Gold Inches Up At Night, Pulls Back In Morning

With the weekend over, gold started off with an advance. Initially bobbing around to reach the level at which it closed, the metal crept up to slightly above $1,375 before pulling back a bit. A second advance to above $1,375 ended at 2 AM ET with gold at $1,377.30. Then started a decline, which continued once the London market was opened. Sinking below $1,370, the metal reached an early-morning low of $1,365 even before rebounding to $1,370. Further was not to be; instead, it slumped back into the high 1360s. As of 8:09 AM ET, the spot price was $1,366.30 for a drop of $3.50 on the day. The Kitco Gold Index split the loss into -$1.80 for predominant selling and -$1.70 for a strengthening greenback.

The U.S. Dollar Index initially shot up, to 81.30, but spent most of last night slumping back to 81.0. A rebound preceded increasingly wide fluctuations that ended up being bracketed by both levels. As of 8:20 AM, the Index was at 81.20.

A Bloomberg report says that gold is being affected by plans to sell new debt by the governments of Portugal and Spain. Despite the drop, there are still Eurocrisis-related worries extant.

“European debt problems have once again taken center stage,” said Edel Tully, an analyst at UBS AG in London, in a report today. “Physical demand remains very decent.”

The article quotes another analysis, Bayram Dincer at LGT Capital Management, saying that Chinese investors particularly will keep buying gold as an (in his words, imperfect) inflation hedge.

An earlier Reuters report said that Eurozone concerns pushed gold up, as did robust physical demand.

"For the immediate short term, gold is likely to be rangebound. Today's support is $1,360," said Ong Yi Ling, an analyst at Phillip Futures.

"If we see gold hold above that level, and if economic data such as this week's retail sales figure, turns out worse than expected, perhaps we could see the gold rally continue."

"From here things are mixed. For the short term, the range remains between $1,350 and $1,380. If the market goes beyond $1,390, we can see gold trend higher again," said a Hong Kong-based dealer.

Active demand on the physical market continued to buoy sentiment.

"Supply is a little tight on the physical market. Shipments are heading to Asia, as there's good demand here," said a second Hong Kong-based dealer. "We've tested $1,350, and are probably looking at a rebound soon. $1,350 remains a very good support level."

The article also mentions that holdings of the SDR Gold Shares Trust (GLD) dropped a little on Friday, to 1,271.164 tonnes. Oddly, given gold's fall rally, GLD's holdings are at a seven-month low.

A Wall Street Journal report said that gold has eased because Eurodebt concerns are pushing down the Euro.

"A challenging week lies ahead for gold," UBS analyst Edel Tully said, tipping further dollar strength as bond auctions in Spain and Portugal test market appetite for debt.

"The fiscally challenged state of European nations was largely a positive force for gold in 2010. However for gold to benefit from the growing possibility of a Portuguese bailout, its negative correlation to the dollar needs to dampen," she added.

Speculation about Portugal reciving a bailout helped push up the U.S. dollar, and not gold.

The opening of regular trading brought a pleasant surprise to the gold market. The London doldrums ended with gold at $1,366 at the start of the pit session, which got rolling with an advance that pushed gold well above $1,370. As of 8:44 AM ET, the initial rise had tailed off a bit but gold was still in the gains column. Its spot price was $1,370.50 for a rise of $0.70. The Kitco Gold Index attributed -$0.35 to predominant selling and +$1.05 to greenback weakening. The U.S. Dollar Index continued fluctuating, this time downwards; as of 8:47 AM ET, it was at 81.11.

Gold has not recovered from last week's slump, but it's still holding on. This week's opener hasn't been spectacular, but it hasn't been all that disappointing either. The rest of the day will show if the optimistic beginning to the pit session carries over to the rest of the regular trading day.