Despite Fall In Greenback, Gold Slumps Along With Silver

After peaking at about $38.75, silver lost more than a dollar and a half an ounce. Shortly after it began tumbling, gold did too. Despite the fact that gold didn't follow silver up by that much, the former metal followed the latter down when it got sold off. During the sell-offs, the U.S. dollar stayed in a range that was well below yesterday afternoon's values. The OECD recommended that most central banks raise their rates due to inflation pressures, now that the global recovery looks self-sustaining. It upped its inflation forecast for this year from 1.5% to 2.3%, and it urged the Federal Reserve to raise the Fed Funds rate to 1.0-1.25% by the end of this year. Jean-Claude Trichet's successor in November as President of the European Central Bank, Mario Draghi, is already advertising his credentials as an inflation-fighter.

Thriving on the greenback's slide, gold climbed a few dollars last night in a steady rise that extended as night turned into morning. From $1,526, its climb took it to a peak of $1,533.50 at about 2:30 AM ET. At that time, silver had already lost about twenty-five cents an ounce. Then sold off with silver, gold tumbled steadily without much recovery climbing until it reached a bottom of $1,514.60 a little after 7:30. A relief climb kicked in, but the metal had trouble reaching $1,520. As of 8:22, the spot price was $1,519.20 for a drop of $6.60 on the day. The Kitco Gold Index attributed -$13.20 to predominant selling and +$6.60 to a weakening greenback.

The U.S. Dollar Index, after a brief climb from 75.9 to almost 76.0, turned around last night and slid down to 75.6. It then entered a range between 75.67 and 75.5, whose top lowered to 75.6. As of 8:25, it was at 75.56.

A Reuters report said gold was knocked down from a three-week high by silver's plummet. The euro was strengthened by a report that claimed the government of mainland China was interested in buying Portugese government "bailout bonds."

"This is a major intraday reversal of some 8 percent, the potential right now is that we see one step forward and two steps back in silver and I think it can continue," said Commerzbank analyst Eugen Weinberg.

"The real problem is the price increase before was overdone and the market was overheated... speculative investors have not yet exited (their positions)," he said, adding: "This is a situation where the tail is wagging the dog."...

"We are in for a prolonged period of prices treading water and probably stagnating at around $1,500. I wouldn't be looking for as much positive dynamic going on, despite the demand for it as a safe-haven right now being fueled by the debt crisis," Commerzbank's Weinberg added.

Metals consultancy firm GFMS forecast that mainland China's imports of gold may be as high as 400 tonnes this year, as compared with 200 tonnes for last year. Holdings of the SPDR Gold Shares Trust remained at 1,214.08 tonnes yesterday.

A Wall Street Journal report said gold slumped along with silver, and noted that buying support might take lower levels to kick in definitively.

"Buyers of physical bullion from the Middle East and Asia have eased back on this run up to $1,530/oz in gold and we will need to see a more sizeable correction for them to come back in a big way," said Tom Kendall, vice president of commodities research at Credit Suisse.

However, confidence in gold's longer-term prospects remain high.

A European parliamentary committee voted unanimously to allow clearing houses to accept gold as collateral, bringing the metal closer to use as an alteranate currency. Although the measure has yet to be approved by the European parliament and the Council for the European Union, it's a step forward.

The weekly initial jobless-claims number came out, rising 10,000 to 424,000 for the week ending last Friday and confounding expectations for a mild decline. The number for the prior week was revised upwards by 5,000 claims. However, the total number of claimants receiving unemployment compensation dropped to a two-year low. Of more import was the Q1 revision for U.S. GDP growth. Despite expectations for an upwards revision, the number remained steady at an annualized 1.8%. Consumer spending growth was revised downwards, from 2.7% to 2.2%.

After slumping from around $1,520 to $1,517 when the pit session started, gold shook off its doldrum and jumped on the news. $1,520 was cleared easily. As of 8:49, the spot price was $1,523.60 for a drop of $2.20 on the day. The Kitco Gold Index assigned -$12.30's worth of change to predominant selling and +$10.10's worth to greenback weakening. The U.S. Dollar Index broke through the bottom of its range on the news, plunging to almost 75.35 before bouncing back. As of 8:51, it was still boucing at 75.40.

Gold did have a rough time in early morning, but it managed to best $1,520 again on the GDP news. Since it had put in a fair gain before its tumble, the loss on the day turned out to be not that bad. This regular-trading stretch may be volatile, but gold has a good chance of keeping its head above $1,520 when the day is done.