PRC Opens Up Gold Market Further

The mainland Chinese gold market is being opened up further to foreign trading companies, and more banks are being allowed to import and export gold. Overseas hedging restrictions are being dropped.

The reason why is booming gold sales.

Gold demand in China, the world’s largest producer, gained in the first half as government measures to cool the property market and falling equities spurred investment, the Shanghai Gold Exchange said July 7. Spot gold gained to a record in June as investors sought to protect their wealth amid concerns about the global economic recovery.

“China’s domestic production of gold, albeit the largest in the world, cannot satisfy its demand,” said Ellison Chu, managing director at the precious-metals desk at Standard Bank Asia Ltd. in Hong Kong. “By allowing more foreign participation and more Chinese commercial banks to import and export, China can better balance its demand and supply.”

It's interesting, given that PRC mercantilism typically favours producers. My own guess is a decision has been made to let gold be accumulated by the mainland Chinese people rather than through official forex reserves. The latter move might come later, but not without a substantial decline in prices. The PRC monetary authorities might have been waiting back in February to see if they could get a lower price than the Indian central bank: that price point makes sense as a competitiveness metric.

PRC Addresses Fears About Using Debt Holdings As Weapon

A statement by the PRC's State Administration of Foreign Exchange said decisions were made on the basis of wealth maximization, and fears of the PRC using its holdings of U.S. Treasuries as a "debt weapon" are groundless.

According to The China Daily, the SAFE described Beijing as a responsible long-term investor and "doesn't seek the power to control recipients of its investment."

The statement was issued to allay concerns about Beijing planning to shift its holdings of US government debt.

"Any increase or decrease in our holdings of US Treasuries is a normal investment operation. The agency constantly adjusts its portfolio to maximize returns, and any changes to its US Treasury portfolio should be seen in that light and not interpreted politically," it said in the statement.

This one takes a dedicated sinologist to interpret properly. We in the West are used to treating such official insurances skeptically; there's even a relevant political maxim, "don't believe anything until it's been officially denied." From what I've read, ordinary mainland Chinese tend to regard American with admiration or even awe. The PRC ruling class is separate from them, but I think the separateness consists of a more businesslike view. If the proverbial gun was put to my head, I'd say the above statement should be taken at face value. The post-Deng PRC administration has done awful things, but they haven't abused the world's trust (as yet.)

Shanghai Gold Exchange Trading Jumps By 59% In 1H '10

The PRC government's attempts to cool the property market and ad campaigns for buying gold have had their effect. In the first half of this year, trading on the Shanghai Gold Exchange jumped up by 59% to reach the equivalent of 3,174.5 metric tons. Silver trading increased by a greater amount.

“Gold- and silver-trading volume expanded sharply in the first half of this year because a declining stock market, the government’s efforts to cool the property market and the general volatility in the global financial market have all fueled the investors’ enthusiasm,” Song said....

“I expect China’s gold demand to rise by 11 to 12 percent this year to 440 to 450 tons because Chinese investors have shown their willingness to buy more when prices are on the rise,” Hou Huimin, deputy secretary-general at the China Gold Association, said today by phone. “I expect prices will rise over the remainder of this year and next year,” said Hou.

Also jumping were sales of physical gold:

Sales of gold products such as bars and coins by China National Gold Group Corp., owner of the country’s largest gold deposit, jumped as much as 40 percent in the past six months, Song Quanli, deputy party secretary at the company, said today in an interview. “We have witnessed some really good sales in our retail outlets,” said Song at China National.

Mainland China's Gold Output Falls By 5.9% In May

Although well up from May of 2009, gold production in mainland China has dropped by 5.9% from April's figure.

Reuters calculations from the official data, which is released sporadically by the ministry, showed that primary gold production slowed while secondary production, a much smaller source of gold, surged after a slow couple of months.

The volume produced as a by-product of other metals rose 6.9 percent from April to 5.215 tonnes, 20 percent higher than a year before, while the volume from gold mining slid 3.7 percent from April but remained higher than in May 2009.

China has raised gold production every year since 2004, producing a total of 313.980 tonnes last year, an average of 26.165 tonnes per month.

There was no explanation why, which might get the rumour mill going. May's prices were typically higher than April's.

Mainland Chinese Gold Demand Growth Expected To Exceed Economy's

A report webbed by Shanghai Daily has the World Gold Council's latest forecast of mainland Chinese investment demand for the metal.

