Wednesday, January 19, 2011

Gold Climbs Up On Weaker Greenback

The U.S. dollar fell overnight, through a significant support level, and that fall prompted gold to rise into the 1370s and stay there this time. Starting a little after 7 PM ET, the metal rose up smartly and tailed off above $1,373. After resting around until midnight, it snuck up to the $1,375 level. The early morning high of $1,378.10 was reached just after 3 AM, at the tail end of the Hong Kong session, after which the metal descended to just above $1,370. Its spiking was the result of the PRC 12-month inflation rate slowing to 4.6% in December. The ostensibly counterintuitve jump on a lower inflation number was due to reduced fears of further tightening by the People's Bank of China.

After bottoming two hours after the spike-up, the metal reversed course and ascended back above the $1,375 level. As of 8:10, the spot price was $1,375.40 for a gain of $7.70 on the day. The Kitco Gold Index attributed -$2.30 to predominant selling and +$10.00 to weakening of the greenback.

The U.S. Dollar Index did not have a good night. After briefly ascending to 79.05, the Index fell until below 78.45 with few respites. A secondary reaction did ensue starting at 2:40 and lasted until 5:30, taking the Index up to 78.75. Unfortunately for the greenback, its decline continued; by 8:00, it was below 78.35. As of 8:18, it had recovered a little to reach 78.44.

Greenback weakness was the reason given for gold's rise by a Reuters article.

[W]ith the headwind of dollar strength dying down for now, gold has been able to pare some of these losses, although many analysts believe rising interest rates and better growth figures could leave it prone to more declines in the weeks to come.

"It's probably too soon to say the correction is over, because we've not seen any firm rebound, but economic data will drive the market and (there is) this question of whether the world is entering a global (monetary) tightening phase," said
Mitsubishi analyst Matthew Turner. "

(Gold) is lagging the other metals. I think the sharp moves in the currencies have ceased for now and (gold) is probably really trying to decide on direction."

The article also notes that Asian demand for physical remains strong.

A Wall Street Journal article notes that the weakened greenback is the driver in an otherwise dull day.
"Things are very quiet today and the dollar is therefore still the main driver" for precious metals, said VTB Capital analyst Andrey Kryuchenkov.

Gold will likely take some direction from Chinese economic data Thursday, which will include the country's consumer price index inflation figures, analysts said.

If inflation is higher than expected, gold may experience a short-term dip, as concern over Chinese monetary tightening increases, Mr. Ash said.
In fact, as I noted above, inflation slowed down. The rest of the article points out that industrial precious metals are doing better than gold, indicating some sort of recovery underway.

The metal's rise tailed off just before and at the start of the pit session, but reversed sharply upwards just before the December U.S. housing starts data were released. Actual construction dropped by 4.3%, but permits leapt upwards by 16.7% from November's 544,000 to last month's 635,000 annualized. Taking heart from the picture, gold jumped up to a new morning high of $1,380.40 before pulling back at 8:35. As of 8:45, the spot price was $1,377.20 for a gain of $9.50 on the day. The Kitco Gold Index assigned -$1.85's worth of change to predominant selling and +$11.35's worth to greenback weakening. The U.S. Dollar Index's recovery ended just before the release, and it hit a new daily low on the news. As of 8:48, it was at 78.36.

Gold's latest bounce off the floor of its range shows that its doldrums have limits. There's still strong support in the lower 1360s, and it still rises on favorable news. Today may see the metal fall back once again, but that's not a certainty.

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