Thursday, May 20, 2010

Gold, After Further Slippage, Fords Above $1,190

The fall at the beginning of regular trading proved to be a fake-out. Influenced by the jobless-claims number and the resultant plummet in the U.S. stock market, gold rallied to the tune of almost eighteen dollars an ounce from 8:35 AM ET to 10:00. Falling back down after peaking at $1,195, gold gave up almost all of that gain before floundering around the $1,184 level. After stabilizing as of 11:00, the metal turned up again to reach a slightly lower peak. As of 11:48, the spot price was $1,191.90 for a gain of $0.50 on the day. The Kitco Gold Index attributed +$3.90 to predominant buying and -$3.40 to greenback strength.

The U.S. Dollar Index's strength is still there, but it diminished as a rally to 86.8 failed to be followed through upon. Falling to 86.45 as of just before 10:00, the Index rallied again but failed to best its high. That lower high preceded a lower low as it fell below 86.4. As of 11:44, the Index had shaken off a relief rally, which ended at 86.44, and sunk to 86.37.

So far today, the post-plummet script of a lower interday low ending with a small gain is being followed by gold. The afternoon may well see it continue to that conclusion.


Update: After making that slightly lower peak, gold fell again until bottoming at $1,182. The decline started slowly, but climaxed just before 12:45. Once at $1,182, reached just before 1:00, the metal fluctuated between that level and $1,185 before pulling up again. At the end of the pit shift, the spot price was $1,188.40 for a drop of $3.00 on the day. The Kitco Gold Index assigned -$3.80's worth of change to predominant selling and +$0.80's worth to a weakening greenback.

Weaken, the U.S. Dollar Index did. After bottoming around 86.35, it recovered up to 86.57 as of just before 1:00. Subsequently, it plummeted down to 85.85 before advancing to 86 in a relief rally. As of 1:43, that upturn was partially shaken off, with the Index at 85.92.

Aagain, the above-mentioned script is being followed, with gold in a trading range whose bottom is well above the day's low. The rest of the afternoon shouldn't see that much of a drop. Although my guesses at the close haven't been really accurate, I'll lob off another one: $1,190.


Update 2: That guess was fairly off too. Since I haven't demonstrated any real talent at it, I'm going to bring the guessing game to a close and go back to my previous kibitzing. Suffice it to say that gold deviated from the above-mentioned script.

During the rest of the afternoon, gold didn't make it above $1,188. Although there were frequent relief rallies, the overall trend was a drift downwards until late afternoon when a range was established between $1,181 and $1,184. The metal closed in the upper end of that range, but well below yesterday's close. As of today's, the spot price was $1,183.00 for a loss of $8.40 on the day. The Kitco Gold Index attributed -$10.10 to predominant selling and +$1.70 to a weakening greenback.

The U.S. Dollar Index's decline continued until 2:50 PM ET, when it bottomed out at 85.4. From that low, it recovered most of its losses for the day by climbing up all the way to above 86. There was some hestiation when a little below that level, but it was eventualy surmounted. As of 5:30 PM, it was at 86.02.

Its daily chart, from Stockcharts.com, shows that three-day plateau formed Monday to yesterday being broken today:



With today's drop, the RSI value found at the top of the chart is no longer in overbought territory. The 86 support level was broken, indicating the crisis-related gains are finally melting away. Significantly, the greenback was down on a day when the U.S. stock market was pummeled. If there were any flight to safety caused by the decline, it was more than compensated for by the postcrisis drop.

Given that falloffs after rocket-ups by the Index tend to be sharp, there's a good chance that it will continue to drop in coming days. It has a long way to go before its MACD lines cross over into a bearish configuration, so the drop is a short-term pullback. It's nowhere near its previous short-term low of about 83.

The same post-crisis letdown affected gold even more, as its own daily chart shows:



Although the end value is significantly higher than its interday low, the metal still saw a notable drop today. Gold's MACD line had it: the bearish crossover yesterday did prefigure today's decline. Although still far away from its last short-term low of $1,155, the metal is still coming up to that figure. Its RSI value is now slightly below the neutral level.

This day does not look like the other post-plummet days this year, suggesting that the metal has had more of a letdown coming to it than after those days. Sadly, the Europeans who bought in a panic seem to have bought near an intermediate high.

What to watch for now is any bargain-hunting amongst physical buyers. A couple of months ago, that buying kicked in at $1,100/oz and cushioned any declines below that level. As the gold price shot up, the bargain point rose too. I'm not sure where it would be now, but it's a potent figure once it settles in. That being said, gold's short-term downtreand doesn't show much sign of abating.

A post-pit Wall Street Journal report said that the decline was not that bad, given that afternoon buying stepped in around $1,180 which kept the metal from falling further.
[G]old pared its loss into the open-outcry close, faring better than other metals as it retains some safe-haven luster. Investors used several intraday retreats as buying opportunities....

A move by Germany this week to ban short sales of some securities added to fears about the extent of European sovereign-debt issues and also prompted worries about further regulation of financial markets in other nations.

"It's risk aversion to the ultimate, and this may continue," said Leonard Kaplan, president of Prospector Asset Management in Chicago....

Also, some investors were cashing out gold positions to cover margin calls in other markets, said Bart Melek, global commodity strategist with BMO Capital Markets in Toronto. Furthermore, there have been reports that the recent surge in prices hurt gold-jewelry demand.

But after hitting a two-week low of $1,175, benchmark gold snapped all the way back to steady levels on two occasions during a volatile session.
The other experts quoted therein expressed their belief that this dip presents a buying opportunity. Also mentioned is the fact that platinum and palladium dropped far more than gold today.

Current prices could represent a buying opportunity to those uninterested in timing considerations, but a more momentum-influenced person would note that the metal's declines have not yet ended. There is still some sovereign-risk premium, and the rise in the SPDR Gold Share Trust's holdings yesterday does show that some already do see this drop as a buying opportunity. Whether any such demand will be enought to reverse the fall, will be apparent tomorrow.

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