Thursday, February 24, 2011

Gold Inches Up Nearer Record In Calmer Early Morning

After a run up to $1,415 last evening, gold sunk back down to $1,410 last night as the excitement cooled off. Stuck near there, as of midnight ET, the metal dipped below $1,410 briefly in late Hong Kong trading, but recovered and smoothly ran up to $1,415 just before the London market opened. Once trading began in the U.K., the metal fluctuated around $1,415 with little direction except for a blip-up just before 8 AM. Interestingly, the Hong Kong run-up was mostly concurrent with a rally in the greenback. As of 8:08 AM, the spot price was $1,416.60 for a gain of $4.90 on the day. The Kitco Gold Index split the gain into +$0.95 for predominant buying and +$3.95 for weakening of the greenback.

The U.S. Dollar Index went on a mostly-downward roller coaster ride. Starting off the evening with a decline, sinking to 77.2, but steadied up before midnight. A slight dip preceded a strong rally that took it up to almost 77.5 by 3:05. Then turning downwards, the Index tumbled to 77.05 and briefly touched 77.0. Recovering again, it could only make a little above 77.25 before slumping again. As of 8:13, it was at 77.17.

A Bloomberg/Business Week article said demand for gold was boosted by the continued turmoil in Libya.
“Gold is poised to challenge December’s all-time high,” James Moore, an analyst at TheBullionDesk.com in London, said in a report. “The mix of safe-haven demand, inflation concerns and strong retail demand continues to support higher prices.”...

“Escalating unrest in Libya and rising oil prices have encouraged gold safe-haven buying and fueled concerns over inflation, which also benefits gold,” Mark Pervan, senior analyst with ANZ Banking Group Ltd., wrote in a note..
The article also notes that holdings in ten Bloomberg-tracked ETFs rose slightly yesterday. From a nine-month low of 2,014.79 tonnes, yesterday's holdings gained 0.6 tonnes to reach 2,015.39.

A Reuters article, webbed by the Globe and Mail, said Libyan unrest and soaring oil prices helped push gold up higher to a new record.
“This move in gold right now is acutely about the Middle East. The trade is about fear but people are viewing it as an extension of the inflation trade,” said James Dailey, portfolio manager of the TEAM Asset Strategy Fund.
The article notes that the base-metal star of the recovery trade, copper, took a hit from margin selling yesterday. Although physical gold is selling briskly, holdings of the SPDR Gold Shares Trust declined 4.855 tonnes to 1,218.243 tonnes two days ago. They were unchanged yesterday.

A Wall Street Journal article said gold rose because it's being used to hedge against continuing political risk and in sympathy with higher oil prices.
"High oil prices, if sustained, will tax consumers, restrain economic activity and fuel inflation—a central banker's nightmare and a gold bug's dream," said Jeffrey Nichols, managing director of consultancy American Precious Metals Advisors.
The article points out that excitement is rising as gold nears its record high, but cautions about volatility.

8:30 was a busy time for watchers of the U.S. economy. The weekly initial jobless claims number came in: for last week, it dropped below 400,000 to come in at 391,000. Expectations were for 405,000. Continuing claims also dropped. January durable-goods orders also came in better than expected, 2.5%, with transportation orders being the star of the report. Had transportation been excluded, orders would have dropped. December's number was revised sharly upwards: from -2.3% to only -0.4%.

The gold market got the jitters just before the reports were released, stumbling down to $1,415 just before 8:30, but took the actual data in stride. As of 8:42, the spot price was $1,415.80 for a gain of $4.10 on the day. The Kitco Gold Index divided the gain into +$0.70 for predominant buying and +$3.40 for greenback weakening. The U.S. Dollar Index took the data in stride too, although it dropped a bit just before the releases. A blip-up after the data's dissemination didn't last. As of 8:46, it was at 77.11.

Although building on yesterday's double-digit gain, gold is calming down and spending more time fluctuating instead of trending one way or the other. There may indeed be downward volatility today, as an afternoon post-pit-session slump is becoming a regular event. Eyes are on $1,431.25: that's the interday record high. As gold stands, it's only a little more than fifteen dollars away right now.

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