Gold Now In Holding Pattern

After an afternoon drift-down that reintroduced the price of gold to the US$1,115 level, the metal's drifted back up to the $1,120-$1,125 range it found itself in yesterday morning. As I write this post, spot gold's broken through the top of that range to reach $1,129.20.

The U.S. dollar index is up from yesterday's levels, reaching 78 as of 4 AM ET. This U.S. dollar index chart shows the greenback drifting downwards, with 78 being near the high end of the channel now:





Of interest is the fact that the two MACD lines at the bottom of the graph have crossed. In recent history, the black line has sunk below the red line when the U.S. dollar has been dropping. As the chart indicates, the greenback index has been drifting downwards after its run-up last month. However, the absolute levels of both are much higher since the drift-down started, than at any other time in the chart's time period. The same consideration applies to the relative-strength index, shown at the top of the chart. I myself have little expertise in chart reading; to my dabbler's eyes, though, that chart looks pretty good for the greenback. We're unlikely to see fresh lows for the U.S. dollar anytime soon, the kind that would bring back another parabolic rise for gold. I should add that an optimistic take on the greenback is consistent with a recovery of the U.S. economy, and a rise in the Fed Funds rate sooner rather than later. Market speculation has centered around June for the first rate hike, although there's been little regarding the amount of any hike.


Despite that risk of a hobble, gold is holding up well. As this Wall Street Journal Online report says, investment demand is holding the metal's price up - and the greenback wasn't the factor cited. "Gains in other commodities also sharpened investors' appetite for gold, analysts said." The reflation trade, to put it simply.

When the level of investment demand isn't much dampened by a price plummet, the asset in question is said to be in "strong hands." As has been oft-noted of late, investment gold is acting like it's in strong hands. There hasn't been the wholesale exits from the metal that are associated with the short-term skittish. Strong hands tend to buy, not sell, during and after a price plummet.

This Bloomberg report makes the tie explicit: "Gold rose in London as last month’s decline, the biggest in more than a year, spurred demand." Both stories warn, however, that gold's likely to go through a rough patch should a rate hike and/or greenback jump occur. As of now, the business-media reports are balanced between bulls and bears (of whatever breed.)