Gold Edges Up After Yesterday's Plummet

$1,325 may be gone, but $1,310 has held up. After dipping below that level late last night, gold recovered and slowly crept upwards for the rest of the overnight session. The early-morning part didn't see a repeat of yesterday's decline, just a slow advance. After yesterday's panic, that calmness comes as something of a relief. As of 8:01 AM ET, the spot price was $1,315.30 for a gain of $0.40. The Kitco Gold Index split the small gain into +$0.30 for predominant buying and +$0.10 for a weakening greenback.

The U.S. Dollar Index made another try for 78, but only got up to 77.95 like it did late yesterday morning. Beforehand, it climbed to 77.85 in early night but fell back before making that final advance from 2:00 to 3:30 AM. Afterwards, it turned downwards for a two-stage ride to just above 77.6. That decline completed, it then recovered somewhat. As of 8:16, the Index was at 77.72.

A Bloomberg report said yesterday's wipeout called forth enough buyers to support the metal. Counterpointing gold's woes to the gains of the MSCI World Index of shares, the article said the latter is at its highest point in more than two years.

“The positive argument [for gold] will rest on the possible capitulation sell-off” this week, Tom Pawlicki, an analyst at MF Global Holdings Ltd. in Chicago, said today in a report. “Such massive liquidations are typical of washouts and usually signal that a bottom is near.”....

Higher equities are “reducing investor appetite for safe- haven gold,” Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd., said in a report today. Appetite for gold has “waned as other markets looked more attractive.”

Holdings of ten gold ETFs tracked by Bloomberg continued to decline yesterday, to 2,037.48 tonnes.

An earlier Reuters report was more gloomy, with an analyst quoted as saying the chart doesn't look all that good and the decline may not be over. But, some physical buying stepped in.

A buying spree in China and Hong Kong before the Lunar New Year has slowed down as the holiday looms next week, but some buyers were still buying betting on future price gains.

"There's a lot of physical buying from Thailand, Indonesia, China and Hong Kong, for delivery after the Lunar New Year," said a Singapore-based dealer.

"Gold should be able to hold the $1,300 level for now. Physical demand is still there. People are bullish for the long term, and they will take the opportunity to enter the market."

Inflation pressure has been rising in emerging economies, and now is spreading to developed countries. South Korea's government said the inflation situation is continuing to deteriorate due to rising farm products prices and other
factors.

After India raised interest rates earlier this week, for the seventh time since March, market players are also eyeing further possible tightening from Beijing.

The article also notes that holdings of the SPDR Gold Shares Trust declined yesterday to 1,226.546 tonnes.

A Wall Street Journal article isn't that cheerful either, noting that a positive GDP number for the U.S. economy may provide further aggravation for gold holders.

"The yellow metal does not have many friends at the moment and in its current position—more than $100 off the highs from Jan. 3—is certainly hurting those that have the option of holding much higher yielding equities, or even the industrial metals which have provided a much better return to date," Mitsui Global Precious Metals said....

Mitsui [also] said that "outside of another stumble from Europe," the metal looks likely to continue to struggle attracting fresh bids.

The article also mentions precious-metal money looks like it's flowing into more recovery-oriented platinum and palladium.

The U.S. GDP number came in, and showed a less-than-forecast 3.2% expansion for 4Q '10, but the number was still better than 3Q's 2.6%. It was boosted by an unexpected increase in consumer spending, which had a dark side in that it was financed in part by net disinvestment. Expecting a worse number, gold rallied to $1,318 before the release. Disappointed, the metal turned downwards and moved slightly into the loss column. As of 8:48, the spot price was $1,313.90 for a loss of $1.00. The Kitco Gold Index divided the loss into -$0.20 to predominant buying and -$0.80 to greenback strengthening. The U.S. Dollar Index sunk at first and then leapt upwards, settling down somewhat higher from where it was. As of 8:49, it was at 77.76.

The much-anticipated GDP number seems to have been a non-event all told. Gold is still licking its wounds from yesterday, and that process may continue today. At the least, no further plummet is looming. Today may not feature a relief rally, but it should bring some end-of-the-week relief.