CHINA'S consumer gold demand is expected to rise in double digits annually as people get richer, said a senior manager at the World Gold Council today.

"We expect gold demand in China to grow faster than its economic growth each year," said Albert Cheng, Far East managing director of the World Gold Council.

Over the past five years, consumer demand for gold has risen by an average 13 percent annually in China. And that is set to double by tonnage terms in a decade on a rising economy and short supply, the World Gold Council said earlier.

"Investment gold is set to grow at a double-digit rate in China as an alternative investment," Cheng said.

The article also says 2009 demand grew by seven percent.

Mainland Chinese Gold Spot Market Becomes World's Largest

According to a brief report in the China Post, the turnover in the mainland Chinese spot market rose 22.6% last year to make it the largest in the world.

Total turnover of spot gold traded on the Shanghai Gold Exchange in 2009 was 1.1 trillion yuan (US$162 billion), [Hexun.com] said, citing Fang Xinghai, director general at the government financial services offices in Shanghai.

PRC Official Says PRC Needs More Gold

It was only one member of the National People’s Congress, and what he said wasn't a ringing endorsement of gold, but it's significant in that it shows one high official of the PRC has endorsed moving some of that government's reserves from American T-bills and bonds. Essentially, Yin Zhongqing said that the PRC is underdiversified, and should buy more gold, oil and equities to diversify out of U.S. Treasuries:

[Mainland] China, owner of the world’s largest foreign currency reserves, should increase its holdings of precious metals and oil as part of a diversification strategy, a member of the National People’s Congress said.

The government should also cut overseas debt holdings and increase equity investments, Yin Zhongqing, vice chairman of the finance committee of the congress, said in Shanghai today at a conference. Foreign reserves, at $2.45 trillion as of end March, may reach $2.8 trillion by the end of the year and the country can’t afford to let the level rise higher, he said....

“China should adjust the asset structure of its foreign reserves and achieve the goals of making the investment safe, liquid, and preserving and adding value,” Yin said.

That last statement may rule out a big committment to gold, as the Foreign Exchange Commission said that gold is too illiquid and volatile to make a good investment for PRC reserves.

Why The PRC Turned Down The IMF's Gold

In a report for Commodity Online, three reasons are given for the PRC government not buying the IMF gold currently being sold on the open market. First of all, they doing so would drive the price up to what would likely be an unsustainable level. Secondly, the PRC seems inclined to buy gold directly from mines instead of from other governmental organizations. Thirdly, and significantly, adding gold to reserves would put some pressure on the renminbi to appreciate: that, the PRC government does not want. These reasons came from David Lew.


None of these reasons means the PRC is anti-gold; far from it. An IMF purchase just doesn't make sense to the rulership.

It's a thin reed, but the People's Bank of China could buy some (more) gold as a renminbi-raising measure if it follows through on U.S. governmental demands to raise the renminbi's value with respect to the greenback.

Gold Aiding Spread Of The Renminbi

This item is one that a true gold bug will be hard-pressed not to read something into. Wang Zhenying, deputy director-general of the Department of Financial Management at the Shanghai office of the People’s Bank of China, has offered the opinion that offering gold products deniminated in renminbi yuan is a good way to internationalize the PRC's currency.

Pricing commodities in the currency “helps China’s goal to internationalize the yuan,” [he] said today. “Gold is a good choice to have yuan trading.”...

“We agree that yuan-denominated gold trading will help enhance the yuan’s global status,” Chen Shiyong, general manager of financial markets at Industrial Bank Co., said in interview today. “We also would like to be part of the efforts to increase gold investment products available to the public.”

It's nice to think that this push is really the thin edge of the remonetization-of-gold wedge, but it seems to relate more to lifting restrictions on the use of the PRC currency so as to increase the PRC's influence in the world.

I can't say that they're going in the wrong direction, though.

Chinese Gold Buyer Still Busy

According to a report from the Daily Reckoning, webbed by Before It's News, mainland Chinese gold buying is still going strong. The reporter, Chris Meyer, saw a busy gold market with his own eyes - and pointed out a new source of demand there:

The surging demand may be the result of Chinese investors shifting their focus from real estate to gold. This is a snippet from CCTV’s report, which gives you a peek into what is starting to happen:

“Housing speculators from Wenzhou City in southeastern China are switching their money from property into gold following government restrictions on the real estate market.

