Gold Ramps Up To Gain In Late Morning Trading

The negative correlation between the greenback and gold is still in force; this morning, it acted to gold's benefit. Thanks to a renewed drop in the greenback, the metal reversed from its doldrums and challenged yesterday's highs in late morning trading.

After a pre-regular trading slump, gold remained in the doldrums until that take-off. Overall, until 11 AM ET, the metal remained in a trading range between $1,206 and $1,210. An earlier rally attempt at 9:15 choked at the latter level. Afterwards, it slumped down to the former before pulling back up again. After 11, though, the take-off began. In about five minutes, gold went from slightly below $1,210 all the way up to $1,217. A pullback prefaced a jump to a new daily high of $1,219.20 before another, stronger pullback settled in: the metal dipped below $1,216 and contunied after a pull-up to that level. As of 11:59, the spot price was $1,213.00 for a gain of $1.70 of the day. The Kitco Gold Index attributed -$1.40 to predominant seling and +$3.10 for weakness in the greenback.

As indicated above, the U.S. Dollar Index went for a tumble after an attempt at rallying to 83.7 failed. After that attempt, made around 9:00, the Index dipped back but stabilized around 83.53. Then, at 10:37, it began dropping after an attempt to stay above 83.55 drained away. The subsequent decline saw it go down to 83.22 before a relief rally; after that break, it dropped to a slightly lower level. As of 11:59, the Index had recovered somewhat and reached 83.32.

So far, gold has not made a break above the $1,219 resistance level; consequently, it's still in its range. The leap on the sinking greenback, however, shows some optimism coming back to the gold market. Unfortunately, some new strength in the greenback caused the rally to ebb; that weakness may continue in the afternoon.


Update: It did continue; in fact, the reversal proved to be quite the whipsaw. From a new daily high at 11:15 AM ET, the metal made a new daily low at just before 1:00 PM. The above-mentioned weakness ended up becoming a tumble that more than entirely reversed the morning leap. Continuing below $1,206, the metal recovered to $1,208 before falling anew. The daily low of $1,201.80 preceded another relief rally that brought the metal back above $1,206. As of the end of the pit session, or 1:30, the spot price was $1,207.10 for a loss of $4.20 on the day. The Kitco Gold Index assigned -$7.20's worth of change to predominant selling and +$3.00's worth to greenback weakness.

The U.S. Dollar Index's turnaround just before noon, as mentioned above, proved to be more of a catalyst for the drop than a sustained driver. It didn't last that long, and turned into a diminishing trading range centered at a little below 83.3. As of 1:40 PM, it was at 83.29.

The early afternoon reversal was unusual, to say the least. It does confirm that gold is still in a trading range, as yet unbroken. Unfortunately, the chance of the metal returning to a gain position in the electronic-trading hitch are slim.


Update 2: Gold did close at a loss, but the metal did make a real try at moving above $1,210. The release of the FOMC minutes at 2:00 PM ET, showing less optimism about the economy, were a help but not immediately. After climbing up to $1,207, gold sold off at the time of the release but recovered by 2:10 and then went on a slow climb. The rise ended when gold tounched $1,210 just after 3:05; the metal then stayed between that number and $1,208 for the rest of the hitch. As of the close of regular trading, the spot price was $1,208.50 for a drop of $2.80 on the day. The Kitco Gold Index attributed -$4.95 to the predominant-selling category and +$2.15 to the weakneing-greenback one. Both categories sum up to the raw change on the day.

The U.S. Dollar Index managed to climb up a bit from the lower levels it was at earlier in the day. It didn't quite make 83.45, but it did rise up in mid-afternoon and mostly stayed above 83.35. As of 5:30 PM, it was at 83.36.

Its daily chart, from Stockcharts.com, shows its decline continuing:



Although its interday low was well above 83, the Index is moving close to that level. Today's decline was lesser in extent than yesterday's, but today's interday high was barely above yesterday's open. Yesterday's was higher than the interday high of the day before.

The Index's RSI level, found at the top of the charts, is drifting closer to the 30 oversold level. It's now lower than it's ever been in the last six months. Although indicative of a possible rebound, its low level is consistent with a downturn. So far, there's no sign of a turnaround brewing.

As for gold, its own daily chart shows a somewhat encouraging candlestick for today despite its whipsaw decline around noontime:



Gold's still in its range, but today's entire candlestick is at the upper end of the range. The bodies of the last two days' candlesticks extend below $1,200; the lower wick of today's, which bottoms at the interday low, didn't get below that number. The morning run-up had its effect; the short-term low of July 7th still is one.

Close to the top it may be, but the metal shows no sign of successfully challenging that $1,219 top. Part of the catalyst for the whipsaw decline was technical selling prompted by gold hitting that level briefly and not recovering to mount a real challenge. That plus a small recovery in the greenback catalyzed the fuel that got the whipsaw buzzing. Right now, the climate isn't all that good for gold because optimism is returning. So, it's likely that the metal will again stay in its range.

A post-pit Reuters report says gold followed the Euro and equity markets down, which it ascribes to the less-than-cheerful FOMC minutes. Amongst the points made therein, these were included:

* Gold was pushed off earlier highs when the euro and U.S. equity markets turned lower in afternoon trade - traders.

* All three markets were responding to lessened investor interest in taking additional risk after the Federal Reserve released meeting minutes that revealed concern about a weakening U.S. economy - traders.

* The euro pared gains versus the dollar after the Federal Reserve said it felt last month it should be ready to consider additional steps to boost the U.S. economy, if the outlook took a noticeable turn for the worse....

* Because the Fed minutes came after many gold traders had completed their transactions for the day, [and after the whipsawing,] some sellers may hit gold again on Thursday - traders.

* The softer U.S. growth outlook would suggest a tame outlook for inflation and could hurt gold's upside potential - analysts.

Those points are consistent with gold remaining range-bound in the near future.

Still, for the traditionally weak summer season, the metal is holding its own and is likely to continue to do so thanks to bargain hunting that will click in at $1,190 or so. Should gold descend to that level, additional buying pressure will help muffle the decline. The range-boundedness is largely a function of there being no positive driver for the metal, and the overall summer doldrums. That too shall pass.