Gold Founders On Stronger Greenback, Cash Raising, Oil Slide

The Japanese nuclear disaster is still in the news, but any upward effect it had on the gold market is gone. The metal started falling when evening trading started, and accelerated its decline by late night. The Reserve Bank of Australia left its rate at 4.75%, confident that inflation will sink. The gold market took that confidence as further reason to sell off. At 10 PM ET, the metal was a little below $1,425. Two hours later, it was below $1,415. Although the Australian inflation news did have an impact, the main downward catalyst was a recovery in the greenback. The currency is acting as a safe haven again, as asset sales across the board take their toll. The U.S. Dollar Index rose in an accelerated climb before stalling at midnight, which went hand in hand with oil breaching $100 on the downside. The oil market seems to be cottoning on to the fact that Gadaffi's now winning.

Gold did recover in early morning, to above $1,415, but another upward run by the greenback triggered another tumble starting just before 5:00. Having sunk to $1,405-10, the metal went for a final dip below $1,405 a little after 7:30; $1,400 was breached a short time afterwards. Unlike the other two tumbles, this one was not prompted by a further rise in the greenback; it had the character of panic selling. Overall, gold plummeted in stages for a huge loss on the day. As of 8:05, the spot price was $1,394.90 for a drop of $33.90 on the day. The Kitco Gold Index split the loss into -$24.00 for predominant selling and -$9.90 for a strengthening greenback.

As noted above, the U.S. Dollar Index rallied for most of the overnight session. Its parabolic run got it to 76.8 by midnight, after which it sunk back to 76.6. An attempted rally at 3:00 gave way to a double bottom at that same 76.6. The next rally attempt, which knocked down gold further, succeeded in besting 77.0. After peaking at 77.04 as of 6:10, it pulled back again. Lingering at around 76.9, it lost more ground afterwards. As of 8:17, it had slipped back to 76.81.

A Bloomberg article said gold was pushed down by sales needed to make up for drops of other assets.

“There could potentially be large volumes of liquidation emerging over the coming weeks as physical holdings are liquidated to generate cash,” said James Moore, an analyst at TheBullionDesk.com in London, in a report. Still, “dips in gold and silver are still likely to be viewed favorable as a bargain-hunting opportunity as investors continue to diversify into safe-haven assets.”...

“Gold and other precious metals are coming under pressure as commodities decline across the board,” said Chae Un Soo, a Seoul-based trader at KEB Futures Co. “The decline in commodities also coincided with the need for gold to take a breather after a recent rally to a record.”

The article also mentions that oil plummeted too, and recounts Gadaffi's recent string of tactical victories.

An earlier Reuters report highlights the same asset-sale cascade.

"It still looks like it's constructive. It's just consolidating. But if we get a large sell-off in equities, people will tend to sell gold," said Jonathan Barratt, managing director of Commodity Broking Services in Melbourne.

"But if it's a major concern, then people will eventually go to gold as the last resort."

The article notes next that there was an absence of safe-haven buying in Hong Kong and Singapore, with premiums for 1 kg bars holding steady between $1.00 and $1.50/oz. Holdings of the SPDR Gold Shares Trust declined 1.83 tonnes yesterday to 1,213.65 tonnes.

A Wall Street Journal article summed up the rout in gold, silver and other commodities as a flight to cash.

"We can imagine gold trading lower still as it is sold to raise cash—to raise liquidity—which has real value at a time such as this," independent market commentator Dennis Gartman said.

The article also cautioned about the possibility of more across-the-board asset sales in the weeks ahead, because there's a huge amount of Japanese investments that may need to be liquidated. [As an aside: had there not been a general expectation that the Japanese government would be shouldering the rebuilding bill, there would have been a lot more liquidation.]

Lost in the flood of disaster-induced selling [including, I should add, an all-out rout of uranium stocks] was the Empire State Index's release at 8:30. It showed growth in the New York region picking up, albeit less so that expected. Both new orders and the shipping index fell from February to March. Gold's plummet continued with an all-out dump slide when regular trading opened; its latest tumble didn't halt until that same 8:30 when it stabilized. As of 8:45, the spot price was $1,388.20 for an even huger drop of $40.60 on the day. The Kitco Gold Index divided the loss into -$30.20 for predominant selling and -$10.40 for greenback strengthening. The U.S. Dollar Index reversed its slide-back but didn't rally with any conviction. As of 8:48, it was at 76.86.

Japan's Nikkei went through a mini-crash, dropping a correction-level 11% in one day. We're seeing, indeed, that a snarling bear market makes asset correlations square off to one. This plummet is more than gold just falling out of bed, as outright panic has swept the market. Oil dropping, and Gadaffi's tactical victories, added a double whammy that drained some of the Libyan-turmoil premium from the metal too. How long it will take for the gold market to pick up the pieces is anyone's guess.