Gold Fluctuates Around $1,200, Then Moves Upwards

After yesterday's rocket-up, a sink-down isn't all that surprising. After doing so in the overnight session, gold essentally marked time in morning regular trading. The absence of any fear driver led to gold being essentially directionless.

After sinking when regular trading opened, likely due to profit-taking, the metal rose to $1,199 on the heels of the latest jobs report. Pulling back after, the metal then entered into a two-stage rally that pulled it up to $1,206.70 as of 10:05 AM ET. That peak was followed by a drop that took the metal down more than ten dollars an ounce to $1,193. Reversing at 11:20, it pulled up a little above $1,200 before hesitating. As of 11:49 AM, the spot price was $1,200.20 for a loss of $8.60 on the day. The Kitco Gold Index attributed +$4.10 to weakening in the greenback and -$12.70 to predominant selling.

The U.S. Dollar Index fared well, until a mid-morning drop. After a dip down to 84.65 around 8:50, the Index recovered and advanced very slightly until a dip at 9:30 that took it below 84.8. Then, a rally that began slowly but accelerated got the Index up above 85.1 as of 10:28. At that point, the rally reversed with a slow-starting but accelerating decline that brought the Index down to below 84.5. Pulling up subsequently to 84.77, it began sinking again. As of 11:50, it was at 84.60.

So far, there hasn't been any definite downtrend; the metal may keep fluctuating around $1,200 this afternoon. Further profit-taking and a general letdown, though, might drag it down to well below $1,200 and hold it there. The afternoon will show.


Update: I manage to underestimate the metal again. After pulling back to $1,198, reached just before 12:15 PM ET, the metal went on another run that took it up to a new daily high. Just before 1:00, it touched a new 2010 high of $1,215.20 - ten dollars below its all-time high. Pulling back to $1,209, the metal jumped up again to $1,213 before sinking back again. The end of the pit shift left it virtually unchanged on the day. As of 1:47, the spot price was $1,208.70 for a loss
of $0.10. The Kitco Gold Index attributed +$5.80 to a weakening greenback and -$5.90 to predominant buying.

The U.S. Dollar Index changed little since the last update. Continuing its slide after noon, it sunk to below 84.5 by 12:20. From there, it recovered and pulled up to 84.72 before sliding back down a little. As of 1:51, it was 84.65.

The odds say that gold wil spend the rest of this week drifting at about the level established at the end of the pit shift. Although a drift-down is likely, there's a chance that gold will close unchanged.


Update 2: It didn't, but the metal was very close. For a time in the later-afternoon shift, gold was sporting a gain.

That's fairly impressive, as well as unexpected (at least by me.) Given gold's rocket-up yesterday, a sink-back today wouldn't have been all that abnormal. The fact that the metal held on to almost all of yesterday's gains shows real bullishness. Profit-taking did occur today, but it was counterbalanced by new buying. Given that the German lower house okayed the German part of the bailout commitment, there was an opportunity for crisis-trade payers to exit out. To the extent that they did, they were replaced by new longs.

As mentioned above, a new 2010 high was made today; it was ten dollars below gold's all-time high. This is May, a month that's traditionally (but not always) been good for gold. Sadly, the next month is known for not being very good for the metal. It would make an important statement for gold to make a new all-time high in greenback terms before the summer doldrums start. Of course, it would be much better if gold bucked the summer droops - but that's too much to ask at this point.

The electronic-trading shift of the day session, beginning at 1:30 PM ET, started with a slight recovery that turned into another dip. The drop, which ended at $1,207 as of about 1:50, marked the low point of the later-afternoon electronic-trading shift. After recovering gold spent the next hour and a quarter in a trading range between $1,209 and $1,210. Starting at 2:05, a mild run upwards got it to $1,211 by 3:30. A fallback put gold down to $1,108, where it crawled along before advancing slightly near the end of the session. As of the close of the week, the spot price was $1,208.00 for a loss of $0.80 on the day. The Kitco Gold Index assigned +$8.20' worth of change to weakness in the greenback and -$9.00' worth to predominant selling. So, if the greenback is factored out, it can be said that there was some overall profit-taking today.

The close last week was $1,179.30, making for a weekly gain of $28.70 or 2.43%. This week marks the third weekly gain in a row.

It could be said that the U.S. Dollar Index's declines helped gold overall, but that belies a concurrency that showed up in the movements of both in the later-afternoon part of the session. From 84.73 as of 1:30, the Index plopped down to below 84.5 fifteen minutes later. A relief rally was followed by a churn, which ended with another plop as of 2:45 that took it down a little below 84.4. Rising up later, it sunk back down to the 84.4-84.45 until the end of the week's trading; a last-minute drop just before 5:00 left it at 84.36.

The Index's daily chart, from Stockcharts.com, shows the pullback which, it has to be admitted, was overdue:



The chaos god didn't intrude after all, and the Index pulled back from its highly overbought level. Its RSI line, found at the top of its chart, is still in oversold territory. Given how the Index has acted over the last five months, it would be reasonable to expect the pullback to continue. Of course, the chaos god may intervene again.

Turning to gold, its own daily chart shows that there was some profit-taking today even though it evened out at the end:



Instead of a candlestick, there's a cross; that mark shows the metal closed about where it opened. The lower part of the wick is longer than the upper part, showing that there was a sizable profit-taking drop in the middle of the day. Gold's own RSI value is still in oversold territory, suggesting that a pullback is still in the offing. It might not come Monday, but the potential is there.

Today being Friday, the Commitment of Traders data have been released. As a reminder, the records of positions is current to last Tuesday's close. Gold had fallen back then, and was about to bottom around $1,155 in the next day, but was on the cusp of its run. The CoT graph for the metal shows an overall increase in open interest to a one-year record. Both non-commercial and commercial longs expanded somewhat. Commercial shorts did too, of course, but so did non-commercial shorts. Again, the longs had it. Of interest is the fact that commercial longs, supposedly more savvy than non-commercial longs, crept up.

The U.S. Dollar Index's CoT graph, a snapshot of the market for it in the middle of it rocketing upwards, shows a modest increase in open interest. Non-commercial longs expanded, but commercial longs contracted by a smidgen. Commerical shorts expanded - but non-commercial shorts didn't. That was wise of the ones who covered, as the Index near-exploded upwards over the next two days.

A Wall Street Journal report, covering the day's action up to the end of the pit session, explains that gold held up because of safe-haven buying still.

"Nobody wants to be short gold over the weekend," said Michael Gross, broker and futures analyst with OptionSellers.com, the Web site of Tampa, Fla.-based futures brokerage Liberty Trading Group....

In recent months, amid extremely low interest rates that make non-interest-bearing gold more atractive, the metal has been behaving as a so called risk play. It has tended to benefit when investor risk appetite is high for such volatile, but potentially profitable, investments like metals, higher yielding currencies and equities.

But in recent days, the heigtened market worries have brought investor focus back to the metal's historical role as a hedge against market uncertainty.

Also mentioned is an IMF board meeting this Sunday to work on the bailout package. It's suggested that too much can change over the weekend to risk betting against the metal. The same consideration doesn't seem to apply to staying long.

I understand the uncertainty. Given that gold now thrives on crisis, and has thrived when the government bailouts get rolling, there is a real risk to remaining short over the weekend. I merely note that the way for the gold market to fool as many people as possible would be for a decline to set in on Monday. That's Monday's worry, however, and the gold market may not be that refractory.

Again, thanks for reading, and have a cheery weekend.