Gold pressured by dollar rally

In the Lead: “Honey, Let’s Shrink The EU”

Wednesday’s 1.5% U.S. dollar rally pushed commodities sharply lower and while gold initially resisted the trend, by the session’s end it too fell victim to the across-the-board selling of assets that intensified right along with the crisis in Europe. Overnight lows in gold came in at near the $1,750 mark whilst silver dropped fairly close to the $33 level.

Gold and silver have shown what technicians at Elliott Wave have labeled a “double divergence” and one that underscores a possibly “fractured” market – one that is often an unhealthy one. The $1,600 and $32 levels for the two precious metals are the numbers to watch as they could usher in the start of their next ‘major down phase’ according to EW analysts.

Spot New York dealings opened at $1,770 with a feeble gain of $1.50 per ounce in gold and with a modest, 8-cent rise in silver (to $34.12 the ounce). Platinum opened flat at $1,626 while palladium lost $1 to start the session off at $645 per troy ounce. Rhodium was unchanged at $1,675 while copper fell 2.5% this morning. HSBC analysts have mentioned the word “oversold” in connection with the platinum-group metals’ complex.

Two hours into the Thursday session the selling intensified however, and gold fell some $10 under the $1,750 support level with a loss of nearly $30 per ounce. Silver dropped by 70 cents to once again draw close to the $33 mark. Crude oil advanced 1.75% while the Dow started to repair some of Wednesday’s damage with a 120-point climb out of the starting gate. Far better than anticipated jobless claims filings helped the equity index regain its footing.

U.S. unemployment claims fell to a seven-month low and broke under the 400K mark with the latest report available from the Labor Department. Even the four-week average fell to its lowest level since mid-April of this year. However, while some 250K jobs would need to be created on a monthly basis in order to begin reducing the nation’s current 9% jobless rate in earnest, the pace of job creation is running closer to 80.000 monthly additions, revealing that America still has some distance to go on this all-important front.

Overseas equity markets lost hefty amounts of value overnight following the Dow’s near 400 point wipeout on Wednesday. But, everything has a lifespan (of various durations), it would appear. Changes in the European political structure (Greece) combined with Italy’s ability to sell some debt brought some positive changes to the markets this morning, along with a small dose of optimism (read: risk appetite). On the other hand equities as well as commodities remain hostage to the apprehensions surrounding the possible exit from the EU by one or another member or the aggravation of already recessionary conditions in the Old World economy.

Well, Greece has a new Prime Minister; a former ECB vice-president, no less. Mr. Lucas Papademos will now try his hand at righting the Athenian ship that still threatens to capsize and sink. Given his former ties, one would think that he might enjoy a modicum of better success with such efforts, but the jury is still out –conditioned by the nearly two-years-old drama that, when it first surfaced, appeared manageable.

Over in Italy, while Mr. Berlusconi has still not left on a permanent holiday despite having announced that which just days ago he said he would not consider doing, his government did manage to sell €5 billion worth of one-year T-bills this morning. Yields were close to 6% for these instruments while the ten-year ones remained well above the critical 7% mark. The relative success of the sale was seen as a passing of a critical test for Italy this morning. Mario Monti, the most likely successor to Mr. Berlusconi is waiting in the wings and will probably be tasked with that which Mr. B failed to pull off on his watch.

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