Friday, June 4, 2010

Gold Fluctuates In Morning Trading, Shoots Up Later

It's been a bit of a wild ride for the metal as the $1,200 level held. Starting regular trading in the midst of a decline, gold shot up with the release of the disappointing non-farm payrolls data. Failing to gain traction, the metal floundered around until a decline set in that drove it from above $1,206 down to $1,198. Ending the decline at 10:00 AM ET, the metal recovered the entire loss within the next hour. That recovery was followed by a pullback, as the overall $1,200-$1,207 range had held except for spikes, and then replaced by an up-surge. As of 11:53 AM, the spot price was $1,210.50 for a gain of $2.70 on the day. The Kitco Gold Index attributed +$13.30 to predominant buying and -$10.60 to strength in the greenback.

The U.S. Dollar Index, after flailing about itself, went on a mid-morning run that took it all the way up to above 88. Before doing so, it endured a pullback that brought it down to 87.6. As of 11:56, it was at 88.00.

So far this morning, gold has been put through a tug-of-war. There hasn't been much rallying, but this morning's decline was more than erased all told. There may be more disappointing surprises in store for the metal this afternoon, but gold has acted fairly well so far.

Update: So far, the only surprise has been a pleasant one. The rise that started late morning not only held but also extended. Pausing at 12:10 PM ET, the metal reached $1,216 before pulling back a couple of dollars an ounce. That dip prefaced a renewed rally that pulled the metal up to $1,220.00 before halting. That peak, made at 12:40, preceded a mild pullback that brought the metal down a few dollars an ounce. As of the end of the pit shift, or 1:30 PM, the spot price was $1,217.30 for a gain of $8.40 on the day. The Kitco Gold Index assigned +$18.75's worth of change to predominant buying and -$10.35's worth to greenback strength.

The U.S. Dollar Index peaked as of noon, at 88.17, and then drifted down to the 88 level. Reaching it after 12:50, the Index passed a little below it and then continued drifting. As of 1:40, it was at 87.98.

It took some time, but the weakness in the U.S. equity markets seems to have buoyed gold. The risk-appetite play works both ways.

Update 2: The buoyancy held through the rest of the session. Instead of the usual quiet, there was a wavy up-and-down motion that moved gold between $1,215 and $1,220. The quiet came after 4:00 PM ET, when the metal stayed at the top of the range and drifted there until the close. As of the end, the spot price was exactly $1,220.00 for a gain of $12.20 on the day. The Kitco Gold Index (KGX) attributed +$26.55 to predominant buying and -$14.35 for greenback strength. As for ex-greenback performance, measured by predominant buying/selling, the KGX made a new record today.

Until the noontime shoot-up came along, gold was vering towards a loss on the week. Instead, the metal ended this week with a slight gain, for the second weekly rise in a row. From last Friday's $1,214.30, the weekly gain was $5.70 or 0.469%.

After hanging around 88, the U.S. Dollar Index climbed definitively above it in the later part of the afternoon. Starting at 1:50, the Index's rise was smooth until it stalled at 3:45. Pulling back a little, it fluctuated between 88.2 and 88.35. As of 5 PM, it ended the week at 88.30.

Its daily chart, from, shows the ascending triangle formation being firmly broken through on the upside:

Once it got through 87.5 and stayed there, it hardly looked back. This time, the ascending triangle worked.

I did demur from making an outright prediction yesterday, because I wasn't sure of the timing. Once the 87.5 level was firmly breached, though, the Index didn't pause for much. The main cause was the continued fall in the Euro, which broke through US$1.20 today.

Again, the greenback is back in overbought territory. Its RSI line, found on the top of the chart, is above the overbought level of 70. As it turned out, being near overbought levels yesterday didn't hamper today's rise all that much. Moreover, the MACD lines at the bottom of the chart turned from a bearish configuration to a bullish one. With the exception of the RSI line, which tends to indicate a pullback at overbought levels, the technical position of the Index is pretty good.

That's not to say there won't be a pullback Monday, but I believe the 87.5 hurdle is now cleared. The Index should be in for a bit of a run in the near future.

Turning to gold, its own daily chart shows today's rise undoing most of yesterday's fall:

Most, but not all. As it turned out, the falling of gold's own RSI level to near-neutral territory heralded an upturn. The interday low today was lower than yesterday's, due to gold's early morning spill, but the fear induced by the falling stock market made for enough bullishness to bring it to well above the $1,200 level. Although a driver is needed, sub-$1,200 does approach bargain-hunting territory.

Gold's MACD lines are still in a bearish configuration, and they missed a recent chance to switch into bullish mode. That doesn't mean a serious decline is ahead for the metal. But, it does mean that an upward run has not been foreshadowed; if there is to be one, it'll be a surprise. Gold may continue to muddle along, seeing as how bargain hunting is still around. Yesterday's portent of a Fed Funds rate hike seems to have gone nowhere.

Last Tuesday, gold was at the peak of its six-session upwards run. Although another record was not made, the metal had been approaching it. That day was the cut-off for this week's Commitment of Traders records, as graphed here. Total open interest was virtually the same as the previous week's, and there was an interesting decline in one of the categories on that peak day: non-commercial longs, supposedly the dumb money, actually shrunk a little from the previous week (when gold was lower.) Non-commercial shorts also shrunk a little. Commercial shorts went up by 1.07%, but the category that expanded most definitively was commercial longs. On a contract basis, commercial longs expanded more than commercial shorts. Percentage-wise, they were up 3.44%. Perhaps the commercial money isn't as dumb as it appears in this week CoT info, and that increase signals a resumption of the rally sometime. Or, commercial longs are going up for delivery purposes to satisfy demand for physical bullion. Perhaps it's both.

The U.S. Dollar Index's own CoT graph ends with data from a time when the Index bumped up against 87.5 but failed to follow through. Total open interest shrunk for the fifth week in a row, to a level not seen since early last October (before the Index's bull run began.) Commercial longs hardly budged, while non-commercial longs shrunk. Non-commercial shorts actually increased, which did gibe with the Index's ranging until today. Commercial shorts dropped by a whopping 9.09%, which did show some foresight. It's a little odd that the Index contract would be relatively quiet when the Index itself is shooting up. Perhaps the action's shifted to the dollar-Euro contract instead.

Moving back to gold, a post-pit Wall Street Journal report ascribes the noontime jump to renewed safe-haven buying and concern about the sovereign debt of Hungary.
"It's the continued haven buying and concerns about what new headlines there could be over the weekend," said George Gero, vice president with RBC Capital Markets Global Futures in New York. Investors often turn to the metal as a store of value at times of economic and geopolitical uncertainty.

So-called safety buying of gold let up in recent days when Europe's debt problems did not appear to be worsening. However, investors again sought gold as a store of value when the euro dipped below $1.20 for the first time in four years and comments from an official with Hungary's ruling party indicated the nation may be suffering similar debt problems as Greece.
The report also quotes another expert as saying that yesterday's remarks from FOMC voting member and inflation hawk Thomas Hoenig about the recovering economy also put some pressure on gold and helped push up the greenback.

Overall, it wasn't a great week for gold but today's rise made it a good one. If further good economic data from the U.S. comes, though, there will be some pressure put on the metal. That's the downside of being a safe-haven asset.

Thanks for reading, and enjoy the weekend heat as summer approaches.

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