Wednesday, June 23, 2010

Gold Plummets In Morning Trading, Almost Completely Recovers

Gold's successful surmounting of $1,240 early this morning did not carry over into the pit session. At $1,241 as of 8:20 AM ET, the metal underwent an hour-long four-stage plummet that started just before 9:00. At the end, around 9:55, the metal had bottomed at $1,223.60. From 8 AM, twenty dollars was shaved off the price. The old $1,220-$1,240 range is back.

Although the huge drop in new-home sales may have been discounted, the announcement of the record 33% drop coincided with gold stabilizing. If there was any driver, it was a rise in the U.S. dollar; it went on a run at about the same time the metal plummeted. The traditional negative correlation has returned.

Subsequent to that bottom, gold crawled back up to make it above $1,230 in late-morning trading. As of 11:49 AM ET, the spot price was $1,234.60 for a much-reduced loss of $4.00 on the day. The Kitco Gold Index split the loss into -$2.30 due to predominant selling and -$1.70 due to a strengthening greenback.

The U.S. Dollar Index, as mentioned above, climbed up for an hour betweeen 9 and 10 AM. Reaching 86.4, it first pulled back a little to the 86.3 level and then stalled. As of 11:52, after a further dip to around 86.25, it sprung back to reach 86.29.

Gold took quite a tumble in the 9 o'clock hour, but that tumble has been mostly reversed. Given this recovery, the loss may be erased outright in the afternoon - but it might require the co-operation of a sinking greenback.


Update: The greenback did co-operate somewhat, but gold didn't continue to rise. Instead, it stayed stuck in the low 1230s.

A pullback from above $1,234, reached around 11:45 AM ET, took the metal down to $1,230 within a half an hour. After bumping against $1,230 once more, it climbed back up to the $1,234 level as the pit session neared the end. As of 1:30, the spot price was $1,233.80 for a loss of $4.20 on the day. The Kitco Gold Index attributed the entire decline to the predominant-selling category.

The U.S. Dollar Index continued its pullback that started at 11:30. Drifting down, it got to just below 86.1 before pausing around that level. As of 1:35, it was at 86.115.

Despite recovering most of this morning's loss, it looks as if gold won't recover the rest. A rally could get rolling after the Fed releases the right kind of no-change decision, but the market mostly expects a favorable stay-the-course release. Gold is likely to stay stuck in the low 1230s.


Fed Update: As widely expected, the Fed has decided to keep the near-zero rate policy intact for an "extended period" of time. The FOMC's assessment of the economy turned gloomier. Gold, after inching back to $1,234, blipped up on the announcement but fell back to below $1,234. The U.S. Dollar kept falling, and got below 86 just before the announcement. It actually blipped up too before falling back into its downturn.


Update 2: There was a dip shortly after the spurt-up, but it exhausted itself at $1,232. Then, the buying came back in and pushed the metal up to the high 1230s. Slowing down after reaching $1,236, the metal nevertheless inched up again and managed to shave off almost all the daily loss by the end of regular trading. As of the close, the spot price was $1,237.30 for a loss of $1.30. The Kitco Gold Index assigned -$6.25's worth of change to predominant selling and +$4.95's worth to a weakening greenback. The changes in the two categories sum up to the raw change on the day.

The U.S. Dollar index co-operated further by lowering, which provided some impetus for gold to keep rising. Its fall in early afternoon was complete a little after the Fed announcement, after which it rebounded to around 85.8 and stayed near that level As of 5:30, it was 85.775.

Its daily chart, from Stockcharts.com, shows the pullback as fairly modest given the last two days' rise:



It did, however, more than erase yesterday's slight gain. The Index's RSI level, found at the top of the chart, is still below the neutral 50 level.

So far, the Index's performance looks like a pullback. The wind is still gone from its sails, but a further short-term advance shouldn't be ruled out. Of note, though, is the RSI's two-week drag at the 50 level. This is the longest time that the RSI has been stuck around 50 since its bull run began in early December, further showing how much bullishness is gone from the Index.

Gold's action today was a little more "exciting," as its own daily chart shows:



After poking above $1,240, which took place before regular trading began, the metal's plummet is shown by the lower wick of today's candlestick. The small distance between opening and closing, shown by the body, indicates the extent of the recovery. Despite that, gold is still below $1,240. The recovery may have deterred short sellers from taking advantage of any run-up in the greenback, but it didn't get the metal back above the $1,240 resistance level which was so difficult to surmount yesterday and last night.

Gold's MACD lines have crossed over into a bearish configuration, but it's so slight, and so near two other crossovers, the last week might as well be pegged as neutral territory. Perhaps the last two weeks can be categorized as such.

The absence of any new drivers is showing, seeing as how the Fed announcement was widely expected, but so is the latent strength. Right now, gold's in a neutral holding pattern.

A post-pit Reuers report ascribed the plummet to profit-taking on a stronger U.S. dollar plus weaker commodity and equity markets. Amongst the points made therein, these were included:
* Gold prices turn lower as buyers stay on the sidelines ahead of a closely watched Fed policy statement, which is expected to reiterate a commitment to keep interest rates exceptionally low - traders.

* Sharp decline of crude oil and a rising dollar against the euro prompted profit-taking in the gold market....

* Gold's ability to hold firm despite a plunge in the global stock markets was impressive, as the metal had been pressured by margin-related liquidation in the past - Dennis Gartman, publisher of the Gartman Letter.
He makes a point that's telling given that gold's been almost a month into the traditionally slow season. The metal may try to get above $1,240 again tonight or tomorrow, and it may succeed.

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