After Getting Up Head Of Steam, Gold Ascends

Regular trading began with a slump, which continued until just before 9 AM ET. Pulling gold down more than four dollars an ounce, and leaving it at $1,124, the decline reversed into a strong two-stage advance. After peaking above $1,129 at 9:15, the metal pulled back a few dollars an ounce before resuming the uptrend; by 9:50, it was above $1,131. Afterwards, though, the metal pulled back and entered a ragged-border trading range between $1,127 and $1,129. That range was broken slightly on the downside at 11:30 AM. The data on pending home sales, which showed an unexpectedly large leap-up for February, and a new three-year high for the ISM services index, which moved up to 55.4, helped put the damper on the rally for a time. As of 11:48 AM ET, spot gold had recovered to $1,130.00 for a gain of $3.60 since Thursday's trading ended. The Kitco Gold Index split the gain into $2.80 for predominant buying and $0.80 for a weakening greenback.

The U.S. Dollar Index reversed course, right at 10:00, as a result of that data. Falling from 81.26 to 80.91 in the two hours previous, the Index started to gain slowly at first but solidly. The rally accelerated as 10 turned into 11, putting it above 81.15 by 11:40. As of 11:50 AM, the Index had pulled back a little to 81.11.

Although gold could have done better, the resumption of regular trading has left it in a good position overall. As widely expected, the $1,125-30 level has been hard to surmount. Still, it's sporting a gain. Afternoon trading will show whether that gain can be extended a little more, or whether it will be replaced by another fall.


Update: As it happened, the former came true. After a pullback from the $1,130 level, followed by a continued dawdle a little below it, gold broke above that level and entered a steady rally. $1,130 was breached at 12:30 PM ET, and the pop-up was good for one-and-a-half dollars an ounce. In the next hour, gold climbed all the way up to $1,134.60 before pulling back a little. As of 1:41 PM, the spot price was at $1,132.60 for a gain of $6.20 since Thursday's close. The Kitco Gold Index split the gain into $5.10 for predominant buying and $1.10 for a weakening greenback.

The U.S. Dollar Index pulled back from its 11:30 high in a relatively steady downdrift that lasted until 1:00. From 81.175, it reached below 81 before rebounding. Since then, it's been in a trading range bordered by 81.05 on the upside and 81 on the downside; that was broken on the upside after 1:35. As of 1:42, it was at 81.09.

Despite the thinness in gold trading late last week, the price action has evidently impressed. The $1,125-$1,130 level has been surmounted; it's possible to look ahead to $1,145. Still, gold's been in an overall trading range; the current price is approching its top. Further gains will likely be limited for the rest of this afternoon.

Update 2: As it turned out, there weren't any further gains at all. Instead, gold slumped into a trading range that held from 1:50 PM ET to the end of the session. The metal closed at the lower end of it.

After peaking as of 1:20, and stabilizing for about fifteen minutes at $1,133, the metal dropped to $1,131 and stayed there for some time. Broadening, it carved out a trading range between $1,130 and $1,132. Unlike in recent days, it slumped near the end of the day. At the close, the spot price was $1,130.80 for a gain of $4.40 since Thursday's close. The Kitco Gold Index (KGX) divvied up the gain into +$3.10 due to predominant buying and +$1.30 due to a weakening greenback. The KGX itself, which measures gold's performance ex-greenback, closed at or just below a record high today.

The rest of the afternoon was a period of lassitude for the U.S. Dollar Index. Staying above 81, it nevertheless drooped after two other attempted runs above 81.15. The fist one topped as of 1:50; the second, at 3:45. In between, it descended and ascended in a saucer-like pattern. After making that double top, it reclined back below 81.1. Overall, the day's fluctuations were minor. As of 5:30 PM, the Index was at 81.085.

Its daily chart, from Stockcharts.com, shows the Index making a bit of a recovery from Thursday's depressed levels:



In so doing, today's narrow-ranging trading restored the 81 support level that was thrown for a loop last Thursday. However, the MACD lines at the bottom of the chart show a bearish configuration; the histogram they're drawn over also show it. There have been one-day fake-outs, but not any of two days in recent months. There is a chance that the restoration of 81 is the preface to a pause or to another run at 82, but the technical picture makes those scenarios a little doubtful. The area underneath the thin black line corresponding to today's trading looks like a gap waiting to be filled, and the MACD lines don't give much cause for optimism. They may be in the process of a two-day fakeout, but that's not the most plausible conclusion given recent action. A more likely interpretation is, today's reversal was a result of the greenback being oversold on Thursday. 81 may be breached again tomorrow: if such is the case, then the short-term downtrend will be confirmed.

As far as gold is concerned, its chart shows a strong three-trading-day rally that's brought it to
a level slightly above where it was as of mid-month:



The head-and-shoulders topping pattern of recent weeks now obliterated, gold's now higher than it was during that mid-month period - which served as the right shoulder to that H&S. It's plainly busted, like others of its breed that had pointed to upturns. Gold's MACD lines are, qualitiatively, the mirror image of the U.S. Dollar Index's: for the second day in a row, the ones for the gold chart have been in a bullish configuration. As with the Index, gold's did have one-day fake-outs but no two-day'ers. Although the early-afternoon advance was beaten back, gold still closed above two recent resistance levels.

There remains, though, the one at $1,140. It's an important one, which has prevailed for all of this year. Gold was only able to get above it for two days, January 11th and 12th; a People's Bank of China tightening announcement knocked it right back below. As of now, gold is within sight of it - but there seems little chance for the metal sustainably surmounting it. The action these last three trading days has been pleasing, if not exciting, but the $1,060-$1,140 trading range still lives. Until proven otherwise, it would be prudent to assume that gold is gliding to the top of its range. That two-day MACD bullish configuration may end up being little more than a few-day quasi-fakeout.

A Marketwatch report attributed gold's rise to a positive reaction to the positive U.S. economic data released this morning, including the items mentioned at the top of this post; that positivity was derived from other commodities reacting well.

The positive news took some of gold's shine as a safe-haven commodity mid-session, but the precious metal was back on track for gains as other commodities rallied....

"We've seen consistent demand out of Asia," said Bill O'Neill, a principal with Logic Advisors in New Jersey. "We're on course" for the next resistance level around $1,200 an ounce, although trading is likely to be choppy, he added.

I myself think that O'Neill's being a little optimistic at this point, but he's right about gold being on a roll. The thin trading at the end of last week has now been endorsed on a more regular day; the gold market is fully open tomorrow. Should the rally continue, $1,140 will be even closer in sight. It may be reached.