Gold Moves To Upper 1330s

Gold was fairly stable after breaking through $1,335 last night. Since then, it's been bouncing around in a range between that level and $1,340. Although it did get down to as low as $1,333.80 just afte 4 AM ET, it pulled up and stayed in the range. As of 8:07 AM ET, the spot price was $1,336.20 for a gain of $3.20 on the day, The Kitco Gold Index attributed +$6.80 to predominant buying and -$3.60 to a weakening greenback.

The U.S. Dollar Index, unlike gold, slid down last night. Sometimes swiftly, sometimes slowly, but steadily until it got to 77.4. Then, a sharp secondary reaction gave way to an even lower bottom that turned into a range betwen 77.3 and 77.5. As of 8:13, the Index was at 77.41.

A Bloomberg report cites expectations for more tension in Egypt and rising inflation as the cause of gold's blip-up.

There are “bullish issues such as the lack of a cohesive government in Egypt and likely forthcoming inflation signaled by higher oil prices,” Tom Pawlicki, an analyst at MF Global Holdings Ltd. in Chicago, said today in a report...

South Korea’s inflation accelerated to 4.1 percent in January, breaching the central bank’s 4 percent ceiling, according to data from Statistics Korea today. Consumer prices in Indonesia, Southeast Asia’s biggest economy, rose 7.02 percent last month, after a 6.96 percent gain in December, Central Bureau of Statistics data showed today.

“We are seeing inflation on the rise globally,” said Darren Heathcote, the head of trading at Investec Bank Australia) Ltd. in Sydney, by phone. “Gold has always been seen as an asset to protect against inflation. So, when we start talking about potential inflation, we do find quite often there’ll be some buying as a result.”

The article also notes that holdings of ten gold ETFs compiled by Bloomberg kept declining, this time by 2.61 tonnes to 2,031.21 tonnes yesterday.

An earlier Reuters report says that a rise in the holdings of the largest ETF shows faith in gold still exists, and that the advance has come in an environment of quiet Asian trading.

"It sure is so quiet. If I drop a pin now, I can hear the echo right away," said a dealer in Singapore.

U.S. April gold futures... settled around $7 lower [yesterday] after data showed factory activity in the U.S. Midwest hit a 22-1/2 year high in January and another report showed consumer spending ended 2010 on a
firmer footing....

"The most importing thing is how far the U.S. has recovered," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.

"People are waiting to see whether this year is a good year for gold. We have to watch the interest rates. Most nations, especially in Asia, are trying to fight inflation. They all have to increase interest rates. This is not really good news for
gold."

The article also notes that holdings of the SPDR Gold Shares Trust rose yesterday, for the first time since January 21st.

A Wall Street Journal article describes gold's rise as "cautious."

"We saw a knee-jerk reaction to the situation in Egypt, and now the market has calmed down a little," said FastMarkets.com analyst James Moore, adding participants may be holding their breath ahead of the re-opening of Chinese markets after the Lunar New Year, in case that government announces new measures aimed at cooling the economy.

"We're in 'wait and see' mode right now," he said.

Another analyst is cited as saying that Egypt will be the primary driver now that things have gone quiet in China.

There was no U.S. economic news released at 8:30, and gold tested the high end of its range. Poking above $1,342 just after the pit session began, it tailed off and sunk back in. As of 8:39 AM, the spot price was $1,337.90 for a rise of $4.90 on the day. The Kitco Gold Index assigned -$0.20's worth of change to predominant selling and +$5.10's worth to greenback weakening. The U.S. Dollar Index continued to bounce in its 77.3-77.5 range; as of 8:43, it was at 77.43.

Unmentioned as the cause for gold's rise was the sinking greenback, which isn't that surprising given that they both tend to rise and fall in tandem during crisis time. The metal is acting well, and some optimism is creeping back into the market. It doesn't look like gold will make a run at $1,350, but the clime has improved enough to make such a move arguable.