Friday, March 25, 2011

Gold Stays Steady After Yesterday's Profit-Taking Tumble

NATO has finally agreed to take command of the Libyan warlet, saving the United States government from the embarrassing position of being in de facto command of it. The Minister of Defense for the French government said the Coalition has secured control of Libyan air space. In Japan, any progress made in containing the damage has been eclipsed by reports of radioactivity in the area surrounding the Fukushima Dai-Ichi nuclear plant. WTI crude partially recovered from its drop yesterday, but remains below $106.

All of this news, the gold market ignored. Gold has become inured to the above crises, and the tumble yesterday afternoon took the momentum out of its rise. As is habitual after a tumble, there was very little action by gold in overnight trading. Slowly climbing last night, it couldn't breach $1,435; it stayed stuck in the low 1430s. In the early morning, it meandered a little below $1,435 level until 7:00 AM ET. Then, a jump above that level got gold to its morning high of $1,439.10 before it slid back a bit. As of 8:10, the spot price was $1,437.40 for a decent gain of $6.60 on the day. The Kitco Gold Index attributed +$8.75 to predominant buying and -$2.15 to a strengthening greenback.

The U.S. Dollar Index muddled sideways last night, not getting above 75.7 until it shook off a mild skid to climb above 75.85 around 5:00. Its rally did not affect gold. After some wavering, the Index slipped below 75.8 but continued to muddle along just below that level. As of 8:16, it was wavering again at 75.79.

A Bloomberg report said gold may gain on continued safe-haven demand induced by the above crises and the Portugese government's future need for a bailout. So far, the government has said one isn't needed.
“There is just too much uncertainty at the moment and gold should hold near recent highs,” Andrey Kryuchenkov, an analyst at VTB Capital in London, said in a report. “Geopolitical concerns in addition to growing uncertainty over Portugal’s debt crisis supported bullion.”
Also, the gold market is keeping an eye on the Yemeni turmoil. New protests are planned in response to the 30-day state of emergency just authorized by the Yemeni parliament. The article disclosed that seventeen out of nineteen traders, analysts and investors surveyed by Bloomberg said gold would go up next week.

An earlier Reuters report said that gold was supported by those worries as it ambled. Standard and Poor's downgraded Portugese sovereign debt after the second austerity package was rejected.
"The market will remain choppy, as the trend is not very clear even with support from the Libyan crisis and other factors," said Peter Fung, head of dealing at Wing Fung Precious Metals in Hong Kong....

"Speculation on further monetary policy easing in the U.S., central banks' purchase, and recovering demand from the jewellery sector will help buoy sentiment in the gold market," said a Hong Kong-based dealer, but added that speculators are wary of holding long positions at high prices.
Premiums in the Asian wholesale physical market were steady at $1.50/oz. Holdings of the SPDR Gold Shares Trust declined 0.91 tonnes yesterday to 1,213.96 tonnes.

A Wall Street Journal report said spot gold was pushed up by light bargain hunting, but the outlook for the metal is uncertain as it has no fresh driver right now.
Commerzbank said demand for gold "is currently very robust amid the various crises," referring to Japan and the Middle East, and some analysts tip the price to quickly push back to new record highs.

Others are less bullish. One precious-metals trader said the markets have generally priced in anticipated outcomes for both events, and would need unexpected developments to spur a move in prices.
Edel Tully was quoted as interpreting a recent People's Bank of China statement, saying gold will remain high this year, as bullish for the metal. Although it hedged with a note about the risk of a correction, the central bank saying so provides credibility for the gold market even if no gold buying is forthcoming.

Released at 8:30 today was a revision to U.S. fourth-quarter GDP. Although dealing with the not-so-recent past, the revision provided credibility to the recovery story. It was upwards, from 2.8% to 3.1%, and was in line with expectations. Inventory and business investment were underestimated in the original report; also, the GDP deflator was revised lower. Despite that upward revision, the Commerce Department said corporate profits fell 2.6% in the same quarter. Compared to the entire year's 36.8% gain, that fall was little more than a blip.

As might be expected, gold didn't take to the news all that well. Continuing a fall that started after its daily high was reached, the metal continued to pull back to the low 1430s when the pit session started. The data released added to the fall. As of 8:46, the spot price was $1,433.10 for a much-reduced gain of $2.30 on the day. The Kitco Gold Index attributed +$6.00 to predominant buying and -$3.70 to greenback strengthening. As the second component indicates, the U.S. Dollar Index regained its traction and climbed. The news helped maintain its momentum. As of 8:48, it had reached 75.91.

Gold may be in for some turbulence today, and it may break below $1,430 in a post-tumble funk. But, any such break is likely to be temporary. Where it ends up at the end of this week will indicate whether yesterday's tumble was merely a fall out of bed again or something more. Sad to say, a drive towards a new record is unlikely unless the gold market is greeted with new turmoil or stagflation-compatible news.

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