Gold Sags In Overnight Session

When overnight trading began, gold slumped down to the $1,385 level and held a little above there for the rest of the night. It held until 2 AM ET, when it started to sag. By the time the London market opened, it was well on its way to slumping below $1,380. It did later, after a bounce. After spending some time at $1,378, the metal rallied enough to climb back up above $1,380 but not much above. As of 7:58 AM ET, the spot price was $1,382.20 for a drop of $5.80 on the day. The Kitco Gold Index attributed -$9.40 to predominant selling and +$3.60 to a weakening greenback.

The U.S. Dollar Index spent last night recovering from yesterday's tumble, but only enough to get a little above 80.2. After a pause around midnight, that level was reached at 2:00. Then, its uptrend reversed and it descended in a sag of its own that eventually took it below 80. As of 8:12, it was at 79.81.

A Bloomberg article says gold pulled back because of relief from Eurocrisis fears after the successful Portugese government bond sale.

“A seemingly successful Portuguese sovereign bond auction has certainly calmed some market players, but fears over indebted peripheral member states in the monetary union are far from completely evaporating,” Andrey Kryuchenkov, an analyst at VTB Capital in London, said in an e-mailed report today.

“Gold may be just drifting back down because risk aversion is no longer of such concern,” David Lennox, a Sydney-based resource analyst at Fat Prophets, said today. Still, a decline in the U.S. currency and potential for further European difficulties may underpin the metal’s price, he said.

An earlier Reuters article said essentially the same thing.

"The safe-haven demand for gold may recede temporarily. I would think that gains in gold for the day ahead may be difficult to sustain," said Ong Yi Ling, investment analyst at Phillip Futures in Singapore. "I would think that $1,400 would pose some resistance for gold, at least for the time being."

On the other hand, as also noted in the article, gold bar premiums are at a two-year high in Singapore and Hong Kong. A Singaporean dealer is quoted as saying that the elevation is due to the Indian governemnt introducing a tax on imported physical, which has enouraged importers to stock up beforehand.

A spate of economic U.S. data was disseminated at 8:30, one of which can be seen as good for gold. Producer prices in December rose 1.1%, largely because of higher gas prices. Core prices rose a much more modest 0.2%. Both numbers were the same as expectations. First-time jobless claims rose to 445,000, which a government official ascribed to administrative backlog. Expectations were for a fall to 405,000. Thanks largely to a lower greenback, the U.S. trade deficit shrunk to $38.3 billion in November; expectations were for $40.3 billion. The jobless claims point to muted stagflation, the kind of economic environment in which gold thrives.

The gold market liked the data overall, but the metal did drop just before the 8:30 release time; evidently, there was a little fear that the data wouldn't be bullish. The drop from $1,384 to $1,381.50 was concurrent with the opening of regular trading; after 8:30, the metal jumped up to $1,836 before backtracking a little. As of 8:44 AM ET, the spot price was $1,384.60 for a drop of $3.40 on the day. The Kitco Gold Index assigned -$11.00's worth of change to predominant selling and +$7.60's worth to greeenback weakening. The U.S. Dollar Index saw its slide accelerate at the time the above data were released; as of 8:50, it was at 79.44.

Overall, gold is down but the slight loss makes its halt close to a pause. The slump may continue in regular trading, but the action so far suggests any such decline won't be that bad.