Tuesday, July 13, 2010

Gold Shoots Up To Almost $1,220, Pulls Back A Little

It took some time for the gold market to pick up on the significance of the Moody's downgrade of Portugese sovereign debt, but pick up it did. From the start of the pit session to around 9 AM ET, the metal rallied strongly in two stages. When the leap finally got exhausted, it had touched $1,219.10.

Since then, gold pulled back a little before stabilizing. From around $1,218, the metal sunk to just below $1,214 before moving into a range between that level and slightly $1,216 in late morning. As of 11:54, the spot price was near the top of the range at $1,216.30 for a gain of $19.20 on the day. The Kitco Gold Index split the gain into +$8.15 for predominant buying and +$11.05 for weakening in the greenback.

The U.S. Dollar Index has not had a good morning. From well above 84, the Index has slid fairly steadily to below 83.5. Interestingly, the aftereffects of the downgrade have not helped the greenback; they have helped gold. As of 11:55, the Index was at 83.46.

A negative correlation between gold and the U.S. dollar has been re-established, with the help of a driver that would have pushed up both when the Eurocrisis was boiling over. With that driver gone, gold's rally has exhausted itself; there may not be much change in the afternoon as a result.

Update: Early afternoon trading saw the stabilization continue until near the end of the pit session. Starting at 12:45 PM ET, a gentle decline took the price down to $1,214 and crossed that level around 1:15; it bottomed at $1,213. With the early-morning driver absent, buying interest has lulled. As of the end of the pit shift, or 1:30, the spot price was $1,213.50 for a gain of $16.40 on the day. The Kitco Gold Index divided the gain into +$7.60 for predominant buying and +$8.80 for greenback weakness.

The U.S. Dollar Index, after reaching the sub-83.5 doldrums in late morning, flattened and then turned around. Starting a mild rally at 12:45, it rolled up to 83.65 but flattened again at that higher level. As of 1:30, the Index was at 83.62.

Gold settling back isn't that surprising, given the extent of the run-up earlier and the overall doldrums. The metal's still above $1,210, and will likely stay that way until the close.

Update 2: The metal did stay above $1,210, although it was close to breaking down at one point. It stayed between $1,212 and $1,214 until 3:45 PM ET, when it dipped down to $1,210 before pulling up in a rounding short-term top. The U.S. budget balance numbers came in at $68 billion, as of 2:00; the gold market yawned.

After that rounding top peaked at just below $1,213, the metal softened to below $1,212. As of the end of regular trading, the spot price was $1,211.30 for a gain of $14.20 on the day. The Kitco Gold Index apportioned the overall gain to +$3.70 for the predominant-buying category and +$1.50 for the weakening-greenback category.

The U.S. Dollar Index continued its gentle rise until 2:30, when it reached 88.65. Then, it slowly fell back but mostly stayed above 83.5. As of 5:30, it was at 83.51.

Its daily chart, from Stockcharts.com, shows today's decline extending past last week's interday lows:

As I wrote yesterday, the less iffy short-term bottom made last week was no guarantee that the Index would keep rising. Today's drop made the short-term bottom quite short-term, and truncated any recovery rally. That, despite the fact that today's interday high was higher than yesterday's.

The Index's RSI value, found at the top of its chart, is again close to the oversold level of 30. Its MACD lines remain in a solidly bearish configuration, as they have been for over a month. Although the former is around levels at which a bounce would be expected, the latter indicates that the decline of the Index is still entrenched. It didn't get any lasting gain from an important Eurocrisis-related driver, Moody's downgrade of Portugese sovereign debt. That's not a good sign.

Especially when paired with the reaction of the other safe-haven asset, gold. The metal did rally strongly on the Moody's news, although regular trading had to commence before the rally kicked in. Gold's daily chart, though, shows that it's still in a trading range:

Its interday high was a bit above the highest once from last week, but the body of today's candlestick shows it stuck in the same range it's been at for the last three days. Gold's own RSI number is close to neutral, which suggests its doldrums in that area are over. Still, the RSI has been at a low level as compared to the times it was ramping upwards; that difference shows gold's overall neutrality as of now. That neutrality has held up despite the strong rally on today's driver, suggesting that it'll continue tomorrow by gold getting the droops. That possibility would be likely, given the re-establishment of the negative gold-greenback correlation, if the U.S. Dollar Index recovers.

A post-pit Reuters report ascribes gold's rise today to that same Moody's driver. Amongst the points made therein, these were included:
* Investors ran to buy gold after rating agency Moody's downgraded Portugal's debt ratings - traders.

* Greece tapped its rescue fund reinforcing some investors' move to seek safety in gold - traders.

* Greece also sold T-bills to borrow under its rescue fund, raising some eyebrows among investors who feared it may need quick cash again - traders.

* The euro rose after the U.S. trade deficit was reported to have widened unexpectedly in May, weighing down the dollar.

* Some players questioned the longevity of gold's latest rally, which has been holding in the same range since July 1.

* Bears were forced to cover short positions around $1,215.10 an ounce - traders.
Interestingly, that short covering took place near the end of the rally and accompanied gold's peak today

Tomorrow may see some further softening, unless another driver makes its appearance. Gold's current price is not conducive to bargain hunting, whether physical or paper, so support at lower prices from that source will not be there. The summer doldrums continue.


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