Wednesday, May 18, 2011

Gold Climbs To Low 1490s, Helped By Falling Greenback, Rising Oil

Despite the U.K. inflation rate jumping to 4.5% last month, the Bank of England's Monetary Policy Committee voted 6-3 for keeping its rate at a record-low 0.5%. The meeting and vote were held before the official release of the inflation rate, but minutes show that the Committee thought inflation would peak at 5%; the 6-3 vote went down anyways. The same three members voted for a rate hike in the last three meetings.

Gold didn't move that much on the news. In fact, it didn't move much at all after climbing to above $1,490 last night. After breaking above that level at 10 PM ET, it fluctuated in the low 1490s with tests on either side of the range. Those tests didn't start any trends, so gold stayed in the range. Tee falling U.S. dollar helped gold rise above $1,490, but a rebound didn't hurt the metal. Later help was provided by WTI crude oil jumping close to a dollar from a little below $98 and by silver keeping its own gains by fluctuating around $34.50. As of 8:11, the spot price was close to the bottom of the range at $1,491.40; the gain was $4.40 on the day. The Kitco Gold Index attributed +$6.00 to predominant buying and -$1.60 for a weakening greenback.

The U.S. Dollar Index started off evening trading with a spill from 75.35 to 75.25. After mostly recovering from that spill, it slipped further down to 75.15. Hovering around that level at midnight, it climbed into a range topped at 75.25 until it ascended further at 5 AM. After some fits and starts, it got up to as high at 75.45 before sliding back. As of 8:21, it began to recover at 75.41.

A Reuters report said that gold benefitted from a slump in the greenback, and climbed with other inflation-linked commodities. Sentiment has turned cautious, but physical demand is still steady.
"The demand for physical is rather interesting again," said Afshin Nabavi, head of trading at MKS Finance. "Gold could not break $1,470 yesterday, and so a bit of short covering overnight, as well as this demand, has taken us higher."

Premiums for gold bars in Asia increased slightly from a week earlier, as buyers from China and elsewhere in the region took advantage of a dip in prices to buy physical materials.
Holdings of the SPDR Gold Shares Trust were unchanged yesterday at 1,193.95 tonnes.

A Wall Street Journal report said gold climbed on a firmer Euro. Even though the metal rose, analysts and traders were still cautious.
In the short-term "commodities, including the precious metals, are likely to remains on the defensive as rising margin commitments and lackluster data prompt traders and investors to par their risk exposure and shift back towards cash," said's precious metals analyst James Moore.
Another firm said that euphemistic talk about a possible restructring of Grecian sovereign debt helped spur bargain hunting.

There were no U.S. economic reports released at 8:30. There was also no sell-off when the pit session started; gold slipped beforehand but recovered. The start of pit trading saw a mild jump by the metal, which reversed later. As of 8:39, the spot price was $1,491.00 for a gain of $4.00 on the day. The Kitco Gold Index assigned +$5.60's worth of change to predominant buying and -$1.60's worth to greenback weakening. The U.S. Dollar Index, after getting stuck just above 75.4, continued its climb. As of 8:42, it had reached 75.47.

Gold didn't gain that much in overnight trading, but it managed to hold on to the gain it did rack up even though the greenback shook off its decline and rallied. It's still well below $1,500, and would likely encounter strong resistance should it climb up to there, but it has shook off yesterday morning's selloff. Today's regular session will be less volatile than yesterday's, and might be mild.

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