Monday, May 24, 2010

Gold Leaps In Two-Stage Rally, Continues Up

After starting off near the lows of the day, gold leapt upwards in two stages during the morning part of regular trading. Coming out of the gate, the price jacked up six dollars an ounce to reach above $1,189 by 8:50 AM ET. Pulling back, the metal fluctuated around the $1,187.50 level until just after 11:00. Then, the second stage of the rally kicked in. Starting below $1,188, the second leap took the price to $1,194.80 before sinking back starting at 11:15. As of 11:45, the spot price was $1,192.40 for a gain of $15.40 since last Friday's close. The Kitco Gold Index attributed +$26.20 to predominant buying and -$10.80 to strength in the greenback.

The U.S. Dollar Index fluctuated between 86.5 and 86.25, with a downward bias near the later part of the morning, until breaking through the lower end of the range. After an early-morning run peaked at 86.51 as of 8:20, the Index drifted back downwards to just above 86.25. A quick recovery to almost 86.5 presaged another downtrend, which took it down to a little below that same 86.25 by 11:30. As of 11:45, it was at 86.17.

So far, the metal's recovery is fairly solid. The greenback rallied when gold didn't early this morning. The regular-trading rally gold's enjoying, without the U.S. dollar participating, could be seen as gold catching up to the greenback. How sustainable gold's rally is, will be seen in the afternoon part of the session.


Update: There wasn't a third leap-up, but gold crept up after its pullback ended at about 11:30 AM ET. Its climb took it up to a new daily high of $1,196.90 before it slumped back again. As of the end of the pit shift, 1:30 PM, the spot price was $1,193.90 for a gain of $16.90. The Kitco Gold Index assigned +$26.40's worth of change to predominant buying and -$9.50's worth to greenback strength.

The U.S. Dollar Index continued to slump down, although slowly and hesitently. After poking at 86.15 from the upside, it fell through that level at 1:00. Pulling back up, it again sunk below that level temporarily. As of 1:38, it was 86.15.

So far, there's been a real recovery in place for gold. It may not last during the rest of the week, but it's likely to last today. There's almost a certainty of gold closing with a solid gain.


Update 2: It did, although at a slightly lower price than the one at the end of the pit shift. When the electronic-trading hitch began, gold continued to rise a little. A new daily high of $1,198.00 was made around 2:30 PM ET. From that peak, the metal started sliding down: at first very slowly, the tempo of the decline picked up as the close approached. At the end of the day, the spot price was $1192.30 for a solid gain of $15.30 since Friday's close. The Kitco Gold Index attributed +$29.40 to predominant buying and -$14.10 to strength in the greenback. The two figures sum up to the raw change.

The U.S. Dollar Index's sinking ended when it bottomed at just below 86.1 right after 1:30. Subsequent to that bottom, the Index advanced fairly steadily to 86.47 by 4:40. After a pullback, it managed to rally to above the 86.5 level that had been a top for advances earlier in the day. As of 5:30 PM, the Index was 86.525.

Its daily chart, from Stockcharts.com, shows the decline of the previous three sessions being reversed today:



Averted was a switch of the MACD lines, found at the bottom of the chart, into a bearish configuration. It was close, but the lines are still in a bullish cross. Despite the Index's close upwards, those lines were closer today than they were yesterday.

Although not back into oversold territory, the RSI line at the top of the chart is close to that plus-70 zone. The Index's recovery from its drops in the last half of last week show that its pullback has been fairly orderly. There have been no real air pockets that have shot it down. The Euro, of course, is still under a cloud.

Turning to gold, its fortunes improved today as its own daily chart shows:



Unlike the U.S Dollar Index's, the short-term decline in gold has been fairly serious. Its own RSI line dropped to a little below the 50 level, indicating neutrality, and its own MACD lines are firmly in a bearish configuration. Today's rally does resemble a relief rally.

It did move up today, though, and part of the reason is bargain hunting. Despite the daunting action over the last two weeks, the fact that bargain hunting kicked in shows that gold's decline has limits. It too is bolstered by continued troubles in the Eurozone.

Was last Friday's drop the end of a short-term dip? It's impossible to say at this point, but I have read of $1,175 being thought of as a bargain level. Interday, Friday's decline got below that price point.

The post-pit Reuters report pegs gold's advance as caused by flight-to-quality buying. Amongst the points made therein, these were included:
* In this environment, gold up despite weaker euro as a sign of increased risk - James Steel, metals analyst at HSBC....

* Sovereign risk crisis in Europe far from over. Should continue to bode well for gold through summer - Bill O'Neill, managing partner with LOGIC Advisors.

* Money managers increased their net long positions in U.S. gold futures by more than 2,000 lots in week ended May 18 - U.S. Commodity Futures Trading Commission.

The metal may make it above $1,200 if Eurotroubles continue, but the momentum of two weeks agon has clearly gone. We may see a muddle tomorrow.

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