“Tao Xingyi, president of Beijing-based Jinding Group, a company specializing in high-end gold trading and investment, said the company’s customers have increased by 300-400% recently…

“Tao said that within one month, three groups of Wenzhou investors made purchases of gold from his company worth more than 10 million yuan (about $1.5 million).”

If housing speculators end up rolling their gains into gold en masse, then the demand will get frenetic. Housing dropping would give the ones who already have done so a real brag, which would spread across the land. More evidence that gold is coming into its own.

PRC Gold Output Up 4.38% Year-On-Year For Jan-Feb Period

According to a ChinaKnowledge report webbed by Alibaba.com, gold output in mainland China grew to 42.94 tonnes in the first two months of this year.

In the period from January to February, gold mines in the country produced 34.96 tons of gold, 2.67% more than in the corresponding period of last year, while the amount gold produced as a by-product of the smelting of nonferrous metals grew 12.62% to 7.98 tons, said the ministry.

The gross industrial output value of the gold industry surged 21.38% year on year to RMB 21.6 billion in the first two months, and the sector's profit grew 50.35% year on year to RMB 2.41 billion during the period.

Alix Steel Discusses Effect Of Stronger Renminbi On Gold

In an article webbed by TheStreet.com, Alix Steel starts off by discussing the possibility of gold rising as a result of renminbi appreciation. The last time it did so, gold did go up long-term. The reason for a repeat would be gold becoming cheaper in renminbi terms, leading to more demand ceteris paribus. Ir would help fill the "ownership gap" of gold in Chinese hands. (There's already a big push for maninland Chinese citizens to own more gold.)

On the other hand, a rising renminbi would make the PRC economy less competitive ceteris paribus. That's precisely why the U.S. government is pushing for an appreciation of the currency. Should declining competitiveness impact incomes, then demand for gold (whatever the price) would likely go down.

Both arguments are explained in her piece.

PRC Government Pushing Gold In A Big Way

According to an article at Paul Fraser Collectibles, there's currently an infomercial and publicity blitz to inform the mainland Chinese about investing in gold and silver and to encourage them to do so. Availability has increased dramatically: every bank now offers bullion over the counter. It still takes some money to play, as the bars are being offered in 500g, 1kg, 2kg and 5 kg weights; less affluent Chinese will have to content themselves with silver, or nothing.

"Simply put, the Chinese government is trying to trigger a national gold craze - and it's working. The Chinese public now has gold trading platforms on steroids," said Paul Atherley, managing director of the gold mining company Leyshon Resources, in a statement.

This item is one that's sure to capture the imagination of a gold bull. There's an old tale, perhaps acryphocal, about Britons a century ago salivating over the riches that could be garnered if every Chinaman bought a wool garment. This item might fuel similar hopes for gold.

PRC Sending Cabinet Official To Washington

In the lastest round of the currency dispute between mainland China and America, the PRC has agreed to send over a cabinet official to D.C. in order to explain the PRC's case.

A deputy commerce minister, Zhong Shan, will go to Washington on Wednesday to meet with American trade, commerce and Treasury officials and members of Congress, the Commerce Ministry said. It said they would discuss the Sino-U.S. trade gap and trade disputes....

"A lot of problems can be properly solved so long as we can avoid politicization and emotionalization," a Commerce Ministry official, He Ning, told reporters. "It should not be one side pressing the other side."

He warned that dialogue with Washington might be harmed by "external disturbances" such as this week's letter from 130 American lawmakers calling on Obama to take action.

The use of the phrase "external disturbances" says something about the PRC governmental mindset. They're evidently targeting the executive branch, and believe that the executive branch is in charge of U.S. government. That misapprehnsion may come back to haunt them.

Gold Rises Overnight, Helped By Rising Euro And PRC Inaction

Despite the bulge in mainland China inflation, the People's Bank of China has done nothing as yet to curb it. According to a New York Times article, it's believed that the February jump-up was seasonal; the 12-month rate is still below the government's 3% target rate.

Economists said this week’s data suggested that no shift in policy was in store, but they predicted higher interest rates as China tried to hold down inflation.

While inflationary pressures are clearly building, “current inflation is still modest,” a Citibank economist in Beijing, Ken Peng, said. “Right now, we are still O.K. This is not going to cause any panic among policy makers.”

A Standard Chartered Bank economist in Shanghai, Jinny Yan, said the data did not suggest that the Chinese economy was overheating, despite pockets of speculation, especially in the property market.

