Monday, May 23, 2011

Gold Slumps A Little, Partially Ignores Stronger Greenback

After an initial jump when trading resumed for the week, gold slumped from above $1,517 down to around $1,510 last night. The routing of Spain's ruling Socialists in local elections had an effect on gold's strong start. Despite the greenback rallying strongly through the overnight session, and WTI crude oil slumping more than two dollars, gold stayed stuck around $1,510 as selling pressure due to the stronger U.S. dollar was balanced by safe-haven demand. That demand came from the ticking-over Eurocrisis and worries about inflation in mainland China and India, which sent stocks in both countries reeling. As regular trading approached, though, the stronger greenback began to take its toll on gold. As of 8:12, the metal had slumped from its $1,510 centre to reach $1,506.40; the loss since last Friday's close was $7.10. The Kitco Gold Index attributed +$3.65 to predominant buying and -$10.75 to a strengthening greenback.

The U.S. Dollar Index, as indicated above, spent most of overnight rallying. Unusually, the Index jumped about a tenth of a point right from the get-go to as it started off the week fluctuating between 75.7 and 75.8. Staying in that range until just before 7 PM ET, it first hoofed up to 75.865 and then slipped back into the range. Regaining its footing, it climbed steadily, breaking through 76, until topping at 76.365 around 5:20 AM. Then sliding back to below 75.2 as it lost energy, it resumed climbing once again. As of 8:22, it took a junp to 76.31.

A Bloomberg report said gold may end up gaining on European soverign debt woes, as Standard and Poor's cut its outlook for Italian government debt from neutral to negatve and Fitch's cut Grecian government debt to four notches below investment grade.
There’s “fresh safe-haven demand as the situation facing Greece and other peripheral euro-zone nations and U.S. budget negotiations this week prompt further investment diversification,” James Moore, an analyst at in London, said in a report.
The U.S. Treasury threatened the House by saying that the U.S. government would default by August 2nd unless the debt ceiling was raised. Holdings on gold ETFs tracked by Bloomberg rose 9.55 tonnes to 2,045.56 tonnes last Friday.

An earlier Reuters report gave essentially the same reasons for gold's earlier stability despite the stronger greenback: safe-haven demand prompted by European sovereign debt woes.
"I would expect gold to be supported above the $1,500 level. If the crisis starts to involve other nations beyond Greece, then we could see gold heading to a new record high," said Ong Yi Ling, investment analyst at Phillip Futures in Singapore.
The Asian physical market saw some bargain hunting by jewelers, but trading was subdued. Premiums on gold bars stayed moderate; Indian buyers were largely on the sidelines. Holdings of the SPDR Gold Shares Trust jumped by 10.61 tonnes to a still-low 1,201.95 tonnes.

A Wall Street Journal report also concurred, but noted that physical buying provided support despite gold drooping.
Physical buying has been proving a key support, analysts said, as fears over the financial health of some European governments, and particularly the outlook for debt-ridden Greece, prompt investment diversification.
Despite gold's hidden strength, analysts still expect the greenback to be the main mover of the metal.

With no new U.S. economic data to move it, gold's slump ended at $1,504 just before the pit session started. The start of regular trading saw a modest bounceback with support coming in at $1,505. As of 8:41, the spot price was $1,505.10 for a drop of $8.40 since Friday's close. The Kitco Gold Index assigned +$4.80's worth of change to predominant buying and -$13.20's worth to greenback strengthening. The U.S. Dollar Index, after its earlier leap, stayed steady. As of 8:44, it was shuffling around at 76.32.

Gold's steadiness was eroded just before the pit session got rolling, but it's still comfortably above $1,500. That level may be challenged today, as the higher greenback may still encourage selling pressure, but the metal's still held up well desite the U.S. dollar's strength.

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