Monday, April 11, 2011

Gold, After Touching New Record, Sinks In Early Morning Trading

WTI crude oil, after reaching more than $113, sunk when trading resumed this week. Going through a two-stage drop, it slipped below $112. Its drop did have an effect on gold, but not as much on the U.S. Dollar. The threat of runaway mainland Chinese inflation is being added to the argument arsenal by the people who want to see the renminbi float. Both export and imports are showing unexpectedly huge growth, suggesting that the Chinese economy isn't being slowed down by People's Bank of China tightening measures.

Gold at first wasn't deterred by the slump in oil. Shrugging off the last-minute budget deal that avoided a partial U.S. government shutdown, the metal trundled up to reach a new high of $1,477.00 at 9:20 PM ET. Then sinking to $1,472, it made other attempts which burned out at successively lower levels as night turned into morning. Finally, at 5:20 AM, $1,472 itself broke and gold was driven down to $1,466. A recovery climb to almost $1,470 was thwarted by a new selling wave. As of 8:11, the spot price was $1,465.60 for a drop of $9.40 since Friday's close. The Kitco Gold Index split the loss into -$5.70 for predominant selling and -$3.70 for strengthening of the greenback.

The U.S. Dollar Index didn't continue its Friday droppage when it started the week. Instead, it quickly rebounded to 75.0. Being blocked, it then climbed and fell in a ragged range between that ceiling and 74.9. A sustained breakthrough above 75.0 didn't come until 8:00, coinciding with gold's latest stumble. As of 8:18, the Index was still climbing at 75.07.

A Bloomberg article ascribed the droppage to profit-taking and a claim from the African Union that Gadaffi agreed to a ceasefire plan. Details on the plan are sketchy, and the rebels said that any peace plan that allows Gadaffi to stay in power is unacceptable. The Grecian government may need more bailout money, which makes for a certain bookending to the Portugese government's recent application for funds.
“Profit-taking has emerged” and “a further pullback could be seen” on news that Qaddafi accepted a peace proposal, James Moore, an analyst at in London, said in a report to clients today. Still “ongoing concerns of European Union debt, low interest rates and ongoing inflation concerns are bullish” for gold, he said....
The article also notes the widening differential between 10-year TIPS and non-inflation-protected Treasury securities with the same maturity: the differential is now discounting an inflation rate of 2.66%. Holdings of ten gold ETFs tracked by Bloomberg jumped by 19.98 tonnes to 2,049.15 tonnes last Friday.

An earlier Reuters report said that gold reached its record last night on hopes (later frustrated) that the greenback would continue declining. Despite People's Bank of China tightening, inflation continues to heat up in mainland China and the EU to a lesser extent.
"I think there is a good chance that gold could hit $1,500 an ounce within this quarter. And perhaps even higher if we see
the weakness in the dollar persist and the Federal Reserve continues their relatively easy monetary policy," said Ong Yi Ling, investment analyst at Phillip Futures in Singapore.

"This week, perhaps, the focus could be on whether the Federal Reserve actually indicates to the market whether they will be exiting their loose monetary policy, and whether they display any hawkish signals."
More selling came into the Singapore market from Thailand and Asia, but premiums on gold bars remained steady. Holdings of the SPDR Gold Shares Trust, bucking the Bloomberg finding, were unchanged on Friday.

A Wall Street Journal article said that gold pulled back from its new record, but the pullback has not deterred gold analysts from expecting a drive to $1,500.
"Faced with [a] host of gold-friendly factors, along with elevated oil prices and ongoing inflation concerns, gold is carving out a bigger share of investor interest this month than it has done all year," said UBS analyst Edel Tully in a note.

Such friendly factors include a weaker dollar and the U.S. Federal Reserve's apparent lack of agreement on U.S. monetary policy, she said. That spurred the bank on Monday to raise its one-month gold forecast to $1,500 an ounce from $1,450 an ounce.
Silver's parabolic rise continues, but its run leaves it vulnerable to a tumble.

With no new data on the U.S. economy today, gold sunk below $1,465 but recovered to the high 1460s as the pit session got rolling. As of 8:41, the spot price was $1,466.90 for a drop of $8.10 since Friday's close. The Kitco Gold Index divided the loss into -$3.70 for predominant selling and -$4.40 for greenback weakening. The U.S. Dollar Index, after running up close to 75.1, stalled. As of 8:42, it was still marking time at 75.08.

Although gold went through a letdown early this morning, it's still holding above $1,465. Should a ceasefire develop in Libya, gold may suffer but it'll still be well above where it was when the civil war broke out. New drivers are replacing the old.

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