The lending frenzy in January abated in February, with loans in the latter month being half of what the former month's were. Also mentioned in the report was an announcement by Prime Minister Wen Jiabao, in which he stated that the lending target for 2010 will be only 78% of 2009's.

The handicapping so far says that the People's Bank of China won't raise the reserve requirement this month. Gold took a little heart from that forbearance, and more from a rise in the Euro; the latter was influenced by a report of a record rise in Euroland industrial production in January. The drop in the greenback had more influence on gold's rise than the official easygoingness about the latest PRC inflation figure.

When evening trading opened, gold traded in a range centered at $1,110. After dipping down to the $1,108 level at 9 PM ET, the metal rallied up to the $1,113 level by the end of the night. It stayed near that level until about 3:30 AM when the industrial-production news boosted the Euro. Gold then sailed up to $1,120.40 before pulling back to the $1,115 level; it later pulled up a bit. As of 8:12 AM ET, spot gold was at $1,116.90 for a gain of $7.30 on the day. The Kitco Gold Index divided the day's gain into $0.60 due to predominant buying and $6.70 due to a weakening greenback.

The U.S. Dollar Index, after a decline that started slowly last night, sunk well below 80 early this morning. It started off last night in a range just below 80.3. An attempt at a rally as of 9 PM got the Index up to 80.325, but it fizzled and turned into a slow decline. After leveling off at 80.2, it fluctuated around that level with increasingly volatility until a swift decline started at 3 AM. That drop took the Index all the way down to 79.67 before it stopped at 5:25 AM. Since then, the Index fluctuated in a range bordered by 79.85 and 79.75 before pulling up a little. As of 8:21 AM ET, it was at 79.86.

A Wall Street Journal Online article attributes the overnight rise in gold to the advance in the Euro.

The euro is trading above $1.37 against the dollar, a figure that was important resistance, said Standard Bank analyst Walter de Wet.

"It has triggered fresh money," Mr. de Wet said, adding gold isn't likely to trade much above $1,130 to $1,140an ounce in the next week due to poor physical demand. In addition, holdings in the largest gold exchange traded fund, SPDR Gold Shares, rose last week but then fell back Wednesday.

Lack of official response to the latest PRC inflation figures was also brought up.

The technical picture was brought in by a Reuters article webbed by the Globe and Mail:

From a technical perspective, gold has key support at $1,115 and $1,104, analysts said, as well as the psychologically important $1,100 level at which it bounced on Thursday.

However, the technical picture overall remains neutral, they added. “Only a close back above $1,131 would inspire renewed calls for higher prices,” said ScotiaMocatta in a note.

The article also mentions the anticipation over February U.S. retail sales fugure. That figure has come in at a 0.3% gain, which put sales up 3.9% as compared with a year ago. It was above expectations, which were for no change. The news pushed the U.S. Dollar Index up to near 80 before it pulled back a little; as of 8:46, it was at 79.91. Gold was dragged down below $1,115 on the news. After fluctuating directionlessly when regular trading opened, the metal sunk more than seven dollars an ounce before recovering a little. As of 8:50 AM, spot gold was at $1,113.40; it still had a gain on the day, of $3.80, but more than all of that gain was attributed to the weakening dollar by the Kitco Gold Index.

Evidently, the good retail-sales news was sized up as bad for gold. Both it and the Euroland industrial-production news benefitted the respective currencies. It's likely that other good U.S. economic news will be seen as good for the greenback and bad for gold, until inflation accompanies it.

Gold Stay Steady Last Night But Doesn't Recover

The inflation news out of mainland China wasn't good, even if it's somewhat exotic right now to see an economy overheat. The CPI leapt from a 1.5% 12-month increase to 2.7% for February. It isn't that high as 12-month rates go, but the rate of change is fairly worrisome. There's now a widely-held expectation that the People's Bank of China is going to do something about it.

Inflation-watchers might be interested in this item: real rates in the mainland are now negative.

Since there was no good explanation for the plummet in gold yesterday morning, there's the possibility of the catalyst being this item and the PBoC's reaction to it. However, it might be my hindsight bias kicking in.

