Thursday, June 24, 2010

Gold Advances To Gain, Breaks $1,245

Perhaps this time the $1,240 ceiling is history. As the U.S. equity markets declined, and the greenback stumbled, gold went on an advance that more than erased yesterday's plummet. Climbing in waves from 8:30 AM ET, the metal went from below $1,230 to well above $1,245 after hesitating just below that level. The final jump-up did not coincide with either a drop in equities or the U.S. dollar, suggesting momentum buying. As of 11:55 AM ET, the spot price was $1,247.50 for a gain of $10.20 on the day. The Kitco Gold Index split the gain into +$6.40 for predominant buying and +$3.80 for weakening of the greenback.

The U.S. Dollar Index, after churning mostly downwards, took a tumble. From around 85.85 as of 9:00, the Index dropped to 85.65 by 10:26. Pulling upwards to a little above 85.8, the Index underwent a quick drop at 11:42 that brought it down to 85.45 before a rebound kicked in six minutes later. As of 11:57, it was at 85.53.

With this morning's rise, the metal is trying once again to stay above $1,240. This time, it may succeed.


Update: The upwards run didn't continue, but $1,245 held. Gold entered into a trading range with that value as the floor and $1,248 as the ceiling. As of the end of the pit session, or 1:30 PM ET, the spot price was $1,245.10 for a gain of $7.80 on the day. The Kitco Gold Index divided the gain into +$6.20 due to predominant buying and +$2.20 due to weakening in the greenback.

The U.S. Dollar Index continued to recover after bottoming at 11:48 AM. At first drifting around 85.55, the Index managed to surmount 85.6 after 1:20 PM. As of 1:35, it was at 85.61.

With the morning run over, gold won't likely to make a run at $1,250 today. There's a better chance of it sinking, sad to say.


Update 2: After some lassitude along the $1,245 level, that sinking did take place. A two-stage drop starting at 3:15 PM ET got the price down to $1,240, but it slowly rebounded off that level. The drop coincided with interday lows in the major U.S. averages. The metal didn't reach $1,245 at the end, but it still pared off most of the drop and closed well above $1,240. As of the close, the spot price was $1,243.40 for a gain of $6.10 on the day. The Kitco Gold Index apportioned the gain into +$5.40 for predominant buying and +$0.70 to overall weakness in the greenback.

The U.S. Dollar Index continued to rally, reaching above 85.75 by 3:00. Hovering around that level, despite a quickly-erased spill between 5:05 and 5:20, the Index marked time in late-afternoon trading. As of 5:30 PM, it was exactly 85.75.

Its daily chart, from Stockcharts.com, shows its decline continued for a second day:



Between open and close, today's was almost none. The interday low, though, was well below yesterday's. The Index's RSI level (found at the top of its chart) remains stuck below 50, the zone at which it used to rally.

After its large short-term drop early and mid-month, the Index has been in the doldrums. Simple pattern-guessing suggests that it's going to test the 85 low, although such patterns are broken all the time. It could be argued that its current stagnation is due to it getting way ahead of itself. It got well above its 50-day moving average (the blue line in the middle of the graph) and is still above that line despite the pullback. The last time the Index got into similar doldrums, in mid-April, the 50-day line got above the raw value.

So, the lack of snapback could be a result of the Index getting way ahead of itself. As of now, it looks like it'll continue in its doldrums.

Turning to gold, its own daily chart shows it pulling above the $1,240 resistance level again:



Today's candlestick shows an interday low well below $1,240, but the metal still got above at the end. Although encouraging from a technical standpoint, gold too looks like its in the doldrums for now - the morning run notwithstanding. It'd be better if tomorrow's action confirmed today's: the last breakout was followed by Monday's plummet. Given that volatility, it seems best to be cautious right now.

A post-pit Reuters report ascribed the recovery to short-covering. Amongst the points therein, these were included:
* Short-covering and a slightly lower dollar index triggered light buying in thin trade conditions - analysts....

* Gold's weakness on Wednesday was a reaction to the Fed's statement that inflation to remain subdued for the foreseeable future - Dennis Gartman, publisher of the Gartman Letter.

* Gold may benefit as investors reduce equity holdings, or seek an alternative investment altogether, if fiscal austerity leads to a declining stock market - James Steel at HSBC.
As the week nears its end, gold looks like it will end its weekly winning streak. Still, four weeks in a row has been pretty good for a time of the year when gold is normally soft. Investment demand is still there, and there's no sign of any disinvestment in the ETFs. All told, gold's lack of oomph is fairly heartening.

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