Gold Eases Downwards After Run At $1140

Gold's run yesterday contintued until late afternoon, when the price touched US$1,140. Failing to surmount that barrier, the metal drifted in a $1,135-$1,140 range last night until the lowerew end broke at about 8:30 PM ET. Then was established a lower range, from $1130 to $1135, which is being picked at as I write this post: as of that time, spot gold's at $1,130.60 after sinking to about $1,128. Most likely, the release of better-than-expected jobs claims data is behind the pull-up, which started at about the time the data were released. As noted yesterday, the gold market has been taking a liking to better-than-expected economic data.

The culprit is the U.S. dollar, which rallied this morning after sinking yesterday afternoon. However, this five-day chart of the U.S. dollar index shows that the current top, as yet, has not bested Monday's top. It has bested yesterday's.

From a less immediate-term perspective, the U.S. dollar index looks as if it's established a sort-term trading range between 77.5 and 78. Trading ranges mean there's no mover on either side, that there's a temporary equilibrium.

Speaking of charts, this daily gold chart shows a shift in the MACD winds:



When the black line has crept above the red line in the MACD field at the bottom, gold has tended to go for a nice run upwards. I'm not a fan of using technical indicators in general, as many of them have been matched against buy-and-hold and found wanting. Sadly, the ones that fare well against buying and holding tend to lose this advantage when the long-term wind shifts. Example: the MACD "edge" in the above chart works because gold's in a bull market, and moves up in fits and starts. Should this long-term trend change, the MACD strategy would fall apart. Even if the fit-and-start pattern changes, the MACD technique might well underperform simple buy-and-hold because the latter will produce greater gains.

However, indicators such as that one can be used as an accessory to a buy-and-hold accumulation plan. Instead of buying more gold in a fixed timeframe, buy (and hold) when the black MACD line moves above the red line. For those who find this strategy to be of interest, I should say that I haven't backtested it.


Moving to the media reports, the Wall Street Journal Online attributes the gold slump to an unexpected jump in a key Chinese interbank lending rate. The implication is that the Bank of China is beginning to tighten. The featured commentator is bullish, but the end of the article notes that the SPDR Gold ETF saw a 5.257 metric ton drawdown of gold on Wednesday - about 0.3% of total holdings. This drop occurred in the face of yesterday's gold-price jump.

A Bloomberg report makes more of the drawdown, quoting a trader about it:

“A switch in investment activity and a slowing in the purchase of exchange-traded products suggest that the risk of liquidation has grown,” said Yingxi Yu, a commodities analyst at Barclays Capital. “An end to the dollar’s weakening trend could therefore be a major setback for gold.”

It is a bit of a change from recent weeks, when the net holdings of the ETF didn't change all that much. One possibility: some recent buyers were scalpers, in for a quick flip which they got out of yesterday.