Tuesday, June 29, 2010

Gold Fluctuates In Morning Trading, Gets Above $1,240 In Afternoon

Actually, the metal went through a choppy ride without any overall direction. The lowest dip of the day came just before 10 AM ET, when gold sunk as low as $1,226.40 before reversing. The trigger that got gold up above $1,236 within twenty minutes was a collapse in consumer confidence: the Conference Board Index dropped nearly 10 full points for June as compared with May. The Expectations sub-index dropped more than 13 points.

Although the news was good enough to put ten dollars on the gold price, the metal then sunk back as it continued trading choppily. Another rise, starting just after 11:00, got the metal above $1,238 before it pulled back and settled around $1,236. As of 11:56 AM ET, the spot price was $1,238.00 for a loss of $0.60 on the day. The Kitco Gold Index attributed +$5.30 to predominant buying and -$5.90 to strength in the greenback.

The U.S. Dollar Index went on a rally in mid-morning after slumping to a little below 86.0 at the start of regular trading. Making 86.3 just before 10:20, it slipped back to below 86.1 before trading sideways between 86.05 and 86.12. As of 11:58, it was at 86.09.

So far, $1,230 held as a floor except for a brief interval. There have been more declines since yesterday's tumble, but they haven't gained any traction. The choppiness in gold is actually a good sign.


Update: The late-morning rise, and pullback to $1,236, proved to be the first stage of a rally that took the metal above $1,245 in early afternoon. Shortly after noon ET, the metal advanced to reach a new daily high of $1,246.30. Retreating after that 12:20 peak, the metal got down below $1,242 before bobbing between there and $1,244. As of the end of the pit session, or 1:30, the spot price was $1,241.80 for a gain of $3.70 on the day. The Kitco Gold Index assigned +$9.20's worth of change to predominant buying and -$5.50's worth to grenback strength.

The U.S. Dollar Index traded largely sideways in a hardly-tested range bracketed by 86.0 and 86.1. As of 1:35 PM, it was at 86.09.

Gold is still rallying on the consumer-confidence disappointment, to the point where earlier losses have turned into a gain. It may slip in later-afternoon trading, but the chances of the metal closing with a gain today are fairly good.


Update 2: There was a slip, but gold stayed above $1,240 except for a stretch in mid-afternoon; it did close up. For most of the electronic-trading hitch, the metal stayed between $1,240 and $1,242. At the end of regular trading, it closed at $1,240.80 for a gain of $2.20 on the day. The Kitco Gold Index attributed +$8.45 to predominant buying and -$6.25 to strength in the greenback. The two changes sum up to the raw change on the day.

The U.S. Dollar Index, after sinking to a little below 86.0 by 3:10 PM ET, climbed up to above 86.15 just before regular trading ended only to sink below that level at the end. As of 5:30, it was at 86.13.

Its daily chart, from Stockcharts.com, shows today's rally pulling it out of the recent 85.0-86.0 range:



With that breakout, it looks as if the Index might be undertaking a short-term rally, although today's interday high was lower than last Wednesday's. Perhaps a more accurate upper bound for its range is 86.5, in which case it isn't out of the range yet. What the Index has going for it is its relatively low RSI value relative to normality in a bull market phase. A value of below 50, which the line at the top of the chart shows prevailed recently, has led to a run upwards in the past.

But, this rally doesn't look like it will surmount the 88.5 high made on June 7th. Given that the subsequent fall took the Index down to the same level it was at before that run-up, it's in a vulnerable position technically. A drop below 85.0 would be the signal for a further decline, which would put an end to the Index's bull run.

Turning to gold, its own daily chart shows a candlestick with almost no body:



In other words, the difference between today's open and close is miniscule. The lower end of the wick shows an interday low that's comparable to one made last Wednesday and Thursday. Despite some porousity, the $1,230 floor held today - as has the $1,260 level at the top. Whenever gold has inched to a new record, traders have taken it as a sign to sell in sufficient volume to drive down the metal to the lower end of the current range. Gold's MACD lines (found at the bottom of the chart) continue their drift at the near-zero level, making the indicator signal neutrality. The metal's RSI level continues to stay above neutral, but not by much. Both present a picture of a continued range.

A post-pit Wall Street Journal article ascribes the afternoon recovery to safe-haven buying prompted by fears about the economy.
Gold overcame pressure from a stronger dollar--which can dent demand for the dollar-denominated metal--as U.S. equities extended their fall.

Sentiment was hammered after a weaker-than-forecast U.S. consumer confidence reading for June, a downwardly revised Conference Board leading economic indicators index for China and a gloomy outlook for the U.S. housing market.

Gold traded lower early in the session, but later investors began buying gold as a safe haven to accompany their Treasury and dollar holdings, said Sterling Smith, an analyst with Country Hedging in Inver Grove Heights, Minn....

"Investors have kind of run out of room to run," said Dan Cook, Chicago-based senior market analyst with London-based brokerage firm IG Markets. "You don't want to carry all your eggs in one basket."
The collapse in consumer confidence did spark the safe-haven buying; the release of the index number did coincide with gold's interday low. The metal is still holding up despite seasonal weakness; anyone counting on that seasonality has had a disappointing June. If it continues to perform as it has recently, the recovery will continue albeit slowly.

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