Gold, After Drifting Down Overnight, Explodes Upwards In Morning

Gold spent most of last night drifting down from its close at $1,220. Losing close to ten dollars an ounce, the drift-down was both slow and fairly smooth in the early morning session. By the time regular trading had opened, the metal was drifting between $1,211 and $1,215. Poking its nose above the latter level as of 9:45 AM ET, the metal sunk back into the top part of the range before taking off at 10:15.

Within thirty minutes, the metal had touched $1,235. Its run-up coincided with a drop in U.S. equities, which started on a downwards slide a little before gold took off. The Dow is well below 10,000 now, and the S&P is only a few lousy days away from 1,000. An AP report pegs stocks as falling to their lowest level in seven months.

Gold benefitted, but the gains came mostly in the mid-part of the pit shift. After drifting around $1,235 for an hour, the metal ramped up to the $1,240 level and stayed just below there until the pit shift ended. A slight blip upwards got the metal a little above $1,240, where it stayed until just before 3:15 when it spiked up to the day's high of $1,246.20. Barely missing a new record high, the metal descended down to the $1,240 level again. Stocks were dumped in the final hour, but gold did not benefit except for that spike. The only U.S. economic news came out at 3:00, which revealed that consumer borrowings rose slightly in April; for the previous month, it was revised downwards, which didn't help the markets. As already noted, any benefit for gold post-release was temporary.

When the stock markets had closed, gold spent the rest of the regular session drifting. At the close of regular trading, spot gold was at $1,240.30 for a gain of $20.30 since Friday's close. The Kitco Gold Index (KGX) attributed +$23.20 to predominant buying and -$2.90 to a strengthening greenback. Ex-greenback, the KGX had gold at another record high today. Fittingly, the metal made another record in Euro terms.

After an continued rally last night that took it up to 88.68, the U.S. Dollar Index floundered around, mostly downwards, in early morning and regular trading. Reaching a low of just below 88.15 as of 7:00 AM, the Index gyrated around with a slight upwards bias subsequently. The upwards tendency became less diffuse in the afternoon; by 4:05 PM, it managed to inch up to a little above 88.5. Pulling back down a little, it saucered back up by the time regular trading was over. As of 5:25 PM, it was at 88.49.

Its daily chart, from Stockcharts.com, shows Friday's gains continuing today in attenuated form:



Today's candlestick shows that today's flailing around took place in a much narrower range than yesterday's leap-up. The Index's RSI line remained in overbought territory, although to a lesser extent than two-to-three weeks ago. Perhaps more portentously, the MACD lines (found at the bottom of the chart) crossed over today from a bearish configuration to a bullish one. In so doing, they endorsed the ascending triangle formation that was completed last Friday.

There's still the matter of the Index's overboughtedness, but the other signs point to a continued rise in the greenback. So does the current fate of the Euro, which may end up going to parity with the U.S. buck. Add to that an all-out correction in the making which U.S. stocks are suffering through, and the macro backdrop makes for a continued rise. In a way, it's a blessing for exporters in the Eurozone like Germany. Given widespread disgruntlement at the Eurobailout, the effect on that country will be mollified somewhat by their exports becoming more competitive.

The Index benefitted hardly at all from today's turmoil, but gold benefitted quite a lot as its own daily chart shows:



After its sink late last week, and Friday's recovery from Thursday's drop, today's jump in gold came as a welcome relief. Despite today's gain, gold's RSI level is not in overbought territory. Like the Index's, its MACD lines crossed over today from a bearish configuration to a bullish one, at a lower RSI level than the other's.

The metal is now close to making a higher high. The dip which ended late last month made for a higher low, although one that wasn't much higher than the previous one. Consequently, gold's intermediate term uptrend is intact. In a month that's supposed to herald seasonal weakness, the metal's performance has been fairly good.

A post-pit Reuters report ascribes gold's rocket-up this morning to safe-haven buying prompted in large part by more fears about the Eurocrisis. Amongst other points therein, these were included:

* Gold's safe-haven appeal increased as U.S. stock markets dropped 1 percent on top of heavy losses on Friday due to disappointing payrolls data and lingering credit fears.

* Euro zone credit contagion fears and worries about a Hungarian debt crisis prompted investors to buy the metal as an insurance against economic turmoil - traders.

* Investors initially took profits on better economic sentiment as the euro recovered after it fell below $1.19 for the first time in four years earlier.

Earlier, Marketwatch's Peter Brimelow's Monday column explored the dichotomy between gold's encouraging performance and the less-encouraging performance of major gold stocks as measured by the HUI.

The yellow metal bounced off the ropes ferociously on Friday. After two weak days, the metal slipped below $1,200 spot as New York was opening. Then, as it became clear how ghastly the day was going to be in the financial markets generally, a powerful $20+ rally set in.

From a relative strength point of view, this was a spectacular performance. Everything else was down horrifically, except U.S. Treasurys, and the U.S. dollar -- usually gold's adversary.

Gold in other currencies did even better. In fact, gold in euros closed at a record high. This will greatly delight The Gartman Letter, which can claim to have pioneered trading gold in this way, and which was expanding its positions this week....

[But, no-]one seems to understand gold shares' malaise. Unlike gold, they have yet to approach, let alone exceed, their last December highs. Some blame the rise of the gold ETFs like SPDR Gold Trust ETF (which expanded its bullion holdings to a record this week) and the closed end Gold Funds like Central Fund of Canada Limited and Sprott Physical Gold Trust. But these are not leveraged to gold, which has been the gold shares' traditional appeal.

Could gold shares just be the last train to leave the station?

It's a good question right now. I'm far from being the only one to point out the summer seasonal weakness that gold typically goes through; the expectation of same, plus the malaise the stock market as a whole is going through, explains why gold stocks aren't participating all that much. From what I've seen of the nether regions of the gold-stock universe, the junior exploration stocks as a whole have largely ignored gold's spring rally. If gold ends up bucking that weakness this coming summer, the major gold stocks should wake up. As of now, the exploration juniors are moving to their own beat.

To conclude with a blog note, this all-in-one report for the day is due to Blogger experiencing technical difficulties all this morning and some of this afternoon. The notice I posted two hours earlier, which is right before this entry, was all I could post earlier today. Apologies, and thanks for your patience.