Gold, After Slow Rise, Breaks Above $1,420

There wasn't much news on the usual fronts to get gold excited enough to ford above $1,420, but it did so after breaking through $1,415 around 6 AM ET. Prior to that breakout, the metal sunk a little on news that the Australian central bank is leaving its key rate unchanged at 4.75% because of easing inflation pressures. Bottoming at a little below $1,410 on the news, gold later shook off the drop and trudged back up to where it closed yesterday. Continuing to inch up after night turned into morning, it bumped against $1,415 before retreating. On the next try, at 6:00, it succeeded. The momentum encouraged technical buying that lifted it above $1,420 just before 8:00. As of 8:08 AM ET, the spot price was $1,421.70 for a gain of $10.50 on the day. The Kitco Gold Index split the gain into +$9.65 due to predominant buying and +$0.85 due to a weakening of the greenback.

The U.S. Dollar Index spent overnight fluctuating between 76.75 and 77.0, with a brief dip below the lower level just before 5:40 AM. Mostly rising upwards overnight after a drop in early evening, the Index was blocked from further rises at the 77.0 level and fell back down to the low end of the range. 76.75 holding, it rebounded to 76.9 but only temporarily. As of 8:14, it was at 76.83.

A Bloomberg report credits Libyan unrest and a weaker greenback for gold's jump. Adding to the former is the prospect for outside intervention to the rebels' benefit.

“Prices are up as the dollar weakens slightly and concerns remain that unrest in the Middle East could lead to more significant protests,” John Meyer, an analyst at Fairfax IS in London, wrote in a report today....

Gold and silver “are set for further gains as ongoing Middle East and North Africa turmoil continues to draw strong investment and flight-to-safety demand,” James Moore, an analyst at TheBullionDesk.com in London, said today in a report.

The article also notes that the holdings of ten gold ETFs tracked by Bloomberg rose again yesterday, by 0.84 tonnes to 2,012.16 tonnes.

A Reuters report, written before the break above $1,415, said the Mideast and North African turmoil overpowered good U.S. economic data to keep gold up.

"We were looking for a correction in gold in January, and certainly I think that correction was interrupted by the political situation in North Africa and the Middle East, and that has been responsible for getting gold back up to $1,400,"
said Deutsche Bank analyst Daniel Brebner.

While the uncertainty over the region is proving beneficial for gold for now, Fed Chairman Ben Bernanke's twice-yearly testimony to the U.S. Senate Banking Committee later in the day could be more decisive in determining the outlook for the gold price, he said.

"The market may look at Bernanke's discussion today to get guidance in terms of where the next move will be. If it is to remain accommodative, then that's very good for gold. If the Fed ... talks about a hiking cycle or rising interest rates, then
that may temper enthusiasm."...

"There's conflicting signals out there, which is beneficial for gold. But I wouldn't say there's a clear direction at the moment. The pendulum has swung back from (investors) being optimistic about economic recovery to being somewhat more cautious," said Simon Weeks, head of precious metals at Bank of Nova Scotia.

Part of that ambiguity is reflected in rising open interest on gold contracts while holdings of the SPDR Gold Shares Trust are still declining. Yesterday, its holdings dropped 0.61 tonnes to 1,210.96 tonnes. On the bearish side, the Australian Bureau of Agricultural and Resource Economics and Sciences opined that gold could drop 20% as speculators exit the market due to global recovery.

A weaker dollar and Mideast/North African turmoil was also the reason given by the morning Wall Street Journal article, which covers the jump above $1,420. Injecting in some caution, the article notes that some traders think that gold may pause before any test of its record high.

"The price of gold rose 6% in February and normally, after a move of that size, you would expect a period of consolidation," said GoldCore director Mark O'Byrne, adding that buying has been "tentative" for the past week.

However, gold's medium- to long-term prospects remain sound, and GoldCore's target price of $1,500 a troy ounce this year still looks "very likely," said O'Byrne.

It also calls attention to Ben Bernanke's Congressional testimony today and tomorrow.

No news on the U.S. economy was slated for the 8:3o slot, so gold's pullback to $1420 wasn't influenced by any good news or otherwise. Bottoming at that level, it inched up at that same 8:30. As of 8:40, the spot price was $1,420.60 for a gain of $9.40 on the day. The Kitco Gold Index divided the gain into +$9.10 for predominant buying and +$0.30 for greenback weakening. The U.S. Dollar Index, after falling until just before 8:30, inched back up; as of 8:45, it was at 76.90.

Gold's jump above $1,415 preceded a take-out of $1,420, but its action has been indecisive above that level. It may not stay that high as the day unfolds. But, its pressing against the high end of the $1,400-$1,420 interday range is encouraging. The market seems to think that any surprise coming from Bernanke's testimony today and tomorrow will be unfavourable for gold, suggesting a healthy skepticism still exists. If gold keeps rallying today, it would be a pleasant surprise.