Gold didn't do all that much in overnight trading, even in response to that item. The now-established $1,105-$1,110 range held through the entire session, even if it was tested at times. One of the tests was to the upside, when Sydney and Hong Kong trading were open. The metal got above $1,110 as of 8:30 PM ET and stayed there for about an hour, but sunk back into the range. A brief test of the low around 7:30 AM, which got gold down to $1,103.80. The bottom ended up holding, for now. As of 8:08 AM ET, spot gold was at $1,105.60 for a drop of $2.60 on the day. The Kitco Gold Index attributed a $2.80 decline to predominant selling and a $0.20 gain to the U.S. dollar weakening.

Despite an attempt to get above 80.5, the U.S. Dollar Index wound up backing away from it. An early-evening rally got the Index up to 80.52 by 8 PM ET, which led to a trading range between the aforementioned 80.52 and 80.45. It broke on the downside, but descended only slightly below the low end. A two-stage rally starting at 1:15 AM got the Index up to 80.57 by 2:45 AM. That rally turned into a decline that ended at the 80.35 level by 5:30. Since then, the Index was wobbling slightly upwards. As of 8:16 AM ET, the Index was at 80.41.

A Wall Street Journal report said that the Chinese inflation datum had an influence, and that the technical picture for gold has deteriorated:

"Right now, gold is vulnerable for a break below $1,100/oz," said Eugen Weinberg, an analyst at Commerzbank. "Traders are cautious due to the proximity to $1,100/oz."

Gold is also lower in euro terms, after hitting a record high in the currency earlier in the week.

Citi analyst David Thurtell said that, "the sharp easing of the Greece crisis has removed some of the need to hold gold as a 'currency' alternative."

The rest of the article mentioned that the SPDR Gold Trust ETF (GLD) lost 0.6 tons yesterday.

An article from Bloomberg, as webbed by Business Week, attributed yesterday's sell-off to an unwinding of the Eurocrisis trade, in addition to mentioning the China inflation story:

“Speculation of tightening monetary policies could add additional pressure,” James Moore, an analyst at TheBullionDesk.com in London, said in a report. Precious metals are “consolidating” and “we expect the euro and the European Union-related news to provide short-term direction.”

Some trepidation is expressed in a quote from an analyst in Dubai:

“Demand is certainly visible in the $1,101-$1,105 range and that is probably helping the metal from an immediate crash,” Pradeep Unni, an analyst at Richcomm Global Services in Dubai, said in a report. “Investment demand is clearly on a slippery note.”

Regular trading has opened, and the range has been broken to the downside. Prior to 8:30 AM, gold moved up to above $1,109 but it shed more than eight dollars an ounce between 8:30 and 8:45. The greenback wasn't to blame; it got driven down to 80.25 at 8:30 before recovering later. The catalyst was the new jobless claim report, which saw a drop but not as much as expected.

As of 9 AM ET, spot gold recovered slightly to make $1,103.30. The Kitco Gold Index apportioned the $5.00 decline into $0.95 for strengthening of the U.S. dollar and $4.05 due to predominant selling. The U.S. dollar index recovered to the 80.5 level; as of 9:02 AM, it was slightly above.

No wonder there was trepidation expressed. The decline has gone farther than many expected, and it hasn't ended yet. The next shoe to drop is the People's Bank of China reaction to the inflation number.

PRC Gold Figures For 1999 Come In

Gold production for mainland China did break 300 metic tons for 2009, easily:

China produced 313.98 metric tons (MT) of gold in 2009, up 11.34% year-on-year and marking the first time the country's annual output has exceeded 300MT, according to statistics released by the Ministry of Industry and Information Technology (MIIT) on March 5.

Given that gold mining's becoming a major industry, and given its growth, PRC officials' concentration on buying domestically-produced gold for reserves is understandable.

Gold Contines Slide; China, U.S. Dollar Throws Damper

It's no secret that PRC officials would like to diversify out of the U.S. dollar, and that desire led many in the gold world to hope that gold would be a major part of the new reserves composition. That hope was thrown a wet blanket overnight, as the Head of State Administration of Foreign Exchange, Yi Gang, said that gold isn't planned to be a major destination for redeployed funds.

The price has "had handsome gains in recent years,” Yi said. But, “if we look at the past 30 years, it had big ups and downs.” China has lifted its holding of gold by 454 tons to 1,054 since 2003, leaving it with the world's fifth-biggest holding. After India, China is the biggest consumer of gold and, according to Mr Yi, increasing its reserves of gold will "push up prices" and "hurt Chinese gold consumers."

He also noted that there is no push to abandon the U.S. dollar or U.S. Treasury securities.

