Gold Slides Down In Morning

Despite advancing slightly last night, the metal has taken a tumble in the morning session. This one started at 1:30 AM ET, and was ragged instead of smooth. It came to a temporary halt around 5:00, leaving gold stuck in a range between $1,365 and $1,370; it lasted through 8:00, when the metal breached $1,365 and stumbled down to $1,362.30 before recovering. As of 8:06 AM ET, the spot price was $1,365.90 for a drop of $8.10 on the day. The Kitco Gold Index split the loss into -$5.80 due to predominant selling and -$2.30 due to strengthening of the greenback.

The U.S. Dollar Index saw a continuation of its troubles late last night and early last morning, but it more than recovered after shaking off its tumble. Advancing last evening to 79.3, the Index drifted down slowly until 1:50; then, its tumble started in earnest. By 3:15, it had gone from 79.25 to 78.79. A quick reversal brought it back up to almost 79.3, and formed the first stage of an advance that was built on later. As of 8:15, the Index had setttled down at 79.27.

A Bloomberg report says gold fell because of the fear trade being drained, due to increased confidence that EU leaders will straighten out the Euromess.

EU Economic and Monetary Affairs Commissioner Olli Rehn this week called for a “comprehensive” package to contain the debt crisis and German Chancellor Angela Merkel indicated a desire to do “whatever is needed to support the euro.” European Central Bank President Jean-Claude Trichet said yesterday he may increase interest rates if needed to control inflation.

“The marketplace believes the worst is over regarding the crisis of the euro zone,” said Daniel Briesemann, a Frankfurt- based analyst with Commerzbank. “Trichet regained some confidence in the ECB’s interest rate policy, which led to a lower need to be trading gold as a safe haven.”

The article also notes that the People's Bank of China raised the reserve-requirement ratio for the first time this year, which fueled the rise in the greenback. (It's been raised by 0.5% to 19%.)

Waning of Eurozone-related fears was the reason given by the morning Wall Street Journal report.

Comments from European Central Bank President Jean-Claude Trichet, who said the ECB is on alert for inflation pressures and will raise interest rates if necessary, have also reduced interest in the metal, which is seen as a less attractive investment as interest rates rise....

"Some market players clearly believe the worst is over in the debt crisis of euro-zone peripheral countries," Commerzbank metals analysts said in a note to clients.

Prices have dropped amid solid outflows from gold exchange-traded products. Figures show holdings in the SPDR Gold Trust, the world's largest gold-backed ETF, reduced by almost 6.5 metric tons Thursday [to 1,265.09 tonnes.]

A Standard Bank note is cited as saying things will be choppy in the near term, but there exists a solid floor between $1,350 and $1,380.

An earlier Reuters Africa report noted that the newfound confidence in the Eurozone was helped by "better-than-forecast debt auctions by Spain and Italy, which eased fears about the debt crisis in Europe."

The CPI numbers for December matched expectations, with a 0.5% rise overall and 0.1% rise in the core rate. U.S. retail sales were up 0.6%, below expectations for a 0.8% rise. The latter failed to impress the gold market, although it helped. That post-8:00 recovery turned into another stumble, to a new daily low of $1,360.60. When 8:30 came, gold added a few dollars but didn't go above $1,365 again. As of 8:45, it was at $1,363.80 for a loss of $10.20. The Kitco Index divided the drop into -$7.90 for predominant selling and -$2.30 for greenback strengthening. After hovering between 79.25 and 79.3, the U.S. Dollar Index briefly sold off on the news but recovered to its old levels. As of 8:49, it was at 79.29.

So far, gold hasn't had that good a day. Yesterday afternoon's decline continued this morning, despite a night respite, as confidence in the Eurozone comes back and markets react to the latest People's Bank of China tightening attempt. The recent strengthening of the greenback hasn't helped matters much. Gold has broken through $1,365, which leaves $1,350 as the next test.