Gold Stays Near Record, Holds Gains

The inflation meme is spreading, and policymakers are beginning to talk hawkish - although little is expected in the developed economies, such as Euroland, other than tough talk. Ben Bernanke's testimony continues today, and the Fed's Beige Book is being released this afternoon. Near the end of overnight trading, gold was virtually unchanged from yesterday's close.

Experiencing a letdown after yesterday afternoon's record run, the metal fell back last night. Double bottoming at about $1,427 a little before midnight, it turned up and hugged $1,430 before sinking back a little. It then climbed above $1,430 when London opened, encouraged by a drop in the U.S. dollar. Briefly touching $1,335 just after 6:00, it sunk back and stayed in the low 1330s. As of 8:03, the spot price was $1,433.50 for a gain of $0.30 on the day. The Kitco Gold Index attributed -$3.10 to predominant selling and +$3.40 to a weakening greenback.

The U.S. Dollar Index was affected by the tough talk; it slumped below 77 again. After another muddle-along in early evening, it climbed up to 77.15 around midnight and stayed there. Becoming more volatile as Europe woke up, it dropped to below 76.8 between 3:25 and 5:50. After fumbling around for a while, it began climbing back up but the boost to the Euro from the tough talk still had a lingering effect. As of 8:14, the Index was at 76.88.

A Reuters report said gold was held up because of its continued appeal as a haven asset.

"Ever since things started to happen in the Middle East, you have seen this recovery from the mid-$1,300s back to record highs... driven by safe-haven flows," said RBS Global Banking & Markets analyst Daniel Major....

"What will decide that will be how things pan out in the Middle East," he said. "Should we see a calming of the political situation there, there is a risk to the downside, but should we see things escalate and we break above the level we are at the moment, there is the potential for more to come."

The article also mentions risk appetite waning as shown by gains in other safe havens like U.S. Treasuries. A sustained and serious rise in oil will impact economic growth. As a result, gold will avoid a knockdown like the ones recently suffered by industrial metals like copper. Holdings of the SPDR Gold Shares Turst were unchanged yesterday at 1,210.96 tonnes.

The morning Wall Street Journal report said bullishness is increasing now that gold made its new record and the Mideast tensions are still evident.

"The safe-haven bid is a powerful factor in the gold market right now," said Credit Agricole analyst Robin Bhar. "For every dollar that oil gains, it provides further support for gold."...

Gold also is also attracting "hot money," or short-term speculators looking to profit from the yellow metal's success, he noted.

"Gold's rally yesterday was like a red flag to a bull," he said.

The article also mentions silver's more spectacular rise, which dovetails with gold's own action. Unlike gold, silver has not made a new nominal record high (yet.)

The ADP private-payroll report released at 8:15 shows an overall gain of 217,000 private sector jobs; most of the growth came in the service sector. Gold didn't react that much to the data, dropping about a dollar an ounce after the release. Later, once the pit session got rolling, the metal shook off its decline and slightly bettered yesterday's record by touching $1,437.60; it then dropped back. As of 8:37, the spot price was $1,433.60 for a gain of $0.40 on the day. The Kitco Gold Index assigned -$3.50's worth of change to predominant selling and +$3.90's worth to greenback weakening. The U.S. Dollar Index gave up on its run-up and slid below 76.8. As of 8:40, it was at 76.78.

A new record was attained by gold, but it was made with little conviction and was only slightly above the previous one. It may get a further boost if the greenback keeps caving, but the market looks quiet now. A pause seems to be in order for today.