Gold Takes Breather, Settles Into Range

The U.S. Dollar Index continued to bounce around, in a range between 72.95 and 73.3, until 8:10 AM ET. Gold too confined itself to a range, between $1,530 and $1,540. Not following silver's early-morning gyrations both upwards and downwards, the metal stayed steady like WTI crude oil did. Today, gold's range was between $1,530 and $1,540; it never got out of that range in overnight trading except for a momentary blip up to $1,540.20. Compared to the action of the last two days, the metal has calmed down. As of 8:10 AM, the spot price was $1,535.90 for a drop of $1.20 on the day. The Kitco Gold Index attributed -$5.20 to predominant selling and +$4.00 to a weakening greenback.

The U.S. Dollar Index started off the night between 73.1 and 73.15, but jumped up to 73.3 between 9:20 PM and 10:05. Double-topping at that level shortly afterwards, it couldn't overcome resistance and sunk as night turned into morning. Its sinking accelerated after a failed climb at 2:30; it then introduced itself to 72.95. That level provided support as the Index bounced between it and 73.05, but the support gave way shortly after 8 AM. As of 8:18, the Index was still dropping at 72.88.

Silver was the focus of the usual overnight wrap-ups, most of which gave gold second billing. A Reuters report said gold was dragged down by silver, but not as much.

Beyond the correction, gold and silver are expected to resume their upward trend, as worries about rising inflation and ongoing unrest in the Middle East and North Africa, as well as low U.S. interest rates may continue to drive investors to these precious metals, traders said.

The People's Bank of China is expected to keep tightening to get a handle on inflation, even if that tightening takes a notch or two from growth. A Shanghai trader is quoted as saying that the impact of mainland Chinese rate hikes is only short term: what the markets are watching for is a Fed hike. Holdings of the SPDR Gold Shares Trust dropped by 5.15 tonnes yesterday to 1,224.49 tonnes.

A Wall Street Journal report also gave the spotlight to silver, but characterized gold's softening as a correction.

Analysts and traders said the metal is finding good support from dip buyers and physical purchasers in India on most pullbacks.

The April ADP report was released at 8:15, and it showed 179,000 private-sector jobs added last month. The gain was lesser than March's 210,000. Gold got a boost from the number, which amplified a rally that began a little after 8:00. Having got enough power to break out of its range, the metal peaked at $1,544.40 just before 8:30 but slipped back later. As of 8:40, the spot price was slightly below the $1,540 ceiling at $1,539.20; the gain on the day was $2.10. The Kitco Gold Index assigned -$2.00's worth of change to predominant selling and +$5.10's worth to greenback weakening. The U.S. Dollar index took a dive just before the news, but that drop continued until 8:30 after it reached 72.81. As of 8:43, it had recovered a little at 72.84.

All in all, the overnight session was fairly quiet. Gold managed to break out of its range early in regular trading, thanks to that ADP report, and it may have enough strength to notch up a gain this session. The silver-induced pullback seems to have run its course for now.