Another Morning Drop, Afternoon Respite

After spurting up to almost $1,090 post-GDP report, gold entered into yet another morning decline. This one started just before 9 AM ET, and its first downleg lasted for more than an hour before bottoming at about $1,076. A partial but quick recovery ensued; it ended right after 10:30. Since then, gold's been largely dropping. The day's low $1,074.10 for spot gold was made just after 11 AM ET.

The GDP report did it - for the greenback. Thanks to the 5.7% 4Q number, the U.S. Dollar Index has gone on a tear. From about 8:15 to about 11, the Index has shot up from about 78.95 to 79.325. After a slight reaction, the greenback made a slightly higher new high at 79.334. At these levels, the highs are not only daily...they're also since-August.

If there is a well-funded scalper who keeps shorting gold in the morning and hoping for the resultant decline to stick, (s)he has been successful this time 'round. As of 11:23 AM ET, the Kitco Gold Index has split the $9.10 decline in gold into $4.40 due to dollar strengthening and $4.70 due to predominant selling.


Update: The decline ended right after noon, at about the same time the greenback peaked. Gold got down to $1,074, or slightly above its daily low, then hung around that level for a little while, and then started slogging back up. As of 12:54 PM ET, the Kitco Gold Index had almost all of the gold decline attributable to strength in the U.S. dollar.

The greenback's been the story of the day. Right at the time gold's decline ended, the U.S. Dollar Index peaked at 79.448. It pulled back a bit, but its 12:55 PM level of 79.39 made for a gain of 0.449. For the daily greenback, that's a big one.

As of 12:56 PM, spot gold almost made it back to $1,080. The rest of the afternoon will show if called-forth support will put it back into its old range.


Update 2: It did so, but just barely. As the greenback marked time, gold climbed up to $1,082, lingered there for a bit, drifted down and then up in a narrowing spiral pattern. That pattern was later bent.

The Kitco Gold Index had gold showing a miniscule gain due to predominant buying power, but just barely. Ten cents down, with the greenback holding steady, and it'll be even. The raw drop on the day is $6.50 as of 2:41 PM ET.

The rest of the week's trading is likely to be quiet. It's a toss-up as to whether or not $1,080 will become the floor again by the end of trading at 5:30. As of 2:44 PM, however, gold slumped to $1,078.50. The U.S. dollar woke up again.


Update 3: That wake-up proved to be temporary. The U.S. Dollar Index, after making a new since-August high at 79.482 made shortly before 3 PM ET, went back into a trading range. That high was slighly bested right after 4 PM, but the 79.5 resistance level held.

After sliding down to just above $1,076, reached right at 3 PM, gold climbed back up. By 4 PM, it was almost at $1,082. That run-up exhausted the buying power and gold came to a rest just above the $1,080 level. As of the close of this week's trading, spot gold was at $1,080.20.

Gold did end up above $1,080, but it's still an open question as to whether or not the support level is re-established - or whether there's a new channel opened between $1,075 and $1,080.

What isn't in doubt is that gold held up well despite the greenback's surge. The Kitco Gold Index credits gold with a $2.00 gain in today's trading once the U.S. dollar is factored out. $7.20 was taken off the price due to the greenback, making for gold's raw $5.20 loss on the day.

Gold was down on the week, from just above $1,090 as of Jan 22nd to today's $1,080. It's not just the end of the trading week, it's also the end of the trading month. Gold was about $1,097 as of the end of December, so the $1,080 reached today does makes for a monthly drop more than one-and-a-half times the amount of the weekly drop. Given the rocketing dollar and the surprise tightening moves by the People's Bank of China (PBoC), it could have been worse. This last week, and the week before it, was spent waiting for another shoe to drop...and to see if the $1,080 floor was broken in a serious way. There were people, normally gold bulls, who were tightened up for a run at $1,050 and seemed braced for a run to $1,000. Whether averted or postponed, that plummet never happened this week.

What's striking about the gold market this last week has been its resiliency. The much-mentioned $1,090 support level was broken on Wednesday. $1,080 replaced it. There were a few tests of $1,080 today, some going down below $1,075, but there always seemed to be called-forth demand at those lower prices. Formally, $1,080 held even when the greenback put a lot of pressure on gold. This "layered support" shows clearly that the breaking of an important support level did not engender any panic. Gold, at least for now, is in strong hands. It's hard to avoid the conclusion that gold's decline has been softened by bargain-hunting.

This Reuters report ascribes gold's fall to both the U.S. dollar leap-up and "liquidation." The liquidation referred to is funds pressured to do so by proposed bank restrictions:

Commodities [have been] under pressure since Obama proposed to restrict banks' risky trade, possibly including commodities.

The same story says that April gold futures ended this month 1.3% lower than in the end of last month.

A Globe and Mail wrap-up mentions the same liquidation pressure, as well as the strengthening greenback, as the causes of gold's decline this week. It also notes that the futures price has declined nearly 4% in the last two weeks (since the PBoC got rolling on its tightening.) Therein is a caution about the futures testing the $1,060 level:

On charts, gold futures held key support at their 100-day moving average at $1,087 per ounce, but further decline could lead to a test of the $1,060 area, seen as support where prices topped out on the way up last October, analysts said.

A break to $1,060 by the futures would mean a drop to about $1,055 for the spot price It might entail a drop to $1,050. It just might.


Happy weekend, happy end-of-month, and thanks for stopping by.