Monday, April 26, 2010

After Early-Morning Spill, Gold Recovers To Tepidness

Overall this morning, gold's been yo-yo'ing. A dip at the beginning of regular trading was recovered from, but the recovery was followed by a larger decline that took gold down to $1,151.10 at 9:20 AM ET. Although the recovery after that drop was slower, the metal clambered up to the $1,155 level after the jumps and back-steps are taken into account. As of 11:46 AM ET, the spot price was $ for a drop of $2.30 since Friday's close. The Kitco Gold Index split the loss into -$0.55 for predominant selling and -$1.75 for strength in the greenback.

An attempted continuation of the pre-regular-trading rally in the U.S. Dollar Index came to naught in mid-morning. A choppy run-up crested at just below 81.65 as of 10:19. Following that climax, the Index drifted down to a little below 81.5 and carved out a trading range between 81.44 and 81.48. As of 11:54 AM, it was at 81.47.

Despite the early-morning bobbles, gold seems to be taking a rest this day. There's little bullish pressure to speak of, but bearish pressures are being counteracted. The afternoon will show if this holding pattern keeps holding.

Update: The yo-yo'ing continued in the early afternoon, although at a lower level. Shortly before noon, gold took a spill from above $1,155 to below $1,152. A short recovery presaged a downward spike to $1,149.90 that ended with a pull-up to $1,153. That upturn thwarted, a pullback to $1,151 prefaced a more durable bob-up to $1,154. That one, too, decayed. As of 1:42 PM ET, spot gold was at $1,152.60 for a loss of $4.80 on the day. The Kitco Gold Index divided the loss into -$3.00 for greenback strength and -$1.80 for predominant selling.

The U.S. Dollar Index did break out of its late-morning trading range on the upside, but its noontime rally was stopped just below 81.6. After falling down to 81.5, it muddled along above that level with a slight upwards bias. As of 1:43, it was at 81.545.

The pit shift's end left gold sunk a bit. Given normal post-pit behavior, the metal will likely end up with a slight loss since Friday's close.

Update 2: Not much did happen subsequently, and gold did close with a loss. It hovered between $1,152 and $1,154, with hardly a break-out from that range, and closed right in the middle of those borders. At the end, the spot price was $1,153.00 for a drop of $4.50 since Friday's close. The Kitco Gold Index (KGX) attributed -$5.20 to predominant selling and +$0.70 to a weakening greenback. As mentioned by Peter Brimelow, the KGX itself, which measures gold's performance ex-greenback, made a closing record last Friday.

The U.S. Dollar Index went for a bit of a tumble in later afternoon trading after breaking below 81.5 again. Starting at 1:50, the Index fell in four different waves. Right after the end of the fourth, and as of 5:30 PM ET, the Index was at 80.205.

Its daily chart, from, shows yesterday's pullback continuing, although today's was much less extensive than yesterday's:

The close wasn't much lower than the open, and the Index is still well above 81. The MACD lines at the bottom of the chart, for what it's worth, are still in a bullish configuration. Interestingly, the RSI line at the top has fluctuated between 40 and 60 since the beginning of this month; it hasn't gotten anywhere near the 30 oversold level, but it hasn't shot up to the 70 overbought level either. Its 40-60 range indicates that the Index, despite its fluctuations, has been trendless overall. For the span of about a month, the Index has been in a wide-spaced trading range between 80 and 82.

That range has a chance of breaking to the upside, though, unless it falls to about the 80 level in the near future. If it bottoms at substantially higher, then it's been set up to make a bullish reverse head and shoulders pattern. So far, the Index's action could presage either.

Turning to gold, its own daily chart also looks like a range has been formed:

In the case of the metal, the borders are $1,135 and $1,160. Last Friday, gold got to near the top of the range; today, it pulled back somewhat. Its own MACD lines are in a bearish configuration, although only slightly so. For the month of April, its RSI values haven't gotten below 50; that suggests a fairly bullish chart. Nevertheless, the metal has had a hard time getting and staying above $1,160. As with the Index, gold's in a holding pattern right now and its direction isn't very determinate. Given its range formation, my best guess would be for a further pullback tomorrow - but I have little more than a hunch behind that guess.

An afternoon Wall Street Journal wrap-up article described gold as effectively running in place today:
Gold futures finished nearly steady Monday as traders balanced a stronger dollar and weaker crude oil, both bearish factors, against expectations for further investment demand in other currencies and a supportive report showing central-bank gold sales remain minimal.

The metal's upside was limited by the ongoing concerns about Greece's debt, which supported the U.S. dollar, said Tom Pawlicki, analyst with MF Global. A muscular greenback removes the need to buy the metal as a hedge against a weaker U.S. currency.

Also, gold's upside was limited by a pullback in crude oil, which often leads investment flows in and out of other commodities, Nedoss said. Crude was hurt by ideas that recently stronger economic data could push the Federal Reserve toward eventually upping interest rates, energy analysts said.

Yet, at the same time, a certain amount of investment demand continues to make its away into gold, others said. Ongoing concerns about European sovereign debt are still attracting some safe-haven flows, particularly in currencies other than the dollar, said Bob Haberkorn, senior market strategist with Lind-Waldock.

"It's very encouraging that gold is trading as strong as it is with the dollar trading as strong as it is," Haberkorn said.
Also mentioned in the article was an IMF sale of 5.60 tonnes, a small amount considering the institution has more than 190 tons to sell. Its staff is doing so slowly, suggesting that they don't want to drive down the price and jeopardize the value of the rest of the metal they want to sell.

Overall, it has been a relatively unexciting day for gold. Tomorrow may see a further slide, but there's no indication of a plummet in the offing unless the Fed surprises at the end of its meeting tomorrow afternoon. The greenback is down, and the typical trigger for a plummet has been an ascending U.S. dollar. There is a chance that the metal will surprise to the upside.

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