, foster a rising appetite for gold."

The article also mentions another bullish factor: rising speculation that the Fed will undertake another quantitative-easing program.

A Wall Street Journal article also pointed to the PRC liberalization.

"China became the focus of the gold market and the potential for increased demand from this region prompted gold to trade to a high of $1,194 a troy ounce in Asia overnight," said UBS analyst Edel Tully.

Also mentioned is the results of a UBS tally of twelve gold ETFs, which showed a rise for the first time since July 27th.

The ADP jobs data noted a gain of 42,000 in July for the sixth consecutive monthly gain. Although the number was well above expectations for +23,000, the gains still show no acceleration. The news bobbled the gold market temporarily, chipping its price to $1,195, but the metal recovered afterwards. As of 8:49 AM, the spot price was $1,197.60 for a gain of $12.00 on the day. The Kitco Gold Index attributed +$13.10 to predominant buying and -$1.10 to a strengthening greenback. Unlike gold, which was little affected overall, the U.S. Dollar Index got a boost from the news. Initially rallying to 80.66, it pulled back to 80.6 but rose further before pulling back to a higher level. As of 8:52, it was at 80.67.

With gold well above $1,190, and even above $1,195, the level to watch for now is $1,200. The metal is unlikely to make it above that round number, but it's now close to a test. It may poke at $1,200 later today.