Gold Stays Largely Steady Through Overnight Session

With the exception of a drop starting just before 8 AM ET, gold stayed steady in the overnight session. There was a temporary dip below $1,380 around 8 PM, but it reversed itself and the metal went back to the low 1380s. Another dip took it slightly below 1380 around 6:00 AM, which left gold hugging $1380 when it was over. That lower level may have provided the catalyst for the sub-1380 drop just before the regular session. The morning high was $1,385, and the most recent fall provided the morning low of $1,374.90. As of 8:09 AM ET, the spot price had recovered somewhat to $1,377.80 for a $3.50 drop since yesterday's close. The Kitco Gold Index attributed +$3.00 to predominant buying and -$6.50 to a strengthening greenback.

After an early-evening slump, the U.S. Dollar Index climbed above 79.6 and then settled betwen that ceiling and 79.5 until 2:00. Then, its fluctuations became more raggedy as its climb continued. Its biggest jumps this morning coincided with gold's dips. As of 8:18, the Index was at 79.99 as it made a run at 80.

A Wall Street Journal report ascribes the morning fall to more profit-taking, engendered by the year-end jump.

"For many commodities and precious metals, investors are opting to take profits after a strong year-end rally and, as such, price action needs to acclimatize following last week's exaggerated price movements," UBS analyst Edel Tully said in a note to investors....

Annual index rebalancing will also bring volatility to the market over the coming days as indexes sell outperforming commodity winners and buy price underperformers, said BNP Paribas analyst Anne-Laure Tremblay.

However, analysts remained positive about the long-term outlook for the yellow metal....

One quoted firm said the macroeconomic and market factors that were positive for gold last year will remain in place for this year.

An earlier Reuters report said the earlier steadying was due to physical buyers coming in after yesterday's rout.

Physical demand has taken advantage of the price dip, dealers said.

"Physical buying is coming in. A lot of jewellers are very happy. We are getting a lot of buying from them in India and Thailand," said a Singapore-based dealer.

A new bearish target at $1,360 per ounce has been established for spot gold as the deep fall in the previous session only completed part of a big downtrend, according to Wang Tao, a Reuters market analyst.

"It's still a healthy correction," said a Hong Kong-based dealer. "Gold will probably test $1,375, then $1,350, in the coming two days, until Friday's non-farm payrolls data give a good hint on dollar's next move."

The article also notes that holdings in the SPDR Gold Shares Trust dropped yesterday to 1,276.472 tonnes.

Regular trading opened with a halt to another decline, which took gold down to a new daily low of $1,371.90. After that spill, the metal rebounded to around $1376. As of 8:45 AM, the spot price was $1,375.90 for a drop of $5.40 on the day. The Kitco Gold Index assigned +$6.40's worth of change to predominant buying and -$11.80's worth to greenback strengthening. The U.S. Dollar Index, after a slight pullback, managed to break through 80; as of 8:48, it was at 80.14.

Despite the calm in the overnight session, until the mid-stretch of the London market, gold's still having a hard time. There's still some ways to go before the metal endures an all-out correction, but the desire amongst traders to quit while ahead is still having its influence.