Gold Stays Above $1,410, Mostly, On Continued Midseast Ferment

Despite worries of a jump to 2.5%, Eurozone inflation for January came in at 2.3%. Expectations were for 2.4%. The core rate was also 0.1% below expectations, coming in at 1.1%. This result was still above the European Central Bank's target. Interestingly, austerity-plagued Ireland had the lowest rate, 0.2%. The new Irish Prime Minister Enda Kenny, winning an almost unprecedented upset victory, has promised to renegotiate the terms of the EU bailout package. Handicappers so far are giving him long odds.

Gold didn't react much to the inflation number, just as Irish government debt securities didn't react much to Mr. Kenny's promise. Unlike those securities. the metal did react to the Irish election result. Coming out of the gate last night, it jumped up almost five dollars an ounce to $1,415. For the rest of the session, that barrier would be too formidable to cross durably. Making a go around 2:00 AM ET, gold got up to an early-morning high of $1,417.60 before the London market opened. Then, it turned around and slid down to a low of $1,406.70 before reversing and zerioing in on $1,410. The bulk of that slide took place before London opened. Staying around $1,410 until 7:00, the metal then reversed to $1,415 in a one-hour climb that stuck for the moment. As of 8:17, the spot price was $1,414.60 for a gain of $5.00 since Friday's close. The Kitco Gold Index attributed -$1.20 to predominant selling and +$6.20 to a weakening of the greenback.

The U.S. Dollar Index did slide early in the morning at about the time gold reached its nadir; the Index's sudden drop helped bring gold back to $1,410. Despite an initial rise up to 77.4, prompted by the same bottom-of-the-mornin' reasons as gold's initial ramp-up, the Index spent most of the session declining. After a bounce off 77.05, which reached 77.2 as of 3:45, it tumbled below 77.0 in the next forty minutes. The Eurozone inflation number was the most likely reason for the tumble, whose nadir came an hour later. Settling down into a slightly declining range, it bounced off the 76.8 nadir level twice. As of 8:24, it was at 76.85.

A Bloomberg report said gold may advance on the now-familiar reasons: inflation worries and Mideast turmoil. Gold went up with oil as the U.S. government promised assistance to the rebels.

“Inflation expectations are certainly anchored,” Andrey Kryuchenkov, an analyst at VTB Capital in London, said today in a report. There needs to be “escalating geopolitical tensions for sustained gains to December’s all-time highs and beyond.”...

“Amid ongoing unrest in North Africa and the Middle East, it is still quite astonishing that the price of gold has not profited more,” Carsten Fritsch, a Frankfurt-based analyst at Commerzbank AG, said today in a report.

[Of course, that relative tepidness means less of a letdown later - DMR.]

The article also notes that holdings of ten gold ETFs tracked by Bloomberg rose 1.22 tonnes on Friday to 2,011.32 tonnes. Exports of gold from Egypt are now subject to controls, tight enough to make for an effective ban, and will be so until June 30th.

An earlier Reuters report ascribed gold's rise to Mideast tensions as reflected in rising oil prices.

"The sentiment is still generally bullish," said a Singapore-based dealer, "If oil keeps going up, people will continue to bet on gold, as a hedge against inflation and against risks caused by the unrest in the Middle East."...

"We haven't seen increasing volatility in gold as we see in the oil market," said Yingxi Yu, an analyst at Barclays Capital.

"It does seem like momentum in gold is not as strong. This time around, even when things are bad, gold hasn't been such a popular investment, because things are looking brighter in the global economy."

As a tightening cycle in Asia begins, physical gold demand in Singapore has been relatively muted. Holdings in the SPDR Gold Shares Trust were unchanged Friday at 1,211.57 tonnes.

A Wall Street Journal report said gold crept upwards on Libyan tensions, but noted that further turmoil is largely priced in.

Though gold is likely to break its record of $1,431.30 a troy ounce in "a matter or weeks or days," it is unlikely to approach these heights with the same zeal as recent weeks unless the situation in the Middle East suddenly worsens, said Standard Bank analyst Walter de Wet....

But with gold's attention so firmly on the oil market, a change in oil's trajectory could quickly erode gold sentiment, Mr. de Wet said. Oil prices were stable on Monday.

"If oil prices come off, gold will come off with it," he said.

The article also quotes Edel Tully as saying the Egyptian ban on gold exports will be helpful to gold because it cuts off scrap sales from the region. In the last two years, Egyptian sellers have sent a lot of scrap to the market.

January personal-income data showed a jump of 1.0% with spending up only 0.2%. The jump came as a result of reduced Social Security taxes, which evidently are being saved. The income jump was above expectations while consumption expenditures were below. In the same timeframe, the president of the New York Fed assured the public that the Fed won't let inflation get out of hand. Gold retreated from $1,415 just before regular trading began, content to stay in its $1,410-floored range. Both the data and the speech played into an already-established pullback. As of 8:50, the spot price had settled down to reach $1,413.00 for a gain of $3.40 since Friday's close. The Kitco Gold Index assigned -$3.90's worth of change to predominant selling and +$7.30's worth to greenback weakening. The U.S. Dollar Index continued muddling along without breaking 76.8; as of 8:52, it was at 76.82.

Gold's still steady, and it isn't benefitting much from continued Mideast unrest. As I noted above, that's better for the metal because it means lesser volatility when the world reverts to a newer normal. The metal's still stuck in its $1,410-$1,415 range. The range might be tested during regular trading, but the week's start suggests the testing won't go very far. Based upon early pit session activity, the testing is going to come at the lower end.