Thursday, May 5, 2011

Gold Keeps Falling With Silver, Oil

Both the European Central Bank and the Bank of England left their respective rates unchanged this morning. In both cases, but particularly the latter, worries over the recovery prompted the decisions. Interestingly, despite both central baks holding the course, the U.S. Dollar Index bounced around the same range it was in for the last five trading days. That news was only good for a blip up.

Unfortunately, gold didn't rally on the news. Instead, the metal was dragged down by further slumps in silver and WTI crude oil. The former dropped below $39, which kicked off gold's own drop, and a plummet in the latter from $109 to $107 amplified gold's tumble. After staying steady last night just below $1,520, the metal initially rose to $1,520 but then slid at 3:30 AM ET. That slide turned into a plummet that brought the metal to its nadir of $1,495.50 by 7:00. Having reintroduced itself to the 1490s, gold bounced back up above $1,500 but stayed within five dollars of that level until poking up a little further. As of 8:10, the spot price was $1,505.60 for a drop of $10.90 on the day. The Kitco Gold Index attributed -$12.10 to predominant selling and +$1.20 to a weakening greenback.

The U.S. Dollar Index, overall, stayed stuck in a range of 72.85 - 73.2 as it continued to trend sideways before regular trading. Two attempts were made last night to get above 73.2 from its narrower 73.1 - 73.15 range, but both were blocked. From 8:20 PM to 3:35 AM, the Index fell from 73.2 to 72.8. Then reversing, it bumped up against 73.1 before breaking above that level after 8:15. As of 8:18, it had fallen back to 73.09.

A report from said gold and silver fell from the aftereffect of another margin hike. Interestingly, ETFs have not seen massive liquidations as a result of the pullback even though the SPDR Gold Shares Trust lost 4.55 tonnes yesterday.
"The corrections over the past few days have taken some of the overbought froth out of the markets," said James Moore, research analyst at "But with issues such as negative real-interest rates, eurozone debt concerns and [Middle East - North Africa] unrest still ongoing investors are still likely to view dips favorably with a test below $1500 in gold and $38 an ounce in silver likely to find fresh demand."
Holdings of the SPDR yesterday were 1,219.94 tonnes.

A Reuters report, covering the period before gold's fall, focused on silver but said gold was cautious before the European Central bank rate decision.
"We expect gold prices to remain pretty resilient, but at the moment it is probably a little frothy," said Ben Westmore, commodities economist at the National Australia Bank.

"A lot of rise in gold prices was due to safe-haven investment and weakness in the U.S. dollar."
That weakness hasn't gone away, but the safe-haven demand has.

The weekly jobless-claims number came in, and proved to be much higher than expected. Instead of dropping to 412,000 seasonally adjusted, it leapt to 474,000 initial claims. Greater-than-normal claims filed in New York by seasonal workers, and layoffs in the auto sector, were fingered as the cause. Also: U.S. productivity for the first quarter of this year rose 1.6%, slightly above expectations for 1.5%, Nominal compensation rose by 2.6%, but adjusting for inflation resulted in real compensation falling by 2.5%. Yes, inflation's biting.

Gold, after slipping to $1,504 at the start of regular trading initially ralled to $1,508 just before the news came out. Then, it slipped before the news was digested. After bottoming at $1,505.50, it jumped to $1,510 once the news was interpreted favorably. As of 8:43, the spot price was $1,510.10 for a drop of $6.40 on the day. The Kitco Gold Index attributed the entire drop to a strengthening greenback. The U.S. Dollar Index loved the news. After failing to break above 73.1, the Index sprinted upwards to the highest level it's seen in a week. As of 8:46, it was stuck at 73.42.

This overnight session was another bad one for gold, although the damage was reduced by a bounce above $1,500 and the news indicating that all was not right with the recovery. Whether or not the dip below $1,500 was a buying opportunity remains to be seen. As recent market action has shown plainly, gold won't recover until silver stops plummeting.

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