Gold Fluctuates Mildly, Stays At High 1350s

There wasn't much movement in gold as the week began. Starting off with a small drop, the metal inched up to a $1,356-$1,358 range before nudging up further to a little above $1,360. Peaking at $1,362.10, it descended back to the high 1350s with $1,356 the floor. As of 8:12, the spot price was $1,357.20 for a gain of $0.40 since Friday's close. The Kitco Gold Index attributed +$6.90 to predominant buying and -$6.50 to a strengthening greenback.

The U.S. Dollar Index, after sinking last night and early this morning following an initial jump to 78.6, abruptly reversed course and ralled all the way up to 78.85. As of 8:17, it was at 78.81.

A Reuters report said that inflation data from mainland China was what to watch for, but there's no clarity as to what gold will do if a high number comes down. It depends upon whether the gold market is cheered by the news or is frightened by the prospect of further tightening.

"China's inflation number is something to watch out for. If the number is high, it may cause another move up in gold prices, because people would use gold as hedge against inflation," said a Singapore-based dealer....

"Gold is stuck in the range of $1,345 to $1,370," said Peter Fung, head of dealing department at Wing Fung Precious Metals in Hong Kong. "We are not seeing much physical interest after the Chinese returned from the Lunar New Year holiday, and the premiums in Shanghai are lower than before the holiday."

Fung said the lack of direction in the market contributed to the listless trading activities.

"People don't see any trend in the short term, and have little interest in trading."

The quietness was unexpected, as it was hoped that mainland Chinese buyers would jump back into the market now that the New Year's festival is over for traders. The article also said that premiums in Singapore have fallen to $1.00/oz from $1.50-$1.90 last week, as high interest rates have increased the opportunity cost of holding gold.

A Wall Street Journal article said that lack of enthusiasm and a stronger greenback capped any advance gold made.

Gold's attraction as "safe" investment in times of economic and political insecurity has been called into question in recent weeks, as unrest in Egypt and renewed fears about the financial health of some European governments failed to significantly boost the yellow metal's prices.

"It is hard to tell where we will go from here, as gold has remained lackluster despite inflation fears and instability in Egypt," noted FastMarkets.com analyst James Moore. With the threat of rising interest rates looming on the back of high inflation, Treasury yields are being seen as a better "safe haven" investment than precious metals, he said.

Also noted is continued support from phsyical buyers, including jewelry buyers, which has cushioned the decline. The greenback advanced because of Euro-related jitters ushering in a two-day meeting of Eurozone finance ministers. The meeting's devoted to getting Eurodeficits down.

No data on the U.S. economy were released this morning, and gold rallied a little in their absence. A minor rally started before regular trading opened and continued as the pit session got rolling. As of 8:42, the spot price was $1,360.10 for a gain of $3.30 since Friday's close. The Kitco Gold Index assigned +$9.95's worth of change to predominant buying and -$6.65's worth to greenback strengthening. After its strong rally, the U.S. Dollar Index pulled back a little; as of 8:45, the Index was at 78.78.

It looks as if the February blahs has hit the gold market, or at least interpreters of its moves. Not durably holding above $1,360 has been a drag, but the metal's in a fairly good position this Valentine's Day. The pessimism accompanying flatness may be seasonal, but it also indicates a wall of worry - or frustration at ups turning into downs. That kind of frustration pops up during trading ranges. It should continue if gold continues to meander today.