After Spill, Gold Bobs In Trading Range

Regular trading opened with gold ending a more than 13-dollar decline in early morning action, primarily in the London market. Once 8:15 AM ET rolled around, though, the metal's price began to climb: it reached $1,116 just after 8:30 and, after a dip, kept climbing to well above $1,118. A short-term peak at $1,119 gave way to a drop as the U.S. Dollar Index rallied above 81; the decline ended at about $1,113.50 just before 10 AM. A stronger rally in the greenback, pushing it to a new nine-month high, ended a rally that took gold back up to $1,118. However, the metal ended the next decline only slightly lower than at what it was as of 10:00. Subsequent to that second drop, gold rallied; it reached $1,119 as the Index pulled back from its new high to a little below the 81 level. As of 11:45 AM ET, the metal's spot price was at $1,120.40 for a gain of $2.50 since Friday's trading ended. The Kitco Gold Index has gold shedding $8.35 due to U.S. dollar strength but gaining $10.85 due to predominant buying.

As noted above, the U.S. Dollar Index had two rallies this morning; the second was more powerful. A drift upwards from the time regular trading began turned into a solid rally that ended at 81.05 as of 9:59. The pullback lasted for nineteen minutes, pulling the Index down to 80.93, but 10:20 saw a powerful rally that shot the Index all the way up to 81.25 in the next twelve minutes. That top made for a new nine-month record. The index pulled back a little afterwards, and then drifted up slightly between 10:42 and 11:03, but the decline resumed after that time. It pulled the Index down to the 80.95 level before ending just after 11:30 AM. Since then, the Index drifted up again. As of 11:52 AM ET, it was at 80.99 after poking its nose up above 81.

Gold is being influenced by the U.S. dollar's gyrations, but the metal continues to show strength ex-dollar. How much resilience the metal has will be made evident in afternoon trading.


Update: The metal competed a recovery after the original post that took it up to slightly above $1,121 by 11:40 PM ET. A pullback to below $1,119 preceded a run up to a new regular-trading high above $1,121 just after 12:10 PM. The next decline left gold at a lower price, and the next recovery took it up to only $1,120. From there, a four-dollar decline had the metal at $1,116 as of 1:05 PM. The relief rally that followed made it only to $1,119, but the following pullback bottomed at a higher price of $1,117. As of 1:46 PM ET, spot gold was at $1,117.80 for a loss of $0.10. The Kitco Gold Index allocated the loss to a $6.30 drop due to U.S. dollar strength and a $6.20 gain due to predominant buying. Although the latter is still solidly in the plus category, it's lesser than it was this morning. Some of the ex-dollar gains of this morning could be chalked up to anticipatory buying on expected U.S. dollar weakening.

After getting up to slightly above 81 at 11:51, the U.S. Dollar Index drifted down intermittently. As of 1:41 PM, it was at 80.81.

Gold's still showing strength with regard to the U.S. dollar, but that strength has ebbed somewhat. The rest of the afternoon will show how much is left.


Update 2: As is often the case, the rest of the afternoon's trading in gold was subdued with little price change. The amount of gain attributed to predominant buying by Kitco's Gold Index did whittle down some more.

At the end of regular trading, spot gold was almost exactly where it was at the end of last Friday. The rally that began just after 1:00 PM ET continued until 2:20, at which point the metal had bested $1,120 again. That was the last time in the day that $1,120 was seen. After that gain, a slow two-step decline set in that took gold to $1,117 by 3:45. Afterwards, the metal lumbered up to $1,119 before pulling back just before regular trading ended. At the close, the spot price was at $1,118.00 for a gain of 10 cents since last Friday's finish. The Kitco Gold Index had gold gaining $5.50 due to predominant buying and losing $5.40 due to a strengthening U.S. dollar.

The greenback's strength was more evident this morning than this afternoon. A steady decline that started back at 11 AM didn't come to an end until 2:55 PM with a final spill that was reversed fifteen minutes later. At its daily nadir, reached between 2:55 and 3:00, the U.S. Dollar Index reached 80.635.

After the recovery rally, the Index spent the rest of the day in a trading range bordered by 80.7 and 80.75. Tested once on the upside, at 3:50 PM, and once on the downside, at 5:25 PM, the Index got back into the range within ten minutes. As of 5:35 PM ET, it was at 80.74.

The six-month daily Stockcharts.com chart makes this morning's shoot-up appear as just another spike that failed to overcome resistance at 91:



The trading range, perhaps the pause that's going to refresh, continued for another day. The MACD indicator, found at the bottom, continued in bearish territory with the black line below the red line. Despite that positioning, the Index has not fallen appreciably - a sign of its continued strength. Today's spike-up certainly shows the unpredictability of the Index, as well as its continued tie to the Eurocrisis; that spike-up early this morning was prompted by another call for Grecian austerity. It may seem odd that a call for fiscal restraint from the EU's most profligate government would drive the Euro down, but that's what we're seeing. Confidence in the Euro is being sapped; that's what the market knows.

Before diving into the chart itself, this report from Bloomberg (as webbed by Business Week) contains a review of the day's events driving the U.S. dollar and gold. It mentions the copper spike, due to the tragic earthquake in Chile, as providing some strength in gold. Strength in the U.S. dollar was attributed to the austerity call:

Greece must do more to cut its budget deficit, said Olli Rehn, the European Union’s monetary affairs commissioner, after meeting with Greek Finance Minister George Papaconstantinou. Concern about Greece’s debt situation fueled last month’s dollar rally. The U.S. currency climbed as much as 1.3 percent against the euro today. Gold often falls when the greenback gains.

That continued strength, once again, has only succeeded in holding gold back. This daily chart, also from Stockcharts.com, shows a remarkably narrow range within a larger multiday range:



Today's action bumped up against the toppy end of the larger range. The RSI, found at the top of the graph, is looking pretty good in the context of this last nearly-three-month stretch. Although it's not at the point where an upwards divergence with respect to January 11th's high exists, it's not that far away. The MACD lines at the bottom are still in the bull position, which has coexisted with a trading range. That coexistence isn't really great for gold, because it doesn't mirror the bearish range where a definite decline took place.

However, gold is benefitting from the Eurocrisis too. The gains ex-dollar show it; again, gold has made a record high in Euro terms. Again, the performance of the U.S. dollar is the main headwind, as shown by this six-month chart of the Kitco Gold Index (KGX):



The KGX, plotted on the blue line, is again close to a record. It shows that gold has had some benefit from the Eurocrisis despite the continued strength of the U.S. dollar.

That gain, though, is at best underground and at worst inferred. The question for the future is, how will gold behave when the Eurocrisis fades and the U.S. dollar no longer is pushed up by it? How much of gold's steadfastedness is crisis-related and how much of it is the stealthy discounting of future inflation? We'll see once a solution, patchworky as it will likely be, is put into place by the EU.