Wednesday, July 28, 2010

Gold, After Further Slump, Steadies

After regular trading began, gold fell below $1,160 because of bad news on the U.S. durable-goods orders front. A drop of 1% in June was well below expectations for a 1% rise. Subsequent to that report, the metal trended down but choppily; the day's low of $1,156.90 was made around 9:45 AM ET. After double-bottoming, though, gold began rising just after 10:00; its climb got the metal up to $1,164 by 10:45. Falling back, it halted that next decline at $1,159. Overall, gold is fluctuating around its $1,160 support level. As of 11:55, the spot price was $1,161.10 for a loss of $0.50 on the day. The Kitco Gold Index attributed -$1.10 to predominant selling and +$0.60 to a weakening greenback.

The U.S. Dollar Index has been fairly steady in a range bordered by 81.95 on the downside and 82.2 on the upside. Reaching its morning nadir around 10:45, it drifted back up while remaining in that interday range. As of 11:56, it was at 82.10.

Although more bad U.S. economic news rocked gold this morning, it didn't have the same effect that yesterday's consumer confidence report did. The metal holding steady after being knocked yesterday shows the air pockets are now gone from the gold market. The rest of the pit session should show more drift.

Update: There was more drift. After bouncing around a zone between $1,159 and $1,161, the metal snuck up a little but not above $1,163. Peaking just after 1:00 PM ET, the metal continued bouncing but with an overall downward bias until it bottomed at $1,159 again. As of the end of the pit session, or 1:30, the spot price was $1,161.50 for a drop of $0.10 on the day. The Kitco Gold Index assigned -$0.15's worth of change to predominant selling and +$0.05's worth to overall greenback weakness.

The U.S. Dollar Index, after surmounting 82.1, drifted around that level until it blipped up slightly starting at 1:20. As of 1:35, it was at 82.135.

In advance of the release of the Fed's Beige Book, there isn't much discounting one way or another. Yesterday's tumble seems to have left the gold market exhausted today. Unless the Beige Book contains some surprises, the drift will likely continue until the close.

Update 2: The Beige Book came out at 2 PM ET, and it showed a less rosy picture than the last one. The economy improved overall, but the pace slowed and two districts reported backsliding. It had little effect on gold, which continued bouncing around but moved up slightly overall. By the time 4 PM came around, the bouncing had largely stopped and gold was left around $1,163. As of the close, the spot price was $1,163.30 for a gain of $1.70 on the day. The Kitco Gold Index split the gain into +$1.30 due to predominant buying and +$0.40 due to overall weakening of the greenback.

The U.S. Dollar Index headed up unsteadily until 3:20, when it managed to reach above 82.2. Falling back to almost 82.05, it double bottomed and then trundled upwards. As of 5:30, it was at 82.125.

Its daily charts, from, shows the Index basically staying in place:

Today's movement wasn't much all told, and the close was quite close to the open. The Index is still near oversold levels, and for now it's stalled just above 82.

Unlike the last two short-term lows, this one han't seen a real rebound afterwards. Yesterday's interday low was only a little below the last one made twelve days ago, which suggests a slowing of the Index's decline. There's no sign of an upturn with any real strength, but it could be argued that the Index is basing at this point.

As for gold, its own daily chart shows a mild recovery today:

Although today's interday low was slightly below yesterday's, the plummet was still halted in its tracks. The durable-good report at 8:30 did provoke another downturn, but it was much more limited in extent than yesterday's. It also was erased by a recovery. There's no way for me to time the gold market, but today's pattern is reminiscent of the day after Feb. 4th's wipeout. I'm also seeing more bearish calls from people who aren't inclined to be gold permabears.

Is gold basing? There's an argument to be made that it is. Gold has been affected by the ill winds now blowing, where good news is interpreted badly and bad news is held to be symptomatic of deflation. There's also the aftereffect of the Eurocrisis, which has led to disappointment from the formerly enthusiastic. The mood has swung the other way; it was only a couple of months ago when good news was good for gold and so was bad.

With enthusiasm turned into gloom, there's a case to be made that gold is now below where it should be - and some are making it. Most of the ones I've seen have an entry point well below today's close, like this fellow; this one's an exception. How it turns out, we'll see over the rest of the summer.

A post-pit Wall Street Journal report notes that gold not only held steady because of bargain hunting but also because of lack of investor interest.
"Gold was the hot thing all spring and early summer," said Bob Haberkorn, senior market strategist with Lind-Waldock in Chicago. "Now it's like the stepchild."

The metal hasn't been helped much by a weakening U.S. dollar--which often lifts dollar-denominated gold by making it less expensive for buyers using other currencies--as equities have been ascendant while a measure of calm has returned to markets.

"People are more inclined to put their risk into equities," Haberkorn said. "It's kind of left gold by the wayside."

Be that so, but the pendulum has swung the other way. Gold may continue in its doldrums, but there isn't that much excitement to dampen anymore. To move down significantly from here would require something close to outright panic.