After Making New Record, Gold Pulls Back

The official March inflation figure for mainland China has been released: instead of 5.2-5.3%, the real figure is 5.4% over the last twelve months. Economic growth was higher than expected, too: 9.7%. Again, the mainland Chinese economy shows high growth with high inflation without a tip-over into stagflation. The greenback managed to pull up from its 15-month low, but not by much. Eurozone inflation for February has been revised upwards, from 2.4% to 2.7%. That revision was good enough for a boost in gold, although the metal didn't surmount the new record of $1,479.90 made yesterday evening. Instead, the metal slumped although it didn't fall below $1,470.

After making that record, shortly after trading resumed at 6 PM ET, gold slipped back on profit-taking. It lost little more than five dollars an ounce, and stopped sliding around midnight at just below $1,475. Then reversing, it only gained a few dollars before sliding back down to a lower level. Bottoming at $1,470.50 just before 6 AM, it got its traction back and pulled up to the high 1470s. The loss it sported for most of the session was turned into a small gain. As of 8:10, the spot price was $1,476.70 for a gain of $0.90 on the day. The Kitco Gold Index attributed +$3.70 for predominant buying and -$2.80 for a strengthening greenback.

The U.S. Dollar Index, despite some slips along the way, managed to climb back up from its hole dug yesterday. After a slump last night, coinciding with gold's new record, the Index managed to trundle up to almost 74.8 by midnight. Settling into a range floored by 74.75, it slipped again just before 3 AM and tumbled to below 74.65. Then recovering, it climbed to a new overnight high but was stymied at 74.85. As of 8:15, it was mounting another advance at 74.82.

A Bloomberg report said gold hit its record on concerns about rising inflation and a weaker greenback. The bump in mainland Chinese inflation put the rate at its highest since 2008. Also, the stalemate in Libya and the prospect of a drawn-out civil war had an influence.

Inflation concerns “have brought in another bit of interest” to gold, Afshin Nabavi, a senior vice president at MKS Finance SA, a bullion refiner in Geneva, said today by phone. “Obviously all the geopolitical problems” and a weakening dollar have supported prices, he said.

George Soros was quoted as saying that mainland Chinese inflation seemed out of control.

An earlier Reuters report said gold hit its record on a lowered greenback, but trading was light at the time.

"We see gold peaking at $1,500 an ounce. We think there could be some more upside in gold in the short term, especially in this environment of high inflation and rising oil prices," said Natalie Robertson, commodities strategist at ANZ.

The peak of $1,500 would be reached by the end of 2011, she added.

Demand from mainland China was steady on inflation fears. Holdings of the SPDR Gold Shares Trust were unchanged yesterday at 1,212.96 tonnes.

A Wall Street Journal article said gold reached its record on inflation fears. There was also some worry over a possible restructuring of Grecian government debt.

"In the current climate, gold should remain well supported as a store of value," Commerzbank analysts [said] in a note. "The psychologically important mark of $1,500 an ounce should be attempted soon."

The much-awaited Consumer Price Index number for March came in at 8:30: it showed a raw gain of 0.5% for the month, matching expectations. The core rate only rose 0.1%, below expectations for a 0.2% rise. Real hourly earnings fell 0.6% in March, making for a 1.0% drop in the last twelve months. The 12-month rise in the CPI was 2.7%, the same as the EU's. Lending hope to economic optimists, the Empire State manufacturing survey number for April rose for the fifth consecutive month. The reading of 21.7 was well above expectations for a slump to 15.5. New orders and shipments were the categories that showed the biggest gains. 80% of respondents said the Japanese earthquake had little or no effect on their businesses.

Since the reports show an optimistic picture when put together, the gold market didn't like them all that much. The opening of the pit session saw gold descend from the high 1470s to a little below $1,475. There was a mild jump upwards at the time the report was released, to $1,475, but the metal sunk even lower. As of 8:45, the spot price was $1,473.40 for a drop of $2.40 on the day. The Kitco Gold Index assigned +$2.30's worth of change to predominant buying and -$4.70's worth to greenback strengthening. The U.S. Dollar Index shot up on the news, slicing through the 74.85 that used to stymie it, and peaked at 74.95. As of 8:48, it had slipped back a little to 74.91.

For the second day in a row, the start of the pit session was disappointing. Unlike yesterday, today's disappointment had some substance behind it. Accordingly, today's regular trading should be volatile. Inflation-wise, the gold market can't win 'em all.