Monday, May 9, 2011

Gold Breaks $1,500 As Recovery Continues

Friday's bounceback continued when regular trading resumed last night. Along with silver, which went from under $36 to $38 before peaking, gold climbed up largely because the greenback softened and bargain hunters came in. WTI crude oil picked up, but couldn't break above $100. The greenback did pull back after its two-day run, but not that much. $1,500 became the new floor in part because gold fell too far last week.

This week didn't start off well for the metal. Pushed down by a sell-off shortly after trading resumed, gold lost close to five dollars an ounce before the selling pressure abated. That sell-off proved to be a fake-out as it returned to $1,495. By 10 PM ET, it got enough strength to not only best $1,495 but also $1,500; it didn't look back. During the morning part of the overnight session, gold never got below $1,500.20. A run from 3 AM to 5:00 got it peaking at $1,511.80, but its strength evaporated and it fell back into a range between $1,505 and $1,510. That range gave way at 8:00. As of 8:17, the spot price was $1,503.80 for a gain of $8.40 on the day. The Kitco Gold Index split the gain into +$2.70 for predominant buying and +$5.70 for a weakening greenback.

The U.S. Dollar Index did fall, but that slippage was a natural pullback after it shot up last Thursday and Friday. Starting off at 74.9, it kept sinking and recovering as its overall direction continued downwards, until it turned around at 4:30 AM. Having reached its nadir of 74.4, shortly before gold peaked, it got enough footing to turn around and fluctuate around 74.6. It then made a jump that took it to almost 74.8. As of 8:27, it had paused at 74.76.

A report from said gold was supported by a weakening greenback and bargain-hunting.
The consensus seems to be that silver has more downside now than gold. Barclays Capital thinks that silver will find support in the low $30s as "retail demand" takes the lead but that "longer-term investor interest in gold remains robust." Barclays cites Asian demand as a key factor for higher gold prices.
The greenback sunk after tearing a hole in the Euro, as rumours that Greece would leave the Eurozone and go back to a national currency died out.

An earlier Reuters report gave the same reasons, and contained a gloomy cast on gold's near-term prospects.
Technical analysis suggested that gold may fall to $1,462, said Wang Tao, a Reuters market analyst.

"Longer-term investor interest in gold remains robust, with ETP inflows of 40 tonnes in April and further substantial buying from central banks, but we expect demand from Asia to cushion the downside," said Barclays Capital in a research note.
Holdings of the SPDR Gold Shares Trust made a new 2011 low, dropping 3.03 tonnes to 1,205.39 tonnes.

There was no news on the U.S. economy, but Standard and Poor's cut its rating on Grecian sovereign debt from BB- to B. That cut pushed the bonds further into junk territory. The news didn't help gold, which continued to soften as regular trading started, but it did help the greenback. The metal slid to as low as $1,497.90 before bouncing above $1,500 again. As of 8:42, the spot price was $1,502.50 for a gain of $7.10 on the day. The Kitco Gold Index divided the gain into +$4.25 for predominant buying and +$2.85 for overall greenback weakening. The U.S. Dollar Index got a bit of a lift from the news, but not much of one. After climbing slightly above 74.8, it lost its strength and hovered just below that resistance level. As of 8:45, it was still hovering at 74.79.

Although traders and analysts have been understandably skeptical about gold's bounceback, the fact that it has mustered strength shows the selling rush got overdone late last week. Although still vulnerable to renewed strength in the greenback, the metal is showing some rally power right now. That makes for a welcome relief, although the seasonality for gold is changing from tailwind to headwind. $1,500 is the number to watch for in today's regular trading, to see if gold stays above it. So far, despite a temporary stumble below, the metal has.

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