Friday, June 18, 2010

Gold Makes New All-Time High, Softens Later

The bulk of gold's gains today were set before regular trading opened. Starting off in the high 1250s, the metal edged up to slightly above $1,260 around 8:45 before pulling back. By 10:00, it had returned to $1,256. Subsequently, it reversed and climbed up to a new record high of $1,261.80. Pulling back, to $1,258, it fluctuated around the $1,259 level. The action was uneven, but there was an overall rise that carried the metal up above the $1,260 level again. As of 11:54 AM ET, the spot price was $1,260.80 for a gain of $15.60 on the day. The Kitco Gold Index attributed +$16.60 to predominant buying and -$1.00 to strength in the greenback.

The U.S. Dollar Index continued fluctuating in a range bracketed by 85.6 and 85.75. After descending to the lower end in mid-morning, the Index drifted to the upper end afterwards. As of 11:55, it was at 85.71.

So far, the metal's gain has not been spectacular but it has been decent. There seem to be no drivers right now, so the price is being determined by anticipation and/or longer-term bullishness. The metal may stay above $1,260 in the afternoon.


Update: It didn't, but instead sunk back to the upper 1250s. That slump was after a new record high of $1,263.50 was made.

That record was clocked in around 12:15 PM ET. After pulling back, the metal tried to get back up but couldn't. Soon after that attempt, right before 12:30, it went into a slump that took it from $1,262 to $1,256 in the next hour. As of the end of the pit session, or 1:30, the spot price has rebounded a little to $1,257.20 for a gain of $12.00 on the day. The Kitco Gold Index assigned +$12.45's worth of change to predominant buying and -$0.45's worth to greenback strength.

The U.S. Dollar Index, after breaking slightly above that range around 11:30 AM, sunk back into it. As of 1:35, it was at 85.69.

Now that the Friday afternoon post-pit electronic trading hitch is here, the gold market is likely to be quiet. Sad to say, but $1,160 now looks out of reach for the close unless something wakes the metal up.


Update 2: It was quiet for the rest of the session. After pulling up a little subsequent to the end of the pit session, gold settled into a range with $1,256 as the floor and $1,258 as the ceiling. The only time the range was broken, to the downside, was the forty-five minutes after the close of equity trading. Although briefly settling below $1,256, the low was less than a dollar below that figure. Getting back into the range as of 4:45, the metal sailed in for a quiet close. As of the end of this week's trading, the spot price was $1,256.50 for a gain of $11.30 on the day. The Kitco Gold Index split the gain into +$10.00 for predominant buying and +$1.30 for a weakening greenback.

For the week, gold ended up with yet another gain. From last week's close of $1,227.50, gold rose $29 or 2.36%. It was the fourth weekly gain in a row.

The U.S. Dollar Index sunk from around 85.7 in later afternoon trading, and got a little below 85.6, but never got to 85.5. As of the end of this week's trading, it closed at 85.56.

Its daily chart, from Stockcharts.com, shows the decline still continuing, but at a much lesser rate:



85.5 has ended up holding rather solidly. For the second day in a row, the interday low has been at about that level. It's been three full points' worth of decline in the last two weeks, driving the Index's RSI level from overbought to below neutral. The turnaround I expected yesterday didn't arrive, but the slowdown has been contained. The RSI line, found at the top of the chart, is in the range where previous turnarounds kicked in.

Should one do so next week, the Index will be in an interesting position. If today marks the low, then it will have bottomed out at a slightly higher level than the previous bottom. The last time this took place, the Index stayed stuck at the same level for about a week but climbed afterwards. The Eurocrisis provided the driver for its run back then. In order for a similar recovery to take place now, the Eurocrisis would have to flare up again. Until or unless such a malignancy develops, the Index doesn't have much going for it in the upward-continuation department.

Gold, on the other hand, seems to. The ascending triangle formation I talked about yesterday was completed today, with a new record high being made that was substantially above the last one. Its own daily chart, also from Stockcharts.com, shows the breakout:



I have to admit to not seeing it would complete itself this soon, but I was right about gold going up as a result. On an interday basis, the ascending triangle's top was made by the three record and near-record interday highs on the chart. Someone preferring to use opening and closing figures would have picked $1,240 for the ceiling and declared it completed yesterday. Either way, gold followed through.

The metal's MACD lines, found at the bottom of its chart, have made a bullish crossover. That crossover took place earlier this month, almost two weeks ago, but the three-day hiatus from a bearish configuration proved to be a fake-out. Buying gold at that point did work out as of today, but there was a long stretch when it didn't. Whether this crossover is a fake-out remains to be seen, even if gold's in a fine position technically. The only point of doubt is with its RSI level, which is close to being overbought.

Last Tuesday, gold had pulled up from its near-$1,220 doldrums to close above $1,235. It was that day that marked the cut-off point for this week's Commitment of Traders data, graphed here. Total open interest rose, but only slightly. Interestingly, the number of contracts owned by non-commercial longs barely budged; the number held by commercial longs increased more. Non-commercial shorts stayed almost flat; commercial shorts rose a bit. The overall picture painted by the graph and the underlying data shows hesitation and lack of surety over the direction the metal would take. As we now know, gold ended up advancing after another day of hesitating.

As for the U.S. Dollar Index, its own CoT data and graph show last week's increase in open interest was not continued this week. As of last Tuesday's close, the Index had fallen hard and was destined to fall further (albeit more gently) for the rest of the week. The number of contracts held by non-commercial longs actually increased, while commercial longs shrunk by 37.6%. Also plummeting was non-commercial shorts, which shrunk by an even larger 42.6%. Commercial shorts shrunk a little. Given how the rest of the week turned out, the nod goes to commercial longs. Interestingly, a lot of the contracts of the non-commercial shorts (a normally savvy bunch) were closed out during Tuesday's declines.

Turning back to gold, a post-pit Reuters report ascribes the record made to continued demand for it as an alternative or hedging asset. Amongst the points made therein, these were included:
* Gold continued its rise on follow-through buying after closing Thursday at a record closing high - traders.

* Investors sought gold as an alternative investment as economic uncertainty continues to muddle the outlook for interest rates and share prices - analysts.

* "I think it is a case of gold's ability to compete with both credit and equity markets for investments. Competing with credit markets has been in play for a long time, because of low interest rates and low opportunity cost of holding gold," said
Tom Pawlicki, precious metals analyst at MF GLOBAL in Chicago....

* "The data yesterday from initial claims and Philadelphia Fed was another thing indicating to investors that the economic recovery will be subpar compared with other recession recoveries. That makes gold more attractive," Pawlicki added.

* Analysts said gold was reverting to its more traditional relationship by rallying with the euro, which tends to happen when the yellow metal is purchased in overseas markets.
The overall picture is of a rally that's taking place on general bullishness and drivers from yesterday. It's as if gold were coasting, or waiting for another driver. There were no headline items from the premier of Spain's meeting with the head of the IMF.

Despite the lack of connection to today's news, the overall bullishness has done a lot for the metal - in contrast to the greenback. While the latter is well below its high of this year, gold has advanced to another record in the same timeframe. There was a time late last month when it looked like gold would be the one to suffer most from the dormancy of the Eurocrisis: no more. As had been the case before, gold benefitted from a post-crisis rally caused by more safe-haven buying.

In closing, I would like to thank you for stopping by and reading what I have to say. May your weekend be restful.

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