Gold Rallies, But Give Up Its Gains As Greenback Fluctuates

Gold started off the overnight session fluctuating between $1,455 and $1,460, with its overall direction being sideways. That changed yesterday night, as the metal rallied because the U.S. Dollar Index went for a slide. Getting close to $1,460, the metal rallied above that level at 1:30 AM ET and skipped up to its morning high of $1,466.60. Anticipating the mainland Chinese government's official release tomorrow, Hong Kong's Phoenix TV said March inflation was 5.3-5.4%. That estimate was above expectations for 5.2%. The same source also reported that M2 grew 16.6% from a year ago. It wasn't clear as to whether Phoenix TV was relying upon a leaker from the People's Republic of China's economics ministry or the People's Bank of China (PBoC.) It is clear, though, that PBoC foreign exchange reserves surpassed $3 trillion. Since those reserves serve as part of the monetary base, the M2 growth isn't that surprising albeit above expectations as well. These figures suggest plainly that the PBoC is going to implement more tightening.

Rising high on the greenback's slump, and influenced by the mainland Chinese inflation news, gold hovered in the low 1460s until just before Hong Kong trading closed. Then, it skidded as the U.S. dollar recovered. Tumbling to as low as $1,451.50 at 7:00, it recovered to climb back above $1,455. As of 8:13, the spot price was $1,455.60 for a drop of $1.80 on the day. The Kitco Gold Index split the loss into -$1.20 for predominant selling and -$0.60 for a strengthening greenback.

The U.S. Dollar Index went for a wild ride, but it ended up not far from where it had been yesterday afternoon. After sinking a little yesterday evening, it turned around and climbed to almost 75.1. Double-topping, it lost its footing and slid down to as low as 74.61 between 9:30 PM and 2:35 AM. Its sliding done, it regained traction and pulled itself up to 74.75. Then, it ran all the way up to 75.15 which it reached at 7:05. Exhausted, it slid back. As of 8:19, it was slightly below 75 at 74.97.

A Bloomberg article said gold may gain on a weakened greenback and inflation concerns. The greenback had sunk on speculation that the Federal Reserve will lag the European Central Bank with rate hikes.

Concerns about the “Middle East and North Africa, euro- zone debt and inflation continue to underpin” prices, James Moore, an analyst at TheBullionDesk.com in London, said today in a report to clients. “The weaker dollar is set to drive” gold to $1,500 and silver to $45 an ounce, he said.

Official conformation of higher-than-expected inflation in mainland China may also help gold tomorrow. HSBC Global Allocation increased its gold holdings from 3% to 6% yesterday; its head of the firm's Absolute Return Fund, Charles Morris, said that $2,600 is a reasonable target for gold given monetary inflation.

A Reuters article said gold steadied on speculation that some Eurozone countries may have to be put through the debt-restructuring wringer, which hurt the Euro and benefitted the greeenback.

"Prices came right off late morning when the dollar came back," said Ole Hansen, senior manager at Saxo Bank. "The worries that Portugal and Greece may have to (restructure) their debt has given the euro a knock this morning."

"Interesting to see that we have made three attempts on EURUSD upside in as many sessions and failed," he added. "Euro gold shows the weak performance of gold so far this year."

Gold priced in euros has fallen 4.5 percent so far this year.

Holdings of the SPDR Gold Shares trust sunk by 3.34 tonnes yesterday to 1,212.96 tonnes.

A Wall Street Journal report said gold held steady as traders waited from some clarity from policy statements from the Federal Reserve.

Mixed signals from the U.S. Federal Reserve over the future of the country's monetary policy have been closely watched by the gold market in recent days.

"U.S. and euro-zone monetary-policy expectations will continue to dominate trading with the market especially sensitive to comments from policy makers on both sides of the Atlantic," said VTB Capital analyst Andrey Kryuchenkov.

Jobless claims for last week jumped 27,000 to 412,000, suggesting the recovery is hitting some rough spots. Expectations were for a drop to 380,000. The PPI for March showed wholesale prices rose by 0.7%, which was slightly below expectations for a 0.8% jump. The core rate was 0.3%, slightly above expectations for a 0.2% rise. Interestingly, prices of crude goods (not oil) fell by 0.5% in March. Gold liked the figures overall, although its rise on them came after a slump to below $1,455. As of 8:44, the spot price was $1,456.50 for a drop of $0.90 on the day. The Kitco Gold Index attributed -$2.65 to predominant selling and +$1.75 to a weakening greenback. The U.S. Dollar Index did not like the above items. Continuing its decline, it bounced off 74.9 before recovering. As of 8:47, it had climbed up to 74.94.

Overall, gold's overnight session was somewhat disappointing. It confirmed the metals' renewed inverse relationship with the greenback, both in rise and fall. The beginning of the pit session wasn't that great of a harbinger, although better opens have not translated into good runs in regular trading. Gold seems directionless right now, which suggests there'll be more of that volatility today. It still has a chance to rack up a second daily gain, though.