Gold Hugs $1,385 After Slight Advance, Then Dips

It was another dull overnight session, again showing gold's unresponsiveness to news that would move it both up and down in more excited times. The People's Bank of China has raised the reseve ratio once again, by 50 basis points to a record 19.5 percent [the U.S.'s is 10% for demand deposits, none for time deposits] and the gold market didn't trend down as a result. Of course, when mainland Chinese inflation went to an above-target 4.9% in January, the gold market yawned too. Inflation is almost bound to be a central topic in the upcoming G-20 central bankers' meeting, but gold didn't react much to that item either.

Instead, it slowly climbed last night to $1,385 and stayed there except for a blip-up to $1,389.50 around 3 AM ET. Occuring near the end of the Hong Kong session, it was likely reversed by the reserve-rate increase. Last year, an announcement like that rocked the market downwards. Now, if anything, it only staunches a blip.

That blip-up self-reversing, gold went back to hugging $1,385 until dropping around 8:00. As of 8:12 AM ET, the spot price was $1,383.20 for a drop of $1.40 on the day. The Kitco Gold Index attributed -$3.60 due to predominant selling and +$2.20 due to a weakening greenback.

The U.S. Dollar Index, after an initial dip to 77.9, spent most of the overnight session recovering. Rising to above 78.2, it bounced below that level until 7:45. At that time, it went on a steady tmble that took it below 77.85 before halting. This drop preceded the fall in gold and may have influenced it. As of 8:18, the Index was at 77.86.

A Bloomberg report, webbed by Business Week, ascribed gold's rise and staying power to Mideast turmoil.

At least five people have been killed since demonstrations against Bahrain’s ruling Al Khalifa family began on Feb. 14. Demonstrators in Libya yesterday demanded the government’s overthrow. Gold bar and coin demand in the Middle East jumped 39 percent in the fourth quarter from a year earlier, according to World Gold Council figures released yesterday.

“If you see violence, you would buy gold expecting that the domestics would buy gold,” said Peter Fertig, owner of Quantitative Commodity Research Ltd. in Hainburg, Germany.

Unusually for recent times, holdings of ten gold ETFs tracked by Bloomberg rose yesterday by 3.5 tonnes to 2,019.92 tonnes. The SPDR Gold Shares Trust (GLD) wasn't one of them: its holdings stayed flat yesterday.

Mideast unrest was also given by a Reuters report, which also said the mainland Chinese reserve-ratio hike was responsible for cushioning gains.

Gold earlier hit a five-week peak at $1,388.15 an ounce. It briefly pared gains after China said it was raising lenders' reserve requirements by 50 basis points, but remains firmly underpinned by investment interest in precious metals.

"(There has been) a remarkable move in silver, which has helped gold back toward $1,400," said Saxo Bank senior manager Ole Hansen.

"Middle East/North African unrest was undoubtedly the trigger, but it looks like investors have been waiting for the opportunity to buy at lower levels, and once that opportunity disappeared they returned for fear of missing the move."

In keeping with the above snippet, the article said silver is beginning to capture attention as it makes new 30-year highs.

A Wall Street Journal article said silver is beginning to join gold in the fear-and-inflation trade.

Silver, which has increased 3% in price since the beginning of the year compared with gold's 2.4% decline, is gaining extra support from industrial demand and the view that it is a cheaper "safe haven" investment than gold, said market players. Unlike the yellow metal, which has scarce industrial use, silver is also seeing high demand from the booming electronics industry.

Gold and silver are also receiving a lot of attention from the physical market as present, particularly from Asia, where demand for metal bars, coins and jewelry are particularly high.

"People are worried about rising inflation and tensions in the Middle East this is reflected in strong demand for silver and gold coins and bars," said FastMarkets.com analyst James Moore.

With no U.S. economic news to push it either way today, gold bobbed around the $1,383 level, in a fairly dull opening to regular trading, before poking up. As of 8:42 AM, the spot price was $1,384.60; that price let the metal even on the day. The Kitco Gold Index attributed -$2.20 to predominant selling and +$2.20 to a weakening greenback. The U.S. Dollar Index, after its tumble, stumbled between 77.85 and 77.9 before dipping down again; as of 8:45, it was at 77.84.

Coming after a steady rise, gold's lack of action is hard to read at this point. On the one hand, it's reacting well to Mideast turmoil. On the other hand, it's relatively insensitive to items that would otherwise get it rolling. To go back to the first hand, an item that would have sent it tumbling last year hardly moved it at all. The metal's back to steady as she goes, racking up small but solid gains while other commodites and assets step into the spotlight. Regular trading may be choppy again today, but a significant change by the end of the session would make for a surprise.