Gold Takes Bad Economic News In Stride

It wasn't all bad: fourth-quarter GDP was revised upwards, from 5.7% to 5.9%. However, the two items released at 10 AM ET more than made up for it - particularly since they pertain, if only indirectly, to first-quarter GDP.

The two disappointments were a consumer-sentiment drop from 74.4 in January to 73.6 in February, which gibed with the recently-released disappointment in the consumer-confidence area, and a 7.2% fall in January home sales as compared with December. Like the consumer-confidence number, the January sales figure was far worse then expected.

Once again, the U.S. Dollar Index didn't act as might be expected, as some gun-jumpers found out to their cost. A rally just before the GDP news turned into a dip shortly afterwards. From 8:45 to 9:45, the Index traced out a ragged but narrowing trading range centered at around 80.67. A dip at that time turned into an news-related rally that pushed the Index all the way up to 80.74, between 10:05 and 10:10. That rally fizzled, though, and turned into a real decline that didn't stop until just before 11:05 at 80.23. A mild upturn ushered in a short period of bobbing around, which veered downwards later. As of 11:46 AM, the Index was at 80.17.

Gold, of course, benefitted from the fall in the greenback. A rally undertook a little after the GDP-revision news partially was erased by 9:05, but that pullback stopped at the $1,110 level. Until 10:00, gold meandered around $1,111.50; at that time, it dropped as the greenback rose on the bad news. After getting down to $1,106.10, the metal reversed course as did the greenback. A strong and swift upturn added $13 to the price in the space of forty minutes. After it climaxed at 10:45, gold pulled back and came to rest around the $1,115 level. As of 11:47 AM ET, the spot price was $1,116.00 for a gain of $9.40 on the day. The Kitco Gold Index attributed $7.80 of the gain to a weakening U.S. dollar and $1.60 to predominant buying.

It's been a morning of reversals, ones that brought some trepidation to the greenback market. Gold bulls have reason to be jubilant, but volatility is still volatility - and that ole $1,125 barrier has yet to be met today. It might in the afternoon.


Update: As (my) luck would have it, the decline in the U.S. Dollar Index bottomed at about the time of the original post. 80.115 was reached between 11:40 and 11:45 AM ET, and that low marked the beginning of a relief rally that took the Index up to 80.48 between 12:15 and 12:20 PM. Afterwards, the Index entered into a fairly narrow trading range centered around 80.445. There was a slight upside-down saucer aspect to the range, which presaged a mild decline. Still, the lack of volatility in the last 70 minutes is notable for an otherwise-volatile day. As of 1:39 PM ET, the Index was at 80.385.

At the same time, gold took a dive that brought it back down to the level at which it meandered between 9:15 and 10:00. After making a quick double bottom at $1,111.50, as of 12:15 and 12:20, the metal climbed back up to $1,114 but fell back again to just above $1,112. After muddling around that that level from 12:37 to 1:07, gold took off again; it put on a quick six dollars an ounce between 1:07 and 1:32. As of 1:39 PM ET, the spot price was $1,117.70 for a gain of $11.10. The Kitco Gold Index divvied up the gain into $4.80 for greenback weakening and $6.30 for predominant buying.

$1,125 is still a ways away, but the intermittent spurt-ups in gold may turn into something more durable. Or, things may calm down as the trading week (and month) comes to an end. A mid-afternoon decline is unlikely.


Update 2: There was one, formally, but it was merely a pullback that stopped above the $1,115 level. There was no decline to the $1,100 level, nor even to a loss on the day. Instead, it was a sedate end to a sometimes exciting day.

$1,125 remained a ways away. The rally as of the last update ended at about the time I posted it[more "luck" on my part] and even $1,120 remained out of reach. Gold bobbed at around the $1,118 level from 1:30 to 2:00 PM ET, and then sunk down to about $1,115.50 in the next half hour. Starting at 2:45, it inched up, paused, and then settled in to a trading range with $1,116 as the floor and $1,117.50 as the ceiling. A final vault-up slightly above that range left spot gold at $1,117.90 for a gain of $11.30 on the day. The Kitco Gold Index allocated $5.10 of the gain as due to the weakening U.S. dollar and $6.20 as due to predominant buying.

For the week, there was a gain but a very thin one. Spot gold closed at $1,117.10 on February 19th, making for an eighty-cent rise between then and today's. The percentage gain was miniscule: up 0.0716%.

After some "excitement" earlier today, things were quiet for the U.S. Dollar Index. The slide that began at 1:10 ended at 1:30; after that, the Index remained in a trading range, bordered by 80.35 and 80.4, until 4:15. That range was tested on the downside between 1:50 and 2:25, and more briefly later, but it held until broken on the downside by a drop that carried the Index down to 80.3. After that bottom, made around 4:30, it recovered a little to close at 80.35 at the end of weekly trading. For the week, the Index lost 17 basis points.

Unfortunately, the usual Stockcharts.com offering for the U.S. Dollar Index has not been updated at the end of market closing. So, I'll turn directly to gold:



From the perspective of the six-month daily chart, today's rally looks little more than the re-establishment of a trading range that was broken on the downside earlier this week. $1,125-$1,130 continues to be both critical and out of reach. Given that re-establishment, I have to admit to having little to add to recent days' commentary. The near-term sanguinity, if not outright bullishness, is still there.

A substitute chart of the U.S. Dollar Index, of the March 2010 futures contract from TFC Commodity Charts, shows a breakdown of the recent bullish run, which topped out at a lower level than last week's:



This chart shows deteriorating MACD and RSI indicators in the face of a dip to a support level. Near-term indications don't say much that's favorable for the greenback, although 80 is the level to watch.

It may be of interest to know that the Commitment of Traders report shows that there is not a record high in longs for the Index; that honor was reserved for the week ended February 2nd. The non-commercial dollar longs [Euro short] record for the dollar-Euro contract was broken again for the week ending February 23rd, according to its own Commitment of Traders report. You can take a look at the daily chart for the March contract and draw your own conclusion.

Moving to the media, this Bloomberg report webbed by Business Week attributes the gain to bets on the eventuality of a Greek default. As the initial panic subisides, gold is regaining its safe-haven status.

“You’ve got to look to play gold on the long side,” said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. “Fiat currencies continue to lose credibility. Even if Greece gets rescued, there will be another country in line with their hands out. People are flocking to gold to shield themselves from the volatility in the currency markets.”

As the weekend arrives, I'd like to thank you for stopping by and I hope you enjoy yours. Despite today's action, the gold market and the U.S. Dollar Index both seem to be hesitating - particularly the latter. The pullback at the beginning of this past week has not diminished non-commerical enthusiasm for shorting the Euro one bit; if anything, it seems to have encouraged the shorts. Perhaps I shouldn't harp so much on the greenback, given that this is a gold blog, but a real drop in the Index would be the catalyst to push gold higher.


A postscript: It turns out that I had overestimated the skepticism of gold-watchers regarding the China-buying rumor for the IMF gold being sold. The sample selected by Kitco News, gold bulls all, said they wouldn't be surprised if it had been true (or is coming true.)