Tuesday, June 1, 2010

Gold Churns Around $1,225

After rising before regular trading opened, gold did not suffer a major letdown after the pit shift began; nor did it see any sustained rise later in the morning. Instead, the metal has been range-bound. Fluctuating between $1,224 and $1,228, it tested the range both on the downside and later on the upside. As of 11:46 AM ET, the spot price was $1,224.70 for a gain of $8.20 on the day. The Kitco Gold Index attributed +$8.90 for predominant buying and -$0.70 for a weakening greenback.

Gold hasn't moved all that much, but the U.S. Dollar Index did; it dropped like a stone. Initially falling below 87 in the early part of regular trading, it hovered just below that level until 10 AM. Then, due in large part to the May ISM data, which was higher than expected but still down a little from April's level, the Index dropped. Within twenty minutes, that drop turned into a plummet that slammed it down below 86.2 before finally relenting. The ensuing recovery rally took the Index up to 86.5 before it paused, then higher. As of 11:47, it was at 86.58.

So far, gold has managed to keep its gains from yesterday and early this morning. Given its rise last week, that's a good sign. So far, June's been in like a lamb.

Update: Things calmed down considerably after a dip that bottomed just after noon ET. After cresting at $1,229.90 a little before 11:30 AM, gold fell to about $1,225. That noon dip carried it down to a little below $1,223, after which the metal recovered somewhat and fluctuated around $1,225. As of 1:31 PM ET, the spot price was $1,225.30 for a gain of $9.00 on the day. The Kitco Gold Index split the gain into +$7.60 for predominant buying and +$1.40 for weakness in the greenback.

After that rebound, the U.S. Dollar Index sunk back to below 86.5. Spending more than an hour after noon right around that level, it sunk below as of 1:20 PM. As of 1:38, it was at 86.35.

Now that the pit shift has ended, gold seems almost assured of another daily gain. It has slowed down, but any significant dips have basically been recovered from. The rest of the afternoon shouldn't hold that much fluctuation.

Update 2: There was something of a downturn in mid-afternoon, but it reversed. Gold slid down to $1,223 again by 2:20 PM ET, staying there until just before 3:00, but climbed over the next hour and a quarter to reach a trading range bordered by $1,225 and $1,226. It ended regular trading near the bottom of that range. As of the close, spot gold was at $1,225.10 for a gain of $8.90 on the day. The Kitco Gold Index assigned -$3.80's worth of change to a strengthening greenback and +$12.70's worth to predominant buying.

The U.S. Dollar Index managed to recover almost all the ground it lost after the 10 AM spill. After dipping down to 86.34, it rallied fairly steadily for the rest of the afternoon. As of 5:30, it was 86.88.

Its daily chart, from Stockcharts.com, shows a net gain on the day in the midst of some wide fluctuations:

Despite that morning drop, the top wick of today's candlestick was longer than the bottom part. Again, the Index bumped against the 87.5 level interday. The interday low was well above 86. Clearly, the Index is still in its current range.

There are, however, two signals that make for a mixed message when put together. In terms of raw chart action, its movement over the last two weeks looks like an ascending triangle. That kind of formation indicates that the rise is going to continue upwards. The Index's short term bottoms, interday, have been higher; the tops have topped at the 87.5 level, making for action that's consistent with that pattern.

On the other hand, the Index's MACD lines, as shown on the bottom of the chart, have crossed over into a bearish configuration. There have been times when this crossover has heralded a continuation of a trading range, so the signal in and of itself doesn't say that the Index is going for a tumble or even a fall of much magnitude. Given the upward pressure on it, and the lack of any air pocket that it hasn't recovered from, this trading-range scenario seems the likeliest interpretation. Nevertheless, this crossover is fairly free of fake-outs.

Put together, it looks like the Index is going to keep muddling along in its current trading range. However, the continued overhang of the Eurocrisis and resultant weakness in the Euro suggests that the ascending triangle is of more informational value. Although a blooming pattern is no guarantee, I conclude that the Index is not ripe for a fall. It'll either go higher or stay in its range. There would have to be some Euromiracle, or item that's lastingly damaging to the greenback, for the Index to break the range by sinking below 85.5.

Turning to gold, its own daily chart shows its streak has extended to six days:

That's almost as good as the streak that kicked the intermediate bull run into action at the beginning of April. Gold has not advanced into record territory as a result, but it's close. Needless to say, the intermediate-term rise has survived the mid-May drop. As it turned out, the falling of the RSI line to sub-50 did indicate the end of that short-term downtrend.

The question now is, will gold take a breather? Six days could turn into seven, and tie the year-long record, but it's unlikely that the metal will do so. Another dip may be in the near future. Although gold's MACD lines have improved, they're still in a bearish configuration. It would be a sight to see the rally continuing to a bullish crossover, which would make for a bear phase that would have led to an all-out loss for anyone going short on it, but that eventuality seems too much to hope for. More likely is another dip, which would be another buying opportunity if it scares.

A Reuters report ascribed gold's rise to continued safety-haven buying linked to fears about Eurozone debt. Amongst other points made therein, these were included:
* Flight-to-safety was the primary driver sending gold to its 2-week highs - traders.

* Renewed euro zone debt worries caused other investors to flock back into the gold as a tangible asset - traders....

* "What you're seeing once again is investors focusing on gold as that safe-haven asset or currency hedge," said Vision Financial Markets' director of metals trading David Meger in Chicago.

* Some investors who took profits last Friday were putting money back into gold at the start of a new month - traders.
That last item suggests that there was an expectation of a dip that was thwarted by gold's continued rise. Whether or not that'll lead to a whipsaw remains to be seen.

So far, as noted above, June has come in like a lamb. There's still the risk of it going out like a lion, but the mid-May drop looks like an anticipation of seasonal June-August weakness that hasn't really panned out. There may well be another dip in the near future, but the metal has held up well so far. As of now, the intermediate-term bull run is not at risk.

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