After Slight Driftdown, Gold Up

Evening trading got started with gold going up slightly. Starting at 8 PM ET, however, the price drifted down slightly to just above $1,110. This latest evening downturn left gold in a narrow channel with that same $1,110 as the lower end. Starting at midnight, the channeling ended and gold began to climb up. $1,120 was bested at about 2:30 AM ET. After a pause, another run-up saw gold make it as high as $1,125.80. After it ended, spike turned to downdrift and gold fell below the $1,120 level in a steady slide; that slide began to accelerate at 8 AM. As of 8:05, gold was at $1,114.30, virtually unchanged on the day.

The reason for both uptrend and downtrend was the U.S. dollar. As progress was made with Greece's fiscal situation, the safe-haven premium for the greenback melted away. The U.S. Dollar Index advanced slightly in the evening, entering a range which was centered around 79. Starting at midnight, the Index slid down smoothly with hardly a secondary reaction, right to 78.675 by 4:05 AM. A short period of indecisiveness ended with the Index rallying back up. By 8 AM, the Index had almost erased the early-morning decline. 79 was not to be reached as of then, though: as of 8:10, it was at 78.95.

An optimism-laced Bloomberg report makes the same attribution suggested above: gold climed because the U.S. dollar fell, and vice-versa. Two experts quoted were bullish:

“The euro seems to be on the upside, and that’s beneficial for gold,” said Afshin Nabavi, a senior vice president at bullion refiner MKS Finance SA in Geneva. “Physical demand is exceptionally good,” and prices may climb toward $1,140 an ounce if they surpass $1,125, he said....

“Price levels below $1,100 an ounce apparently attract buyers who consider this as a lucrative entry point,” Eugen Weinberg, a senior analyst with Commerzbank AG, wrote in a note to clients.

It's not just the analysts, either, Near the bottom, the article mentions a reaffirmation of two oprtimistic forecasts for the metal, including Newmont Mining's call for $1,350 gold by the end of the year.

In addition to the then-falling greenback, this Globe and Mail piece attributes gold's rise to technical buying.

Commodities were higher across the board as appetite for assets seen as higher risk was sharpened by well-received U.S. economic data and a bounce-back in equity markets.

“The recovery we have seen this week in stock markets, and the euro recouping losses it suffered last week is a positive environment for the metals market,” said Peter Fertig, a consultant at Quantitative Commodity Research.

“A weaker U.S. dollar also implies that institutional investors are returning to the market,” he added.

Another analyst was quoted as saying that gold is now a risk asset, moving inversely to the greenback like other risk assets.

Speaking of the greenback, this chart shows a relative-strength oddity at the top:



It's not often that an RSI chart goes into oversold territory for one day, after which the investment peaks. That being said, the greenback is still in an uptrend that was exaggerated by the Greece fiscal crisis but is still extant. As of 8:30 AM ET, the Index leapt above 79 and reached 79.1 even; the ADP jobs report came in, and the greenback reacted with a jump. The 22,000 jobs cut was seen as bullish for the greenback, but not for the stock indices except briefly even though the cuts were lower than expected. Gold itself slumped about two dollars an ounce in consequence.

The gold:GLD indicator closed at 10.21 yesterday. This special post has a discussion of it.

As the ADP data is being assimilated, gold has moved down but not by much. As of 8:50 AM ET, according to Kitco, gold is at $1,111.50 for a drop of $1.70 on the day. $1.10 of the drop was attributed to strengthening of the U.S. dollar.