Thursday, May 27, 2010

Gold Fluctuates In Morning Trading, Mostly To Upside

After descending to below $1,210 when regular trading began, gold climbed in two stages but failed to make it above $1,217. The first run shot the price up to $1,214 from $1,207; after which, the metal sunk back down to $1,211. The second run bested $1,215, and ended with a spike above $1,216. Subsequently, the price pulled down like it did after the first run-up. As of 11:59 AM ET, spot gold was at $1,214.20 for a gain of $3.60 on the day. The Kitco Gold Index attributed -$12.30 to predominant selling and +$15.90 to a weakening of the greenback.

The U.S. Dollar Index, after a run that carried it up above 87.1, tumbled all the way down to 86.23 before recovering slightly. The top came at just before 10:00, and the subsequent tumble was largely uninterrupted. Interestingly, gold hasn't really followed the greenback downwards. As of 11:59, the Index had continued downwards at 86.18.

So far, gold is following the script of recent vintage: down near the beginning of regular trading, up later in the morning. If the same script is followed in the afternoon, the metal will eke out a small gain at the end of the day.


Update: After that second run-up, gold dipped back to the $1,211 level as quiet settled into the market. From that point, it bobbed in a trading range between that level and $1,213. Despite the worries that a rebound in equity prices would bring gold down, because of switches from the metal to stocks, that fate hasn't befallen the metal; it still notched up a small gain as of the end of the pit shift. The early-morning drop occured long before the market opened, although it could have been preparative for such a shift. As of 1:30 PM ET, the spot price was $1,212.60 for a gain of $2.00 on the day. The Kitco Gold Index assigned -$15.00's worth of change to predominant selling and +$17.00's worth to weakness in the greenback.

The U.S. Dollar Index's slide halted, and was replaced by near-directionlessness at a level near its bottom. Overall, the range-like behavior showed a slightly downward bias. As of 1:37 PM, it was 86.15.

Trading for the rest of the afternoon is likely to leave gold near unchanged. Overall, for a day when a rise in risk appetite is supposed to dent the metal, it's shows a fair bit of resilience.


Update 2: The close saw gold up on the day, but slightly enough to call it near-unchanged. The rest of the session was again quiet, with the same range holding up except for two stretches, where it was tested on the upside and (later) the downside. The upside test, which didn't push the price above $1,214, coincided with a dip in the U.S. Dollar Index to a new daily low. The downside test didn't coincide with any definite movement in the Index. At the end of the session, spot gold closed in the middle of the range: $1,212.00, for a gain of $1.40 on the day. The Kitco Gold Index attributed -$14.20 to predominant selling and +$15.60 to greenback weakness. The two changes sum up to the raw change on the day.

The U.S. Dollar Index hit a daily low of 86.09 at 2:30. Afterwards, an initially sluggish rally got rolling, carrying it up to 86.47 before peaking. From that peak a decline set in, but one that didn't carry the Index down to its mid-afternoon low. Instead, it churned between 86.2 and 86.3 for the rest of the session. As of 5:30 PM, it was at 86.27.

Its daily chart, from Stockcharts.com, shows its large drop today in the overall framework of a short-term range:



As shown in the lower wick of today's candlestick, the Index came close to brushing 86.0 as the gains of the last two days were wiped out. The euro did have its respite today. The drop pushed the Index's RSI level, found at the top of the chart, to well below the overbought level.

Of interest is the pair of MACD lines at the bottom of the chart. Although the two lines have not switched into a bearish configuration, they came very close to doing so today. This call is much closer than that of two days ago, after which the Index made a run at the top of the current range.

Still, the current range has held despite the Index's wild swings within. In terms of interday movements, that range is between 87.5 and 85. No matter how volatile the Index's action tomorrow, the range is likely to hold.

Regarding gold, its own chart shows today as the fourth day in a row of gains:



As the first day turned into the fourth day, the gains have gotten smaller and smaller. I could say, largely in jest, that the progressively small gains are smooth enough to fool me into thinking there's a pattern that doesn't exist.

From bottom to top, the current upturn went from about $1,165 to $1,220 for a $55 gain. From the $1,250 top, the metal lost $85 earlier. Roughly, there's been about a 65% retracement. There are some models that say an upwards reaction could go to two-thirds of the original drop: with that framework, gold isn't quite out of the woods yet. Still, the retracement is well above the 50% that's typical of a sucker rally. Gold's own MACD lines are still in a bearish configuration, but that doesn't mean very much for an investment in an intermediate uptrend. If the metal does pull down from here, it could be counted as part of the current dip.

A post-pit Bloomberg report says that the nearest gold futues contract, which declined a little on the day, did so because safe-haven buying abated with the rally of the Euro (not to mention stock markets.)
“With the overseas markets up, you might see a pullback in gold,” said Marty McNeill, a trader a R.F. Lafferty Inc. in New York. “There are still too many things going on in the world for the real long-term holders to sell gold, though. You still need to protect yourself.”...

“Gold is steady,” said Dennis Gartman, an economist and the editor of the Suffolk, Virginia-based Gartman Letter. “The only change in gold is derived from the strength in the euro, which shall be fleeting.”

U.S. Secretary of State Hillary Clinton said in Seoul that it’s not too late for North Korea to make amends for sinking a South Korean warship.

“The easing of the tension in Korea might bring in profit- taking,” McNeill said.
That being said, gold didn't rise but it also didn't fall all that much; in spot terms, as noted above, it didn't fall at all. If the metal does decline tomorrow, there's an underlying confidence among market-watchers that it'll be just another dip; there's little expectation of a rout. Gold's on track to end the week with a gain, limiting last week's loss to a streak of one.

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