Thursday, April 29, 2010

Gold Bobs Up And Down

As the financial world takes a rest from the Europanic, gold was largely directionless as it came off its pre-regular-trading high. Initally, it moved little when the pit shift opened. Then, starting at 8:40, it fell in two sharp drops to $1,162 by 9:00 AM ET. Then, it advanced in a forward-and-back pattern until it reached $1,169.50 by 10:05. After sinking, it edged slightly higher before reversing to the downside. A sense of relief in crisis-affected markets prompted the downturn, as safe-haven demand ebbed. As of 11:49 AM, spot gold was at $1,164.60 for a loss of $0.40 on the day. The Kitco Gold Index assigned -$2.60 to predominant selling and +$2.20 to weakness in the greenback.

The U.S. Dollar Index managed to break well above the 82 level earlier in the morning, but failed to hold up there despite two tries at rallying above 82.2. The first started at 9:25, and was mostly staunched an hour later. The second attempt got rolling at 10:50, and was also largely staunched. Still, the Index remained above 82, a level it was below when regular trading started. As of 11:51 AM, it was at 82.05.

Without any Eurocrisis-related driver, gold's been fluctuating but not adding - or substracting all that much. Although afternoon trading may be different, the morning's harbinges a close near yesterday's $1,165.00.

Update: Continuing the overall directionlessness, gold moved up in early afternoon trading; the end of the pit shift left the metal with a small gain. Although the rise was two-stage, and laboured at times, it was enough to pull the price up to just above $1,169 by 1:15 PM ET. Since then, it pulled back a bit; the fluctuation phase was continuing. As of 1:40 PM ET, spot gold was at $1,167.40 for a gain of $2.40 on the day. The Kitco Gold Index assigned -$0.90 to predominant selling and +$3.30 to a weakening greenback.

The U.S. Dollar Index fluctuated as well with little direction. After sliding below 82 right after noon, it pulled back up and entered a ragged-bordered trading range that was centered around that same 82. As of 1:41 PM, it was at 82.01.

Although the fluctuations themselves have added a little excitement, it's been a rather dull day all told. Gold has a good chance at closing with a gain, but the most likely close will be not far from unchanged.

Update 2: Gold did close with a gain, and the gain was small enough to be close to unchanged. Interestingly, the Kitco Gold Index had a flat zero for change ex-greenback (predominant buying or selling.)

The metal went on a bit of a roller-coaster ride today, but its overall directionless was accompanied by a quickened pace towards a bailout of the government of Greece. There's no longer talk of weeks before a a bailout is forthcoming; they're now talking days. The German finance minister is behind the effort now. So, of course, is the IMF. This speed-up, prompted by the three recent downgrades of the sovereign debt of three PIIGS nations [PGS, to be specific; the IIs have been spared so far], has softened the greenback but not exposed any air pockets. My expectation for a further rise today was mistaken.

After the pit shift ended, gold climbed up to above $1,169 again. Peaking at 2:45 PM ET, it slid down again to reach below $1,167 by 3:30. From that point, it settled into a range between $1,166.50 and $1,168; at the end of regular trading, the metal was in the lower part of the range. To be more specific, the closing price was $1,167.20 for a gain of $2.20 on the day. The Kitco Gold Index (KGX) attributed all of today's change to a weakening greenback. That means the ex-greenback KGX measure, down a little from day before yesterday's record high, was unchanged today.

The U.S. Dollar Index didn't change that much over the rest of the afternoon. It dipped between 1:50 and 2:10, but the drop only took it down from about 82.03 to below 81.94. After resting, it climbed up and peaked as of 5:15 but the rise only took it to a peak of 82.09. In other words, had it not been for the directionality, the Index might as well have been in a trading range. As of 5:30, right after a pullback got rolling, it closed exactly at 82.00.

Its daily chart, from, shows the pullback, in which today's high failed to best yesterday's:

I did expect a further bump-up today, as I didn't expect the bailout machinery to speed up as quickly as it did. No more dirty laundry fell out of the Eurobin, so there wasn't any bullish driver for the Index today to counteract the relief drop. Still, the Index didn't sink all that much today. 82 held as a support level; in the context of recent action, today's fall looks like a mere pullback. Had there been resolution instead of respite, it would have sunk a fair bit.

Once a bailout package is put together and activated, it may. I'm tempted to say that it should. Regardless of the current quick-march, the bailout package is not going to be ready overnight. The Index may have a bit of run left in it, particularly if more dirty Eurolaundry is exposed to the light of day. So far, the Spanish sovereign debt market hasn't imploded. If a finished bailout, it's unlikely that that market would. But, accidents can happen between now and Bailout Day; if none arise, then the Index is likely to keep pulling back. The bailout is beginning to look like a deal whose doneness should be discounted. Even the German authorities are getting anxious to see one put together.

The above-mentioned yo-yo'ing in gold shows in its own daily chart, which as today's action as an almost level blip that's little more than a plus sign:

As shown by the colour of the candlestick, gold did close up today. But, today's candlestick is essentially beside yesterday's. The MACD lines at the bottom of the chart are still in a bullish configuration; there's some grounds for optimism because the greenback pulled back today while gold was up a little. A technical analyst would say that today and yesterday's action constitute a triangle, where the price veers in on a specific level in an increasingly narrow range. That pattern, if it can be trusted, signals a continuation upwards.

But, it might not be trustworthy. Handicapping the bailout is a little trickier than it looks. Granted that moves towards a bailout has brought out a lot of safe-haven demand for gold, as bailouts go hand-in hand with fiscal bloat and carry the potential of debt monetization leading to inflation, but the bailout isn't going to be carved together instantly. If there's no gold-energizing accident between now and le jour de bail-out, gold may pull back as safe-haven demand drains away. Given the action until very recently, the announcement of the bailout itself should send gold up - but that was before gold began rising on the bad news along with the greenback. Before a few days ago, gold would rise after the greenback had already shot up and was pulling back. Now, the rise in gold is concurrent with the U.S. dollar. Although economic logic argues against it, there's a chance that gold will fall once the bailout is announced as safe-haven speculators sell on the news.

Myself, I'm sticking with economic logic; I believe that gold is likely to go up once the bailout is put together and activated. I note the above to make the point that a rise isn't a sure thing.

As for tomorrow, it's more of a toss-up. The gold market may begin discounting the bailout by moving upwards, but exiting safe-haven money may counteract.

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