Propelled By Safe-Haven Buying, Including Outright Panic Buying, Gold Shoots Up

Regular trading didn't begin all that well for the metal. After meandering down, gold dropped to $1,145.40 an hour after the pit shift began. Rebounding to above $1,148, the metal still couldn't get above $1,150. Until...the consumer-confidence number was released. That datum got gold rolling up almost ten dollars an ounce before peaking at 10:45. That peak, however, proved to be a pause that prefaced: the metal shot up further to $1,165.80 before pulling back again. The pullback was partially caused by an advancing U.S. dollar. As of 11:48 AM ET, the spot price was $1,158.00 for a gain of $5.00 on the day. The Kitco Gold Index's change on the day due to predominant buying sported a double-digit gain of $14.60. The change attributed to a strengthening greenback was -$9.60.

The U.S. Dollar Index muddled along between 81.7 and 81.8 until it dipped below the former level as of 9:43. Pulling back up to close to 81.75, it continued muddling along until a half-hour downturn took it from 81.75 to 81.55. Reversing at 10:47, it rallied in a two-stage uptrend that took it above 81.94 as of 11:29. Since that peak, it pulled back before recovering and then dithering. As of 11:49 AM, the Index was at 81.88.

I have to admit to being surprised by the extent of the rally this morning; as of 9 AM, I was convinced that gold would close at a loss today. Now, it looks positioned for a solid gain. The afternoon session has yet to begin, and the impetus for gold to shoot up has gone, but the metal has a shot at closing above $1,160 today.


Update: Despire a pullback, $1,160 held as the pit shift came to a close. The gold price bumped down to the $1,157 level twice before noon ET, but a recovery starting at 11:45 pulled the price up to $1,162. The afternoon has seen the metal in a trading range, between $1,160 and the aforementioned $1,162. As of 1:42 PM ET, the spot price was $1,161.30 for a gain of $8.30 on the day. The Kitco Gold Index attributed +$18.50 to predominant buying and -$10.20 to strength in the greenback.

The U.S. Dollar Index has itself been on a run upwards, although its rise was blocked a little above 82. After ascending above 82.1 shortly before noon, it pulled back to a little below the 82 level. As of 1:43 PM, it was at 81.94.

So far, $1,160 has held up. Now that the pit shift has ended, the electronic-trading part of the regular session is likely to see gold drift along. There's now a good chance the metal will close above $1,160.


Update 2: Again, I have to admit to being surprised. Instead of the usual drift in the electronic portion of regular trading, the run-up continued. More unusually, there was no specific news item to account for it.

The last time the electronic-trading joint jumped was the day the Fed announced that the discount rate was being raised; right afterwards, gold plummeted. This time, the movement was in the opposite direction. At the top of the rally, spot gold made a high at a level that hasn't been seen since early December of last year.

Adding to the unusuality was the fact that the U.S. Dollar Index was zooming up too. Normally, of course, the two move in opposite directions. This inverseness, as bruised gold-watchers know, also kicks in in times of crisis. Either the greenback zooms up, or gold does. It's not exactly standard procedure to see them both shoot up.

And yet, that's what happened today. To my eyes, both benefitting from today's action - an outright panic out of Grecian sovereign debt, plus the turmoil resulting from Portugese sovereign debt as well as the Grecian variety being downgraded - suggests a transition period. In recent history, the greenback's benefitted and gold's suffered from panic. Recently, gold benefitted after heads had cooled - but the initial beneficiary was still the U.S. dollar. Now, both are benefitting simultaneously from the panic trade.

The greenback's bull run has not been impugned, but I'm idly wondering if the transition will proceed further: gold benefitting while the U.S. dollar doesn't. It's a formidable barrier to cross, given the strength the greenback's still showing, but the appearance of the old inflation dragon would make the transition complete. There was a bare hint of that this morning, when gold got rolling thanks to the much better than expected consumer-confidence figure. A soft-greenback policy to aid U.S. exporters would also do the trick.

