Gold Muddles Along, Buffeted By Japanese Earthquake, Falling Oil

Japan suffered a massive offshore earthquake off its northeast coast, one that measured 8.9 on the Richter scale. The coast was hit by a huge tsunami. Tsunami warnings are going out, not only for Far East and Australasian countries but also for British Columbia in Canada. The shock of the earthquake helped give a lift to gold a little after midnight ET, but it was only temporary. The metal fell back down again, in sympathy with WTI oil which also fell. A rising greenback helped take a clip off gold's price too.

The metal rose before the earthquake struck, boosted a little by a report that mainland Chinese inflation for February was a still-high 4.9% from twelve months previously. Double-topping at almost $1,417 at 10:00 and 10:30 PM, it slipped downwards before climbing up again to about the same level. Once the disaster visited Japan, at 12:46 AM ET, gold turned around and got as high as $1,420.00 before pulling back. The U.S. Dollar Index was pushed up by the earthquake too, but it rose again later on the oil price decline. That decline kicked off a tumble as gold descended from $1,415 to as low as $1,403.80 by 7:00. Its subsequent recovery was fairly swift; gold got up to $1,415 again before tailing back. As of 8:16, the spot price was $1,410.40 for a drop of $0.70 on the day. The Kitco Gold Index attributed the entire loss to a strengthening greenback.

The U.S. Dollar Index initially fell to 77.10, but got a bump-up to almost 77.35 from the earthquake disaster. Falling back to 77.05 at its lowest, the Index jumped up again to 77.38 in the rally that kicked gold down. Its next slide was much less serious, and it turned around and rallied again. As of 8:23, it had climbed to 77.33.

A Bloomberg report said gold may continue to decline because other assets are too, prompting some holders on margin to use gold to meet margin calls.

“Margin clerks like gold for the simple reason that there is always a store of liquidity to be gotten there,” said Dennis Gartman, an economist and the editor of the Suffolk, Virginia- based Gartman Letter. “They like gold because they can sell it easily to raise cash to defend positions elsewhere. They will be doing so today.”

However, James Moore is quoted as saying any dip will likely spur bargain hunting.

An earlier Reuters report said gold initially bucked the oil price slide and rose because of the earthquake and worries over the Middle East - North Africa region, as well as February mainland Chinese inflation.

"We are waiting for some escalation in the situation within Saudi. If protesters become more aggressive in some way, you might find see more buying but again, it's being pressured on one side by the dollar," said Darren Heathcote, head of trading at Investec Australia in Sydney.

"On the one side, we've got, probably, downward pressure as a result of a stronger dollar and a bit of flight to safety going on. On the other hand, gold's attractiveness as a safe haven would probably increase, given the uncertainties surrounding Middle East and particularly what's going on in Saudi."

Holdings of the SPDR Gold Shares Trust were unchanged yesterday at 1,217.30 tonnes, making yesterday the fourth day in a row with no change.

A Wall Street Journal article said that gold was little changed after all was said and done. The market is watching the much-anticipated "Day of Rage" in Saudi Arabia.

"I suspect Japan won't be a major market mover today for gold once the initial impact wears off," said Credit Suisse analyst Tom Kendall. "Gold's focus is likely to remain the Middle East and whether there are any sizeable protests in Saudi Arabia."...

"Today will be a key day for gold," said a London trader. "Thursday served as a warning shot across the bows of gold's bullish run, and while people might be tempted to buy gold ahead of what could be a turbulent weekend, we really need to see gold break above $1,425 an ounce for it to get back on track."

That same trader is of the opinion that a close below $1,410 will put more downward pressure on gold.

The U.S. retail sales number for February was released at 8:30; the report showed a 1.0% jump, making for a rise of 8.9% gain since February 2010. January's sales gain was revised upwards from 0.3% to 0.7%. Although good news, it was lower than expectations of a 1.3% leap. After descending to $1,410 just before regular trading opened, gold shot back up to $1,414 but the retail-sales data prompted a freeze at that level. Perhaps that run discounted the disappointment. Subsequently, the metal slid back a little. As of 8:49, the spot price was $1,412.80 for a gain of $1.70 on the day. The Kitco Gold Index attributed +$2.55 to predominant buying and -$0.85 to a strengthening greenback. The U.S. Dollar Index, after making it back to 77.37, pulled back a little on the data. As of 8:51, it was at 77.30.

Post-plummet, gold hasn't recovered all that much but seems uneager to tumble again. The regular trading session may seem some more rough spots, but the panic is gone. However gold closes, it's almost a certainty that there'll be a large weekly loss.