Friday, July 30, 2010

Gold Dives Down, Rallies to Above $1,180

Initially, the gold market liked the second-quarter GDP number of 2.4%. Spiking up to around $1,176 right after 8:40 AM ET, gold then fell down to below the level it was at when regular trading opened. A bobble around $1,171 gave way to a fall all the way down to $1,166.40. The fall started around 9:30, when factory activity for the Chicago region was revealed to have strengthened. The Chicago purchasing managers' index went up from 59.1 in June to 62.3 for this month.

After bottoming a little before 9:40, gold first hesitated around $1,168 and then took off. A large drop in the University of Michigan consumer sentiment index, from 76 last month to 67.8 this month, added fuel to the rise. By 11:00, the metal was above $1,175; a new daily high of $1,177.50 was made shortly afterwards, which was bettered shortly before noon. As of 11:52, the spot price was $1,178.00 for a gain of $11.50. The Kitco Gold Index split the gain into +$10.00 for predominant buying and +$1.50 for weakening of the greenback.

The U.S. Dollar Index, after rising to just above 81.85, turned downwards just before 9:45 AM. The decline was rolling and fairly mild, but it resulted in the Index reaching 81.5. There seemed to be no discernible immediate effect on it from the above-mentioned economic data. As of 12:00, it was at 81.49.

The early-morning spill, in part prompted by good news, was reversed: that shows the current short-term recovery of the metal is fairly solid. Again, bargain levels are exerting their influence.

Update: The rally continued in early afternoon with not much pullback until the top was reached a little after 1 PM ET. At that top, the metal touched $1,184.60. After it, gold fell back a little but still remained above $1,180. As of the end of the pit session, or 1:30 PM, the spot price was $1,181.70 for a gain of $15.00 on the day. The Kitco Gold Index divided the gain into +$14.45 for predominant buying and +$0.55 for greenback weakness.

The U.S. Dollar Index bottomed around 12:30 when it got just below 81.45. Then, it pulled up but could not rise above 81.6. As of 1:30, the Index was at 81.58.

Gold has managed to be in rally mode for most of the pit session, ending it with a strong double-digit gain on the day. There may be some pullback in the electronic-trading hitch, but not enough to make the day's gain less than a double-digit one.


Update 2: The electronic-trading hitch for the end of the week was fairly relaxed, although some fluctuations did take place. For the most part, gold stayed between $1,180 and $1,182, although there were a few poke-ups above and one larger poke-down below. At the end of the week, the spot price was near the top of that zone: $1,181.40, for a gain of $14.90 on the day. The Kitco Gold Index apportioned +$14.50 to the predominant-buying category and +$0.40 to the weakening-greenback one.

Last Friday, the metal closed at $1,189.70. So, again, it closed with a loss on the week. The drop was much less than it would have been had it not been for today's rally, but a loss was still booked. Over the week, gold declined by $8.30 or 0.698%.

The U.S. Dollar Index, after drifting down again to a little below 81.5, managed to rebound after a double bottom at 81.48. The rise wasn't much, but it added to an overall upward tilt this afternoon. As of the close, the Index was at 81.57.

Its daily chart, from Stockcharts.com, shows a down day but not much of one:



The interday range of today's chart is about the same span as the body of yesterday's candlestick. The body of today's is almost nonexistent, indicating a close only slightly below the open. The Index's RSI level, found at the bottom of the chart, is still in sub-30 oversold territory. There's no real sign of a rebound visible on the chart as yet.

As the days tick on, the Index is getting closer and closer to its 200-day moving average - the red line in the middle of the chart. A real technician would point to that level as support, although 81 is also a support level of some potency. As things look better in Euroland, the Euro will keep rising and the Index will keep falling until more quotidian economic reality intrudes. On a purchasing-power parity basis, the Euro is overvalued.

I keep anticipating a probably unsustainable turnaround for the Index, as based upon its oversoldness, but such an eventuality isn't apparent yet.

As for gold, its own daily chart shows today's recovery making for three gain days in a row:



The metal has not yet gotten back to the levels it was at before Tuesday's plummet, but it's now close. It wouldn't be too much to hope for the metal to ascend well above $1,180 and stay there, returning to the same short-term range it was at last week. If it does get up to $1,200, albeit unsustainably, then things will get interesting if it stays above $1,180 after the dropback. A few completed reverse head-and-shoulder patterns have been frustrated due to selling cascades, so there's no guarantee even if the metal traces one out in the coming days - but it will be interesting. The summer season's already over the hump, and it remains to be seen if gold's gotten over its seasonal weakness. The current short-term uptrend has potential, although it may be beaten back because the bargain-hunting has diminished.

Last Tuesday, as noted above, was plummet day for gold. The interday low was close to being the low of the week, although Wednesday's was slightly lower. That day's close was the cut-off for this week's Commitment of Traders data, as graphed here. Total open interest declined for the fourth week in a row, although not by much this week. Interestingly, the number of contracts in the non-commercial long category increased slightly. It was commercial longs that shrunk appreciably. The biggest percentage decline, by far, was in the non-commercial short category: the number shrunk by 20.8% from last week's elevated level. Last Tuesday would have been about the time to cover, so the non-commercial short category exhibited some sagaciousness. Of interest is the fact that the change in non-commercial longs was on the right side of the rest of the week. Non-commercial shorts shrunk slightly.

For the Index, last Tuesday saw a slight up day that proved to be the prelude for further drops. Its own CoT data, graphed here, shows yet another decline in total open interest. This week's was the lowest it's been over the last fifty-two. Total longs are actually less than commercial longs were back on September 8th of last year. All categories shrunk, with commercial shorts declining the least. Interestingly, the sharpest-declining category on a percentage basis was non-commercial shorts: that category shrunk by 21.1%. The pullback was the second shrinkage in a row, suggesting that non-commercial shorts see better times ahead for the Index.

Turning back to gold, a post-pit Reuters report said that, despite today's gains, gold ended with the biggest monthly loss since December. Amongst the points made therein, these were included:
* Gold lost about 5 percent in July and was among the top
percentage losers in the commodities complex.

* Gold benefited after data showed U.S. economic growth slowed in the second quarter, raising concerns about the recovery in the rest of 2010.

* Disappointing U.S. GDP report prompted gold investors to cover short positions - Frank McGhee at Integrated Brokerage Services.
It has been a fairly bad month for gold, but the summer decline has still been below average. A lot of this month's was due to the fading of the Eurocrisis, which had made June a gain month. Now that August is approaching, the present short-term turn-up may well continue.

In closing, thanks for stopping by and reading what I've got. May you have a restful weekend, especially if you celebrate the Canadian long weekend.

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