Of course, there's the possibility that we'll return to the more familiar pattern: the greenback benefitting, initially, alone. I say this because today's pattern was anomalous, and not necessarily the sea change that so many gold bulls have been waiting for. The same simultaneity occurring again - we all know there'll be a next time for the Eurocrisis, likely soon - would be a really encourgaing sign for the gold market.

Moving back to later afternoon's action: gold took off slowly starting at 2:00 PM ET. Accelerating, it reached $1,168 before coming to a halt just after 3:00. A gentle slide downwards over the next half hour gave way to another rally, this one a two-stager. At the peak, as of 3:50, the spot price was $1,173.80. A two-stage pullback brought gold down to $1,167.50 by 4:35. A final blip-up left the metal at $1,168.40 for a gain of $15.40 on the day. The Kitco Gold Index (KGX) attributed an incredibly high +$31.50 to predominant buying: in the months I've been watching it, I've never seen a daily gain that large for the category. Speaking to the U.S. dollar's strength today, the change attributed to a strengthening greenback was -$16.10. The two, summed together, give the daily change. The change in predominant buying was enough to put the KGX, which measures gold's performance ex-greenback, well into record territory today.

The movement of the U.S. Dollar Index in later afternoon trading was fairly uncomplicated, and sweet it was for a greenback bull. Starting as of 1:40 when below 81.95, the Index rallied with barely a pullback until it got all the way up to 82.395 as of 5:30. This level is the highest it's been since May of last year.

Its daily chart, from Stockcharts.com, shows the abrupt reversal that was also part of today's gain:



Although it could be said that the Index hasn't truly bested its previous high made on March 25th, the momentum it's developed makes a newfound push to a new high likely tomorrow or in the near future. Needless to say, the inverse head and shoulders pattern I mentioned in recent days has come to pass with today's shoot-up. There's really little to be said about today's action, as it pretty much speaks for itself.

Again, I have to disclose my surprise at seeing gold break out of its range with such strength, as shown on gold's own daily chart:



The metal doing so put it at a closing high equal to a level that hasn't been seen since December 4th. The MACD lines at the bottom of the chart have flipped into a bullish configuration. If said configuration prevails tomorrow, then the previous bearish interlude will have been the shortest and mildest bear phase this past year. More encouraging is the fact that the RSI line at the top saw its recent low at about 50, the same level it bottomed when gold was marching up. Although I don't want to put it excitedly, there is a chance that the RSI line will get into genuinely oversold territory - above 70 - for the first time since December.

Again, though, I have to wave the wet blanket around and say that today's performance was anomalous because of the gold-greenback concurrence. It'd be nice if this concurrency stuck throughout the Eurocrisis, but one swallow does not a spring make.

An afternoon Wall Street Journal report ascribed gold's shoot-up, naturally, to the safety trade in response to downgrades of both Grecian and Portugese sovereign debt.

These types of things are highly supportive of the gold markert," said Bill O'Neill, one of the principals with LOGIC Advisors. "There is a clear run to a flight to quality."

The metal is acquiring a role as an "alternative currency," he said.

Many investors are re-evaluating where they want to put their money amid the ongoing European debt issues, and some are turning to gold, said Adam Klopfenstein, senior market strategist with Lind-Waldock, a division of MF Global.

"Gold is going to move higher regardless of what happens in the currency market, as long as there are fears of problems in Europe," Klopfenstein said. "People are starting to have more skepticism to a lot of these sovereign entities."

The article notes that the pummeling the stock market took today was also endured by industrial metals. Today's action in gold was unusual, or divergent, for yet another reason.

As to where the metal will go tomorrow, I have to confess that I don't know. I've already been taken by surprise, and I'm likely to again. Today was really an incredible day for the metal, one where it not only rocketed up but also acted out of character. Where the metal ends up tomorrow largely depends on what latest twists and turns come out of Euroland. I won't presume to guess what those may be.

But I wouldn't be too surprised if gold continued to go up...