The U.S. Dollar Index did weaken throughout the morning, sinking from above 86.3 down to 86 by a little after 10:00. Subsequently, it drifted mostly sideways although with a slight downwards bias. The industrial-production data seemed to have little effect on the Index. As of 12:01, it was at 85.96.
So far, today hasn't been that good for gold. The pullback, though, is consistent with it being in a range. The metal may continue to be soft this afternoon, but any softness will be in the context of that range.
Update: The price continued deteriorating as morning turned into afternoon. Reaching below $1,231 around 12:15 PM ET, gold partially recovered but dropped further starting at 12:30. Stopping at $1,228, it fluctuated just above that level until a relief spike turned into a renewed decline that hit a new daily low of $1,226.50. The rebound just before the pit session ended put it only to $1,229. As of the end, or 1:30 PM, the spot price was $1,229.40 for loss of $5.00 on the day. The Kitco Gold Index split the loss into -$4.30 for predominant selling and -$0.70 for a strengthening greenback.
After sinking to 85.92 at noon, the U.S. Dollar Index recovered somewhat although choppily. Creeping up to just above 86.1, the Index fluctuated around that level. As of 1:36, it was 86.06.
What I thought would be an okay day for gold has turned into something less. Still, the declines so far have been mild. That softening may continue in the rest of the afternoon.
Update 2: The softening let up enough in the electronic-trading hitch to limit the metal's losses on the day. A hop of a few dollars an ounce between 2:05 and 2:20 PM ET kept the price above $1,230 until near the end, when it sunk to $1,229. A last-minute reversal got the price up above $1,230 at the end. So, the closing price was $1,230.50 for a drop of $3.90 on the day. The Kitco Gold Index divided the loss into -$2.10 for predominant selling and -$1.80 for strengthening of the greenback.
The U.S. Dollar Index, after dipping back below 86, recovered and spent some time churning around 86.15. A hop up at 5:15 PM got it near 86.2, the level at which it was at as of 5:30.
Its daily chart, from Stockcharts.com, shows a slight recovery from yesterday's drop:
Although the change between open and close was miniscule, the range of today's trading was close to that of yesterday. It's too early to say outright that the short-term decline has ended, but the 86 support level did hold despite the bending it took. The Index's RSI level, found at the top of the chart, is still slightly below neutral; that's the point where a turnaround tends to occur when it's in a bull phase. Right now, it still is. So, there's some grounds for believing that the large short-term drop ended yesterday.
As for gold, its own daily chart shows a topping at just below $1,240:
Today's mild pullback has left its current range intact on the upside. The interday high was only slightly higher than yesterday's; both are slightly below the $1,240 level that gold couldn't get past this month except on an interday basis. The lower part of the range, just below $1,220, has only been tested once. It may be tested again soon.
Both gold's RSI and MACD lines have stabilized. The former is only a little above neutral. The latter pair of lines, found at the bottom of the chart, are still in a bearish configuration but only barely so. Both indicate range-like behaviour. Gold hasn't been able to keep its rallies, but there's no immediate indication that it's ripe for a serious fall. Appearances suggest it will continue in its range; the only visible risk is the negative correlation between the greenback and the metal reasserting itself to the former's benefit.
A post-pit Wall Street Journal report says that some money went off the gold table because some risk appetite is returning, but Euro-related fears are limiting declines. The gold market's been quiet lately.
"In all honesty, what I think is really going on here is the World Cup," said Kevin Grady, gold trader on Comex floor with MF Global. Many traders were more focused on the international soccer event in South Africa, particularly those in Europe, he said. "A lot of these people are out of the market," he said.Also mentioned was one of the sources behind the early-morning spike: the Spanish Prime Minister had announced a meeting with the head of the IMF, to take place Friday or nearabouts; that announcement got the rumour mill going about the Spanish government's finances.
Despite the modest retreat, Grady said he still views gold's trend as higher. "On dips, there are people under the market waiting to buy it," he said.
This is in large part due to ongoing concerns about whether some European nations can pay back their debt, he said.
"The only way to do that is print money. And by printing money, you're going to devalue currencies," Grady said. "That is the underlying point as to why people are buying gold."
Traders are also mindful of the large U.S. deficit, he added.
It has been quiet lately, which has cushioned any drops that gold has taken but advances less so. That said, near-term movement is still neutral. Unless a surprise intrudes, or the U.S. Dollar Index recovers while keeping its newly-reasserted negative correlation with gold, the $1,220-$1,240 range should hold.