Gold Falls Back As Morning Letdown Resumes

Gold held on to yesterday afternoon's Fed-induced rally's closing level of $1,345 until early in the morning. After fluctuating around $1,345 all night, the gold market settled around that level at midnight ET and remained there for an hour. An advance dip carried it down to the low $1,340s only to reverse. Then, starting at 2:00, the metal took a sustained dive. Interrupted by a secondary reaction after breaching $1,340, it continued to move down from 6:00 to 8:00. In so doing, it gave up the gains made after the unanimous Fed announcement supporting both near-zero interest rates and QE2. As of 8:03 AM, the spot price was $1,332.40 for a drop of $13.70 on the day. The Kitco Gold Index split the loss into -$12.90 due to predominant selling and -$0.80 due to strengthening of the greenback.

The U.S. Dollar Index didn't move all that much last night, slightly down if anything, but got active just after gold fell. After an initial dip just before 2:00, it sharply reversed course and shot up to 78.15 before pulling back to 77.85. Not being able to surmount 78 again, it plummeted back to below where it has been before the excitement started. That collapse a little overdone, it ralled back to about where it had been last night. The cause of the volatility was S&P's downgrade of Japanese government debt from AA to AA- on debt-level concerns; that downgrade didn't help gold. As of 8:19, the Index was at 77.77.

A Bloomberg report said gold was dragged down by the same force that kept it down before the Fed announcement: increasing risk appetite, including for other commodities.

“There’s more risk appetite gaining momentum at the moment,” Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt, said today by phone. With some commodities gaining, and “higher stock prices, there’s less need for safety.”...

[Another analyst supplies a longer-term perspective.] “As long as the Fed keeps its loose monetary policy, it will be positive for gold,” Yingxi Yu, an analyst at Barclays Capital in Singapore, said by phone. “The Fed statement reflects uncertainty in the economic outlook, which has supported gold in the past couple of years. We view the price decline as a short-term correction.”

The article also notes that holdings in ten gold ETFs declined again yesterday, but by a much lesser amount than the day before: they dropped 1.85 tonnes to 2,041.24 tonnes. Although only down 3.5% from record highs, holdings are still at their lowest level since August.

A Wall Street Journal report ascribes the fall to lack of investor interest.

Prices were dragged down in early trade by a softer euro—which was down 0.4% at $1.3664—and kept to a range of less than $5.

While the U.S. Federal Reserve didn't make any changes to monetary policy Wednesday after its two-day meeting, which was in line with expectations, market players say the central bank's support of its continuing $600 billion bond-buying program should keep demand alive for the precious metal, which is often viewed as an investor safe haven.

Commerzbank analysts said that with interest rates to be kept at the current low level for an extended period of time, "the resulting low opportunity costs in turn suggest stronger demand for gold."

The article also notes that holdings in the SPDR Gold Shares Trust (GLD) dropped yesterday to 1,229.58 tonnes.

Today being Thursday, the weekly initial jobless claims number has been released. For last week, the number jumped by 51,000 to 454,000. The weekly numbers have been unusually volatile lately; the reason given in the report is poor weather in four states causing administrative backlogs. After a bounce-up as a preface to regular trading opening, and a give-back right afterwards, the gold market saw fit to rally a few dollars on the jobless-claims news. As of 8:41, the metal was at $1,334.30 for a drop of $11.80 on the day. The Kitco Gold Index attributed -$12.60 to predominant selling and +$0.80 to a weakening greenback. The U.S. Dollar Index sunk on the news; as of 8:46, it was at 77.67.

So far, it looks like the Fed announcement has not turned the tide. The bad news for the Japanese government did not help gold at all, and helped the greenback only temporarily. Again, the reason is waning interest in safe havens. Still, gold has managed to stay above $1,330; it's nowhere close to $1,325. After the ups and downs, the metal isn't threatening to plummet. It may hug the bottom of its range again today.