The Pause That Refreshed, And Later Dwindled

It's been one of those days where the morning slamdown was limited. After being pushed more than eight ounces after NYMEX trading opened, gold stood pat until 10:30 AM ET. Another dip at 9:10 took the metal down only a few dollars an ounce and was quickly recovered from. Between 8:45 and 10:40, gold stayed in a range bordered by $1,061 on the downside and about $1,065 on the upside.

Then, prompted by a fall in the U.S. Dollar Index to slightly below 80.10, gold rose to above $1,070. As of 11:34 AM, the metal was at $1,067.50 after breaking slightly above $1,070. The Kitco Gold Index attributed gold's $2.50 gain to $0.90 due to the weakening U.S. dollar and $1.60 due to predominant buying.

Speaking of the greenback, its recent top of 80.5 has accompanied some disturbing news from Bloomberg about net long future positions in dollar-Euro:

Futures traders increased bets to a record level that the euro will decline against the U.S. dollar on concern budget deficits in Greece and other European nations will hamper the region’s economic growth.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro [with respect to the dollar] compared with those on a gain, the net position, was 43,741 on on Feb. 2, compared with 39,539 a week earlier, figures from the Washington-based Commodity Futures Trading Commission show....

This jump-up is reminiscent of speculative longs in gold as of late November. It should set off alarm bells in a contrarian's mind.

As of this morning, the greenback has pulled back from that high. After a downward drift that started at about 9:50, the Index went from about 80.37 to the above-mentioned 80.1. As of 11:31 AM ET, it's recovered somewhat to reach 80.17.

Not much may happen today in the gold market, but the Bloomberg-reported long overhang indicates that the next shoe to drop is a U.S. dollar pullback...


Update: Any such pullback didn't happened. The U.S. Dollar Index climbed, moving up to 80.27 in a staggered rise between noon and 1:16 PM ET. Over the next twenty-five minutes, it was marking time.

Gold gave up its day's gains after reaching above $1,071 at almost 11:15 AM. Driven down in part by the greenback's recovery, the metal fell to a little below $1,065 but that level ended up holding. A slight recovery ended with the $1,065 level being tested again. It held a second time, but foundered on the third test: at about 1:15 PM, the metal's price slid below that level.

As of 1:37 PM ET, gold's at $1,063.90 for a loss of $1.10. Seventy cents of that loss was attributed to strength in the U.S. dollar by the Kitco Gold Index.


Update 2: As it turned out, the U.S. Dollar Index kept moving upwards. The shoe I've been expecting to drop, hasn't.

Instead, the Index climbed from 2:30 PM ET to 5:25 PM, going from about 80.22 to just below 80.45 in that timeframe. Since that time, it's been in range bounded by 80.42 and 80.45. The marking-time mentioned in the last update did lead to a secondary decline, but that decline only took the Index down a tenth of a point. As this Stockcharts.com chart shows, the greenback bull is still alive with barely a flinch. It's still in oversold territory, as indicated by the RSI series at the top of the chart:



That rise, of course, dragged down gold; the metal failed to hold the $1,065 level. After sinking below it right around 1:15, as mentioned above, gold recovered to that price and stayed around it until a little after 2:30 PM. Then, the metal slid downwards once again in a drop that leveled off near the end of regular trading. At the end, gold was at $1,061.40 for a drop of $3.60. The Kitco Gold Index attributed all but 50 cents of the decline to the rising U.S. dollar. The daily Stockcharts.com chart of gold, which has a slight discrepancy from the Kitco value due to it using the nearest futures contract, presents a short-term picture that still looks bleak but with $1,060-level support holding:



The metal's still stuck in the low end of the RSI channel graphed at the top, although it has not fallen to the undersold point of 30. The 200-day moving average (red line) is still rising to meet the current price. As has been the case in recent times, the U.S. dollar wil determine whether the $1,060 level holds or whether it'll be broken.

Gold bears are getting bolder, or at least are getting more press. This article webbed by TheStreet.com, entitled "Gold Prices Headed to $820 an Ounce?", has Alix Steel giving an overview of the bear case after laying out the basics of gold and what makes it move. There are links to both bull and bear cases on the front page. An accompanying poll shows a lot of bullish sentiment long-term, though.

The Gold:GLD ratio, or the price of gold divided by the price of a share of the SPDR Gold Trust (GLD), was up today after sinking below 10 on Friday. As compared with rebounds of this sort in the last six months, as shown by a ratio chart, the value rebounded much more sharply than has been the case for a next-day snapback. As of market close today, one ounce of gold was valued at 10.22 shares of GLD.

Today did turn out to be a day of little action, but the drift was to the downside this afternoon. Gold's still hanging above support, but the U.S. dollar making new highs would drive it down back to sub-$1,060, and perhaps sub-$1,050, levels. The Eurozone crisis has subsided for now, but a lot of eyes are on Spain. I think the record position in non-commercial longs for the Index are positioned in the hopes that there'll be a Lehman-like event in either that country or Portugal. So far, there's been no sign of any contagion developing.