Gold Stays Steady, Then Sinks In London

After bobbing yesterday morning and afternoon, gold stayed in a range between $1375 and $1380 all of last night and for a time early this morning. The high of the morning was $1380.80, reached more than an hour before the London market opened. Then, the metal went on a sink that breached the $1375 floor about two hours after London opened. Its decline continued as the opening of regular trading loomed. As of 8:02 AM, the spot price was $1,370.30 for a drop of $8.30 on the day. The Kitco Gold Index split the loss into -$4.40 for predominant selling and -$3.90 for a strengthening greenback.

The U.S. Dollar Index did move up, although unevenly. After moving raggedly upwards last evening, the Index pulled back to 80.15 last night and early this morning. Then, the decline reversed. Although choppily and hesitantly, the Index advanced until it broke above 80.45; 80.5 remained out of reach. As of 8:20, it has settled back a little at 80.43.

A Bloomberg report says the stronger dollar had a hand in pushing down the metal.

Amid “a stronger dollar and more importantly, growing conviction in the U.S. recovery as macro data improves, gold is struggling to assert itself despite very decent physical demand across much of Asia,” Edel Tully, an analyst at UBS AG in London, said in a report.

The report also notes that holdings of ten gold ETFs dropped 3 tonnes to 2,091.77 tonnes yesterday.

The Wall Street Journal's morning report had another reason for the decline: commodity indices rebalancing their exposures to pare down the winners and add to the left-behinds.

Nervousness over the annual reweighting of the commodity indexes could lead to "exaggerated price movements" in the complex over the coming days, UBS analyst Edel Tully said in a note to investors.

"Potential investors fearful of index selling in the near-term will most likely opt for the security of the sidelines," she said.

Ms. Tully is further quoted as saying gold will keep lagging if good economic data keeps coming from the U.S. More industrial metals like palladium and plantinum will benefit instead.

$1370 was breached slightly around the time regular trading began, but the metal pulled back above shortly after the pit session began. It was helped by the latest initial jobless claims report from the U.S., which rose above 400,000 again and was higher than expected. As of 8:48, the spot price was $1371.80 for a drop of $6.80 on the day. The Kitco Gold Index divided the drop into -$5.00 for predominant selling and -$1.80 for a strengthening greenback. The U.S. Dollar Index pulled back below 80.4 and, right after the jobless-claims release, below 80.35; as of 8:53, it was moving sideways at 80.34.

Again, technical selling of gold has met physical buying. The edge so far is on the selling side, but the droppage has been relatively muted. The metal may churn again today.