Gold Sinks To High 1350s

Gold tailed down to just above $1,360 last evening, but slowly recovered some of the ground lost by midnight. Unfortunately, the momentum slowed and the recovery turned into another downturn. The metal crossed the $1,360 line a little after 3 AM ET and descended in a choppy manner down to the high 1350s. The Bank of England's decision to leave its rate flat at 0.5%didn't help. As of 8:11, the spot price was $1,356.80 for a drop of $7.00 on the day. The Kitco Gold Index attributed +$3.10 to predominant buying and -$10.10 to a strengthening greenback.
The U.S. Dollar Index picked itself up after yesterday afternoon's flatness and began an accelerated rise that lasted until a little after 4:30 AM. That run-up left it above 78 again, but the ensuing pullback brought it below 77.95. Resuming its rise, the Index managed to climb above the earlier high set after the parabolic run peaked. As of 8:18, it was at 78.17.

A Reuters report said the rising greenback put pressure on gold prices, and light Asian buying didn't help.

"Since the beginning of the year we have seen outflows from the ETFs. We have seen lower risk aversion day by day, and today the stronger dollar seems to be also taking its toll," said Commerzbank analyst Eugen Weinberg.

"We are still very bullish in the longer term and believe new all-time highs are very possible toward the end of the year. But at the moment, gold seems to not be the favorite. During economic recovery, other metals are in stronger demand."

With regard to ETFs, the article said that the SPDR Gold Shares Trust (GLD) was hit with a minor outflow. That outflow was 2.12 tonnes, leaving GLD's holdings at 1,226.44 tonnes.

An earlier Wall Street Journal report said that gold was little changed last night as traders focused more on industrial metals.

Standard Bank said that signs of economic recovery were undercutting the allure of the metal and could contribute to further declines as physical demand from China, which sustained the metal ahead of the Lunar New Year holiday that ended Tuesday, goes into a seasonal lull.

"The market is still directionless...and the ebbing of physical demand is likely to leave it subject to further weakness in the short term on any signs of dollar strength," the bank said.

The jobless-claims report covering last week shows initial jobless claims dropping below the 400,000 level. That drop was 36,000 to 383,000 when expectatons were for 410,000. Continuing claims also dropped. The equity markets liked the number; the gold market didn't. After muddling around the $1,356 level just before the data were announced, gold tumbled down to a new daily low of $1,350.50 before recovering somewhat. As of 8:39, the spot price was $1,353.40 for a drop of $10.40 on the day. The Kitco Gold Index assigned +$0.40's worth of change to predominant buying and -$10.80's worth to a strengthening greenback. The U.S. Dollar Index continued its run upwards and wasn't much affected by the jobless-claims news. As of 8:42, it was at 78.25.

The recovery trade is again nibbling away at gold and helping the greenback. Still, the metal's not that badly off; it's unlikely to sink down to the $1,340 support level. Today is shaping up to be choppier than yesterday.