Monday, June 28, 2010

Gold Touches New Record High, Gets Slammed Down

It was an odd morning for gold. After hovering around $1,254, subsequent to a dip around the time regular trading began, the metal went on an upward run starting at 9:45 AM ET. Equities opening lower was the likely cause of the rally. Making it above $1,260, the metal fluctuated between $1,260.50 and $1,262 except for a brief blip-up that made for a new record high of $1,263.90. At 10:40, though, the metal hit an air pocket that drove its price from $1,262 all the way down to $1,245.10 before relenting. A recovery in U.S. equities seems to have been the trigger for the tumble. Stopping at 10:50, the metal climbed up slowly afterwards only to resume tumbling. As of 11:58 AM ET, the spot price was $1,239.60 for a loss of $16.10 since last Friday's close. The Kitco Gold Index split the loss into -$14.20 for predominant selling and -$1.90 for a strengthening greenback.

The U.S. Dollar Index started off in a narrow range between 85.4 and 85.5, but widened the range to 85.35-85.55 as the morning progressed. Despite the symmetry of the widening, the overall bias was downwards until just before 11:45. As of 11:59, the Index was at 85.51.

Today's action in gold is reminiscent of last Monday's, although the record high made back then was booked before regular trading began. It looks like some traders are seeing a new record as an inducement to sell.


Update: The sell-off continued in early afternoon, although at a much slower rate. After reaching $1,238, the metal bobbed up to $1,241 before sinking again. Around that time, Fed governor Kevin Warsh gave a speech in which he said he preferred Fed asset sales and would oppose further quantitative easing unless a "high bar" was met. The $1,235 level was touched by the metal around 1:15 PM. Shortly afterwards, it headed back up to a little below $1,240. As of 1:31 PM, the spot price was $1,238.00 for a loss of $17.70 on the day. The Kitco Gold Index divided the loss into -$12.40 for predominant selling and -$5.30 for greenback strength.

The U.S. Dollar Index, after turning up just before 11:45, continued rallying until reaching 85.7 as of 12:40. Pulling back, it gained renewed strength and forded above 85.7. As of 1:33, it was still climbing having reached 85.77.

The greenback rally did detract from the price of gold, but the tumble in the former did precede the rally in the latter. It looks like the former kicked off the latter, which did add to the decline in gold later. The metal may have settled down at the end of the pit session, and may start to recover a little in the electronic-trading hitch.


Update 2: The recovery didn't come, except temporarily, but the tumbles vanished and were replaced by sideways movement. The metal didn't get below $1,237 during the rest of the afternoon, and got a little above $1,240 between 2:15 PM ET and 3:15. Movement in the last hour was miniscule. At the end, the spot price was $1,328.60 for a loss of $17.10 since last Friday's close. The Kitco Gold Index apportioned the loss into -$12.15 for predominant selling and -$4.95 for greenback strength.

The U.S. Dollar Index, after climbing above 85.75 right after 1:30 PM, sunk back to a little below 85.6 by mid-afternoon. It then pulled up to 85.7 and sunk slightly during the rest of the afternoon. As of 5:30, it was at 85.68.

Its daily chart, from Stockcharts.com, shows its recovery erasing last Friday's decline:



The interday high for today's trading was lower than yesterday's, but the recovery was sufficient to reinforce the current range in which the Index finds itself. The recovery took place after its RSI level (found on the top of the chart) reached a level not seen since mid-April. The 50-day moving average (the blue line in the middle of the chart) is almost at the Index's raw value, but that's because the MA's rising at a fairly fast clip. As of now, the Index looks like it's going to continue in the 85.0-86.0 range.

As for gold, both its record high and its plummet are shown in its own daily chart:



It had quite the comedown, suggesting that the metal is in a range of its own whose top is $1,260. The bottom is a little diffuse; $1,230 would be a good guess given recent trading, although last Tuesday's and Wednesday's interday lows were below that figure. The $1,260 top, though, is quite evident.

Gold's MACD lines are continuing at near-neutral levels, and both of them are trending sideways even though gold itself has been trending up on balance. (That's because of how they're calculated: the black line is a 9-day exponential moving average, while the red line is the difference between the 12-day EMA and the 26-day.) Given how the metal has reacted after its last slamdown, it's likely to crawl back up to well above $1,240 again.

A post-pit Reuters report ascribes the morning post-record drop to technical selling after the record-hitting rally fizzled, along with profit-taking. Amongst the points made therein, these were included:
* Gold turns lower on technical selling and as investors take profits after prices ran into heavy technical resistance at above $1,260 an ounce - traders

* Earlier in the session, ongoing economic uncertainty prompted investors to pile into precious metals as an alternative investment.

* Signs of rising inflation boosts the metal's attractiveness, after data showed Core PCE Index, a key inflation measure monitored by the Federal Reserve, rising 1.3
percent in the 12 months to May.

* Underlying support seen in gold as equity markets unperturbed after world leaders abandoned a global bank levy and eased the timetable for new capital requirements at the G20 summit.

* Bullion's safe-haven appeal increased following U.S. comments that economic sanctions on Iran will not deter Tehran from seeking a nuclear capability - analysts.

Again, a new record failed to hold. As June approaches its end, gold is still holding up fairly well despite those sudden drops.

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