Wednesday, July 7, 2010

Gold Recovers To Above $1190 In Morning, Rises Above $1,200 In Afternoon

An early-morning dive reversed itself when regular trading opened. From around $1,186, gold climbed up to $1,194 in the first twenty-five minutes of the pit session. A pullback was followed by an upward slog that kept the metal between $1,192 and $1,194 until 10:30 AM ET. Ramping up to $1,197.60, the metal made a new daily high at that price. Perhaps oddly, the jump came at a time when the U.S. equity averages were rising - but it did accompany a slide in the U.S. dollar. At any rate, the metal's jump was short-lived. Pulling back to $1,192 again, it climbed above $1,194 only to fall back into the earlier range. As of 11:53, the spot price was $1,193.90 for a loss of $0.80 on the day. The Kitco Gold Index split the loss into -$0.30 for predominant selling and -$0.50 for strengthening in the greenback.

The U.S. Dollar Index spent early and mid-morning downtrending until the fall reversed just before 11:00. Bottoming at just below 83.9 as of 10:53, its subsequent rise pulled it above 84 again. As of 11:55, it had mostly recovered from its slide by reaching 84.09.

Once the initial rise has been factored out, gold has been bobbing around. Still, that rise managed to all-but reverse the droppage in pre-pit trading. It doesn't look like the metal has enough momentum to best $1,200, but a switch back to a gain on the day isn't out of the question.

Update: The muddle-through phase ended a little after noon, at which point gold's climb resumed. Jumping up again to around $1,196, it hung a little below that level until a zig-zaggy advance starting at 12:40 PM ET pushed it up to a new daily high of $1,200.20. The metal may not have bested $1,200, but it touched that level.

The rest of the pit session saw gold hovering around $1,198. As of the end of the session, or 1:30 PM, the spot price was $1,198.30 for a gain of $4.20 on the day. The Kitco Gold Index divided the gain into +$2.15 for predominant buying and +$2.05 for weakening in the greenback.

The U.S. Dollar Index, after making 84.10, slid back down below 84 after hovering around that level for twenty-five minutes. As of 1:35, it was at 83.91.

Gold did shift over into the gain column, and showed a fair bit of rally after moving indecisively during most of the morning. Now, it's a $1,200 close that's not out of the question.

Update 2: The rallying continued during the electronic-trading hitch; gold did in fact get and close above $1,200. That level was broken through around 1:45 PM ET, and the metal hung around until just before 3:00 when it made another daily high at $1,205.10. Settling back, it spent the rest of the hitch between $1,202 and $1,204. As of the close, the spot price was $1,203.20 for a gain of $9.10 on the day. The Kitco Gold Index apportioned the gain into +$7.70 for the predominant-buying category and +$1.40 for the greenback-weakness category. The two sum up to the raw change on the day.

The U.S. Dollar Index stopped falling back around 2:10, when it inched below 83.75. Rising up to 83.95, then falling back before rising once again, it didn't see 84 for the rest of the afternoon. As of 5:30, it was 83.94.

Its daily chart, from, shows the Index's continued deterioration:

Today's rate of descent was lesser than yesterday's, and today's interday low was only a smidgen below yesterday's. Still, the Index continues to trend downwards; it's well below its 50-day moving average. Both indicators at the top and bottom of its graph show further deterioration.

The main reason has been the recovery of the Euro. Rightly or wrongly, the Eurocrisis has gone dormant. The can may well have been kicked down the road, but the kicking was done successfully. Evidently, the market believes the austerity pledges from governments with high deficits as percentages of national GDP. With no sign of a further flare-up, although there were hints of such in Spain when the Index was still flying high, the greenback has given up the bulk of its safe-haven premium. It may take some time before the Index moves more in accordance with international fundamentals.

Over the longer term, the Index may be stuck in a trading range. This three-year daily chart shows that its top last month peaked at about the same level at which March of '09's did:

Although last November's low was well above that of '08, the Index's chart does look like a long-term range is forming. That pattern would be fairly good for the United States, as lowering would bring some relief to U.S. exporters and rising would keep the U.S. Treasury's foreign creditors from complaining...not to mention not re-upping.

Gold's own chart shows a reversal of its recent declines, due to bargain hunting:

Today's interday low was lower than yesterday's, but the close was higher than yesterday's too. Gold's technical picture doesn't look all that great, but balancing that out is the bargain-hunting buying that's cushioning the falls at these levels. There has not been a repeat of last Thursday's plummet. Gold may continue to linger around the sub-$1,200 level, but appearances suggest that the bottom's in or near - at a higher level than late May's.

A post-pit Wall Street Journal report, which missed the electronic-trading recovery rally, ascribed the earlier drop to gold's diminished appeal due to safe havens being less wanted.
Investors looking for a safe bet amid dimming prospects for robust economic growth propelled gold to record highs in June, but those investors recently have seemed to favor other assets. Recent news has raised doubts about gold's ability to set new record highs.

Gold was pressured Wednesday by reports that central and commercial banks may have liquidated or swapped holdings in gold in the first quarter, either to raise short-term capital or to invest in other assets.

In addition, a Chinese foreign exchange official said the country won't reorient its currency holdings toward gold. The news isn't viewed as a major shift in policy, analysts say, but it nevertheless added downward pressure to a gold market already jittery in the face of volatility in wider markets....

Still, the later afternoon recovery says those factors were counterbalanced by bargain-hunting. Gold may not continue to rally tomorrow, but there's enough cushion to pinpoint sub $1,200 levels as a bargain zone.

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