Friday, January 22, 2010

Gold Scrapes A New Bottom, Then Pulls Up

Prompted in part by a resurgence in the U.S. Dollar Index, gold fell late this morning and bottomed at just above $1,080 around 10:15 AM ET. The mid-morning decline visited upon gold once again. The greenback rallied further, spiking up to a day's high of 78.523 right after 10:40, but gold failed to follow. The spike, as it turns out, only lasted a few minutes. Shortly afterwards, the Index sunk to the 78.2 level.

As of the time of this post, gold has not only rallied but also has reversed the mid-morning decline. Unlike yesterday, the price almost reached the level it was at just before the decline started.

If those push-downs are a test of the market's softness, then today's test has shown a resiliency that yesterday's didn't - even though the Kitco Gold Index shows that gold has dropped once the U.S. dollar fall is factored out. The rest of the day will show if $1,090 ends up holding.

Update: The U.S. Dollar index still continues to sink, although more slowly than in the 11:45 AM-12:30 PM ET timespace. Gold, which moved in contradistinction until about 12:30 PM, not only made the pre-morning-decline level but also bested it a little.

Despite the continuing slump in the greenback, though, spot gold's below $1,090 again. The moderation of the U.S. dollar's decline seems to have softened the metal up for a slump of its own. As of 1:34 PM, the Kitco Gold Index has gold down 6.50 due to selling pressure extraneous to the greenback. That's higher than it was as of 11 AM.

Update 2: The decline in the U.S. Dollar Index ended, with the greenback pulling up to above 78.3 before sinking a little. The end-of-day fall put the Index at 78.28.

As it turned out, $1090 did hold. After a slump that carried gold down to about $1087, which lasted from 12:30 to about 1:50, the price first drifted and then clambered back above $1,090. The barrier was broken at about 3:30. After which, and as prompted by the greenback slump, spot gold drifted once again to close the week at $1,091.50. At the end of the week, the Kitco Gold Index broke down the day's $1.60 drop into: a rise of $2.15 due to the falling greenback, and a loss of $3.75 due to "predominant selling." That 3.75 figure was slightly worse than the figure that prevailed as of 11 AM, but better than at 1:37 PM. For the week, though, spot gold was down about $40/oz.

A check of the reports shows that the same factors are being cited: the Obama bank-reform policy and the tightening process by the People's Bank of China. There was no new factor for the afternoon, which makes sense given gold's drift during that period.

Interestingly, the accelerating afternoon decline in the U.S. stock market averages didn't have much of an effect on gold. It did in the morning, but only duering the time when a downdraft has appeared anyway.

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