Gold Takes Dive In Early Morning

After spending the night drifting near the $1415 level, gold took a dip below a little before 2 AM ET. Initially, the dip seemed like another fluctuation as the metal pulled back up. Right after 3:00, however, the recovery turned into a tumble that took it down below $1,410. Another pull-up wasn't enough to restore it to its old range. The metal was visited by another tumble when regular trading opened, which took it below $1,400. As of 8:31 AM ET, the spot price was $1398.50 for a drop of $16.10 on the day. The Kitco Gold Index attributed +$3.50 to a drop in the U.S. dollar and -$19.60 to predominant selling.

The greenback did tumble, but not before continuing yesterday afternoon's rally last night. After making what appeared to be a head-and-shoulders topping formation, the U.S. Dollar Index reversed course at midnight ET and jumped up to 79.4. Topping around 2:00, it slumped back at first but accelerated its decline until it got below 79.0. Subsequently, it muddled along above 78.9 and carved out a trading range between that level and 79.1. As of 8:48 AM, it was at 79.07.

A Bloomberg/Business Week report says gold declined because economies look like they're recovering, which takes the bloom off the safety trade.

Equities “may provide more appeal than gold at the current juncture, as support comes from improving economic data,” Tom Pawlicki, an analyst at MF Global Holdings Ltd. in Chicago, said in a report.

The article also notes that holdings of the SPDR Gold Trust increased yesterday by 1.48 tonnes to 2098.72 tonnes.

A Reuters report said gold slumped over concerns about a strengthening U.S. dollar, but the overall picture still looks bright.

Expectations that the euro zone debt crisis could worsen, concerns over the potential for inflation in developing economies and an increased focus on the U.S. deficit are set to maintain investment demand for gold, analysts said....

The majority of factors for gold are very positive," said Credit Suisse precious metals analyst Tom Kendall.

"If you were looking for negatives, you would have to say the lack of any sizeable dehedging programme this year from the miners would be one that you could pick up on, but from the investment community, sentiment is still very much bullish toward gold."

The firmer U.S. dollar was ascribed to upbeat economic data.

A Wall Street Journal report said the early-morning part of the drop to profit-taking engendered by a return of London gold traders from the holiday weekend.

"The rapid price rise of the past four or five days was bound to lead to some profit-taking," said Mark O'Byrne, director at bullion dealer GoldCore.

The rest of the article had other quotes expressing an upbeat outlook.

As noted above, gold took a tumble right around the time the pit session opened. After pausing for a bit, the drop stopped at about $1,394 around 8:45. Since then, the metal's gone though a tepid recovery. As of 9:23 AM ET, the spot price was $1396.60 for a drop of $18.00 on the day. The Kitco Gold Index assigned +$2.65's worth of change to a slumping greenback and -$20.65's worth to predominant selling. The U.S. Dollar Index continued in its range; as of 9:25, it was at 79.05.

The first full day of trading has not been kind to gold, but this morning's drop has been part of a trading range that has not been broken as of yet. The metal may continue to have some rough times over the short term, but its longer-term performance is nothing to sneeze at as of now.