Thursday, April 28, 2011

Gold Stays Up, Makes New Record As Greenback Keeps Sliding

The greenback had a bad night, making a new thirty-one-month low of 72.86 shortly before midnight ET. Unlike during yesterday afternoon, gold did not thrive on the greenback's continued decline. Instead, it loped sideways in the high 1520s, barely touching $1,530 at its height, until shortly after midnight. The breakthrough to a new record of $1,535.60 had to wait until 4 AM, right after London trading got rolling. The preliminary figure for April German inflation was reported as being 2.4%, up from 2.1% in March, but import prices rose less than expected. The break above $1,530 was made as 12:30 AM; gold stayed above that level until 7:30. The Federal Reserve staying the course didn't prompt much buying but not much selling either; instead, gold held its own. As of 8:13, the spot price was $1,529.10 for a gain of $1.80 on the day. The Kitco Gold Index attributed -$0.50 to predominant selling and +$2.30 to a weakening greenback.

The U.S. Dollar Index, as mentioned above, continued tumbling last night until it bottomed at the 11 o'clock hour. After a pause of couple of hours' worth between 73.3 and 73.4 in the evening, its tumble took it down to that low of 72.86 and a double bottom. Starting at 11:30, it climbed back and managed to get into a range between 73.0 and 73.1. Just before 7:00, it climbed out of that range but was stopped just before 73.25. As of 8:22, it was stuck at 73.22.

A Reuters report said gold made its new record on the slumping greenback, which attracted some new buying in non-American markets.
"Everything is dollar-related and safe-haven buying," said MKS Finance head of trading Afshin Nabavi.

"The Fed decision was not really a surprise, nothing has changed, but the tone of the statement from Bernanke left the impression that it is going to be a while before any rate hikes will be considered."
Physical buying in Asia was active, and there wasn't that much scrap selling. Sellers seem to be holding out for higher prices. Despite new records made yesterday and today, holdings of the SPDR Gold Shares Trust were unchanged yesterday at 1,229.64 tonnes.

U.S. first-quarter GDP was released at 8:30, and the suspicions raised by several disappointing reports were confirmed by the number. Real GDP grew at an annualized rate of 1.8% in Q1 of this year, down sharply from 3.1% for the last quarter of last year. The main depressive was a slowdown in real consumer spending, but real estate and government spending also acted as dampers. Measured inflation accelerated.

Adding insult to injury, the weekly jobless-claims report covering last week showed initial claims jumping by 25,000 to 429,000. Expectations were for a drop to 395,000.

Gold had sagged just before and at the opening of the pit session, to $1,527, but reversed course when the news hit the Internet. Jumping to almost $1,532 in a quick buying rush, the metal then slipped back but stayed above $1,530. As of 8:44, the spot price was $1,531.20 for a gain of $3.90 on the day. The Kitco Gold Index assigned -$0.50's worth of change to predominant selling and +$4.40's worth to greenback weakening. The U.S. Dollar Index skidded on the news, from 73.27, but managed to regain its footing at 73.15. As of 8:49, it had managed to hoof back up to 73.17.

The slide of the greenback still dominates the gold story, although continued signs of higher inflation still exert an influence. The overnight session did not see a pullback, as the Fed annoucement removed prior uncertainties. Today's regular session may a boost from the GDP news, as it plays into the stagflation story. Certainly, today's GDP figure and initial jobless claims number gibes with the Fed's reasons for staying easy.

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