Gold Slumps To Low 1340s In Morning

After yesterday's rout, gold remained fairly quiet last night as it stayed between $1,345 and $1,350. Neither boundary level was tested until night turned into morning. Near 1 AM ET, the metal touched $1,345 and then went on a run to $1,350. Peaking at $1,351.40, it turned downwards around 4:30 and descended all the way down to exactly $1,340.00. That level reached, it bounced around in the low 1340s before poking its nose above $1345. As of 8:08 AM, the spot price was $1,345.60 and unchanged on the day. The Kitco Gold Index attributed -$5.10 to predominant selling and +5.10 to a weakening greenback.

The U.S. Dollar Index, after reaching 78.9 in the early evening, descended in fits and starts until it reached 78.41 at 4:00. The decline halted, it gyrated in a range between that level and 85.65. As of 8:14, it was at 78.56.

A Bloomberg report said gold was knocked down by good economic data, and not just out of the U.S.

The Munich-based Ifo Institute said today that its business climate index increased to the highest since records for a reunified Germany began in 1991. Applications for jobless benefits in the U.S. decreased 37,000 in the week ended Jan. 15 to 404,000, the Labor Department said yesterday. Analysts had expected 420,000 claims.

“Yesterday, we had the jobless figures out of the states, which were better than expected, and that pressured metals,” said Afshin Nabavi, a senior vice president at bullion refiner MKS Finance SA in Geneva. “We continue to see some long liquidation.”

The article also notes that holdings in ten gold ETFs dropped 2.16 metric tons yesterday to 2,065.41 tons. That's the lowest amount since August 18th of last year. (The biggest, SPDR Gold Shares Trust [GLD], was unchanged yesterday.)

A Reuters report said expectations of recovery has led to an increase in risk appetite, but the consequent decline in gold was cushioned by a lower greenback.

Analysts say outflows from products like physically backed exchange-traded funds suggest investor appetite for gold is slackening after a run of firmer than expected U.S. economic data and as concern over euro zone sovereign debt levels recede.

"We are still staying on track and above the longer-term upward trend, but definitely at the moment the reasons to buy gold -- the fear of a deepening of the European crisis, a weaker dollar, fear over the economic crisis worldwide, inflation -- are not there," said Commerzbank analyst Eugen Weinberg.

"Gold indeed used to be a fear indicator and as this fear appears to be leaving the market, the gold price is under pressure," he added.

However, gold still looks set to climb in 2011, he said, with persistently low interest rates likely to lend support. The precious metal tends to underperform in the early months of even positive years, Weinberg added.

Gold was not only supported by a lower U.S. dollar but also an increase in Indian buying. The lower price has done the trick.

The same cause was mentioned by a Wall Street Journal article.

While gold should find support around $1,320 an ounce, a break below this could push prices under $1,300, said Fairfax analyst John Meyer.

Another analyst was quoted as saying Asian buying did increase on lower prices; the drop was cushioned.

The poke-through of $1,345 was met with a decline to the 1340-5 range shortly before regular trading began. With no U.S.-economy releases scheduled today, no pressure was put on gold just after the opening. As of 8:43 AM ET, the spot price was $1,343.20 for a loss of $2.40 on the day. The Kitco Gold Index assigned -$7.90's worth of change to predominant selling and +$5.50's worth to greenback weakening. The U.S. Dollar Index still bounced around in its short term range, approaching the lower end as the regular day began; as of 8:47, it was at 78.45.

One bit of good news for gold is the fact that the rout yesterday did not deter physical buyers in Asia. Rather than waiting for an even lower price, buyers saw current prices as bargains. There's little surface reason to get excited as of now, as optimism is turning towards stocks, but the metal's sufferings seem to be over for now.