Gold Briefly Breaks Above $1,500, Sinks Back On Stronger Greenback

Last night, gold snuck up to $1,495 and stayed there. As night turned into morning, as encouraged by a weakening U.S. dollar, the metal broke out of that zone and began climbing. After bumping against $1,500 and pulling back, it jumped above $1,500 just before 4 AM ET and zipped up to $1,505.70. Unfortunately, that level marked the peak for the overnight session. The metal then unevenly slipped back until just before 5:30, when a leaping greenback pushed it down below $1,500 to where it was last night. As of 8:07, the spot price was $1,496.20 for a gain of $2.40 on the day. The Kitco Gold Index attributed +$8.10 to predominant buying and -$5.70 to a strengthening greenback.

The U.S. Dollar Index, as indicated above, sunk last night after an early-evening rise that gold ignored. Starting off the overnight session at 75.1, it climbed up to 75.2 at 9:10 but then sunk for the next four-and-a-half hours. Reaching 75.05, it turned up but sunk below 75 at the same time gold made it above $1,500. Stabilizing around 75.0, it moved sideways until it took off like a shot at 5:15. Two-and-a-half hours later, it peaked at 75.475. Then exhausted, it slid back but later got the energy to start climbing again. As of 8:19, it had started to climb back at 75.38.

A Bloomberg report ascribed gold's earlier run-up to a weaker greenback and speculation that the Fed won't tighten soon.

Recent economic data may allow “policy makers some time before turning hawkish and admitting future liquidity curbs,” Andrey Kryuchenkov, an analyst at VTB Capital in London, said today in a report. “This means limited downside in gold with the latest dollar rebound also running out of steam for now.”

Dennis Gartman is quoted as saying gold has held up well, and is cited as saying he'll be adding to his gold positions.

A Reuters report said that gold rose on the softer dollar and poor U.S. economic data, which prompted that speculation about Fed accomodativeness.

Data on Thursday showed a slowdown in manufacturing growth in the U.S. Mid-Atlantic region and an unexpected fall in existing home sales in April. That strengthened the view that if economic data continues to disappoint, it could delay Fed tightening until well into 2012 or later.

The dollar kept up a softening trend this week against the euro, which was also adding support to gold. "U.S. dollar weakness and uncertainty surrounding Greece's debt situation continued to be supportive," said ANZ in a note.

Holdings of the SPDR Gold Shares Trust, after dropping 1.61 tonnes two days ago, were steady yesterday at 1,191.34 tonnes. That level makes for a new year's low.

A Wall Street Journal report said gold was higher even though the euro was steady versus the greenback.

"We expect dull trading to prevail here given the thin macro agenda and quieter geopolitical front," said VTB Capital analyst Andrey Kryuchenkov, adding though that any downside would be limited, particularly with the latest dollar rebound "running out of steam for now."

Although there's still caution, there's some hope because the gold trade is less crowded after the wash-out two weeks ago.

With no U.S. economic data scheduled for today, gold rebounded after sinking below $1,495. Its jump started just after 8:00, and continued after the pit session started. Evidently, Dennis Gartman's words carried some weight. After touching $1,501 just before 8:30, gold pulled back a bit but stayed near $1,500. As of 8:42, the spot price was $1,499.10 for a gain of $5.30 on the day. The Kitco Gold Index assigned +$10.70's worth of change to predominant buying and -$5.40's worth to greenback weakening. The U.S. Dollar Index stopped climbing and settled into a period of indecisiveness. As of 8:45, it was inching up at 75.39.

Although the metal gave up its gains earlier this morning, its recovery to almost $1,500 suggests some optimism coming back. The beginning of the pit session isn't that good a foreshadower for the rest of the day, though; the rest of regular trading may see a slump. Even if so, gold's still showing real resilence in the face of a greenback recovery. If things don't go badly, it may sustainably break above $1,500 again.