Monday, April 4, 2011

Gold Gets Boost From European PPI Inflation

Gold started the week off hardly moving at all. Despite a new flare-up in the Ivory Coast, with French troops sent in while the country has been lurching towards the brink of revolt, gold greeted the end of the weekend by rising slightly to $1,430 and staying stuck there last night. WTI oil, still above $108, marked time for the overnight session. The greenback essentially marked time through that period too.

The metal stayed stuck at $1,430 until London trading opened. At the open of that market, while the Hong Kong one was still operating, the metal jumped up a few dollars an ounce and fluctuated in the low 1330s. Erasing that Friday spill triggered by the nonfarm payrolls report, the metal at that time was only slightly below the level it had been before that report's release. European producer price inflation for February rose to 6.6% from a year earlier, jumping from an upwardly-revised 5.9% largely because of rising oil prices. The 6.6% was slightly below expectations for 6.7%.

Gold did get a boost from that figure, and rose further when 7 AM ET approached. Climbing above $1,435, it topped at $1,439.80 before pulling back a little. As of 8:17, the spot price was $1,437.60 for a gain of $8.70 since Friday's close. The Kitco Gold Index split the gain into +$7.40 for predominant buying and +$1.30 for a weakening of the greenback.

The U.S. Dollar Index, although falling slightly overall, moved largely sideways. Despite some reversed breaks both upwards and downwards, it largely stayed in a range between 75.8 and 75.9. The latest attempt to break out of the range, starting at 8:00, was to the low side. As of 8:26, it was still descending at 75.76.

A Reuters report, covering the night part of the overnight stretch, said gold rose because of strength in the Euro and higher oil prices.
"We saw the continuous geopolitical risk in the Middle East crisis, and oil prices going higher. It certainly looks to me that gold has been tracking both oil and euro quite closely in past few days," said Darren Heathcote, head of trading at Investec Australia....

"A great deal of expectations dictate that the ECB will raise interest rates very soon, and probably will continue to raise rates for the rest of the year. A lot of that you may consider already priced in," said Heathcote.
A Singapore trader is quoted as saying that gold will likely remain range-bound. Last week, net speculative longs in both futures and options increased. Holdings of the SPDR Gold Shares Trust were unchanged on Friday at 1,211.23 tonnes.

The Wall Street Journal article for this time slot said gold rose on increased demand for an inflation hedge, but opinions are mixed as to whether it will reach a new record high.
Commerzbank described the inflation outlook as a "main driving factor" for gold prices, with high food and oil prices keeping investors on edge. Crude-oil futures on Monday built on gains made Friday following the release of better-than-expected U.S. jobs data, which sparked optimism over oil demand.

"There is someone or 'something' who has been a concerted and consistent seller of gold in U.S. dollar terms at the $1,435/oz to $1,445/oz level for weeks, and the gold bears are making much of that seller," said independent commentator Dennis Gartman....
But, Morgan Stanley is quoted as saying that gold will continue to stay high as long as real interest rates are low or negative. [Essentially, below +3%.]

With no data on the U.S. economy scheduled for release today, gold continued to move slightly upwards all told. After marking time at the start of regular trading, it stepped up to exactly $1,440.00 before pulling back a smidgen. As of 8:40, the spot price was $1,438.00 for a gain of $9.10 since Friday's close. The Kitco Gold Index divided the gain into +$7.50 for predominant buying and +$1.60 for greenback weakening in that timeframe. The U.S. Dollar Index halted its decline and poked up a little; as of 8:43, it was inching up at 75.79.

Again, a serious tumble proved to be amplified by panic selling and largely erased. Friday's nonfarm payrolls report, deeply disappointing for the gold market, proved to be non-significant once the weekend was over. Although other sources of demand stepped in, they doing so shows that gold is still on fairly firm footing. Its rise may be challenged, but the overnight session indicates that any such reversals will be temporary in the absence of a new bears' surprise.

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