Friday, April 8, 2011

Gold Hits Another Record, Buttressed By Greenback Fall And Oil Rise

The price tag for the bailout of the Portugese government has been estimated at $129 billion, or €90 billion. Despite that price tag, the Euro continued to ford upwards in a run that many expected to start yesterday. As a result, the U.S. Dollar Index was driven well below 75.5 in a slide that benefitted gold last night. Further helping gold was a run-up of WTI crude oil from a little below $111 to almost $112. The metal ran up last night, pushed by the dollar, but momentum from the fallout over the Coalition forces mistakenly hitting Libyan rebel forces [who, presumably, didn't look and act like civilians] kept the momentum going for gold. As a result, the metal achieved a new record of $1,474.20.

As noted above, gold climbed on the weakened greenback and higher oil after slumping a bit in the evening. Striding up to $1,465, it stalled at that level a little before midnight ET and stayed a little above for a few hours. The second part of the run began at 3:30, when oil recovered from a slump but climbed more slowly than in the previous evening. Stumbling after reaching $1,470, gold then regained its footing and climbed to its new record before tailing off a bit. As of 8:15 AM, the spot price was $1,471.80 for a gain of $13.40 on the day. The Kitco Gold Index split the gain into +$6.25 for predominant buying and +$7.15 for a weakening of the greenback.

The U.S. Dollar Index, as noted above, contradicted my expectation last night and sunk decisively through 75.5. Starting at 75.6 yesterday evening, it began falling at 8:20 PM and introduced itself to 75.2 just before midnight. Its sliding finished at that time, it skidded further to as low as 75.1 around 4:00 but managed to recover its footing and hover just below 75.2. As of 8:23, it was still hovering at exactly 75.20.

A Bloomberg article ascribed gold's new record high to a weakening greenback and inflation fears.
“Inflation expectations are rising,” Walter de Wet, an analyst at Standard Bank Plc in London, said today by phone. European debt issues are “certainly adding support. Most of the rally the past few days has been on the back of the dollar weakening.”...

“Inflation concerns took the driver’s seat, fueling demand for precious metals,” said Lim Chae Myung, a Seoul-based trader at Hyundai Futures Co. “There’s no clear-cut improvements in Europe, the Middle East and Japan. The favorable climate for gold will continue.”
In addition to making a record in greenback terms, gold also made a record in rupee terms. A U.S. general is quoted as saying that the Libyuan civil war has devolved into a stalemate. The article also mentioned the result of a weekly Bloomberg straw poll, which saw 15 out of 18 traders, investors and analysts predict higher gold prices for next week. Silver reached $40.

An earlier Reuters report picked the same factors as the Bloomberg report to explain last night's rise: a weaker greenback and inflation concerns.
"Corrections from here are likely to be shallow, with fresh investment demand emerging on all dips. $1,500 an ounce is around the corner and may be hit in the next few sessions," said Pradeep Unni, senior analyst at Richcomm Global Services in Dubai.

"Maybe there is some dollar-related buying because it's weakening. People see the ETF increasing a bit, so they want to buy some gold," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.

"There's a small amount of physical buying. Jewellers are covering shorts, but it's a very small amount. Everybody is looking for a new high, maybe $1,500 or $1,600."
Premiums in Singapore were at normal levels, unaffected by an increase in scrap selling from Indonesia and Thailand. But, premiums in Tokyo shrunk because of quake-related selling. Indian buyers, deterred by higher prices, were largely on the sidelines. Holdings of the SPDR Gold Shares Trust, more than reversing Wednesday's drop-off, climbed 11.74 tonnes to 1,217.21 tonnes.

A Wall Street Journal article attributed gold's rise to the greenback's slump.
Gold and silver, which are denominated in U.S. dollars, are finding particular strength from a weaker greenback, analysts said. The euro hit a 15-month high against the dollar as investors and traders speculate on further rate hikes by the European Central Bank.

"U.S. growth is also being closely watched, and any signs of weakness should help spur gold higher," a London-based trader said.
Commerzbank is also cited as saying that high gold demand is also a factor, as caused by inflation-hedge buying.

With no economic data from the U.S. at the 8:30 slot, gold tailed off as the pit session began. Just beforehand, it almost beat the new record made just before 7:00. As of 8:43, the spot price was $1,469.30 for a gain of $10.90 on the day. The Kitco Gold Index divided the gain into +$3.50 for predominant buying and +$7.40 for greenback weakening. The U.S. Dollar Index continued to bump up to 75.2, but didn't climb above it. As of 8:45, it had slipped a little to reach 75.15.

I have to say that the metal did counfound my expectation for a further pullback, but it doing so confirmed its earlier breakout and its uptrend. With the U.S. Dollar Index sinking on the Euro's good fortune, prompted by the European Central Bank's rate hike yesterday morning, the metal keeps pushing up higher. $1,500 is beginning to loom, even if that level proves to be the cue for profit-taking.

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