Gold Holds Above $1,400 As Inflation, Mideast Concern Continues

More and more evidence of global inflation is accumulating, even in supposedly resistant places like Germany. The Russian central bank has raised its discount rate to 8%, reversing a series of cuts becasue of higher inflation. The rate there is now 9.6%. Closer to the United States, inflation in three large states of Germany have tipped above the 2.0% threshold of EU concern. There's talk about the Geman inflation rate being 2.2%, and the EU's being 2.5%. Although gold dropped just before and right after the London market opened, it held above $1,400 because of inflation fears as well as Mideast turmoil.

After overnight trading began, it started creeping up. Initially slow-starting, it got up to as high as $1,411.00 just before London opened. Falling swiftly, it sunk in the space of two hours to a morning low of $1,398.90. Then rebounding, shortly before 5 AM ET, it stayed in a range bordered by $1,400 and $1,405. As of 8:13, the spot price was $1,403.20 for a slight gain of $1.10 on the day. The Kitco Gold Index attributed +$3.80 to predominant buying and -$2.70 to a strengthening greenback.

The U.S. Dollar Index slid down slowly last night, bottoming at 86.95. Shortly after gold began its decline, the Index picked up and shifted into rally mode. Reaching almost 77.25 by 6:05, the Index sunk back and surmounted 77.25 later. As of 8:20, it had pulled back a little to reach 77.22.

A Bloomberg report attributed gold's bounceback to continued tensions in the Middle East and North Africa.

“As protests in Libya intensify, we expect gold and silver to be underpinned by flight-to-safety demand,” James Moore, an analyst at TheBullionDesk.com in London, said today in a report.

Despite that renewed demand, holdings in ten gold ETFs tracked by Bloomberg fell 5.29 tonnes to 2,010.1 tonnes yesterday.

An earlier Reuters report also ascribed gold's recovery to Mideast tensions as well as to oil.

"The gold market is still very much influenced by unrest in the Middle East and North Africa," said Ong Yi Ling, an analyst at Phillip Futures. "The spotlight remains on the region. If tension escalates, we could see gold continue to push higher."...

"Gold is likely to go through some consolidation, if not correction," said Hou Xinqiang, an analyst at Jinrui Futures, "The influence may ebb quickly if no big story breaks -- countries split up in violence or the region fell into complete chaos."

Another authority is quoted as saying that, if Mideast tensions are factored out, the global economy looks fairly good right now. Holdings of the SPDR Gold Shares Trust dropped 6.67 tonnes yesterday to 1,211.57 tonnes.

A Wall Street Journal report, also an earlier one, ascribed gold's recovery last night to bargain hunting.

"There's been steady (gold) buying through the day although we have some offers around $1,407," said a Hong Kong based trader.

Brokers remain confident that gold's resurgence from its January low of $1,308 will continue into March.

"Gold is now only 2% off its record high ($1,431.30/oz) and one gets the feeling it will continue to be boosted by inflation threats, geopolitical factors and from a return of investment," said MKS Finance.

The article also noted that the plummet in oil yesterday was due to the Saudi Arabian rulership assuring the world that any slack in Libyan oil production could be met from Saudi Arabian sources. That tumble triggered yesterday's plummet in gold.

A rally that started just before regular trading began continued as the session got rolling, but ran out of gas shortly before 8:30 when it peaked at $1,407. At 8:30, fourth-quarter U.S. GDP was revised downwards from 3.2% annualized growth to 2.8%. The revision was made because consumers and state government spent less than was originally estimated. The metal didn't take very well to the revision, falling back to around $1,405. As of 8:44, the spot price was $1,405.50 for a gain of $3.40 on the day. The Kitco Gold Index assigned +$5.20's worth of change to predominant buying and -$1.80's worth to greenback strengthening. The U.S. Dollar Index dropped on the revision, but partially recovered; as of 8:47, it was at 77.20.

Although gold fluctuated all told, $1,400 has held. That's good news and supports the contention that gold merely fell out of bed yesterday. There is evidence that Asian buyers have moved their bargain points up with the rally. Gold may dither today, and may be afflicted by yet another afternoon slump, but there is support at $1,400. It may be enough to keep the metal from falling sustainably to the 1390s. There is enough demand for gold to rack up another weekly gain, barring a highly unlikely plummet.