Gold drops despite Egypt fighting worsening

Selling resumed in the precious metals complex overnight as the US dollar added to yesterday afternoon’s gains and despite a fresh rise in crude oil, copper and the commodities’ complex overall. In fact, during January – a month when gold lost over 8% in value- commodities turned in their best performance in over two years’ time. Copper, rubber, and cotton recorded new all-time highs, and other raw materials did not do to poorly either. Sugar comes to mind; it rose to a three-decade high because of Aussie weather concerns yesterday. Gold, meanwhile, chose to march to a different drumbeat, for the time being, in lieu of reaching fresh price pinnacles of its own.

This morning, the ECB left interest rates parked where they were (at 1%) but its President, Mr. Trichet, who did not leave reporters bereft of a supply of anti-inflation flavored words as recently as the middle of last month, was still seen as making price rises his top priority (after ensuring that growth remains on track in the region). Mr. Trichet reaffirmed his institution’s commitment to fight inflation (he roiled the markets with a threat to hike rates sooner rather than later) and underscored the ECB’s ability to stave it off during that news conference.

Clearly, the man does not want to be perceived as being ‘behind the curve’ on this issue. What followed was one of the best rallies in the euro witnessed by currency traders in recent years. Mr. T’s words did a lot more than Ms. Merkel or Mr. Sarkozy’s remarks made in Davos regarding the permanent status of the common currency, which were clearly intended to undermine skeptics (read: euro-shorters) all over the place. However, at the end of the (trading) day, investors regard such a possible lifting of interest rates as a ‘policy mistake’ – go figure.

Spot gold bullion dealing fell by over $9.00 an ounce well ahead of the New York open (so much for the 9 o’clock ‘whack’ apparently), once again failing to respond to the continuing (and worsening) street fights in Cairo, and the apparent spreading of the unrest over to Yemen’s streets as well. The Thursday opening had the yellow metal quoted at $1,327.70 an ounce on the bid side (down $7.30), mainly on account of the rise in the greenback.

ETF outflows and the ebbing (make that: concluded) of New Year’s related Chinese physical demand continue to hamper gold’s ability to stage a notable rebound (such as the one seen last Friday when Egypt prompted the trade not to want to go home empty-handed for the weekend) from its recent lows near $1,300. Contradicting those who attempted to “shape” the news on India’s 2010 gold imports, the Bombay Bullion Association noted that the country’s inflows of the yellow metal actually declined last year.

The total provisional 201 BBA tally indicates that 332.9 tonnes of gold (not some the 700+ tonnes that were mentioned in various online stories) were imported into what has traditionally been the world’s top consumer of the metal. A good portion of the obviously low (within historical contexts) level of gold imports must be because of the price-sensitivity of Indian buyers, while another could be reflecting shifting consumer preferences among young(er) potential Indian buyers.

Gold dealers and various hard money newsletters are now almost ‘abandoning’ India as a bullish topic with which to raise investor/subscriber morale and are actively “plugging” China as the demand source which will all but ensure the metal’s bright future. Meanwhile, January’s Indian gold imports stood at 40 tonnes – a nice improvement, but one that is to be viewed as an early inventory build-up, within the context of an upcoming gold-buying-auspicious ‘mini-season’ for weddings to take place later in February.

Meanwhile market technicians continue to point to the “Maginot Line” that gold needs to stay above ($1,280 to $1,300 and the critical $1,254 mark underneath that range) in order not to spark a much more sizeable sell-off (risking the potential for $840 to $970 area to be visited), and for the moment see the precious metal as caught in an area of indecision and uncertainty. The recent counter-trend action to the rest of the commodity complex does not offer a whole lot of confidence to the bulls.

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