Gold Run-Up Still Continuing But Choppy

Although headwinds sprung up, late morning trading has been fairly good for gold - quite good, given the rise in its price earlier this week. After shooting up more than eight dollars an ounce at the opening of regular trading, the metal pulled back about six dollars between 8:45 AM ET and 9:45. Later, it climbed back up and made a new daily high of $1,120.90 at about 10:50 AM. Since then, it drifted back down somewhat. As of 11:30 AM ET, the spot price was at $1,115.20 for a gain of $16.20. The Kitco Gold Index allocated that gain into $9.10 due to predominant buying and $7.10 due to U.S. dollar weakness.

Weaken, the U.S. Dollar Index did. It poked through a 80.05-80.15 range at about 9:15 AM ET and climbed up to a little over 80.20 by 9:37. However, that move up turned out to be a head-fake. The Index drifted down shortly after hitting that level, sinking slightly below 80.15 by 10:30. The sell-off accelerated shortly afterwards, taking the Index down below 80 by 10:45. The downturn grew less intense but still continued until twelve-minute a resting spell at the 79.86 level. As of 11:30 AM ET, the Index was at 79.86.

As morning turns into afternoon, the proportion of gold's gain allocated to U.S. dollar weakness is growing. The recent weakness in the greenback isn't translating into renewed strength in gold. The afternoon will show if gold's pausing will continue.


Update: The weakening in the U.S. Dollar Index has continued; selling pressure drove it down to just above 79.6 as of around 12:30 PM ET. The drop was fairly smooth, with little pullback, until it stopped at that time. Since then, after a halt at the 79.65 level, the Index climbed back up somewhat but was still soft. As of 1:26 PM, it was at 79.68.

Despite that weakness, gold hasn't really benefitted. After a near-term double peak at 11:37 and :45 AM, at about $1,118.50, the metal slid back to the $1,115 level in a slowly descending channel. The support at 1,115 has held so far, but the price did nudge at it. As of 1:27 PM, spot gold was at $1,116.60.

The Kitco Gold Index had most of the $17.40 gain due to U.S. dollar weakness. $9.80 is assigned to it, while only $7.60 is allocated to predominant buying.

The headwinds are still there. $1,115 is holding, but the the price is still above bargain-buying support levels. The day's price range is at an important resistance level, particularly the one in the neighborhood of $1,110, so further lassitude wouldn't be surprising.




Update 2: $1,115 did end up holding, although the gains were sparse in the rest of the afternoon. The gold price climbed in two irregular waves, the second making it to the $1,120 level just before 3:30 PM ET, but neither made a new day's high. After reaching that level, gold tailed off, fluctuated for a little bit, and ended the regular-trading day at $1,117.80. The $18.30 gain on the day was allotted by the Kitco Gold Index to $10.50 due to weakness in the U.S. dollar and $7.80 due to predominant buying.


After skidding yet again, the U.S. Dollar Index was fairly quiet. The slide that was in progress as of the last update continued until 2:30 PM, when it reversed somewhat. A further decline started at 3:00, which took the Index down to 79.58 at about 3:40. The Index then rebounded half-way and spent the rest of the session in a trading range bounded by the 79.61 level on the downside and the 79.65 level on the upside. As of 5:30 PM, it was at 79.64.

This Stockcharts.com daily chart of the Index shows a spill that may be portentous:



Although this fact doesn't directly pertain to the U.S. Dollar Index, it's nevertheless indicative: the net non-commercial euro short position for the dollar-Euro contract was at a record high as of last Friday. In other words, the non-commerical U.S. dollar longs were at a record. The Index fell an awful lot today against the non-commerical positioners, which are traditionally (if cynically) regarded as the sheep of the shearing show. Even players don't think too much of speculators, unless they show talent at it over a long horizon. (Then, if they're big, they tend to be worshipped.)

There's no guarantee that a non-commercial bandwagon will be frustrated, even if it's mainly composed of oft-looked-down-upon small speculators. Once it is, though, a bandwagon of that sort suggests a lot of weak hands will be looking to exit in order to cut their losses or bank what's left of their profits. As of now, the greenback could be said to be at the lower end of a trading range - but it's still pretty low. In addition, the MACD line has crossed over to the bear side and the RSI is plummeting. Neither of these two indicators, in and of themselves, suggest that a major reversal is coming or that a mini-bubble is about to burst. The MACD went bearish at the beginning of January, which foreshadowed the continuance of a modest decline, but it crossed over to the bull side at a higher level than its earlier bear cross. Anyone trading using it would have either lost money (though shorting) or cut out some of the buy-and-hold gain (though exiting.) The RSI is at a lower level than it was at the last MACD bear cross, but not by much.

I've spent some time on the technical position of the Index because it pertains to a chart pattern seen today on the gold daily chart. Look at today's price movement on the far right and you'll see a chart pattern known as a "gap."



There are four kinds of gaps: common, breakaway, runaway, and exhaustion. As its name indicates, the first kind is the most frequent. This kind of gap will eventually be "filled," meaning that the market got ahead of itself at the time of the gap. Despite the potential of a spike due to a dropping U.S. dollar, and despite the new record price for gold in Euro terms, I would assume that the above gap is a common one even if it may take some time to be filled. Despite the risk of an imploding mania in the dollar/Euro trade, the greenback's still in a bull trend. The U.S. Dollar Index could descend to 78.5 and still be considered to be a solid climber, because 78.5 marked its last intermediate high.

Returning to gaps, the only other fits right now are a runaway gap or an exhaustion gap. The first isn't likely unless the U.S. dollar is due for a real turn in trend, and the second isn't probable because of sub-$1,100 bargain buying.

Granted that gold has had a good run over the last week, and it's climbed in the face of accompanying skepticism, but there isn't enough catalyst to re-ignite the long-term bull market as yet. The long-term reasons pertaining to the vulnerability of the U.S. dollar are still potentialities. Inflation is poking its head up, but at most in a few countries. (China, the U.K., Australia.) The factors' abeyance do not say that gold is going down, but they do say that gold has no catalyst to drive it up. Lately, bargain hunting has provided a floor and a kind of catalyst. At these levels, it won't be there anymore.

I don't mean to rain on anyone's parade, let alone project a pessimistic opinion on gold, but I don't see any drivers that would make the above-mentioned gap anything more than a common gap. The identity of it will be made more clear in tomorrow's trading.

[By the way: a pair of common gaps I pointed out nine days ago have both been filled on the upside.]