Thursday, July 8, 2010

Gold Slumps Below $1,190 In Mid-Morning

Despite the encouragement given by an early rally just before regular trading began, gold tumbled in mid-morning from $1,200 to around $1,188. The drop took place in two stages: a quick fall to $1,192 between 9:30 and 9:50, and a slower, gentler drop that took the metal from around $1,193 to $1,186.50 as of 10:45. Subsequently, the metal rose up, fell back and bumped into the $1,188 level a few times before lumbering up. It settled around $1,190 before climbing a little further. As of 11:56, the spot price was $1,192.10 for a loss of $11.10 on the day. The Kitco Gold Index divided the loss into -$11.00 for predominant selling and -$0.10 for strengthening of the greenback.

The U.S. Dollar Index hovered a little below 84 in a relatively unvolatile start, but was closing in on that level in the mid- and later part of the morning. Bottoming at 83.7 as of 9:43, it drifted upwards afterwards. As of 11:57, it was at 83.95.

So far , the day has been another disappointment for gold as an early rally broke down. There's still some cushioning below the $1,200 level, but that bargain hunting is only sufficing to keep the price from plummeting much further below $1,190. It is not helping sustain the metal above $1,200. Things may change in the afternoon, but so far the action isn't encouraging.

Update: The climb that started in late morning continued until 12:30 PM ET, when gold reached $1,197. Dropping back to $1,194 by 1:00, the metal climbed anew but stalled at $1,196. As of the end of the pit session, or 1:30 PM, the spot price was $1,195.80 for a drop of $7.40 on the day. The Kitco Gold Index attributed -$8.55 to predominant selling and +$1.15 to greenback weakness.

The U.S. Dollar Index, after not quite reaching 84, fell back after making a second attempt at surpassing that level around 12:50. The subsequent pullback stalled at 83.85. As of 1:35 PM, it was at 83.86.

Again, bargain hunting is helping gold. Momentum drains away while the metal's in the high 1190s, but buying power below is enough to reverse any serious declines. The chance of gold making a gain today are slim, but it's likely to close well off the lows of the day.

Update 2: The metal didn't make $1,200, let alone climb into the gains column, but it did rise a little in the electronic-trading hitch of regular trading. The climb started after 2:15 PM ET, subsequent to a bounce between $1,196 and $1,194. Once that range was shaken off, the metal steadily if slowly rose to between $1,198 and $1,200. There, it stayed for the rest of the hitch. As of the close of regular trading, the spot price was $1,198.50 for a loss of $4.70 on the day. The Kitco Gold Index assigned -$7.60's worth of change to the predominant-selling category and +$2.90's worth to the weakening-greenback one. Both category's changes sum up to the raw change on the day.

The U.S. Dollar Index continued drifting downwards until just after 4:00; it bottomed at 83.665. After making that low, a relief rally slowly kicked in; it was blocked at just above 83.75. As of 5:30 PM, the Index was exactly 83.75.

Its daily chart, from, shows its rate of decline has slowed:

Today marks the third day of its decline, but today's candlestick shows a lot less stretch than those of the previous two days. Today's interday low was only a little below yesterday's.

The Index's RSI level (found at the top of its chart) is fairly close to the 30 oversold level, suggesting that it's in the doldrums. There seems to be support around the 83.75 level, but that level might not hold. It's still in a short-term bearish phase, which shows little sign of ending. Eventually, it will bounce upwards.

As for gold, its own daily chart shows a short-term bottom being made:

Although the metal declined today, it has bounced. Today's interday low is higher than yesterday's was. Gold's own RSI level is holding below neutral, but it's stable. In a true bull market phase, that indicator tends to bottom out at or slightly below the neutral 50 level. Although no driver or sustained bullishness has appeared, which could be due to the summer-weakness seasonality factor finally kicking in, the metal has found it hard staying below $1,190. Bargain hunting is evident from its recent performance.

There's a possibility that gold might fall out of bed in the near future, but its recent action suggests that any such spill would likely be short-lived.

A post-pit Reuters report ascribed the drop in gold to rising risk appetite. Amongst the points made therein, these were included:
* A sudden bout of selling around the midsession pulled gold into negative territory, where it flirted with the prior support low at $1,185 an ounce.

* A floor trader said the selling was triggered by a large seller, that drew other short-term sellers into the fray to grab quick profits off the high - traders.

* With equity markets rising and bond prices falling, some gold investors decided they were willing to take on more risk and sold off some precious metal holdings - analyst.

* A break of Wednesday's support level at $1,185 an ounce, a 6-1/2-week low, could lead to selling down to the $1,166 area - technical traders.

* Thin market conditions, low options volatility make gold vulnerable to flash selling - traders.

* In late ]electronic trading], gold cut most of its losses immediately after The Federal Reserve reported that U.S. consumer credit plunged by $9.15 billion in May.

* The consensus forecast called for a $2 billion drop in credit in May. It was also revised sharply lower in April, suggesting Americans are still wary of taking on new debt despite rock bottom interest rates.
The overall picture is of a market that fell out of bed but is still bolstered by bad news. Any such flash crash would likely be a buying opportunity once it ran its course.

As the end of the week approaches, gold hasn't shown much vim but has shown resiliency. That unerlying strength should show up again tomorrow, as it has yesterday and today.


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