After Spike-Up, Gold Pulls Back And Stays Flat

Gold started off indecisively as regular trading began, but coalesed into a rally that turned into a spike. After some hesitant attempts at an upward run that turned into smaller spikes, the metal went on a larger run at 9:30 AM ET that brought its price up to $1,147.40 as of just after 10:00. The rally lost conviction, though, and the metal descended down to where it has been at the beginning of its rally. Muddling along further, its later indecisiveness turned into another drop by 11:15. As of 11:41, the spot price was $1,138.90 for a gain of $3.70 on the day. The Kitco Gold Index attributed +$5.90 to predominant buying and -$2.20 to a strengthening greenback.

The U.S. Dollar Index made it above 81 again, making things harder for gold. Most of the early-and mid-morning session saw it bump up against the 81 level, but the Index didn't surmount it until 11:17. Rising to 81.05, the Index slid down to 81 before making a run at 81.10. As of 11:49 AM, it slid back down to 81.04.

Gold came in with a gain from yesterday's close, which has been whittled back in the late morning. $1,140 was successfully broken through, even though the metal has been hovering a little below it. The afternoon session will show if this drop is accentuated, or reversed.


Update: Another attempted run upwards near the end of the morning session went nowhere. After descending to a little above $1,138, the gold price crawled back up to $1,141 by 12:20 PM ET. From there, the price slid back to a slightly lower level before turning up again just after 1:20 PM. So far, the drop has been slightly accentuated but not by much. As of 1:41 PM, the spot price had recovered slightly to $1,140.30 for a gain of $5.10 on the day. The Kitco Gold Index assigned +$7.40 to predominant buying and -$2.30 to a strengthening greenback.

After stopping its slide at 81.01, the U.S. Dollar Index turned upwards but failed to cross 81.1 until 1:15 PM. In between, it bottomed at higher levels. Once broken through, though, it failed to follow through with any conviction; three attempts to rally conclusively above 81.1 led to a fallback below that level - but not far below. As of 1:42 PM ET, it was at 81.08.

As of the end of early afternoon trading, gold's action looks soft but no worse. There's a good chance that the metal will end with a gain of the day, although it's likely to be a small one. The rest of the afternoon will show.


Update 2: Thanks to a last-minute blip-up, gold not only closed with a gain but also above $1,140. Almost all of the entire afternoon session was spent in a trading range with that level being near the ceiling.

The last dip of the afternoon session ended just before 1:30 PM ET, with gold sinking a little below $1,138. Since that time, the metal drifted in a trading range with $1,138 the floor and $1,140.50 the ceiling. The latter number is pretty much at the same price that formed the top of the early-2010 trading range. After sinking to near $1,138 by 4:30, the metal climbed above $1,140 by 5:00 and stayed there for the rest of the session. As of the close, spot gold was at $1,140.40 for a gain of $5.20 on the day. The Kitco Gold Index assigned a +$7.20 change on the day to the predominant-buying category and a -$1.90 change to the strengthening-greenback category.

The U.S. Dollar Index did hold above 81, but barely and with little conviction on the upside. An attempt to get above 81.1 crested at 81.115 as of 1:20 PM. Since then, it stayed between 81 and 81.10, with two tests of the lower level in mid-afternoon that bottomed at 80.995. As of 5:30, the Index was at 81.045.

Its daily chart, from Stockcharts.com, shows the fourth daily gain accompanied by a slowdown in its rate:



Actually, the Index hardly moved in today's session. 81 was closed above, but the close was arguably close enough to chalk it up to sponginess in the resistance level. The gains are still continuing, but it looks as if it's cresting.

Certainly, the news that the Grecian government's talks with European Commission authorities and the IMF are on for tomorrow added a bit of help to the Euro; jitters about the bailout being derailed pushed the Index up recently. Given its recent action, no suspicions enter into my mind about where it's headed unless it either sinks or rallies up to 81.5. It may dawdle tomorrow.

As far as gold is concerned, its own daily chart shows a gain that looks fairly miniscule, despite the top wick in today's candlestick being considerably above the body. Monday's looked like a nail:



One development that rates some concern is the pair of MACD lines at the bottom of the chart. Today, they shifted from a bullish configuration to a bearish one. In MACD-watcher jargon, that makes for a bearish crossover. It's true that there have been one-day fake-outs this year, but so far they've all been busted bullish crossovers; all the bearish crossovers have panned out. Still, it's possible that today's is a one-day fake-out.

Of more concern is the resemblance between the action of the last three days and that of January 21st to 23rd. I'm aware that the trends on the chart are different for each time period: back in late January, gold had fallen to about the same level at which it was when the December 22nd bottom was made. Currently, gold is nowhere close to the last intermediate-term bottom it made: below $1,090 on March 24th. Instead of approaching a lower low after manking a lower high, gold has made a significantly higher high and is carving out a significantly higher low. By making this comparison, I am not forecasting a mauling like that suffered on Feb 4th. My comparison only speaks to short-term considerations.

January 25th's gains were followed by a tepid decline day, and then by a more serious decline the next day that took the price a little above the interday low made on January 22nd. Two more decline days pushed it below, until a strong rally day kicked in. Should market internals follow the same script this time 'round, then we'll see some declines this week that'll pull gold down to $1,120. Even if that script is followed, which it may not, gold will still have made a higher low after April 9th's higher high. Unless another dark surprise engulfs the gold market, this week's performance isn't likely to be worse than what I've described. As far as the Goldman one is concerned, it looks like cooler heads are deciding that Friday was just a panic day for reasons unrelated to gold's fundamentals. The only bearish kicker would be a continued rise in the U.S. dollar. It besting 81.5 in its current rally phase would signal another short-term uptrend, for reasons less panic-centered than recently. Unless more aftershock demand comes into the gold market, greenback strength would depress the gold price.

A Wall Street Journal afternoon report ascribes gold's rise today to bargain-hunting.

Gold and other precious metals closed higher Tuesday as a willingness to take risk returned to the market and investors used a price retreat over the last two business days as a buying opportunity.

Investment demand overall remains good, due to ongoing concerns about sovereign debt in many nations and the potential for stimulus-spending efforts and loose monetary policy around the world to eventually lead to inflation.

The metals sold off Friday and early Monday on general uneasiness in the equity and commodity markets after the government announced a civil suit against Goldman Sachs for alleged subprime fraud. Further pressure came from a stronger dollar, which reduces the need for investors to hold gold as an alternative currency, as well as selling to book profits after gold ran higher in late March and early April.

Profit-taking emerged after the pullback. "The relatively low prices compared to previous weeks drew some increased buying from investors," said Carlos Sanchez, associate director of research with CPM Group....

Traders also cited an increase in physical demand for gold...

The part of the report that discusses the Goldman matter is consistent with my own reading above.

Tomorrow has the prospect of being a dicey day. If the gloomy scenario I sketched out above is going to come to pass, then gold will be down on the day tomorrow. If it keeps gaining, then that scenario is likely to be outmoded. One timeframe to watch is the late morning, when most of the damage tends to be done. Gold rising in that timeframe would be especially encouraging.