China has invested [hundreds of] billions of [its reserves] in US government bonds, making it the country's largest creditor, and Mr Yi insisted today the investment is "very important" and that "China is a responsible investor, and we don’t want to politicise the issue.”

There have been calls for the PRC to divest in retaliation for U.S. military sales to Taiwan, particularly from the PRC military. This statement can be read as a fend-off of those demands.

Whatever the implications for geopolitics, though, it had an impact on gold - but that impact wasn't very harsh. The metal did slump in Hong Kong trading overnight, but not by that much. It did, however, add to the downward pressure to the metal. Later, it was pushed out of a range established overnight and into a new lower one.

The $1,120-$1,125 range established in yesterday's afternoon trading held for the rest of yesterday. The announcements above did put gold to the lower end of the range in Hong Kong trading, but didn't crack it. That crack didn't come until London trading opened; it was prompted by the U.S. dollar rallying. Another test of the $1,120 level took place at about 5 AM, reversed, and then turned into a drop that pushed the price briefly to $1,114.30 before recovering above $1,115. Since then, gold's been trading in a new $1,115-$1,120 range. As of 8:09 AM ET, spot gold was at $1,117.50 for a drop of $6.20 on the day. The Kitco Gold Index has $2.00' worth of decline attributed to predominant selling and $4.20's worth due to strengthening of the greenback.

The U.S. Dollar Index managed to break though its resistance level of 80.5, first by settling into a trading range with a higher ceiling: 80.55. Then, at about 2 AM, the Index rallied to 80.6 before pulling back to 80.46. Subsequently, a little before 4 AM, the Index rallied to well above 80.65, spent some time fluctuating with a floor of 80.6, and rallied again. Its peak, reached after 7 AM, was 80.798. Since then, it's fluctuated in a range bordered by 80.8 on the upside and 80.7 on the downside. As of 8:19 AM ET, the Index was at 80.77. So far, anyways, the 80.5 level has proven to be more porous than I had assumed earlier. Today's trading will show whether or not it was bested at the day level rather than at the interday level.

The morning's Reuters report, as webbed by the Globe and Mail, says that the U.S. dollar's rise was primarily responsible for gold's fall - but bargain-hunting has intervened to partially mitigate that decline. Gold actually set another new record in Euro terms at its highs. The influence of the PRC announcement was described as restrained:

UBS analyst Edel Tully said in a note that given the price-negative undertones of Mr. Yi's comments, the gold market's reaction to the news had been muted.

“While we would expect more near-term downside for gold once the news sinks in, it is unlikely to entirely quash market expectations that China will indeed move to increase its reserve capacity for gold,” she said.

The article also mentions that the greenback's rise was caused in large part by Grecian Prime Minister Papandreou warning of a new financial meltdown if the Grecian crisis worsened. Negotiating ploy it may have been, but it was still taken seriously by the currency market.

The same factors were described as weighing on the gold market in a Wall Street Journal Online article, with Yi Gang's annoucement being the focal point. Two analysts differed on its significance:

"It's completely unsurprising," said Stephen Briggs, an analyst at RBS Global Banking & Markets. "It is obvious that for China to have a material amount of gold in reserves, it would disrupt the gold market. It's not viable." The idea that China gradually makes gold purchases from domestic producers is "more sensible," Mr. Briggs said.

The comments will, however, weigh on sentiment, said Andy Smith at Bache Commodities.

"I would expect through the day, if the dollar continues to strengthen, gold will be under pressure," he said, noting it "downgrades expectations" that China will be a big market gold buyer.

Like the Reuters report, this one described the effect as muted.

Regular trading opened with traders taking both items in hand and pushing gold down. The newer range of $1,115-$1,120 was broken; like the last one, to the downside. Starting at 8:15 AM ET, gold was shoved down about ten dollars an ounce; the low, reached around 8:45, was $1,107.60. Since that bottom, a relief rally has pushed the metal up a little. As of 8:59 AM ET, the spot price was $1,111.30. The Kitco Gold Index divided the $12.40 loss into $7.90 for predominant selling and $4.50 for greenback strengthening.

The U.S. Dollar Index continued rallying, making it to 80.845 at 8:39 before sliding back. As of 8:57 AM, it was at 80.78.

Given the magnitude of the drop, it's an open question whether or not the recent reverse head-and-shoulders pattern that pushed gold up to $1,140 is a third busted bullish formation. The day's trading will show if gold can recover, or not.