Monday, March 28, 2011

Gold Slides Back On Improving Greenback, Drop In Oil, Profit-Taking

The situation in Libya improved over the weekend for the rebels. Driving west, rebel forces have taken the town of Nawfaliyah. In Yemen, talks that would have led to President Saleh stepping down immediately have stalled. But, the fact that a deal was initially made suggests Yemen might calm down. The situation in Syria doesn't look that good, as President Assad seems to be backing away from an earlier promise of reforms. Turkey's government is beginning to put pressure on Asad to follow through.

Although mixed, there was a definite tilt towards the Middle Eastern - North African turmoil moving towards resolution. That led to WTI crude oil dropping below $105 a barrel and a decent rally by the U.S. dollar. Both put pressure on gold, which took a tumble this morning after skidding downwards when trading resumed last night. Concern over rising inflation in Latin America didn't help the metal.

After dropping to $1,425 from Friday's close of $1,430 right off the bat, the metal hung around $1,425 last night with only a little and reversed jump to break the monotony. With the greenback rallying, gold slumped then skidded well below $1420 in late Hong Kong trading. A climb-back to $1,420 at the time London was active and Hong Kong was closing didn't help the metal regain its footing; instead, just after 6 AM ET, the metal skidded further to a low of $1,413.60. The aftermath saw it only climb back to the $1,415 level before the skidding resumed. As of 8:15, the spot price was down to $1,411.10 for a drop of $19.10 since Friday's close. The Kitco Gold Index split the loss into -$14.80 for predominant selling and -$4.30 for a strengthening greenback.

The U.S. Dollar Index climbed right off the bat, inducing gold's skid when its own trading resumed. Shooting up from 76.1 to almost 76.4, the Index held its gains but fluctuated in a wide zone. Not being able to best that level, it contented itself with a range bordered by 76.25 and that same 76.4. As of 8:22, it was approaching the ceiling at 76.37.

A Bloomberg article said gold declined on profit-taking on signs the U.S. economy was improving.
"The U.S. numbers have not been all that awful,” said Afshin Nabavi, a senior vice president at bullion refiner MKS Finance SA in Geneva. “The market has had a huge move up and the higher we go up, the more chance of a bigger correction.”
The good news in question was expected higher U.S. consumer spending as indicated by improvements in the labour market. James Bullard suggested last Saturday that the Fed might want to consider ending QE2 prematurely.

An earlier Reuters report said gold was weighted down by the firmer greenback, but still found safe-haven support.
Several Fed officials said on Friday that the central bank was unlikely to extend its bond purchase program with the U.S. economy now on a firmer footing, while others called to trim the program or raise interest rates soon, increasing the greenback's appeal and weighing on gold.

"The bar for future quantitative easing seems to have been raised, and this is weighing on the sentiment of the gold market," said Ong Yi Ling, an analyst at Phillip Futures.

The Fed's money-pumping into the economy has raised concerns of inflation down the road, helping gold extend its record-breaking rally. Some investors had expected the Fed to extend its loose monetary policy, which could further increase demand for gold as inflation hedge.
Asian physical buyers continue to await for prices to go below $1,420 before dipping in. Holdings of the SPDR Gold Shares Trust were unchanged yesterday at 1,213.96 tonnes.

A Wall Street Journal report said gold was pulled down in part by a broader slide in commodities. According to a London trader, bargain hunters are waiting for lower prices - perhaps below $1,400 - before entering the market.
Sentiment remains generally bullish for the short- to medium-term, though, and analysts continue to tip a break to fresh record highs in the weeks ahead....

"We have seen some clear profit-taking so far today, but in the longer term people are still expecting another move higher," the trader said.
Despite those hopes, as based upon labour-market data, real disposable incomes for February declined by 0.1% because of higher prices. Nominally, incomes rose 0.3%. Again, growth in consumer spending outpaced growth in consumer income. After a pre-pit-session slip to almost $1,410, gold reversed course after regular trading started and managed to get above $1,414 just before and at the release of that data. As of 8:47, the spot price had settled back somewhat to $1,412.90 for a drop of $17.30 since Friday's close. The Kitco Gold Index divided the loss into -$14.00 for predominant selling and -$3.30 for greenback strengthening. The U.S. Dollar Index, failing to sustainably breach 76.4, fell back after getting a little boost from the disposable-income data; as of 8:51, it was languishing at 76.31.

Bargain hunters are increasingly waiting for a breakdown by gold before snapping some up. As a result, the old bargain-hunting support that used to be there isn't now. Gold may continue to face a slippery slope in regular trading as a result.

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