Gold Market Quiet But Churning (Bumped)

[Bumped for order's sake, to keep it above the special post made tonight.]

Despite some testing on the upside and downside, the $1,110-$1,115 range held until a sustained push to the upsaide staring just after 11:30 AM ET. The daily economic news cycle passed without much effect on gold; the latest upswing has not been news-driven or immediately greenback-driven.

The U.S. Dollar Index, after descending below 79.1 at about 9:10 AM, and channeling between 79.06 and slighly above the 79.1 level, atempted to recover right after 10 AM. That recovery failed to hold, though, and the Index slumped down to 79 by 10:35. The Index got back in its range, bordered by the 79.1 level on the upside. As of 11:40 AM, it was at 79.06. The December housing data, which was optimistic but below expectations, evidently was misinterpreted for a brief spell. There's evidently a fair bit of bullish sentiment for the greenback. Given the frustration of that sentiment, the U.S. dollar looks more overbought than oversold at this point.

Kitco's Gold Index, as of 11:49 AM, showed a $9.50 gain for gold. Only $1.80 was attributed to the falling U.S. dollar; the rest was attributed to predominant buying. As of the time of this post, a more sustained push above the $1,115 level ensued.


Update: There was a push above, but it petered out. At about 11:45 AM ET, the spot price got to $1,117 but fell back to below $1,114 shortly afterwards. A second attempt to get and stay above $1,115 at 12:30 lated longer but ended too. As of the time of this update, gold's been in a narrow trading range bordered by $1,117 on the upside and just below $1,114 on the downside.

After slumping back to a range from 79.05 to 79.08, the U.S. Dollar Index fell below the lower value as of about 12:15. A quick but short-lasting dive took the Index below 79. Bottoming at 12:34, the greenback climed back up to the 79.05 level before sinking again. A pause right at the 79 level was broken through right after 1:30 PM ET. Given the recent weakness, the Index is on track to giving up all its Friday gains.

Perhaps unsurprisingly, gold hasn't benefitted all that much from the greenback's slump. As of 1:32 PM, Kitco has a gain of $11.10. $2.95 of that gain is from the weakening greenback, while $8.15 is due to predominant buying. Since the gain distribution is shifting, part of gold's rise today was discounting a futher fall in the U.S. dollar.

As of 1:38 PM, gold hasn't fallen but has paused; the spot price is barely above the 1,115 level at $1,116.30. It looks like another shot at the top end of the range is coming.


Update 2: The shot I mentioned actually ended at about that time. A final attempt was made right after 2 PM ET, which topped out just above $1,117. The above-mentioned range was actually broken on the low end, as gold drifted downwards for the rest of the session.

The weakness in the U.S. Dollar ended in mid-afternoon too. The 79 level was breached, but just barely. Instead of continuing the downturn, the Index hovered in a range centered around 79. As of 5:30 PM ET, it ended up at 78.98.

On Thursday, the Index closed at about 78.9. Yesterdays and today's drops have not pushed the greenback down to the level it closed at before Friday's jump, but today's was close.

The Kitco Gold Index divided up gold's $7.80 end-of-day gain into $2.60 due to a drop in the U.S. dollar and $5.20 due to predominant buying. The final close for spot gold, before evening trading started, was $1,113.40.

Two reports attribute the rise to techncial buying. Reuters puts it briefly:

* Gold rallied to a near two-week peak mainly on technical buying. As prices moved above technical resistance levels, more buyers entered the market - traders.

* Steep declines and volatility heading into January's month-end drove some players out of gold who renewed their buying once prices broke above several key upside targets- traders.

* Some analysts saw $1,076 an ounce as a buying level. Others cited the psychological $1,100 level as key.

Another report, webbed by ForexYard.com, quotes an expert in the matter:

Tom Pawlicki, precious metals and energy analyst at MF GLOBAL in Chicago, cited the December low at $1,076 as a trigger that drew some investors back into the market.

Looking at investment flows data, he said he saw a contingent of traders that were long gold, liquidated on recent declines, then quickly tried to get back in as prices rose.

"People were pretty much getting whipsawed by the volatility. A lot of people were starting to line up for a breakdown to new lows when the dollar was climbing against the euro, but that didn't happen. So, now they're trying to get back in," said Pawlicki.

Both reports credited U.S. dollar weakness as contributing to gold' gain.

As it turns out, I was wrong about yesterday's rally being due to short covering. Longs being whipsawed out and in produced a similar reaction.


The question remains: is there any potential demand left to push gold up higher, or is this run finished? The question depends upon the U.S. dollar, since there's no immediate gold-benefitting crisis on the horizon right now. Gold has shown a bit of rally on good U.S. economic news, but that's largely a side effect of the sinking greenback. There have been hints that the gold market is tipping away from "recovery means Fed hike" to "recovery harbinges [more] inflation", but those hints have been too few so far. There's only been that apparent trend when gold's been at bargain levels. From what I've seen near-term, it no longer is right now.

My own hunches say that gold's in for a rest tomorrow, but I've been wrong before. Let me leave you with this chart of gold as of the end of regular trading today, which shows a nice double bottom: