Gold Surmounts $1,425 On Reactor Fears, Greenback Droop

The Japanese government keeps saying there's no reason for worry about that compromised nuclear reactor, but the gold market isn't buying it. Instead, gold was bought in a hurry once trading resumed. Fears over widespread nuclear contamination were strong enough for the metal to leap out of the gate last night, peaking at $1,435.10 before falling back. Indian inflation is getting worse: February's figure is 8.3%, significantly higher than expectations for 7.8%. On the other hand, mainland Chinese money supply growth is slowing - evincing serious inflation-fighting in that nation. February's M2 figure showed 15.7% growth, well below expectations for 17.0%. New bank loans slowed, below expectations too.

The gold market didn't like that tightening all that much: it fell from its nuclear spike down to $1,420 by 10:30 PM ET, not long after the Hong Kong market opened for trading. Stalling at that point, it inched up as night turned into early morning. After bumping up against $1,425, it eased up above that level before falling back. Another stride above $1,425, around 7:00, was more successful. As of 8:11, the spot price was $1,427.60 for a gain of $8.00 on the day. The Kitco Gold Index split the gain into +$4.60 for predominant buying and +$3.40 for weakening of the greenback.

The U.S. Dollar Index initially fell out of bed; again, trouble in Japan led to a rise in the Japanese yen. (Like the greenback, the yen serves as a safe haven in cases of domestic trouble.) The surprise over with, the Index rebounded and spent late night and early morning in a range bordered by 76.60 and 76.70. Becoming more volatile around 3 AM, it ended up falling below 76.5 before recovering. In that timeframe, gold bumped up and then rose above $1,425. As of 8:17, the Index had inched up to 76.54.

A Bloomberg report said gold gained on nuclear-related Japan fears and continued violence in Libya. (I should add that the violence is largely going Gadaffi's way now. The Arab League approved a no-fly zone, and is asking the U.N. to implement it.)

“Gold has profited on safe-haven buying on the back of the unfortunate story” in Japan, said Afshin Nabavi, a senior vice president at bullion refiner MKS Finance SA in Geneva. “The Middle East and North Africa situation is not over. Still there are a lot of problems.”...

“With the recent and ongoing political events in the Middle East and Africa, combined with the devastation in Japan, I believe gold will remain at the forefront of most sensible investors’ minds,” said Gavin Wendt, an analyst at MineLife Pty Ltd. “Gold will hit further record highs this week.”

The article also mentions that the Bank of Japan poured 15 trillion yen into the economy to cushion the blow of the earthquake; that's a record in terms of monetary stimulus there. It also pledged to double its own quantitative-easing program.

An earlier Reuters report said not only gold was up as a result of the Japan nuclear scare, but also bar premiums climbed.

In the physical market, premiums for gold bars jumped to their highest since February after the quake sharpened fears of inflation.

"The Japanese market is a bit tight on gasoline, so there are inflation risks. That's why Tokyo premiums are a bit higher," said a dealer at a bullion trading house in Tokyo.

Gold bars were quoted at a premium of $1 an ounce to the spot London prices in Tokyo, up from zero last week and a discount of 50 cents two weeks ago.

On a more quotidian note, the article also says holdings of the SPDR Gold Shares Trust declined a little last Friday by 1.82 tonnes to 1,215.475 tonnes.

A Wall Street Journal article said gold prices firmed up on the Japanese and Libyan troubles. At the Eurozone financial leaders' conference last Friday, it was agreed to reduce the bailout rate to the Grecian government; to expand the bailout fund; and, to make provisions for a 500-billion-euro permananet bailout fund by 2013.

UBS analyst Edel Tully described the moves as "a positive surprise" that should support the euro. The Japanese natural disaster, meanwhile, has increased global uncertainty and should fuel additional risk aversion and defensive trading.

"This is a breeding ground for higher gold prices in the near term. As we have said before, no other assets plays on emotions like gold and emotions right now are running high," she said in a note to clients.

(Bailouts forever....)

With no news from the U.S. economy to influence gold, the metal fell back a little shortly after regular trading started. $1,425 held, at least for the moment. As of 8:44 AM, the spot price was $1,425.90 for a gain of $6.30 on the day. The Kitco Gold Index divided the gain into +$3.20 for predominant buying and +$3.10 for greenback weakening. The U.S. Dollar Index, after inching up, stalled; as of 8:47, it was resting at 76.55.

The panic buying over the Japanese nuclear fester didn't last very long, but gold still managed to get back above $1,425 in a much calmer rise. Last Thursday's plummet is beginning to be shaken off, and look like a fall out of bed. There may be another morning drop this pit session, but gold is holding up fairly well. There's a good chance it'll end the day above $1,425.