Wednesday, January 13, 2010

After Yesterday's Plummet, Quiet

Yesterday's early-afternoon drop was awful, but it was not repeated. After getting down to as low as US$1,125 yesterday, gold spent the rest of the day in a trading range between $1,125 and $1,130. The $1,125 level was tested a little after 8 PM ET, but it held. There was another test of the range early this morning, but on the upside. $1,130 held at 2 AM ET, but was bested about two hours later. The metal's been drfting in a new range since then, bordered by $1,130 on the downside and about $1,135 on the upside. As I write this post, spot gold's at $1,135.30.

This Wall Street Journal Online report quotes a trader as saying gold is following the greenback, as the metal lacks direction on its own. A Bloomberg report has a similar quote, and also ties gold's plummet to similar downdrafts in several other commodities. Another quote expresses hopefulness about the metal:

“Gold may be able to avoid being dragged down by other commodities because of its safe-haven status,” said He Ruiyan, head of research at Xiamen International Trade Futures Co. “We’re seeing some flight to safety after China’s tightening.”

The above-mentioned U.S. dollar is down. This morning's dip made for a new 3+ week low in the U.S. Dollar Index. After recovering from a much milder drop to the 77.1 level early this morning, the greenback dropped to 76.596 before recovering slightly.

Two days ago, I wrote that gold had formed a reverse head-and-shoulders pattern. (In the original post, I forgot to specify that it's a reverse formation.) That formation was breached yesterday by the decline to $1,125, as this chart shows:

The neckline level - at about $1,140 - was clearly breached yesterday. I point this out to show that chart patterns are not always reliable, and I admit that it had me going for a time.

[Anyone who needs an explanation of the head-and-shoulders pattern will find a brief one here.]

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