Gold, After Slumping Due To Rising Greenback, Climbs Back

The U.S. dollar is influencing gold again, but the metal is still holding above $1,500 - suggesting that it's being supported by some bargain hunting. After closing a little below $1,515 yesterday afternoon, the metal started off the overnight session by sinking down to below $1,510. It ended up moving sideways around that level last night as the greenback increased and WTI crude oil fell from $103 to $100. Pushed down by the climax of the greenback's run, gold sunk to $1,507 around 2 AM ET. Then, helped by the U.S. dollar sinking back, it slowly mustered the strength to best yesterday's close by climbing up above $1,515. Its rise tracked a similar gain in silver, which reached $38.50, and oil, which recovered to $102. Although slumping back a little after peaking at $1,518.90, the metal used the slump to gather strength and push up to the high 1510s again. As of 8:12, the spot price was $1,518.50 for a gain of $5.40 on the day. The Kitco Gold Index attributed +$6.15 to predominant buying and -$0.75 to a strengthening greenback, indicating that demand over and above adjustments for the greenback's level was coming in.

The U.S. Dollar Index showed some climbing power in the first half of the overnight session, but it later slid back to make the entire session a ramble that left it stuck. Despite falling to 74.6 initially, it first climbed to 74.75 but was blocked from climbing further. After several attempts to rise above 74.75 last night, it first poke through at midnight and then mustered enough energy to reach 75.0. It didn't slide back gently after peaking: after slipping, it scrambled back up to almost where it had slipped from. The end result, though, was an overall decline that took it back to 74.65 as the floor and then, as regular trading approached, lower. As of 8:21, it had paused at 74.6.

A Bloomberg report said gold gained because of safe-haven demand induced by yesterday's downgrade of Grecian government debt by Standard and Poor's.

“Economic uncertainties in the monetary union and fears over peripheral debt were returning to the focus yet again,” Andrey Kryuchenkov, an analyst at VTB Capital in London, said in a report to clients. “In the short run, bullion is likely to remain well supported, also helped by physical activity picking up in Asia amid seasonal demand.”

Guessing at what's on many people's minds, European Central Bank Executive Board member Lorenzo Bini Smaghi said that a Eurozone member restructuring [defaulting on] its debt would bring up more problems that it would solve. Holdings of gold exchange-traded products tracked by Bloomberg fell 3.12 tonnes yesterday to 2,054.64 tonnes.

A Reuters report credited gold with rising because of the greenback's slump-back and safe-haven demand triggered by the downgrade. Crude oil was shoved down last night by a hike in margin requirements for the commodity. Grecian government bonds were aided, and German government bonds hurt, by talk of a new aid package for the former government.

"This news this morning on the Greek debt situation and the dollar are balancing the market, so the gold price isn't moving very much," said Commerzbank analyst Daniel Briesemann....

"While some sense of normality has been restored to precious metals markets following last week's beating, volumes are very light and as such the potential for exaggerated price moves is quite high," said UBS strategist Edel Tully.

"Gold looks quite comfortable at $1,500, and would profit from any escalation in concerns over Greece's debt sustainability. In this climate it is also worth paying attention to the euro price of gold," she said.

Holdings of the SPDR Gold Shares Trust dropped again yesterday to a new 2010 low. From Friday's 1,205.39 tonnes, the ETF shed 3.44 tonnes to reach 1,201.95 tonnes.

A Wall Street Journal report said gold snuck up although outpaced by silver.

But despite gold's failure to make up much ground Tuesday, the yellow metal remains well-placed to move ahead of the other precious metals in the short-term, said analysts....

"Should macro data remain persistently bearish, it would support only bullion in the short-run as gold decouples from the rest of the precious complex amid a fresh flight to safety," said VTB Capital analyst Andrey Kryuchenkov.

The upcoming report on April mainland Chinese inflation is being watched out for, in part to see how the authorities will react. It's due out Wednesday.

A report released at 8:30 said U.S. import prices for April rose 2.2%, well above expectations for 1.6%. That jump marks the first time import prices have climbed more than 2% for two months in a row since June of 2008. Export prices rose only 1.1%. Gold, after rallying just before regular trading started, took a dive to $1,514 after the pit session got rolling. That news marked a halt in the decline, which continued a little later. As of 8:46, the spot price had sunk a little further to $1,513.70; the gain had almost evaporated, having shrunk to $0.60. The Kitco Gold Index assigned -$0.60's worth of change to predominant selling and +$1.20's worth to greenback weakening. The U.S. Dollar Index, after slumping to 74.55, also paused on the news and later crawled up. As of 8:50, it was stuck at 74.63.

Despite the early-pit-session letdown, gold still managed to shake off its decline last night. If the first half hour of regular trading is a valid indicator, the metal will have a rought time today. But, the first stretch often isn't that good an indicator. Gold may be volatile today, but it still held its own even after being bumped down.