After Evening Rise, Gold Sinks To Below $1,360

This week's first day of trading, shortened by the Martin Luther King Jr. Day holiday in the U.S., saw gold rise a little in the evening but more than lose that gain in early morning. When trading started, the metal inched up to $1,365 and stayed there from 10:00 to just before midnight. Its pullback started with a blip downwards, which marked the start of an early-morning sink. By the time it was over, after 5 AM ET, the metal had reached a session low of $1,356.60. That level marked the start of a tepid recovery that pulled the metal up a little above $1,360. Pulling back again, and anticipating the New York markets' closure today, it drifted listlessly around the $1,30 level subsequently. As of 8:11 AM ET, the spot price was $1,359.70 for a loss of $2.10 since Friday's close. The Kitco Gold Index attributed -$3.00 to predominant buying and +$0.90 to a weakening greenback.

Low-volume pre-holiday sessions tend to be either listless or volatile. Gold's has been the former; the greenback's been the latter. Instead of drifting, the U.S. Dollar Index went on a tear that reversed between 4:35 AM and 7:30. Initially falling below 79, the Index revved up smartly to 79.25 by 8:20 PM; it spent the next five hours drifting slightly upwards. It caught fire again at 1:30; after lurching up and back, it shot all the way up to 79.6 before reversing. That second plunge brought it below 79.1 before halting. As of 8:24, the Index was at 79.21.

A Bloomberg report says the slight gain in gold last night was caused by a downgrade of Grecian government debt.

“The Greece downgrade is helping gold,” said Hwang Il Doo, a senior trader at Korea Exchange Bank Futures Co. in Seoul. “Uncertainties around the region are boosting the metal, helping it emerge from weakness since the start of the year.”

Greece on Jan. 14 had its credit rating cut to junk by Fitch Ratings, following similar downgrades at Moody’s Investors Service and Standard & Poor’s. European finance ministers meet this week to discuss the crisis.

The article cites another analyst predicting $1,500 gold this quarter, and discloses that holdings of ten gold ETFs shrunk by 6.5 tonnes on Friday to 2,077.81 tonnes.

A Reuters article, from about the same time as the one above, didn't mention the downgrade; instead, it looked forward to data from the mainland Chinese and U.S. economies.

Eyes are on a suite of data from Beijing due on Thursday, including December inflation and fourth-quarter economic growth,which might give clues on how much tightening would be needed in the next few months.

But economic conditions in the U.S. and Europe will be a more decisive factor behind gold prices, some analysts said.

"We may see gold prices pressured by the upcoming China data, but just for a session or two. The more important factor is still the United States," said Hou Xinqiang, an analyst at Jinrui Futures.

The article also quotes another analyst who says gold is range-bound in the short term. Also noted is the fact that physical demand in Asia is still robust, with continuing shortages.

A more recent Wall Street Journal article discusses the fall in European markets, calling it a consolidation.

"A period of correction and consolidation is totally natural in a bull market," said Mark O'Byrne, director at bullion dealer Gold Core, adding that the metal's lower price will likely be seen as a buying opportunity.

However, a lack of directional cues from the U.S. as the country observes a national holiday may keep gold range bound Monday, market participants said.

The article also quotes a Commerzbank note as saying demand for gold will remain strong as markets worry over inflation.

Since there's no regular trading today, gold remained listless as the London session drifted towards its end at 11 AM ET. The metal stayed stuck around $1,360; at 8:47, it was at $1,359.90. The U.S. Dollar Index, due to a stop in trading, stayed at 79.21.

Thanks to the holiday, any trading in gold is going to be slow. Once the London session is over, it's done until the next overnight session begins. Gold is still holding at the bottom of its 1-month range, and the lack of volatility shows little market-moving interest either way. When the week gets rolling fully, gold will have begun at a base.