Monday, July 26, 2010

Gold Gets Knocked Down By Housing Sales Data

After a nice climb up to above $1,192 when regular trading started, gold turned downwards around 9:30 AM ET. Still, it hung around a little below $1,190 until the U.S. June new home sales number was released. Total sales of 330,000 were higher than expected, which catalyzed a drop in the metal all the way down to a little below $1,180. The decline then abated by gold getting back up to $1,182. That relief rebound didn't last: around 11:00, the metal dropped further to below $1,180 again. In that timeframe, a new daily low of $1,178.60 was made. The relief rally that followed was stronger: starting at 11:10, the metal veered up to the mid-1180s. As of 12:02 PM ET, the spot price was $1,185.40 for a loss of $4.30 on the day. The Kitco Gold Index attributed -$10.90 to predominant buying and +$6.60 to weakening of the greenback.

The U.S. Dollar Index wasn't affected by the new-home-sales number. Fluctuating between 82.25 and 82.3 in mid-morning trading, it went on a rally that peaked as of 10:46 at just below 82.4. Then, the rally turned into a downturn that saw the Index reach just below 82.1. As of 12:04 PM, it had turned still lower at 82.06.

The greenback's late-morning drop helped add strength to gold's rally, but there is a hint of the old concurrency returning. A good U.S. economic datum diminished the safe-haven appeal of both. Gold may recover to $1,190, but so far any such recovery looks iffy.


Update: In the rest of the pit session, that recovery did not happen. Instead, gold topped out at a little above $1,186. After sinking back to $1,182 around 12:45 AM ET, the metal pulled up and settled into a zone between $1,186 and $1,184. As of the end of the pit session, or 1:30, the spot price was $1,184.50 for a loss of $5.20 since Friday's close. The Kitco Gold Index assigned -$12.50's worth of change to predominant selling and +$7.30 to greenback weakness.

The U.S. Dollar Index spent early afternoon softening. After reaching 82.0 a little after noon, and pulling up to 82.1 later, the Index sunk a little below 82 but ended up staying at that level. As of 1:35, it was at exactly 82.0.

Gold made it to the mid 1180s, which is an improvement from its lows, but the metal is likely to close with a loss on the day. Good news is still bad news for the metal.


Update 2: The recovery all-but fizzled in the electronic-trading hitch. After descending to slightly below $1,184, the metal dropped down to a little above $1,180 by 2:50. A double bottom preceded a rise up to $1,183, which gave way a litle just before the end. As of the close of regular trading, the spot price was $1,182.10 for a drop of $7.60. The Kitco Gold Index attributed -$14.50 to predominant selling and +$6.90 to weakening of the greenback. The two categories sum up to the raw change since Friday's close.

The U.S. Dollar Index didn't do that much in the rest of the afternoon, but it did get below 82 albeit breifly. For the bulk of the stretch, it fluctuated between that same level and 82.1. As of 5:30, it was at 82.035.

Its daily charts, from Stockcharts.com, shows today's close at slightly lower than recent interday lows:



Today's decline makes for the third session in a row. The Index barely made a new short-term low, although staying above the 82 support level. Its RSI level, found at the top of its chart, is close to oversold levels again.

How low can it go? It's now wellbelow its 50-day moving average but stil well above its 200-day moving average. The former has turned down, but the latter is still trending up. The distance between the two moving averages is indicative of the Index's run in late spring. 82 is a fairly important support level; if the Index gets and stays below it, there could be a fair bit of downide left. 80 wouldn't be out of the question. At any rate, it's clear that the Index's intermediate-term downtrend does no appear finished.

As for gold, its own daily chart shows the inching up over the course of last week came to an end today:



The metal managed to stay above the recent $1,175 support level, keeping the current trading range intact, but the slight upward momentum it showed last week is gone.

Still, the drop hasn't gone that far. The current interday range is only a little below the previous one, and support is still being provided by physical buying. Investment demand may have dried up for now, but that other source is still active. Hence gold's reluctance to fall very far.

There isn't any pressure to push the metal above $1,200 right now, and any that has existed in the recent past has fizzled, but the lower end of the range is still solid. Gold's midsummer holding pattern is still in place.

A post-pit Reuters report ascribes today's drop to safe-haven demand fizzling due to the home-sales number. Amongst the points made therein, these were included:
* Bullion was pressured as U.S. stocks gained ground after data showed sales of new U.S. single-family homes rebounded in June from May's record low.

* Gold was hovering just above an upward trend support, but a sharp price decline could happen in an overly bullish gold futures market held up largely by short-term, speculative investors - analysts.

* Money managers cut their long, or bullish exposure, to U.S. gold futures by 18 percent for the week to July 20 as the metal's prices hit two-month lows, U.S. CFTC's trade data showed. [ID:nN23274411]
Presumably, more good news from the U.S. economy will continue to pressure the metal as there's an absence of countervailing (or overpowering) bullishness right now. With inflation failing to make an appearance in the U.S. and the Eurozone, and it being still relatively muted in the U.K., the next big driver for the metal has not kicked in. Nevertheless, the metal's still holding up at levels well above last mid-winter. The recent doldrums can be taken as a sign that gold's long-term bull market has not tipped over into a frenzy, except briefly at the height of the Eurocrisis.

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