Gold Slumps Back On Climbing Greenback

Gold spent last night and the first couple of hours of this morning in the high 1490s, but a climbing greenback pushed gold down to the $1,490 level and, for a time, below. Sinking below $1,495 by 2 AM ET, and fluctuating around it for the next hour and a half, the metal skidded at 3:30 and then fluctuated around $1,490. Its overnight low of $1,487.10 was made at 5:30. Recovering later, it still stayed stuck below $1,495. As of 8:12, the spot price was $1,493.10 for a drop of $3.80 on the day. The Kitco Gold Index attributed -$4.25 to predominant selling and +$0.45 to a weakening greenback.

The U.S. Dollar Index ran up and slid down, but to little avail. Declining from 75.35, it sunk below 75.15 just before 11:00. It then got traction and ran up all the way back before pausing to catch its breath. It then ran to 75.5. Another slide-back preceded it peaking at 75.56. Afterwards, it lost strength and skidded back to below 75.25. Again climbing, it slipped back before reaching 75.45. As of 8:22, it was beginning to recover again at 75.35.

A Bloomberg report said gold declined on speculation that inflation is easing. St. Louis Fed President James Bullard said in an interview that the Fed may stay easy for the rest of the year because inflaiton expectations are moderating.

“Inflation expectations have been easing lately a bit,” Dan Smith, an analyst at Standard Chartered Plc in London, said today by phone. “Gold is looking for another reason to break higher. It lacks a trigger.”

Those expectations were gauged by 10-year Treasury Inflation-Protected Securities. The rate premium for fixed-rate Treasuries versus TIPS dropped to 2.36%, indicating an expectation for inflation to average that figure for the next ten years.

An earlier Reuters report said that gold steadied as the dollar softened.

"We are seeing signs of bottoming-out in gold as the dollar has weakened, but $1,500 remains a very contested level," said Li Ning, an analyst at Shanghai CIFCO Futures.

The World Gold Council reported that global gold demand rose 26% in tonnage terms to 310.5 tonnes in the first quarter of this year from the previous quarter.

A Wall Street Journal report said gold sunk on a higher greenback, although not by that much.

The near-term outlook for the yellow metal has been foggy in recent sessions, with the market's trading range relatively narrow as participants consider whether the market is ready for another push higher without a further correction in prices.

"We remain bullish on the market, however it seems some people are waiting for a bit more of a pullback before they act," a trader said.

The World Gold Council pinpointed Asia as the region where demand was exploding, although demand is increasing in North America.

U.S. jobless claims dropped to 409,000 from last week's report's 438,000; the latter figure was revised upwards. The drop was larger than expectations. Gold sold off as the pit session began, sinking to $1,490 before getting a bit of a boost from the jobless-claims news. That boost didn't last, as it sold down again to an even lower level. As of 8:43, the spot price was $1,489.90 for a drop of $7.00 on the day. The Kitco Gold Index split the loss into -$5.80 for predominant selling and -$1.20 for a strengthening greenback. The U.S. Dollar Index continued to recover, passing 75.4 again. As of 8:46, it was still climbing at 75.43.

Gold didn't have enough strength to seriously challenge $1,500, and its drop made for some disappointment, but its decline so far hasn't been all that bad. $1,490 seems to be holding, and it may continue to hold in today's regular trading. If the greenback continues to gain strength, though, then the metal will have a rough time.