Wednesday, June 2, 2010

Gold Muddles Along, Stays Lower

After muddling along subsequent to regular trading getting underway, gold took a fifteen-minute tumble that drove it down about nine dollars an ounce. The price went to $1,212.90 before the downturn relented at 10:00 AM ET. That was about the time that pending home-sales data were released; the overall number showed a greater-than-expected increase of 6% for April.

That drop was recovered from as gold made its way back to the $1,219 level. A slump to $1,218 was reversed, and the metal managed to make it above $1,220 in late morning trading. A late-morning kicker clicked in, mkoving the price near unchanged levels As of 11:56 AM, the spot price was $1,123.90 for a loss of $1.20 on the day. The Kitco Gold Index split the loss into -$0.70 for predominant selling and -$0.50 for strength in the greenback.

The U.S. Dollar Index, although up on the day, continued on its own muddle-along slightly above the 87 level. Dipping below that level somewhat at times, the Index's early-morning gains slowly evaporated. As of 11:58, it was at 86.95.

Gold still looks like it might come in with a loss on the day, although the late-morning kicker might continue during the afternoon. The picture has improved from the near-sure-loss one earlier in the morning.


Update: That rally didn't last very long, and it tailed off starting at noon. Sinking to $1,223 by 1:00 PM ET, gold sunk down below the $1,221 level as the pit shift wound to a close. As of 1:30 PM, the spot price was $1,220.60 for a loss of $4.50 on the day. The Kitco Gold Index attributed +$1.40 to greenback weakness and -$5.90 to predominant selling.

The U.S. Dollar Index continued sinking, albeit slowly all told. A plop just after noon drove it down from around 86.95 to below 86.7. After continuing to decline, although more gently, it bottomed at 86.62 and began climbing back up. As of 1:31 PM, it was at 86.76.

Gold had its chance at jumping up enough to notch a daily gain, but it looks like the chance was blown. Although we won't know for sure until the close, it's likely that the gain streak will be broken today.


Update 2: It was, but a later-afternoon rally made it much closer than had appeared at the end of the pit shift. Gold hovered slightly above $1,220 until 2:45 PM ET, when a miniscule dip foreshadowed a two-stage rise that pulled it up to a $1,233-$1,244 range. A final upthrust put the metal right at the top of the range: at the close, the spot price was $1,224.00 for a loss of $1.10 on the day. The Kitco Gold Index assigned +$2.50's worth of change to weakness in the greenback and -$3.60's worth to predominant selling. The two components add up to the overall change for the day.

The U.S. Dollar Index mounted a rally that started at 1:10 and lasted until 2:25 with the Index at 86.95. Partially fizzling, it gave way to a decline that brought it to just below 86.75. A pause preceded a further decline, which partially righted and left the Index at 86.71 as of 5:30.

Its daily chart, from Stockcharts.com, shows the Index still in its range:



Although nestled in the upper part of the range, today's candlestick is still inside. The difference between today's opening and closing was slight, and the interday activity was on the high side. Still, the period of indecisiveness continues.

The Index's MACD lines are still in a bearish configuration, and have been so for the last three days. As is often the case with an asset still in an overall bull trend, the decay of the lines coexists with sideways movement in the price of the asset itself. The Index's RSI line is still stuck in an elevated but sub-overbought position.

So far, the indications point to continued drift. The Index is still in an incipient ascending triangle formation, but that potential may not be realized. Nor will it unless the Index climbs above 87.5 and stays there. Today's action was less close to that breakthrough than yesterday's, but the low today was higher than yesterday's. It's possible that the ascending triangle will not be completed, an outcome that's consistent with the picture given by the MACD lines.

As for gold, its own daily chart shows that the daily winning streaks have indeed come to an end:


Before I go on, I have to make a correction. As shown in the above chart, the number of up days in the now-broken streak were not seven but six. Sad to say, I miscounted earlier.

The six-day streak now blown, gold actually dropped little overall. The lower wick on today's candlestick is much longer than the higher one. The overall candlestick looks a lot like a tack.

Previously, this kind of pattern tended to herald another up day. It seems too much to ask given gold's recent streak, but I note the fact that such a tack-day does tend to lead at least one day of gains. Gold's own MACD lines are close to ending their bearish-configuration streak and flipping over to the bull side. So far, June hasn't been that bad for the metal.

The post-pit Reuters report ascribes today's drop to profit-taking and a shift in risk allocation as the equity markets recovered. Amongst other points therein, these were included:
* Some investors decided it was time to grab quick profits off the previous day's high, achieved after gold's runup from a
two-week low on May 21 - traders.

* The flight-to-safety bid eased with a lack of news regarding the European sovereign debt crisis - traders.

* Strong U.S. pending home sales data, which rose 6.0 percent in April to a six-month high, gave speculators who bought gold as a hedge against economic downturn reason to sell - traders.

* As some investors unwound precious metals holdings, they also joined in on the stock market gains after the housing figures - traders.

* Robust home sales boosted the dollar against the euro, adding to pressure on gold, though the euro squeezed out small gains in late New York trading - traders.
Given what's above, a continued recovery in equities and the economy would not be good for the metal. Unfortunately for those traders who got back in yesterday, today's action made for somewhat of a whipsaw.

Gold might decline tomorrow, but the above-mentioned tack pattern indicates that it may be good for a rise. As is always the case, the market will do whatever it'll do.

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