Gold Drifts As Greenback Stays Steady

The greenback made a comeback last night, which hardly affected gold. WTI crude oil was affected more: it slumped from $100 to $98.25 before recovering. Gold only slipped to a little below $1,525 before heading back up again. Silver continued its strong run this morning, but gold didn't really follow. The yellow metal merely reversed last night's losses, after being pushed down a little more by an even stronger greenback aqround 2 AM ET. The news that Goldman Sachs reduced its growth forecast for mainland China's economy, largely due to weaker data and higher inflation pressure, didn't affect the metal. As of 8:07, the spot price of gold was $1,526.70 for a gain of $0.60 on the day. The Kitco Gold Index attributed +$2.70 to predominant buying and -$2.10 to a strengthening of the greenback.

The U.S. Dollar Index, as indicated above, reversed yesterday's slumping and jumped up last night. Peaking at 76.2 around 9:50 PM, it then slid to 76.05 but managed to get its footing back around midnight; it climbed to 76.25 a couple of hours later. Pacing at around 76.2, it later stumbled and sunk back to around 76.0. As of 8:14, it had began to inch up again to reach 76.03.

A Bloomberg report attributed gold's slight gain to the continued woes of the Grecian government and its likesake.

“Market participants remain nervous about peripheral debt troubles in the euro zone,” Andrey Kryuchenkov, an analyst at VTB Capital in London, said today in a report. “Gold will remain well-supported in the short-term.”

Christian Noyer, a Governing Council member of the European Central Bank, nixed a restructuring of Grecian sovereign debt because such a restructuring would make it hard for that government to borrow for the next few years.

A Reuters report said that gold hit a three-week high because of Eurocrisis fears. (It did, albeit briefly.) The same reason was given for the greenback's rise.

"It's balancing debt problems against the impact it's having on the euro versus the dollar," said Daniel Major, analyst at RBS. "Underlying physical demand in Asia is relatively resilient."...

Major expects to see gold consolidating around current levels: "Unless we get some sort of macro event that pushes the currency well out of its current trading range or limits safe-haven flows".

For the longer-term however some analysts expect to see gold make further gains on mounting concerns about inflation, against which gold is used as a hedge.

Inflows into ETFs are being taken as a sign that investor interest in gold is on the rise again. Holdings of the SPDR Gold Shares Trust rose 4.55 tonnes yesterday, to 1,214.08 tonnes. They've risen 22.74 tonnes above the one-year low hit one week ago.

A Wall Street Journal report said that gold was flat as it sought direction from the currency markets and risk tolerance.

"Both gold and silver are looking to consolidate, and currency moves are quite an important factor," said Royal Bank of Scotland analyst Daniel Major. "The impact that euro-zone sovereign debt concern is having on the euro-dollar cross is a key driver."

Gold has benefitted from recent risk aversion caused by the sovereign-debt downgrades or negative watches for Greece, Italy and Belgium.

The April durable-goods number was released at 8:30: it showed a larger-than-expected 3.6% drop. That fall was mostly due to lower demand for autos and aircraft. The magnitude of the drop was slightly exaggerated by an upward revision of March's increase, from 4.1% to 4.4%. Gold, after slumping to $1,525 at the start of the pit session, briefly stumbled on the news but recovered. As of 8:39, the spot price was $1,526.30 for a gain of $0.20 on the day. The Kitco Gold Index assigned +$1.10 for predominant buying and -$0.90 for greenback strengthening. The U.S. Dollar Index, after reaching 76.05, also slumped on the news but didn't snap back. As of 8:43, after sinking as low as 75.89, it snuck up to 75.94.

Gold didn't do much this overnight session, but it showed a fair bit of resilience given the greenback's earlier recovery. Silver's been outpacing it, but that's largely because the gray metal fell much farther during the plummets three weeks ago: gold's been recovering less because it lost less. For today's regular trading, $1,520 looks safe and $1,530 might be touched.