Gold Continues Slide As Greenback Advances

Last night, gold acted true to recent form by spiraling into a largely-flat hugging of $1,370, but that sideways movement ended this morning - this time, before London opened. Starting from just after midnight ET, the metal trended downwards; it didn't stop until an hour and a half after London trading got rolling. By that time, gold had sunk to almost $1,355.

After that low, reached just before 5 AM ET, it stayed stuck in the high 1350s. It did inch upwards, but crossing $1,360 was still daunting. As of 7:57 AM ET, the spot price was $1,358.70 for a drop of $12.40 on the day. The Kitco Gold Index split the loss into -$11.15 for predominant selling and -$1.25 for a strengthening greenback.

The U.S. Dollar Index didn't gain much overnight, but it did manage to center around 81. After an evening slide, the Index climbed back up to 80.95. The advance was largely blocked subsequently, but enouugh strength remained to get and keep the Index in a range between 80.95 and 81.05. As of 8:15 AM, it was at 81.02.

A Bloomberg report says a stronger greenback and an improving U.S. economy is the cause of gold's continued drop.

“Investors are selling gold due to a stronger dollar,” Peter Fertig, owner of Quantitative Commodity Research Ltd. in Hainburg, Germany, said today by phone. “It is of course less safe-haven demand that is playing a role. The market is now looking for a very strong rise” in U.S. payrolls, he said....

“We will see some weakness in gold prices in the short term because we are seeing signs that the U.S. economy is certainly in some form of improving trend,” David Lennox, a resource analyst at Fat Prophets, said from Sydney today.

Eleven of 20 traders, investors and analysts surveyed by Bloomberg, or 55 percent, said that gold will decline next week. Eight predicted higher prices and one was neutral.

The article also reports on a Bloomberg compliation of the holdings of ten gold ETFs; today, the total was 2,091.65 tonnes. It was down marginally from yesterday's 2,091.77.

A Wall Street Journal report said gold is being sold down in anticipation of a good December U.S. nonfarm payrolls report.

"Recent data out of the U.S. has led people to be more optimistic about the U.S. economy and payroll numbers could bring further selling of the gold market," said Mark O'Byrne, director at bullion dealer Gold Core....

Despite fears over U.S. growth, gold's fundamentals remain positive, said market participants.

Physical demand for gold in Asia ahead of the Chinese New Year on Feb. 3 is particularly high, and the Shanghai Gold Exchange has seen record turnover of the 9999 gold contract over the past three days.

"Household buying in China is the big story for gold at the moment," said a London trader.

Physical demand from Asia could cushion the metal's current decline.

The article also cites another analyst who said fears about the lingering Eurocrisis and quantitative easing sparking inflation still remain. Gold still has its role to play as a portfolio diversifier.

A Reuters report also cites greenback strength.

"Gold is probably consolidating ahead of the nonfarm payrolls data," said Darren Heathcote, head of trading at Investec Australia.

"If we see a weaker number, it would be negative for the dollar and positive for gold. Unless the number is much stronger than expected, we probably won't see much move in gold prices."

But some analysts said the nonfarm payrolls number is not always correlated with the ADP figures, and the dollar could face some downside risk if the data turned out not as strong.

The article also discusses strong physical buying in Asia, but notes that Asian traders are cautious in advance of the nonfarms payroll data.

The report is in, and it shows an increase of 103,000 jobs. The official U.S. unemployment rate is now 9.4%. The jobs-increase number was lower than expected, but so was the unemployment rate - suggesting that the latter's lower because of more people dropping out of the workforce, even though October and November numbers were boosted by 70,000.

The gold market was surprised and pleased by the report. After a panic dip to $1,352 at the opening of the pit session, the metal turned around and leapt up to $1,356 just before the report was released and as high as $1,367 just after. After the excitement faded, gold sunk back down: as of 8:46 AM ET, the spot price was $1,360.90 for a drop of $10.20 on the day. The Kitco Gold Index divided the loss into -$2.35 for greenback strengthening and -$7.85 for predominant selling. The U.S. Dollar Index took a nosedive after the report, plummeting to a little above 80.70 before recovering. As of 8:49, it was back in its range with a value of 80.99.

It can't be denied that the surprise in the payrolls report caused some excitement, but the jubilation (and sorrow for greenback bulls) was short-lived. Gold is still down on the day, but the payroll news might help contain any further downward movement. At least, it sets a good tone.