Thursday, March 24, 2011

Gold Hovers Near Record, Kept Up By BoE Decision To Leave Rate Alone

The Libyan warlet is still going as planned, and gold is still being influenced to the upside by it. Of more import was the Bank of England's decision to leave its rate at 0.5% this month. Any rate hike was not expected until next month, so this month's decision wasn't entirely unexpected, but gold still got a boost from the 6-3 vote. It was expected that more policymakers would shift to the hawkish side, but the tally stayed the same. The six who voted against a rate hike believe that the inflation is only a spike; the risk of damaging the recovery outweights the risk of sustained inflation. Also influencing gold was the resignation of the Portugese Prime Minister last night, who faced a defeat of his minority government over refusal to pass another austerity package. That resignation pushed up the greenback by knocking down the Euro, but helped hold god steady in the face of the greenback's climb.

That rate decision, plus a later fall in the greenback, got gold rising in London trading. During the night, gold languished in the high 1430s. Not moving much at all, it traced out almost a straight line until it sank to $1,435.10 when London trading opened. That sink was influenced by the greenback climbing. Reversing once the BoE news hit, the metal hoofed up above 1440 and topped out at $1,443.80. That's little more than two dollars from its record. As of 8:07, the spot price had sunk back a bit to $1,439.30 for a gain of $0.70 on the day. The Kitco Gold Index attributed -$3.60 to predominant selling and +$4.30 to a weakening greenback.

The U.S. Dollar Index spent most of the overnight session climbing, albeit unevenly, as the Euro fell. After sagging in the early evening, it loped up to almost 76.0 by midnight. Pulling back, it made a jump up to 76.05 before skidding down to about where it was late yesterday afternoon. As of 8:11, its skid had slowed at 75.74.

A Bloomberg report said gold gained in London because of the Eurocrisis rearing its head again and the continued fighting in Libya. The resignation of Portugese PM Jose Socrates, prompted by Parliamentary refusal of his proffered budget cuts, pushed the Portugese government closer to seeking a bailout.
“The turmoil in the Middle East and North Africa region and ongoing efforts to stabilize reactors at the Fukushima power plant will continue to draw plenty of attention, as will the debt situation in the euro zone,” James Moore, an analyst at in London, said in a report. Gold is “poised to challenge the $1,450 an ounce area.”
The Coalition is no longer targeting Gadaffi's air force and anti-aircraft defense. Instead, tanks, artillery, supply lines and communications points are being bombed.

An earlier Reuters report said gold held steady before London trading because it was underpinned by expectations of easy U.S. monetary policy after yesterday's surprisingly disappointing new-housing report.
"Gold is expected to remain firm, as there is a lot of geopolitical uncertainty and money printing going on," said a Singapore-based trader, referring to the looser monetary policy adopted by Japan's central bank after the nation was convulsed by a devastating earthquake nearly two weeks ago.

"But there is strong resistance at $1,440/$1,445 level, so we'd need a good headline to break through," he added....

"The impact on markets from euro zone's debt crisis has been diminishing, as investors have confidence in the bloc's leaders' ability to handle the problem, based on experience over the past year," said Hou Xinqiang, an analyst at Jinrui Futures.
Also, a techncial analyst is cited as saying gold could move up to $1,450 in the short term. Holdings of the SPDR Gold Shares Trust were unchanged yesterday at 1,214.87 tonnes.

Gold's drop continued until regular trading started. With the pit session rolling, the metal rebounded from its slide to $1,436 up to $1,439. Initial jobless claims for last week fell by 5,000 to 382,000, which was a smidgen above expectations for 380,000. Counteracting that moderately good report was an unexpected 0.9% drop in durable-goods orders during February. Falls in defense-related goods and machinery were responsible. Expectations were for a 1.5% rise. When combined with the awful Feburary new-homes sales numbers, released yesterday morning, last month doesn't look that good. Gold, after jumping back up, stayed steady on the news but dropped a little shortly afterwards. As of 8:46, the spot price was $1,438.30 for a loss of $0.30 on the day. The Kitco Gold Index assigned -$4.60's worth of change to predominant selling and +$4.30's worth to greenback weakening. The U.S. Dollar Index's skid still continued, but very slowly; as of 8:49, it was at 75.73.

As gold hovers just below its record, profit-taking is coming in. Its lack of enthusiasm suggests it'll have a rough time this session, but any pullback will be a well-earned rest.

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