Gold Continues To Fall Along With Silver, Oil As Greenback Keeps Recovering

Gold was hit fairly hard in the morning part of overnight trading, as the greenback keeps fording up to heights not seen in the last three weeks. WTI crude oil dropped from above $99 to below $96. Silver went from $35.50 to as low as $32 before a relief raly: it managed to break below its post-plummet low. Gold didn't, but it was close. After bouncing off $1,500 yesterday evening and inching up to $1,505 last night, during a time when the greenback was softening, the metal started tumbling at 2 AM ET. Sliding from $1,505, it didn't stop slipping downwards until it reached $1,477.00 just before 7:00. After a bit of scrabbling just above $1,480, the metal managed a relief climb that brought it up to the mid-1480s. As of 8:11, the spot price was $1,484.30 for a drop of $16.60 on the day. The Kitco Gold Index split the loss into -$13.75 for predominant selling and -$2.85 for a strengthening of the greenback.

The U.S. Dollar Index had a pullback last night, from just below 75.3 to 75.2, but the slip was only minor and was punctuated with intermittent jumps. The Index didn't gain traction until 1:40 AM, when it managed to climb up to 75.4 before slipping back to just above 74.2. Then, it managed to hoof up to 75.645. Double-topping there, it slid back to below 75.5 before mustering a recovery. As of 8:19, it was still recovering at 75.57.

A Bloomberg report said gold fell because of the strengthening greenback and the need to sell the metal to cover worse declines in other assets.

All six main industrial metals on the London Metal Exchange and crude oil slipped, while the MSCI World Index of equities declined for a second day. China raised banks’ reserve requirements for the fifth time this year to cool inflation.

Precious metals are “under pressure from the rising U.S. dollar,” Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt, said in a report to clients. “Investors are taking profits with gold to compensate for losses with other assets.”

Over the week, the Standard & Poor’s GSCI Index of 24 commodities slid 11 percent. That's the most the index has slid since December of '08. Also adding to the pressure was the People's Bank of China raising reserve requirements by another 0.5% to combat inflation. Dennis Gartman was quoted as saying that commodity bulls had to worry about margin calls.

A Reuters report said gold was shoved down by concerns about economic growth and fears of tightening.

"People are still worried about commodities -- we have seen some short covering, some buying on dips today, but the buying is not substantial," said Dick Poon, manager of precious metals at Heraeus in Hong Kong.

The China data, which show inflation still high in April but off its peak of the previous month in the world's second-largest economy, undermines gold's appeal as a hedge against higher prices.

"If inflation had been much higher, it would have meant more buying in gold and silver," said a Tokyo-based trader. "Since the economy is slowing and inflation seems under control, it is relatively bearish for precious metals."

Holding of the SPDR Gold Shares Trust declined by 0.91 tonnes to a new 2011 low of 1,201.04 tonnes.

A Wall Street Journal report said monetary tightening and a weaker euro combined to push down gold.

"After last week's slump and subsequent recovery, we're seeing another wave of selling on everything today," said a London trader. "This appears to be 'phase two' of a broader commodities sell-off."

James Steel is quoted as saying the People's Bank of China raising reserve requirements gave some people a justification to sell.

Showing the week-to-week volatility they exhibit from time to time, the latest weekly jobless-claims figures showed a drop in initial jobless claims to 434,000. Although the spike from the previous report was partialy reversed, the number didn't drop as much as expected. Retail sales for April showed a 0.5% increase, for the tenth gain month in a row, but they failed to meet expectations for a 0.7% rise. Part of the reason was upward revisions for February and March. When gasoline and autos were stripped out, the increase was a disappointing 0.2%. Also shedding light on April was wholesale prices, which increased by 0.8% last month seasonally adjusted. That index had risen by 6.8% unadjusted over the last twelve months. Fuel costs explained much of the rise. As for the core rate, it rose an above-expected 0.3%; the raw rate matched expectations.

After being sold down to below $1,484 just before regular trading opened, gold moved higher when the pit session got rolling. Just before and during the release of the above economic data, the metal climbed to $1,490; it evidently liked the news. As of 8:47, the spot price was $1,489.00 for a drop of $11.90 on the day. The Kitco Gold Index divided the loss into -$7.55 for predominant selling and -$4.35 for greenback strengthening. The U.S. Dollar Index also liked the news, albeit only temporarily. After climbing to above 75.6, it slipped back to 75.5 just before 8:45. As of 8:51, it was climbing back at 75.59.

The last overnight session was a bad one for gold, which continues to be shoved down by the recovering greenback. Although other hobblers bore down on the metal, the rising greenback had turned a major driver on its head. The upcoming regular session may see more downward volatility, particularly if the U.S. dollar keeps showing strength.