Thursday, June 17, 2010

Gold Vaults Above $1,245, Pauses,

The range didn't last long, and it was broken on the upside. Propelled in part by news about increasing initial jobless claims and a CPI report that had percentages which matched expectations, gold started rising before those numbers were released but got an added boost from them. Ramping up above $1,244, the metal spent some time wavering between that level and $1,245-6 before undertaking another rise just before 10 AM ET. Again, a less-than-cheery economic report helped boost the rally: at 10:00, the May leading indicator numbers were released. The numbers suggest slower growth. The second upthrust peaked, as of 10:25, at just below record levels: $1,249.90, as close to $1,250 as it's possible to get. Pulling back, the metal fluctuated between $1,246 and $1,248 before taking a dive down to $1,244. Recovering to $1,247, it dipped once again. As of 12:00 PM, the spot price was $1,244.70 for a gain of $14.20 on the day. The Kitco Gold Index split the gain into $7.90 for predominant buying and +$6.30 for a weakening greenback.

The U.S. Dollar Index had continued slumping, reaching a smidgen above 85.5 as of 10:11. Recovering to nearly 85.9, the Index sunk back to hover around 85.75. As of 12:01 PM, it was at 85.77.

With the $1,240 barrier reached, gold is very close to a new interday record. Its current softness suggests that it won't set another one this afternoon, but its valting above the top of its former range is enough.

Update: As it turned out, the rally had a bit of gas left in early afternoon. The new daily high of $1,252.50 was in fact a new record, making that suggestion nugatory. The new record was exactly a dollar above the previous one.

After sinking back to $1,244 as of noon ET, gold started to run again. In the next half-hour, it put on more than eight dollars an ounce to make that new record. Falling back after meeting resistance, the metal then fluctuated between $1,246.50 and $1,248. As of the end of the pit session, or 1:30, the spot price was $1,247.80 for a gain of $17.30 on the day. The Kitco Gold Index divided the gain into +$11.20 for predominant buying and +$6.10 for greenback weakness.

The U.S. Dollar Index stayed steady during early afternoon. Staying in a range between 85.7 and 85.85, it trundled along directionlessly above its earlier low. As of 1:35, it was 85.76.

The break-through from its former range had enough momentum behind it to set that new record, but not enough for gold to stay above $1,250 for more than a blip. There may be enough gas left to roll it above $1,250 sustainably, but the afternoon session is more likely to result in quiet or a backtrack.

Update 2: This time, it ran out of gas. After coasting along at $1,247, gold slowed to $1,244 and stayed between there and $1,246 except for a slight blip upwards around 4:35 PM ET. That blip, which failed to get above $1,248 for any appreciable length of time, exhausted itself as gold fell back to that same old range. As of the close, the spot price was $1,245.20 for a still-sizable gain of $14.70 on the day. The Kitco Gold Index divvied up the gain into +$7.40 for predominant buying and +$7.30 for the greenback weakening.

The U.S. Dollar index took another early-mid afternoon spill, which ended just after 2:00. Turning around at just below 85.6, the Index rallied to above 85.75 before it pulled back a little and settled into a range bordered by 85.65 below and 85.7 above. As of 5:30 PM, it was at 85.66.
Its daily chart, from, shows yesterday's recovery did not continue to today:

In other words, the short-term decline is not over despite the Index's RSI level (found at the top of the chart) being below neutral. That's not good for the Index. Although today's closing level is slightly above May 21st's short-term bottom, and the interday low is somewhat higher than May 21st's low of 85, the Index's current level is close enough to justify pegging its movement since May 13th as a potential head-and-shoulders top. For reasons of neatness, an interday drop to 85 would make the pattern clearer.

Justifying this interpretation is the fact that the Index has lost three whole points in less than two weeks, after a high carved out in an atmosphere of crisis that benefitted it. The subsequent letdown pulled the Index down to a level near where it was as of the time of the run-up to its peak of 88.5. The loss since then is too much to shrug off as a just another pullback.

The Index could halt at this point, pull up, and continue its run; that head-and-shoulders reversal is only a potentiality as of yet. But, it bears watching. A continuation of the short-term drop to 85 or below would add further credibility to the pattern. What will determine it will be the subsequent short-term rise after the current decline is over. At some point, such an advance will kick in.

Turning to gold, its own daily chart shows today's upside breakout from its $1,220-$1,240 range:

Because this chart is of the nearest futures contract, rather than of the spot price, it doesn't show a new all-time interday high being made today. The spot market did, but the nearest futures didn't. Nonetheless, the metal put on an impressive performance. Today's opening price on the chart above was equal to the interday low. Although the closing value was less than the interday high, the metal still showed a fair bit of strength.

Incongruously, gold's MACD lines are still (albeit barely) in a bearish configuration. Those lines, found at the bottom of the chart, suggest that gold is still in a wider range. The trouble with that interpretation is the short-term bottoms between May 20th and now are successively higher. The triple topping at near the same level is consistent with a range, but the ascending bottoms aren't.

What it is consistent with, is an ascending triangle. That pattern, bullish during an uptrend, features the same kind of action that gold has shown over the last month. The interpretation of it isn't that exotic or surprising: what it means is, if gold stays above $1,250 and holds there, the metal'll go for a further run into new-record territory. It's easy to imagine the internals, should gold do so: momentum traders would make it happen. A reversion of the old negative correlation between gold and the greenback, to gold's benefit, would be the market-specific motor that could make it happen. So could further troubles in stock markets. So could more warning clouds from Spain. So could anticipation of the last two.

The trouble with these patterns is, because they're based on internals, they may go to completion but reverse when the driver disappears or is counteracted. That was the case with an ascending triangle whose end foretold the Index's final drive from 87.5 to 88.5. Subsequently, the Index fell three whole points as the Euro began to recover. That ascending triangle did not foresee that later reversal.

So, even if it works, there's no guarantee that gold will motor up all that much. It would make a new record high; that's implied by breaking above the ceiling, which is formed by at least two record highs already made. How far it goes after that, depends upon bullish sentiment and any drivers that accompany it. If gold does vault well above $1,250 without any driver, like the Index did, the subsequent advance may not last all that long.

As of now, breaking solidly into $1,250 is only a potentiality. It may not come to pass in the near future. In that case, gold will look more range-bound.

A post-pit Reuters report credits gold with a new record closing high, due to worries about Spain and recent disappointing U.S. economic data. Amongst the points made therein, these were included:
* Gold held its early advance as investors kept seeking safety in the yellow metal as a tangible asset -traders.

* COMEX floor brokers reported talk some players were taking delivery of the physical metal.

* Though a Spanish bond auction went reasonably well, some investors still wanted gold to hedge against other possible sovereign debt problems in Europe - analysts.

* "There's no consistency right now in terms of good news coming out of the euro zone. And, because of that, it's making investors feel a bit uncertain about going into riskier assets. Gold is obviously a safe-haven asset to offset that," said Fred
Jheon, managing director of U.S. product development at ETF Securities in San Francisco.
Also mentioned was the Philadelphia Fed's mid-Atlantic factory activity survey's Diffusion Index tumbling from robustly positive to weakly positive, and the new closing high taking place with quite robust volume.

It seems only a matter of time before "Sell in May and go away" becomes joked about, perhaps with the embarrassment shown by former believers in it. Spot gold did make another record today, and the nearest futures contract made a new closing record. More unambiguous records may be made soon; tomorrow still has a shot at doing so.

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