Gold Eases Below $1,350 In Morning

After yesterday's leap above $1,350, a pullback wasn't that surprising. For the night half of the overnight session, except at the beginning, the downward drift was so slight it almost wasn't one. Dropping a few dollars an ounce at the resumption of trading, the metal then inched down to the $1,350 level and stayed just above it. That level was broken by gold in the morning part, despite a very temporary leap to $1,357.20 just before 3 AM ET, but it broke down slowly as the metal inched down to the high 1340s. As of 8:08, the spot price was $1,348.10 for a drop of $7.50 on the day. The Kitco Gold Index attributed -$7.40 to predominant selling and -$0.10 to a strengthening greenback.

The U.S. Dollar Index basically went nowhere overnight. Staying for the most part betweeen 77.72 and 77.82, it pulled back into that range whenever it exited. As of 8:13, it was at 77.80.

A Reuters report pegged the sag as caused by yet another revival in risk appetite, although the slump was muted because the gold market was waiting on the U.S. nonfarm payroll data.

A spate of better-than-expected U.S. data had fuelled expectations for a move towards monetary tightening sooner rather than later, depressing gold. The U.S. payrolls data due at 1330 GMT will be closely watched by financial markets. "The consensus for the payrolls data is for a moderate increase but given U.S. positive data in the last few days, expectations may be skewed to the upside," said analyst Matt Turner of Mitsubishi Corp.

Turner said a positive figure could ignite risk appetite and further dull demand for the safe-haven metal.

The article also said that Asian demand has dropped because of the Chinese New Year festival and reluctance to buy at these prices in India. Holdings of the SPDR Gold Shares Trust increased for the first time since January 31st, by more than two tonnes to 1,229.28 tonnes.

A Bloomberg report also ascribes gold's softening to the recovery trade.

“We’ve seen a slight improvement generally in the economic recovery,” said Bernard Sin, the head of currency and metal trading at MKS Finance SA, a bullion refiner in Geneva. “People are still very concerned about the Middle East and will be comfortable buying on any dips.”...

The Institute for Supply Management’s index of U.S. non- manufacturing businesses released yesterday showed service industries expanded in January at the fastest pace since August 2005, indicating the economic recovery is broadening....

The improving economic outlook “helped reduce demand as a haven and holidays in Asia have also slowed demand,” said Chae Un Soo, a trader at Korea Exchange Bank Futures Co. in Seoul.

The article also reports that holdings of ten exchange-traded products tracked by Bloomberg rose by 0.87 tonnes to 2,028.9 tonnes.

A Wall Street Journal article said traders were cautious ahead of the nonfarm payrolls report.

Investors are wary that the yellow metal, which bounced Thursday as Federal Reserve Chairman Ben Bernanke pointed toward continued easy money policy, could be set for a slide if the monthly U.S. nonfarm payrolls data, due at 8:30 a.m. ET, come in better than expected.

A firm U.S. labor report would likely boost the dollar, damping buying interest in gold which appears more expensive to other currency holders as the greenback rises, and is also often bought as a refuge in times of economic risk.

The released payrolls report showed a drop in the unemployment rate to 9.0%, but the net add to nonfarm payrolls was much smaller than expected: 36,000 instead of an expected 140,000. The unemployment rate was expected to be 9.5%. Putting these two data together yields a further shrinkage in labour-force participation, evidence of a still-tough jobs market. The gold market liked the report on issuance, but got ahead of itself. Continuing a rise that began when regular trading started, it leapt up to $1,353 before sinking back to below $1,348. It then got its bearings and surmounted $1,350 again. As of 8:47, the spot price was $1,351.50 for a drop of $4.10 on the day. The Kitco Gold Index divided the loss into -$1.50 for predominant selling and -$2.60 for greenback strengthening. The U.S. Dollar Index initially plummeted on the payrolls news, but more than recovered by vaulting up above 78. As of 8:50, it was at 78.04.

All in all, the overnight session was a wash if the payrolls window is added in at the end. Gold is still above $1,350, although only slightly so, and any downward impulse is muted. $1,350 may be tested again in regular trading today, but the metal has put the 1330s behind it.