Friday, May 21, 2010

After Early-Morning Spill, Gold Recovers But Falls Bsck

The start of the regular trading session saw a ten dollar an ounce drop, but gold managed to recover after a later drop took it down to a lower level. The initial drop ended at 8:40 AM ET, and it was followed by a relief rally that crumbled as gold was pushed down to $1,171. However, the metal reversed course and rallied by more than thirteen dollars an ounce in the next twenty minutes. Pulling back to around $1,178, and fluctuating around that level, the metal climbed to a morning high of $1,186.20 before falling back a little. As of 11:55, spot gold was at $1,184.70 for a gain of $1.70 on the day. The Kitco Gold Index attributed -$4.40 to predominant selling and +$6.10 to a weakening greenback.

The U.S. Dollar Index sunk in early morning trading to 85.45, but climbed up to almost 85.75 by 9:30. At that point, the rally lost steam and turned into a decline to a lower level. By 10:10, it has bottomed to below 85.4. After a partial rebound, the Index settled into a trading range bordered by 85.43 to 85.53 until breaking through on the upside. As of 11:56, it was at 85.55 after vaulting up to almost 85.66.

So far, the declines since the close have been erased. The afternoon session may keep gold in the the gain column, but the early-afternoon timeslot hasn't been very kind to the metal recently.


Update: Gold did top out shortly before noon ET, at a new daily high of $1,188.90, and it did sink subsequently. The rest of the pit shift saw a steady if somewhat interrupted decline, which took more than twelve dollars off the price before leveling off just prior to the end of the shift. As of 1:31 PM, the spot price was $1,175.70 for a drop of $7.30 on the day. The Kitco Gold Index assigned -$14.50 to predominant selling and +$7.20 to weakness in the greenback.

The U.S. Dollar Index stayed fairly steady in early-afternoon trading, around the 85.5 level. Although it fluctuated, the Index never got that far from there. As of 1:40 PM, it was at 84.47.

As the week ends, the gold market is likely to be fairly quiet from now on; that suggests gold will end up with yet another loss on the day. There's a good chance of an overall drop remaining by the time the close arrives.


Update 2: There was, and the gold market was quiet for the last stretch of the week. With the exception of an upward blip around 2:45, gold stayed within a range bordered by $1,176 and $1,178. At the end, the market closed right in the middle of the range: $1,177.00, for a drop of $6.00 on the day. The Kitco Gold Index attributed -$14.20 to predominant selling and +$8.20 to weakness in the greenback. The two numbers sum up to the raw change on the day.

This week was not a good one for the metal. From last week's close of $1,208.00, gold lost 31 dollars or 2.57%.

The rest of the day was also quiet for the U.S. Dollar Index, which slumped in mid-afternoon before climbing back up to the 85.5 level. The decline reached its low point just before 3:00, when the Index touched 85.3. After lumbering up to slightly above 85.5, a last-minute drop left it at 85.46 for the end of the week.

Its daily chart, from Stockcharts.com, shows its decline continuing for a third day in a row:



So far, the decline has been fairly orderly - but it's also been fairly consistent. As the lower wick of today's candlestick shows, the Index did touch 85.0 today.

Its RSI line, as shown on the top of the chart, isn't close to overbought any more but it's still well above the neutral range where declines have tended to stop. The MACD lines at the bottom are moving in close to crossing over to a bearish configuration. On the bull side is the fact that the 50-day moving average (in the middle of the chart, drawn in blue) is above the 200-day moving average (red), and both are rising. Also, the Index is still well above its previous short-term low, suggesting that the last three days constitute a pullback in a bull market. There's nothing to suggest it won't keep declining, but there's also nothing to suggest it'll fall to the point where the overall uptrend is in jeopardy.

In terms of a threatened uptrend, gold is closer:



Its own daily chart, also from Stockcharts.com, also shows three declines in a row - but it also shows six declines in the last seven trading days. Gold's own RSI value is slightly below neutral, around the point where declines reverse in a bull market. It action, though, gives no real assurance that there will be such a reversal Monday.

The metal's performance since Wednesday before last looks like an all-out correction is blooming, although it hasn't fallen the requisite 10% as of yet. The bargain-hunting that stepped in early this morning did not keep gold from descending again into a loss, although it had a couple of good runs in the regular-trading session. The Eurocrisis premium keeps evaporating.

If gold does turn around on Monday, its interday low today will be higher than its last short-term bottom on May 5th. The consistency of the decline, though, suggests that gold has farther to fall before it shakes off the (perhaps pre-)summer doldrums.

Last Tuesday, the metal recovered a little after Monday's drop; it closed above $1,220. That close was the cut-off for this week's Commitment of Traders report, graphed here. Total open interest declined slightly from Tuesday before last; so did the number of non-commercial long contracts. Interestingly, commercial shorts fell slightly too. Commerical longs were up a bit, and non-commercial shorts were up 8.09%. That group, as a group, nailed it for the rest of this last week. Both side of the commercials were slightly at odds with what transpired.

The CoT graph for the U.S. Dollar Index showed a further slumpage in open interest. At the end of last Tuesday, which saw an up day that ended up prefacing three subsequent days of declines, every category shrunk; the commercial long category shrunk the least. The catgeory that shrunk the most was actually non-commercial shorts; that shrinkage didn't exactly gibe with the rest of the week's action. Non-commercial longs shrunk the second most.

Moving back to gold, a post-pit Wall Street Journal report notes that gold seems to be moving with equities again after mentioning that there was a definite bounce off the lows of the day:
The initial decline was blamed largely on selling to raise money for margin calls in other markets that suffered this week....

Several analysts described a gold market now tracking equities rather than getting a safe-haven bid when stocks fall, as has occurred in other recent sessions when the continuing European debt saga prompted worries about economic growth.

"Gold is closing lower again due to sellers responding to margin calls from other areas," said George Gero, vice president with RBC Capital Markets Global Futures in New York.

However, shortly after gold open-outcry trading ended Friday, the Dow industrials were up by around 70 points. As a result, some of the recent margin-related selling abated, analysts said. In fact, gold's $1,188 peak came right around the time the Dow hit its peak.
However, ther's still talk about this being a dip that presents a buying opportunity. One familar face said he's getting back in:
Investor Dennis Gartman, publisher of the widely followed Gartman Letter, said he now favors buying gold in British pound and euro terms again. He had exited from positions and moved to the sidelines earlier in the week, although emphasizing at the time he remained longer-term bullish in gold in non-dollar terms.
Also cited as reason for optimism is the overall rise, and lack of daily declines, in the SPDR Gold Shares Trust's holdings.

Perhaps the decline was accentuated by the same factor that helped drive down equities this week: Angela Merkel's attack on "speculators." If so, then gold will climb up again once the dust settles. How long that would take, is anyone's guess.

Thanks for reading this blog, and have a nice warm weekend. If you're celebrating a long weekend, I hope the entertainment-related line-ups aren't too long.

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