After Reaching of $1,110, Gold Rally Pauses

As it turned out, there was a slight pullback last night that took gold down slightly below $1,100. After drifting down once night trading began, gold drifted back up to just below the $1,105 level until about 10:30 PM ET. Then, the price slid until it reached the $1098 level less than an hour later. $1,100 held, though, and the bounce-back carried gold up to the $1,105 level by 5 AM ET. Another pullback ended well above $1,100. $1,105 was broken through again in an early-morning rally that carried gold well above $1,110: by 6 AM, the metal was bumping against $1,115. A range developed between $1,110 and $1,115, which was holding as of 9:49 AM ET.

The U.S. Dollar index has given up close to all of its Friday gains. According to this alternate chart, the Index was at 79.087 as of 9:59 AM ET. (The regular one I've been using has been stuck.)

U.S. dollar weakness was the reason given by this morning's Globe and Mail report. The expert quoted therein was skeptical of the recent rally, specifically about potential ETF outflows:

“The recent gain of the last two days has been largely dollar-driven,” said RBS Global Banking & Markets analyst Daniel Major. “After dollar strength last week, we have had a bit of a recovery in the euro.”

He said an outflow of investment from gold exchange-traded funds was a risk factor for prices....

The Wall Street Journal Online ascribed the recent greenback weakeness to Euro strength caused by a Greek plan to reduce its budget deficit. The resultant easing of the Euroland crisis has pushed up the Euro with respect to the greenback. In addition to that reason, according to MF Global analyst Tom Pawlicki, there's also the proposed $30 billion lending program to small business. That annoucement is boosting risk appetite in general.

"Risk appetite" has become the new buzzword, suggesting a correlation between a rising stock market, falling U.S. dollar, and a rising gold price. Although a liquidity-based term, it does connote recovery turning inflationary.

That skepticism shown in news reports is not reflected in gold timers' calls. According to Mark Hulbert, those gold-watchers were quick to turn bullish as a result of yesterday's 25 dollar gain:

Consider the jump just over the last couple of trading sessions in the average recommended gold exposure among the gold timers tracked by the Hulbert Financial Digest. From a low of 18% late last week, it stands now at 32.2%.

This is not how sentiment typically behaves at market bottoms of more major significance, according to contrarian theory. The prevailing mood at such bottoms is one of skepticism, when any rise is treated as nothing more than a suckers' rally to seduce the unsuspecting into investing before the bear market resumes in earnest.

In contrast, it is a bad sign when, like now, gold timers are quick to declare that the worst is over. This is the source of the aphorism that bear markets like to descend a slope of hope....

He also adds that gold timers have become less discouraged by pullbacks, another worrisome sign to a contrarian.


As this truncated edition of the report comes to an end, I would like to apologize for it being late. As of 10:22 AM ET, gold has climbed back up above $1,110 after briefly sinking below that level. The recent drive-downs of the price that have kicked in as of 8:30 AM ET, have not made any appearance. As of 10:25 , the Kitco Gold Index has almost all of the $5.80 gain in gold so far as due to predominat buying. The U.S. Dollar Index has clocked in at 79.081. Spot gold, as of the time of this post, has notched up to $1,112.50.