Gold Recovers Modestly With Oil

Despite initial slips yesterday evening, gold managed to trundle up to the high 1450s last night. In so doing, it tracked spot WTI crude oil which managed to recover to almost $107. It also ignored a slight recovery in the U.S. Dollar Index, which tried but failed to get above 75.0. Oil's snap spill to $105.50 didn't affect gold, which spent early morning fluctuating in the same high 1450s. The metal broke out of its range on the high end at 7:30 AM ET, but without conviction. The greenback's sinking had an influence. No inflation news or other driver affected it when it was fluctuating. As of 8:06, the spot price was back below the 1460 level at $1,459.50 for a gain of $5.80 on the day. The Kitco Gold Index split the gain into +$3.80 for predominant buying and +$2.00 for a weakening greenback.

The U.S. Dollar Index, after running up yesterday evening to 75.0, was thwarted and slid back to the low 74.9s. Slipping to 74.75 between 2:00 and 3:30, it stumbled back up to 74.9 but couldn't hold on to that level; instead, it slipped back to a little lower than 74.75. As of 8:13 AM, it was again climbing back at 74.82.

A Reuters report, covering last night's stretch, said gold rebounded on inflation concerns in Mainland China.

"You can say that we're going through a consolidation phase. Physical demand is still certainly out there," said Jonathan Barratt, managing director of Commodity Broking Services.

However, Barratt said a client note by Goldman Sachs to lock in recent commodity price gains could serve as a "wake up" call on price levels....

But steady physical buying from China, the world's second largest gold consumer, showed that inflation was a concern, with crude oil prices still above $100.

The concerns are prompted by an uncoming release of mainland Chinese inflation data on Friday. South Korea's central bank expects inflation in the country to go higher, even though it didn't raise its rate. Physical buying from China was light, as was gold buying in India: silver is becoming more popular. Holdings of the SPDR Gold Shares Trust dropped 0.91 tonnes yesterday, to 1216.299 tonnes.

A Wall Street Journal report said gold bounced back with London traders still optimistic over its prospects.

Unlike silver, which has been largely driven higher by short-term speculative and momentum trading, gold's uptrend looks relatively stable, said a senior industry participant.

"A lot of people are focusing on gold's longer-term prospects, rather than whether or not it is going to trade $10 higher tomorrow," he said. Gold's detachment from other markets, such as equities, means that buyers are increasingly seeking it as a portfolio diversifier and an insurance policy against outside risk, he said....

The gold market is beginning to watch the Federal Reserve to see if the hawks end up prevailing.

U.S. retail sales number for March was released at 8:30, and the gain for overall sales was slightly below expectations. They rose 0.4%, instead of the 0.5% expected. On the other hand, sales ex-autos were slightly above expectations: 0.8% onstead of the expected 0.7%. Gold had continued descending before the news was released, to $1,457, but the news was good enough for a reversal. As of 8:38, the spot price had erased the pre-pit and early-pit losses to reach $1,460.10 for a gain of $6.40 on the day. The Kitco Gold Index divided the gain into +$5.40 for predominant buying and +$1.00 for greenback weakening. The U.S. Dollar Index continued its run up, but backed off after briefly surmounting 74.85. As of 8:42, it was stuck at 74.82.

Again, the early pit session gave a good start. Yesterday, that good start was misleading. Today, however, it may not be. Gold sporting a decent gain after yesterday's wash-out means that the metal merely fell out of bed...if it can keep its gains today.