Gold Continues Rise As Morning Hex Is Broken

There wasn't much action in the gold market last night, as the metal fluctuated in a narrow range just above $1,375. That changed as night became morning. Starting around 2 AM ET, the metal forded up to $1,380. After a halt at about the time the London market opened, its climb continued. The peak of $1,386.20 was reached just before 7:00, and the subsequent tail-off left it well above $1,380. Unlike in recent days, the morning part of the overnight session has been good for gold. As of 7:55 AM ET, the spot price was $1,383.20 for a gain of $7.20 on the day. The Kitco Gold Index split the gain into +$6.30 for predominant buying and +$0.80 for a weakening greenback.

The U.S. Dollar Index, after fluctuating narrowly for most of yesterday afternoon's session, widened its fluctuations last night and this morning. 81.10 became the new ceiling, while the floor rose to 80.87 during the overnight session - except for two skids, one just before 9 PM and a longer-lasting one that ended at 7:25. The latter one, since recovered from, saw the Index sink as low as 80.735. As of 8:20, the Index had bounced back to reach 80.93.

A Reuters report, as webbed by the Globe and Mail, says gold is being boosted by Portugal debt worries and strong physical demand from India.

[S]igns at the weekend that Portugal was being forced by other euro zone members to solve its debt woes soon reignited concerns over European sovereign risk, luring some money away from the dollar into gold, traders said.

“Beyond this short-term correction, we continue to hold a positive view of the gold price for the balance of 2011,” said Anne-Laure Tremblay, precious metals analyst at BNP Paribas in London. “Sovereign risk will remain a key theme for gold in 2011.”

A senior euro zone source said on Sunday pressure was growing on Portugal from Germany, France and other euro zone countries to seek financial help from the European Union and International Monetary Fund to stop the bloc’s debt crisis from spreading.

The article also cites another analyst saying that ETF demand drained off when gold hit $1,400/oz, but Indian demand has been robust due to stocking up for harvest festival and wedding season.

An earlier Bloomberg report said that gold may rise because of sovereign-debt concerns and worries that the U.S. economy will be slower to recover than previously hoped.

“Those concerns about the U.S. economic recovery as well as Europe’s problems are helping gold hold on to gains,” said Hwang Il Doo, a senior trader at Korea Exchange Bank Futures Co. in Seoul. “Bullion will probably be able to rise further.”

Japan’s Finance Minister Yoshihiko Noda said today that his government plans to buy bonds issued by Europe’s financial-aid funds, joining China in assisting the region. “It’s appropriate for Japan to make a contribution,” Noda said.

“Any uncertainty over the strength of U.S. economy and/or heightened concerns over Europe’s fiscal situation are likely to be supportive for” gold and silver, Leon Westgate, an analyst at Standard Bank Plc in London, wrote in a report.

The article also indicates that the concerns about the American economy were sparked by comments from Atlanta Federal Reserve Bank President Dennis Lockhart, who talked yesterday about "headwinds" faced by the U.S. economy.

A Wall Street Journal report also cited Eurozone fears.

Standard Bank said that while increased concerns over the debt situation should continue to provide support for both gold and silver, it has been the strengthening of the dollar against the euro which has been slowing upward price momentum.

"On balance however, we expect the concerns over the euro-zone situation to outgun the impact of a stronger dollar," it said in a note to clients.

The article also cites a less cautious Deutsche Bank, whose 2011 report said that gold will continue to trade well above what supply-demand fundamentals justify. Deutsche Bank's target price for the bubble zone is $2,000/oz.

The metal slumped just before regular trading began, but the opening of the pit session saw a burst of bullishness. From $1,381, the metal two-stepped to above $1,386 as early-morning optimism set the tone for the pit opener. The second step was aided by the National Federation of Independent Business' s index of small-business optimism falling in December, instead of rising as expected; the main blockage was weak sales. As of 8:43, the spot price was $1,386.40 for a gain of $10.40 on the day. The Kitco Gold Index divided the gain into +$10.00 for predominant buying and +$0.40 for greenback strengthening. After peaking at 80.95, the U.S. Dollar Index slid back; as of 8:46, it had paused at 80.83.

Evidently, gold was rescued from last week's doldrums by strong physical demand. Worries about the Portugese government's solvency have contributed to the metal rising above the bottom of its current range, but physical demand coming in has kept the bottom intact. Gold should have a good day today, but a run at $1,400 isn't likely.