Gold Climbs Up In Morning Trading, Advances Futher In Afternoon

The beginning of regular trading saw gold at $1,224, but the start of the pit session saw the metal gain a few dollars. Backing off, it centered around $1,225.50 until a decline starting at 9:15 AM ET brought it down to $1,221. A five-point drop in the U.S. home builders index for June, due to the tax credit expiring, got the metal on a roll again. The subsequent rally, starting right at the release time of 10:00, took the metal above $1,227 again. A pullback preceded a new drive upwards that took it up to $1,229.50 before another pullback kicked in, which in turn preceded a new upthrust. As of 11:46, the spot price was $1,228.80 for a gain of $7.40 on the day. The Kitco Gold Index attributed -$2.20 to predominant selling and +$9.60 to a weakening greenback.

The U.S. Dollar Index gave up yesterday afternoon's gains in a morning drop that took the Index down to slightly below 86. From almost 86.5, the Index first declined for an hour starting at 8:20. Enjoying a relief rally, which took it from 86.15 to almost 86.35, it declined anew before bottoming at 85.96. The 86 level held, even though the Index may be in a second relief rally. As of 11:48 AM, it was at exactly 86.00.

Despite the greenback's continued travails, gold is doing fairly well. Bad news on the economic front managed to add to the metal's gains, as it portends continued ease in monetary policy. Gold may be thrown for a loop this afternoon, but so far it's on track for a daily gain.


Update: It was even more on track when the pit session ended. The rally that began just after 11:30 AM ET continued until noon, but not before pushing gold up above $1,234. A backtrack to $1,232 preceded another run upwards that put the metal at a new day's high of $1,236.40. After another pullback to the $1,232-$1,234 area, gold slipped a little but was in that range at the end of the pit session. As of 1:30, the spot price was $1,232.20 for a gain of $10.80 on the day. The Kitco Gold Index split the gain into +$0.40 for predominant buying and +$10.40 for greenback weakness.

The U.S. Dollar Index's decline all-but halted. Instead of staying at 86, the Index tracked along just below that level. As of 1:35, it was at 85.96.

The only gold-related item of significance around the time of the rally was the Fed's auctioning of $1 billion in 14-day term deposits. A device to sop up some excess reserves, it was a success with a bid-to-cover ratio of 6.14 at an interest rate of 0.27% annualized. This pre-tightening measure, long anticipated by the markets, did not have an adverse effect on gold; so, the metal's in fairly good shape. It has a shot at staying above $1,230 by the close.


Update 2: Even at its lowest in the electronic-trading hitch, it never came close to $1,230. After descending a little to $1,232, gold entered into a range with that value the floor and $1,235 the ceiling. The range held until just before the equity markets closed; starting at 3:40 PM ET, it went on another upwards run that put the metal up to $1,237.90 before it slumped back to the $1,235 level. A slight drop just before regular trading ended put the metal back in the earlier range. As of the close, the spot price was $1,234.40 for a gain of $13.00 on the day. The Kitco Gold Index divided the day's gain into +$3.60 for predominant buying and +$9.40 for greenback weakness.

The U.S. Dollar Index spent the rest of the afternoon in a range bordered by 85.9 on the downside and 86.05 on the upside. Directionless overall, it closed near the high end of the range after unsuccessfully testing 86.05 on the upside. As of 5:30 PM, it was at 86.02.

Its daily chart, from Stockcharts.com, shows the short-term decline still running strong:



Earlier, when the Index kept running up even though overbought, I said that it was in the hands of the chaos god. No more. With the exception of a relief rally in the middle, the last six sessions have been down - and the total descent has had unexpectedly large reach. From 88.5, the Index has gone to around 86. This stretch has been the most serious, and extended, decline in the last six months.

Evidently, the Eurocrisis kicker is gone. Even Moody's downgrading Grecian sovereign debt four notches didn't provide any pick-up for the Index. The last short-term bottom of significance, in late May, was around 85.5. Now, the Index is close to that same bottom. All it would take would be another serious decline day to put it at that level.

For the first time since mid-April, its RSI level (found at the top of the chart) is below the 50 neutral level. It hasn't been this low since mid April's, mid-March's and mid-January's short-term lows. Given that previous upturns occurred at sub-50, although not immediately, the current downtrend should be close to ending. This drop, though, may be different in character from the other three. The closest analog would be mid-April's, in which the Index bottomed at slightly above the previous short-term bottom and spent close to a week churning in a range. It then began taking off again, albeit slowly at first.

Its MACD lines, found at the bottom of its chart, are not only in a bearish configuration but are solidly so. There's not a lot to be said for the Index right now, except for its low RSI value. Given that relative oversoldness, although not real oversoldness, it might have a relief rally tomorrow. If not, then it's in potential reversal mode.

Gold's performance today, as shown by its own daily chart, was quite different from the Index's:



Given the recent Eurocrisis-fueled positive correlation between the greenback and gold, seeing gold strongly up with the Index falling is a bit of an aberration. It's too early to say now, but that aberration could be the start of a return to the more normal inverse correlation between the two. Or, it could be the result of gold taking its post-Eurocrisis licks earlier and the Index later.

As far as gold's action is concerned, its current slump is quite different from the one in late May. Instead of plummeting, and then pulling back up, it's pulled back and stabilized. Currently, the metal's in a short-term range between $1,218 and $1,238. For a month that's supposed to be a post-May hangover month, the metal is doing fairly well. It seems, as of now, that it would have been sensible to buy in May - provided that the buying was done in the late-May low. So far, the metal's on the way to fooling those watchers who expected the normal seasonality to kick in (like I have.)

Gold recovering in that way with its RSI line still above neutral doesn't speak to much upward potential, but it does say something about the metal's intermediate-term uptrend. That run is still intact. Interestingly, gold's MACD lines are still in a bearish configuration despite that ranging.

A post-pit Reuters report ascribed today's jump to the post-downgrade fear trade. Amongst other points made therein, these were included:

* Late in Monday's session, Moody's Investors Service downgraded Greece government bond ratings into junk territory, citing risks in the euro zone/IMF rescue package for the debt-laden country.

* Some players viewed the ratings downgrade as a reminder for investors that sovereign debt problems in Europe are far from over.

* Firmer euro also helped prop up gold sales - traders.

* The euro rose as solid demand at European debt auctions soothed worries about the debt crisis, prompting investors to cover short positions in the single currency on increased risk appetite.

The downgrade being the cause will limit gold's appreciation in the near future, unless another driver come in, but it shows that the fear trade is still ticking over. Gold may not rise in tomorrow's session, but that's part of being in a range. $1,220 is still solid, which says something for the pre-summer gold market.