Noon Slamdown Makes Its Appearance, Then Abates, Then Reverses

The slam-down early in the morning led to a respite until after 11:30 AM ET. The jobs report ended up having little effect on gold, one way ot the other, despite a short-term rally from 8:30 to 9:00 that took the metal up ten dollars an ounce. The gain was given up entirely over the next hour and twenty minutes, leaving gold in a range between $1,052 and $1,062; that range was recently broken through on the downside. As of 11:54 AM, the Kitco Gold Index has broken up gold's $17.30 decline on the day into $7.10 due to strength in the greenback and $10.20 due to predominant selling. The near-noon slamdown arrived.

After slumping below 80, right after the jobs report was released, the U.S. Dollar Index recovered before rising yet again. The Index was in a range between 80.25 and 80.35 until recently, when it shot up to a new daily high of 80.60 as of 11:49. As of jsut before noon, despite a pullback to 80.53 as of five minutes later, the greenback seemed unstoppable.

As of that same time, spot gold was been slammed down to $1,045.90 - within three and a half dollars of its daily low of $1,042.50. Not much hope on the afternoon front...


Update: Gold didn't completely recover from that slamdown, but a partial recovery did ensue. After plunging down to below $1,044, the metal bounced back to above $1,050. A pullback at 12:30 PM EST was erased and the price ended up slightly higher. Since then, it's settled into a trading range bounded by $1,048 on the downside to $1,052 on the upside. Interestingly, the near-$1,050 level has given support.

The U.S. Dollar Index has been marking time as well after reaching yet another since-July high at 80.624 just before noon. The Index pulled back to below 80.5, and then rose part of the way back up: as of 1:34 PM ET, it was at 80.56.

The preponderence of today's decline so far swung back to strength in the U.S. Dollar. As of 1:39, the $13.60 drop was divvied up into $7.30 due to the greenback, and $6.30 due to predominant selling, by the Kitco Gold Index.

As the end approaches for what's very much been a down week, the gold market went calm. There may be a last-hours surprise, but it's unlikely.


Update 2: Well, there was a late-hours surprise - particularly surprising, given how gold's performed up to the early-afternoon stretch. The metal ended up recovering all of the day's loss and closing the week's trading at exactly $1,065.00. The rise started at 2 PM ET, when gold was just above $1,050. It steadily climbed to the $1,065 level and bobbed around until the end of the session. As a result, the metal ended with a a daily gain of $1.80. The Kitco Gold Index divided the gain into a loss of $3.00 due to a strengthening U.S. dollar and a gain of $4.80 due to predominant buying. This Stockcharts.com chart shows how bad things got this week:



Incredibly, the RSI for gold never got below the oversold point during yesterday's and this morning's carnage. Today's gain is thin, but the low point of the line shows how bad things got. There did prove to be solid support at the $1,050 level, even if its assertion was iffy earlier in the day.

The U.S. Dollar Index topped out at the same time: its daily high of 80.69 was made just before 2 PM. Subsequent to that high, the Index slid down for the rest of the afternoon until it found a range just before 5 PM, centered around 90.25.

This one-year chart shows the greenback in the same range it was as of last June and July:



The weekly chart, going back the last three years, shows that the Index has touched its 200-week moving average:



The only bearish sign in either of those charts is the daily's RSI tripping into oversold territory. Technically, it's hard to make a bear case for the greenback unless this rally ends up peaking at below March '09's. That would require a topping below 89 followed by a sustained decline. To do so would require, say, a pick-up in inflation and a too-slow response from the Fed. Three linked questions worth pondering: has the rallying of the U.S dollar, even though the last leg was crisis-prompted, already discounted a Fed Funds rate hike? If not, and it's the greenback carry trade unwinding, at what point will the unwind cease? If it does, then what'll happen to the greenback once that bullish pressure is gone?


A further question: what happens to President Obama's grow-the-exports plan if the greenback's rally proves to be both sustained and long-term? The answer to this one points to a certain trade-off in the D.C. financo-political calculus. Rising greenback = happy foreign creditors and hobbled exporters. Falling greenback = unhappy foreign creditors and aided exporters. So far, the greenback's rise has been unaccompanied by serious Fed intervention in the currency market. I wonder how long that can continue: at what point is it decided that "America" has been fair enough to foreign creditors?


Moving back to more quotidian matters, this final Stockcharts.com chart is a six-month graph of the gold:GLD ratio. If it's below 10, then physical gold is selling for less than the paper-gold equivalent (ten shares of GLD):



Unusually in the last six-month period, the ratio has moved below 10 twice in the same week. What's also unusual about this particular dip is that it didn't lag any day-to-day resurgence in the gold price. As noted above, gold barely budged on the day even if it recovered nicely in the afternoon.

As the week ends, gold's left with a weekly decline that's far less than might be imagined given yesterday and this morning. As of last Friday, the metal was at $1,080.20 spot. Today, it closed at $1,065.00. The weekly decline was only $15.20, or -1.41%. What made yesterday so awful was the same factor that mitigated the weekly decline: before it, gold was on track for a nice weekly gain.

I'd like to leave you with a brief description of a tantalizing theory - the "Indian floor" - accompanied by a much better-looking 10-year chart for the metal. Even in weeks like this one, there's always someone willing to romanticize a support level.


Thanks for stopping in, and enjoy your weekend.