Gold Gains Again In Overnight Session, Boosted By Eurozone Inflation Data And Weaker Greenback

Counterintuitively, the unexpected jump in March Eurozone inflation to 2.6% was good for the Euro. That's because the rise from 2.4% in February is almost certainly going to mean the European Central Bank will raise its rate from the current 1%. There's hints of wage pressure in Germany, where unemployment is low. Although not explicitly disclosed, there are hints that the core rate of inflation is spiking up too. Inflation was also a worry in the U.K., where there's been concern expressed that the next national budget will be inflationary. One estimate said the U.K. rate will be boosted 0.4% because of tax hikes.

The jump in Eurozone inflation and sinking of the greenback did some good for gold - but the metal's rise began last night after sinking to $1,420. The U.S. dollar started descending at about the time gold began ascending: 8 PM ET. Rising above $1,425, it remained stuck in that zone as night turned into morning. Its second rally, more uneven than the first, started around 5 AM. Initially bumping against $1,430, it bested that level two hours later. As of 8:14, the spot price was $1,431.40 for a gain of $7.60 on the day. The Kitco Gold Index split the gain into +$1.90 for predominant buying and +$5.70 for a weakening greenback.

As the last figure indicates, the U.S. Dollar Index didn't have a good night. Although intially rallying to 76.15 while gold fell, it turned around and started its descent shortly before gold turned around. At first sliding down gently, its decline accelerated when the Eurozone inflation data and policy interpretation hit the Net. Bottoming at 75.65 just after 5 AM, it bounced up in a relief rally that took. As of 8:20, it was taking a breath at 75.81.

A Bloomberg article said gold, supported by safe-haven buying, was on track to notch up its highest quarterly winning streak since 1979. Libyan rebels are being beaten back, raising the possibility of a protracted war and higher oil prices as a result. (The price of WTI crude did rise about a dollar in overnight trading, to above $105.)

“Given the unrest in the Middle East and North Africa region, increasing debt issues in the euro zone and the environment of historically low interest rates, gold and silver should continue to remain underpinned and test towards recent highs,” James Moore, an analyst at TheBullionDesk.com in London, said in a report.

The article also mentions a new turn in the Libyan mess: Foreign Minister Moussa Koussa, the same fellow who announced agreement to the ceasefire shortly before he was overruled and the Coalition moved in, fled his post and is now in exile in London, U.K. Also mentioned was Eurozone inflation, and the continued efforts by emergency crews to contain the hazardous radiation in Japan's sticken Fukushima Dai-Ichi nuclear plant.

An earlier Reuters article said gold was on track for its 10th consecutive quarterly gain, supported by some cautious bargain hunting.

"I think sentiment is slightly bullish because there are still many uncertainties around. Even though the euro zone is expected to increase interest rates, it will only be a small increase," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.

"I think we are waiting for tomorrow. Nobody really knows what to do," said Leung, referring to the U.S. jobs report.

The article also quotes European Central Bank Executive Board member Lorenzo Bini Smaghi as saying that any rate hikes will be gradual. In the Singapore markets, Indonesian buying continued, and Thailand demand surfaced, which kept premiums steady at a moderate level. A Singapore dealer is quoted as saying that demand from mainland China is still good. Holdings of the SPDR Gold Shares Trust were unchanged again yesterday, at 1,211.84 tonnes, but it's on track for its largest quarterly decline in holdings ever.

A Wall Street Journal report said gold gained on a weaker greenback, although traders were still cautious ahead of tomorrow's nonfarm payrolls data.

"The market has been muted for a few days now but the weaker dollar is certainly providing some support," said Commerzbank analyst Daniel Briesemann....

[W]hile volatility is likely to continue into next week amid conflicting economic news, the medium- to long-term trend is still to the upside for gold, according to Mr. Briesemann.

"We still expect gold to rise in the coming months, as it should be well supported by numerous uncertainties," he said....

Those uncertainties were the list of the usual.

U.S. initial jobless claims, covering last week, were released at 8:30; they fell by 6,000 to 388,000. But, that decline was prompted by an upwards revision of the previous number from 382,000 to 394,000. Gold rallied just before the release, but pulled back a bit when the number hit; overall, it dithered when regular trading got rolling. As of 8:44, the spot price was $1,431.90 for a gain of $8.10 on the day. The Kitco Gold Index divided the gain into +$3.40 for predominant buying and +$4.70 for greenback weakening. The U.S. Dollar Index hesitated, but still inched upwards before making another jump. As of 8:47, it was fording ahead at 75.91.

For gold, it was second time fortunate. The hex on it was broken, as overnight trading again showed an overall gain. Instead of being feared, the early-morning stretch is being welcomed. With no new drivers, though, the metal's likely to stay range-bound. Of interest is the fact that a now widely-anticipated rate hike by the European Central Bank hasn't knocked it down. Gold may flounder around again in today's regular trading, but the month will likely end with another daily gain.