Gold Stays Steady, Licks Wounds

The United States and France have rejected Hugo Chavez's peace plan for Libya, which the Arab League is still studying. Jean-Claude Trichet's hawkish talk on inflation has been followed by a more muted concern from two Federal Reserve policymakers, Atlanta Fed President Dennis Lockhart and Minneapolis Fed head Narayana Kocherlakota. In Mainland China, the renminbi has risen to a 17-year high; this gain was interpreted as evincing the People's Bank of China determination to take action aganinst inflation in mainland China. Slowly, but surely, the next phase of the gold trade is being introduced: being buffeted by policy reponses to rising inflation. They've been a long time coming in the developed world, but it was only a matter of time before the Fed and ECB took notice of the signs. Persent handicapping indicates gold will drop as a result of a slow shift to inflation fighting.

Despite that rejection of Venezuela's peace plan, gold hardly reacted in the overnight session. Instead, the metal paused and tended to its wounds from yesterday. After an initial dip yesterday evening, the metal turned up listlessly but stayed within a $1,415-$1,420 range with nary a test of top or bottom. The early-morning high of $1,421.40 came just after London opened, and may have been in response to the U.S. and French governments' scotching of the Chavez peace plan. As of 8:12 AM ET, the spot price was $1,417.80 for a gain of $2.50 on the day. The Kitco Gold Index attributed +$4.05 to predominant buying and -$1.55 to strengthening of the greenback.

The U.S. Dollar Index spent an unusually listless overnight session. Last night, it went almost nowhere, ending up in a range between 76.45 and 76.5 after losing a slight uptrend. It shook off its stupor around 3:00, when it became more volatile while still trending sideways. The volatility ended up resolving into a slight uptrend starting at 7:30. As of 8:17, the Index had poked up to 76.55.

A Reuters report said gold stayed steady while awaiting U.S. payrolls data.

"U.S. nonfarm payrolls data is expected to show a strong increase in new jobs and this will place the United States back on the growth phase, at least (in) the labor market," said Pradeep Unni, senior manager at Richcomm Global Services.

"Bullion may drop due to the strength in dollar, but high oil prices and current tensions in Middle East are two factors that are probably curbing... an aggressive drop."

The Libyan uprising is still continuing, with rebels showing no signs of battle fatigue. Holdings of the SPDR Gold Shares Trust dropped yesterday, by 0.34 tonnes to 1,210.62 tonnes.

The morning Wall Street Journal report said that gold was up a little as bargain hunters eased in. An overall climate of hesitancy prevailed as traders waited for the payrolls data.

"Given the gains seen over the past few weeks and expectation of a strong payrolls number, there could be further profit-taking in the pipeline for gold and silver, particularly if payrolls are above the 200,000 mark," FastMarkets.com analyst James Moore said.

Although gold's pullback has engendered some pessimism, there's still some optimism out there. The metal's recent record high is hard to forget, and the greenback isn't doing so well.

The February payrolls data showed a lower gain that expected: it didn't make that 200,000 mentioned above. Instead, the gain came in at 192,000 jobs; expectations were for 218,000. The unemployment rate was tabulated at 8.9%, much lower than expectations for a rise to 9.2%. Evidently, labour force re-entry is less than estimated. Gold took well to the data, rising up to $1,423.00 on the heels of the release before pulling back. As of 8:41, the spot price was $1,421.60 for a gain of $6.30 on the day. The Kitco Gold Index assigned +$6.90's worth of change to predominant buying and -$0.60's worth to overall greenback strengthening. Gold liked the report; the U.S. dollar didn't - but the greenback proved to be notably fickle. Right after the report was released, the U.S. Dollar Index tumbled to as low as 76.36 before snapping back. As of 8:44, the Index was higher than it was at 8:30; it reached 76.59.

Given yesterday's series of stumbles, gold is acting well. It didn't recover all that much, but it wasn't knocked down again either. This being the last trading day of the week, the metal may come under further pressure but is unlikely to close below $1,415. If it does, it'll be showing concern over future tightening. Both sides in Libya being dug in, there's not much chance of a resolution coming soon.