Gold Pulls Back, Slumps Below $1,400

Yesterday's rise to almost $1,410 was encouraging, but was not built on in tonight's and this morning's overnight session. Things looked good at the start, as gold touched $1,410 and even poked above it, but that rise turned into a steady decline that brought the metal down to $1,392.10 without many recovery breaks. Bottoming at that level, it finally reversed and trundled back up to the $1,400 level. As of 8:08 AM ET, the spot price had poked its nose above $1,400 to reach $1,400.40 for a drop of $6.20 on the day. The Kitco Gold Index split the loss into -$5.20 due to predominant selling and -$1.00 due to strengthening of the greenback.

The U.S. Dollar Index, after initially sagging, went on a nice run last night that mirrored gold's drop. From about 77.65, it strode up to above 78.15 betwen 7:05 PM ET and 10:10. Then sinking back to almost 78, it forged ahead to almost 78.35 before tumbling all the way down to the 77.7 level. As of 8:16, it was slowly recovering at 77.78.

A Bloomberg report said gold's six-day winning streak was broken because of the greenback's recovery, occurring as the Libyan government cracks down on protestors.

“The stronger dollar is pressuring gold prices in the short term,” said Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland. “We expect gold to trade higher, as geopolitical uncertainties will result in higher gold demand.”...

“The desire to take profits grew among short-term investors after gold’s recent rally,” said Lim Chae Myung, Seoul-based trader with Hyundai Futures Co. “Coupled with a stronger dollar, that’s taking some steam out of gold, but I don’t believe this is a trend reversal.”

The article also cites the International Federation for Human Rights, which said more than 300 protestors have been killed by the Libyan government. Quadaffi, unlike Mubarak, isn't going down without a major fight.

An earlier Reuters report ties gold's earlier gains to inflation worries caused by the Mideast uprisings, as reflected in oil's jump.

"I think the current situation there is really akin to a keg of dynamite," said Ong Yin Ling, investment analyst at Phillip Futures in Singapore.

"Whether Gaddafi will be toppled or whether we will witness a revolution, I think the final outcome is still uncertain. But the situation is likely to get worse before it gets better. Going forward (gold) could still remain supported due to the crisis, which is unlikely to be resolved anytime soon."...

Diplomats at Libya's mission to the United Nations sided on Monday with the revolt against their country's leader and called on the Libyan army to help overthrow "the tyrant Muammar Gaddafi."

The article also noted that physical gold selling has appeared from Thailand and other Asian nations on the Singaporean market. There had been safe-haven buying at lower levels.

A Wall Street Journal article said the greenback crowded out gold in the flight to safety race as liquidity becomes attractive too.

"When it comes to traditional safe-haven assets, the most popular are treasury bonds, the dollar and gold," said Crédit Agricole analyst Robin Bhar. "At present, people are likely looking for the most liquid asset they can find, and, in this sense, gold may be being viewed as the poor third cousin of the three."

In keeping with the fear trade, base metal have been hit recently while gold (and silver) have risen.

No data pertaining to the U.S. economy were released in the 8:30 slot, so gold fluctuated without any influence from that corner. Dipping back below $1,400 just before regular trading opened, the metal reversed course once the pit session got rolling; it jumped to $1,405.40 before pulling back. Even after the pullback, it stayed above $1,400. As of 8:39, the spot price was $1,403.40 for a drop of $3.20 on the day. The Kitco Gold Index divided the loss into -$2.60 for predominant selling and -$0.60 for greenback strengthening. The U.S. Dollar Index slumped a bit but recovered enough to surmount 77.7; as of 8:42, it was at 77.75.

Yesterday's gain was not endorsed completely by the return of full-day trading, but gold surmounting $1,400 has so far. As for the breaking of the streak, it's not quite a done deal yet. Should gold eke out a gain today, it would be the seventh in a row - a rarity. The metal isn't in a position to do so as of yet, and may not if earlier gains are drained away in the pit session and electronic-trading hitch, but there's still a chance at reversing the loss. It only needs several dollars more.