Monday, May 3, 2010

Gold Rises, Pulls Back

Regular trading began tepidly, with gold sinking down to bottom at just above $1,180. That level served as a floor until just after 9 AM ET. From then until just before 10:15, the metal ran up to $1,189.00.

As of that time, the action looked similar to the recent bull runs in the pit shift: up in early-mid morning, stable, then up again. Today, though, the run up was almost completely reversed. After reaching $1,189, the metal fell to $1,181 before turning upwards again. As of 11:32 AM, spot gold was at $1,184.80 for a gain of $ on the day. The Kitco Gold Index attributed -$8.15 to a strengthening greenback and +$13.75 to predominant buying.

The U.S. Dollar Index went on a nice run from 10:00 to 11:08 after churning in a range. That rally started slowly and hesitantly, and became choppy after a peak as of 10:37. Topping at above 82.5, it pulled back to 82.4 and muddled around before turning up again. As of 11:44, it was at 82.53.

Gold fell as the Index pulled up, making for a return of the inverse correlation between the two. Although there are signs that the positive correlation is reasserting itself, gold looks a little vulnerable now. There may be a tougher market this afternoon.

Update: The metal stalled near the end of the morning at $1,185. Lumbering upwards until just before 12:30 PM ET, it got a little above $1,186 before turning down again. The downturn was stalled at $1,184, but continued from 1:00 until near the end of the pit shift. After hitting $1,182, it fluctuated. As of 1:49 PM, spot gold was at $1,182.80 for a gain of $3.50 since last Friday's close. The Kitco Gold Index assigned -$7.35 to strength in the greenback and +$10.85 to predominat buying.

After its pullback, the U.S. Dollar Index made another peak at 82.56 as of 11:45. Pulling back again, the Index settled at a slightly lower level than it was at as of 11:30; it entered a raggedy-topped range between 82.35 and 80.4. As of 1:50, it was testing the top at 82.41.

There's a good chance at a gain, but gold's action in the pit shift indicates a rally that's tiring. The electronic-trading part of the regular session should largely leave gold alone, but there may be a gentle slide.

Update 2: Gold did close with a gain, but there wasn't a gentle slide. The metal fluctuated, with $1,180-81 serving as a floor. Interestingly, that same zone served as a floor for the entire regular-trading session.

After topping at $1,184 as of 2:45, gold fell back down to $1,183 and stayed there for a time until dropping down to $1,182. A further period of drift was interrupted by a drop to $1,181, which was reversed plus a little bit. As of the close, the spot price was $1,182.30 for a gain of $3.00 since Friday's close. The Kitco Gold Index (KGX) attributed -$6.70 to strength in the greenback and +$9.70 to predominant buying. Again, the KGX had gold ex-greenback at a record high.

The U.S. Dollar Index went on a mid-afternoon slump, which carried it down to just above 82.25 by 3:00. The timing of that slump roughly coincided with gold's mid-afternoon top, indicating that the inverse corrlation between the two is making a re-entrance. After that slump was over, the Index pulled up into a ragged-bordered trading range centered around 82.35. As of 5:30 PM ET, it ended up at that same 82.35.

The Index's daily chart, from, shows a rebound reversing the declines of the last two sessions:

Evidently, the anticipation of a bailout package for the Grecian government hasn't provided enough assurance to bolster the Euro and sink the Index. Although its interday high was below those of last Wednesday and Thursday, its close was a little above the former's. That made for a new eleven-month high.

Although currently trading indecisively, the uptrend is still intact. Today's high was above March 25th's, and April 14th's low was higher than March 17th's. Not by much, but by enough to make the Index's current bull run still real. That said, it's beginning to trade indecisively.

With respect to gold, its own daily chart shows Friday's rally extended to today:

As noted above, though, the rally looks like it's tiring out. This could be another false signal, as the metal's likely to rally once the bailout package is finalized and approved. Gold's RSI level, found at the top of the chart, is close to oversold levels. Granted that there's no iron law mandating the RSI line to top out at its 70 oversold level, but its current level of 67.58 is close to that oversold point. That said, gold's uptrend is still intact and is likely to survive any near-term dip.

A post-pit Wall Street Journal report has this interesting fact: today's close for the most-active contract was the highest since December 3rd's of last year. (That day was the day after gold made its all time high in U.S.-dollar terms.)
Gains in the dollar hampered gold's rally, but the metal was able to overcome that pressure because it was also being seen as a safe-haven investment. Shortly after gold closed, the euro was down 0.4% and the ICE Futures U.S. Dollar Index was up 0.7%.

"On a day when the dollar is that high, it's somewhat impressive for gold" to be up as well, said Michael Gross, broker and futures analyst with

Gold is often pressured when the dollar rises because a stronger greenback makes the dollar-denominated metal more expensive for buyers using other currencies, dampening demand.

"It's torn between sovereign risk issues on the one hand and the fact that the euro is lower," said Jim Steel, senior vice president and metals analyst with HSBC.
The article also noted that bullish sentiment is increasing as the metal reached the $1,200 mark.

Gold may continue to rally tomorrow as the bailout gets nearer and nearer; that's been the main driver for the current intermediate-tem uptrend. Or, it may pull back. Either way, it's hard to see a large drop coming when the Eurobailout looms.

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