Gold Rebounds To Low 1330s On Eurodebt, Libya, Greenback

There wasn't much inflation news overnight, but Switzerland saw an uptick for February to 0.5%. Although very low compared to other nations, its rise does feed in to the inflation story. Of more import for gold was Gadaffi's vow to fight any no-fly zone imposed upon Libya. He's calling the sequestration of Libyan oil funds away from his government attempted robbery of the Libyan people, and is beginning to use the word "imperialist." The U.S. government sees a stalemate developing, which may aid negotiations. As a no-fly zone gains popularity among Western governments, the light at the end of the tunnel is fading again. Brent oil rose as a result. Gold climbed up above $1,430 and briefly touched $1,435.

Last night, the metal slowly sunk down to $1,425; just after midnight, it was stuck slightly below that level. The early-morning low of $1,422.30 was made about 1 AM ET. As the Hong Kong session ended, technical buying came in and lifted the metal up to $1,427; it then slid to $1,425. With London open, the U.S. dollar dropping and the trouble from Libya looking less tractable, gold quickly rose to $1,430. Marking time, it got energized by a larger drop on the greenback and climbed all the way up to $1,436.20. Peaking at about the same time the greenback hit its nadir, the metal pulled back from its morning high and settled into the low 1330s. As of 8:15, the spot price was $1,432.90 for a gain of $4.00 on the day. The Kitco Gold Index split the gain into +$0.70 for predominant buying and +$3.30 for a weakening greenback.

The U.S. Dollar Index spent the night rising slightly and choppily, but it didn't get above 77. Its buoyancy affected gold on the negative side. Taking a sharp spill, it descended to 76.75 before pulling up to its overnight peak of 76.96. As the gold market was also focusing on Gadaffi's latest defiance, this peak didn't affect gold. Instead, it gave way to a more serious decline which pulled the Index down to 76.525. Rebounding to 76.65, it then slumped while catching its breath. As of 8:22, it was at 76.61.

A Bloomberg report said gold was up on renewed concern about inflation and Eurozone sovereign debt. A sale of Portugese govenment debt was at a higher rate than expected.

“There are still a multitude of problems,” including renewed concern over the debt crisis in peripheral parts of the euro area that should support higher bullion prices, Commerzbank AG (CBK) said in a report. “A convincing and comprehensive solution to the debt crisis is therefore unlikely to be found soon and uncertainty should remain high.”...

With political tensions in the Middle East and North Africa and a return of concern over European debt woes, “we expect dips to continue to be viewed as buying opportunities with gold and silver to consolidate short-term before extending to fresh highs,” James Moore, an analyst at TheBullionDesk.com in London, said in a report today.

For the fourth day in a row, holdings of ten gold ETFs tracked by Bloomberg rose; yesterday's figure was 2,024.63 tonnes.

A Reuters report said that gold rose on concerns over Libyan turmoil and worries about European sovereign debt.

"I could see (the price) down another $10 but you have to continue buying," said ANZ head of metal sales Peter Hillyard.

"There are bigger macro issues, to do with economies and recessions and double-dips and the Middle East. There are enough bullish factors in play that if it isn't one, it will be another and on balance, the market is looking for those bullish signs."...

"I feel it is consolidating, waiting for any lead out of Libya. We'll see what happens on (Friday) prayer day around the Gulf, and then we'll see whether or not there is need for concern. I think that's the focus we have to follow," said
Jonathan Barratt, managing director of Commodity Broking Services in Melbourne.

Holdings of the SPDR Gold Shares Trust were unchanged yesterday at 1,217.3 tonnes.

An earlier Wall Street Journal article said gold ended up steady as demand for it as a safe haven and inflation hedge waned a little.

"The global growth theme remains dominant and recent global politics have not yet prompted a meaningful flight to safety," said Numis analyst Cailey Barker.

He tipped gold to remain strong, however, and said it could even break out to new highs, but warned that a decline is possible in the short term.

Others are saying that the violence in Lybia needs to ramp up considerably before gold will really benefit. There was agreement that gold will continue to closely track oil.

With no U.S. economic news to move it, gold started the pit session off with a break above $1,435. Making a new morning high of $1,437.20 just before 8:30, it stabilized around $1,436. As of 8:43, the spot price was $1,435.70 for a gain of $6.80 on the day. The Kitco Gold Index divided the gain into +$4.50 for predominant buying and +$2.30 for greenback weakening. The U.S. Dollar Index, after hesitating, continued its relief rally; as of 8:45, it climbed to 76.67.

Gold's still bobbing. Declines get foiled around $1,425, but rallies get frustrated above $1,435. As Libyan troubles continue, without serious escalation in the region, gold will likely stay in the zone it's in. Today's trading may feature another spill, but it's likely to be another inconclusive day.