After Morning Drop, Gold Rallies A Little Then Falls Back

The early and-mid-morning part of the regular session was a little hard on gold, but the metal rallied anyway after three bottoms made at below $1,159. The first decline started just after regular trading began, and carried the price from just below $1,164 to just above $1,158. A relief rally kicked in after 9:05 AM ET, which pulled the price up to $1,162 in a two-stage advance. That rally fizzled, though, and the metal descended to $1,159 - twice, after a lesser relief rally in between. Starting at 10:25, though, a more solid rally got underway that got the metal up to well above $1,164. As of 11:55 AM ET, the spot price was $1,164.60 for a gain of $3.20 on the day. The Kitco Gold Index attributed -$2.20 to predominant selling and +$5.40 to a weakening greenback.

The U.S. Dollar Index did go for a bit of a spill earlier in the morning, which pushed it below 80.45 by 9:40. After rallying up to almost 80.6, the Index entered into a slower and gentler decline that took it back down to 80.45 by 10:57. More recently, it was in rally mode again; a trading range between 80.45 and 80.6 seemed to have been established. As of 11:56 AM, it was at 80.53.

Overall, the gold price has been indeterminate so far. A slamdown was avoided, but the metal hasn't had much rallying power. Afternoon trading may lead to one direction or the other prevailing, but the morning picture was one of a dynamic pause.


Update: The indeterminateness continues. After peaking at slightly above $1,165 at 11:30 and 11:45 AM ET, gold pulled back to the $1,163-$1,164 level as it established a trading range between 12:10 and 1:00 PM. A break above failed to hold, but a break below pushed the metal down to below $1,160. As of 1:49 PM, spot gold was at $1,159.80 for a loss of $1.60 since Friday's close. The Kitco Gold Index assigned -$6.20 to predominant selling and +$4.60 to a weakening greenback.

The U.S. Dollar Index is still in a range. After pulling up to 80.63 as of 12:20, it stayed near that level until 1:05, at which point it dropped to a new sub-range between 80.55 and 80.6. As of 1:52 PM, it was at 80.57.

The upward momentum of last week seems gone, most likely because it was anticipatory regarding a Grecian bailout or foiled with respect to worse expectations for the EU region. The current stability of the U.S. Dollar Index hasn't helped much. Gold may continue where it is, but there's a more-than-outside chance that today will see the first day's decline since Wednesday before last.


Update 2: That chance did kick in. Gold wound up closing at a loss, as a mid-afternoon decline wasn't reversed later in the session.

The fall from $1,164 began just before 1:30 PM ET. Starting at that price, the decline pushed gold down to $1,156 by a little after 2:10. The metal stayed at that level until an attempted rally between 2:20 and 2:40, which got the price up two dollars an ounce. The rally didn't hold, and the price sunk back to $1,156. A drop down to $1,154 led to a trading range with $1,156 becoming the ceiling until near the end of the session, when the metal pushed up a little above it. As of the close of regular trading, the spot price was at $1,156.00 for a loss of $5.40 since Friday's close; the seven-day gain streak was broken. Kitco's Gold Index attributed -$10.20 to the predominant-selling category and +$5.40 to the weaening-greenback category.

The U.S. Dollar Index remained in the trading range carved out earlier in the afternoon. In the later part of the session, it never got below 80.5 but never above 80.62. As of 5:30 PM, it was at 80.565.

Its daily chart, as provided by Stockcharts.com, shows the extent of the plummet before it was mostly reversed:



Between Friday's and today's candlestick, there's a space that's very close to an outright gap - that's how steep the plummet was. Given that the Index partially recovered from its daily low of just above 80, the gap (if a real one) is likely to be a common gap that'll be filled. The lines marking each day's interday lows and highs may have already overlapped, making the supposed gap not a real one.

At any rate, the 81 support level was obliterated and the 80.5 one breached. The Index closed above the latter, but the depth of the low makes it possible that 80.5 was the resistance level for what'll turn out to be a relief rally.

This plummet resulted from a bailout package being assembled by the EU for the Grecian government. Although not a done deal yet, it's close enough to have taken the bulk of the Eurocrisis premium out of the Index. As it stands now, the Index is slightly higher than it was before the Eurocrisis erupted. The only hope for greenback bears is in the fact that today's decline was much more sudden than the ones that occurred in earlier pullbacks. That, and the fact that a new short-term low has been made which worsened April 1st's. The longer-term indicators, though, still suggest that this current downtrend is a countertrend pullback. It would be a different story if the Index managed to drop and stay below 79.5.

Turning to gold, its own drop doesn't look that bad on the charts because its decline was muffled by the U.S. dollar's:



Although the drop is definite, it didn't even reverse Friday's rise - let alone that of the last week. The drop after late Februray early March's five-session rise more than reversed the last day's rise of that streak. This datum doesn't give much in the way of a forecast for this week, as exactly the same pattern showed up on the day before the February 4th massacre as well as before a stand-pat period in mid February that lasted for three sessions. The odds say that today's decline will be prefatory to a more sustained one, but the seriousness of it is anyone's guess. Given the configuration of the MACD lines at the bottom of the chart, my own hunch says that any such decline won't be that bad. As I discussed last Friday, what matters now is where the near-term decline ends. Somewhere between $1,120 and $1,140 would place the current rally as the first wave of a genuine short-term uptrend. In terms of chartists' neatness, $1,140 would be ideal even if said bottom is likely too much to expect.

Whatever the extent, tomorrow isn't likely to be a good day for the metal. As I've intimated before, my short-term gloom isn't as bad as it sounds. Gold came close to being oversold outright, and is in need of a rest anyway. Tomorrow may surprise, but any surprise isn't likely to be terribly unpleasant.