Gold Drifts In Low 1360s

Yesterday afternoon's steadiness continued in the overnight session, as gold did little on the upside as well as the downside. Although poking up above $1,365 at times, the metal spent the bulk of the session below that level. $1,360 was never touched. As of 8:09, the spot price was $1,365.80 for a gain of $1.60 on the day. The Kitco Gold Index split the gain into +$0.90 due to predominant buying and +$0.70 for a weakening greenback.

The U.S. Dollar Index gently slid down last night, but reversed course at 77.85. After some bobbing about, it began to slowly rise to a little above the 78 level before tailing back. As of 8:14, it was at 77.94.

A Reuters article, covering last night's stretch, said that Asian physical buying was quiet.

"I think we could look for further gains in gold on follow-through strength," said Ong Yi Ling, investment analyst at Phillip Futures in Singapore. "Investors were already expecting that China would raise interest rates sometimes during this Lunar New Year holiday."...

"I think the price is on the higher end after the rebound. That's why we don't see much activity. We have to see if China is going to come back and buy," said a dealer in Hong Kong.

"It looks like ETF holdings continue to fall. We have to see if people are shifting to stock market because the economy is recovering. The stock market is more attractive than gold."

Also noted was the fact that the market has long anticipated a rate by the People's Bank of China, although the specific timing was a surprise. Holdings of the SPDR Gold Shares Trust (GLD) dropped marginally yesterday.

The morning Wall Street Journal article credited changing sentiment for gold's lack of pullback.

UBS noted the Chinese announcement of an interest-rate increase not only failed to weaken the gold price, but "on the contrary, it refocused investor attention on gold's most insatiable physical consumer of late."

The bank said the move was a reminder that with inflation fears on high alert, China will remain an important consumer of gold.

Some Chinese sellers have appeared, although the extent of any selling pressure will be seen on Monday when markets re-open fully.

With no U.S. economic news scheduled today, the pit session's opening saw the metal stay in its range. A peak above $1,366 shortly after 8:00 gave way to a decline that took gold down to the low 1360s. As of 8:38, the spot price was $1,363.80 for a drop of $0.40 on the day. The Kitco Gold Index attributed -$2.70 to predominant selling and +$2.30 to a weakening greenback. The U.S. Dollar Index slipped after bobbing towards the 77.95 level; as of 8:41, it was at 77.82.

So far, things are fairly sanguine for gold. Instead of a pullback since yesterday morning's run-up, there's been steadiness. Asian buying hasn't adjusted to the higher prices, as of yet, but other buying has. There may be a pullback in today's regular session, but the risks of a serious pullback have diminished.