Tuesday, August 3, 2010

Gold Fluctuates In Mid-High 1180s In Morning, Tests $1,190

Regular trading opened with a drop that got the price down to $1,184, but bounced back shortly afterwards. The personal income and spending data for U.S. consumers had little effect on the price, which sunk to around $1,185 between 9:15 and 9:45 AM ET. Then, the metal rallied to a smidgen below $1,190. That rise didn't last, and gold sunk back down to the $1,185 level. U.S. factory orders data for June, which showed a drop of 1.2% for capital equipment, added to the downward pressure on equity markets as well as gold.

After bottoming around 10:40, the metal reversed course and rallied all the way up to a new daily high of $1,191.90. The pullback left the metal above $1,188, suggesting further strength. As of 11:54 AM, the spot price was $1,188.80 for a gain of $6.80 on the day. The Kitco Gold Index split the gain into +$3.00 for predominant buying and +$3.80 for greenback weakness.

The U.S. Dollar Index showed a bit of strength in early-mid morning, but couldn't get much above 80.8 before it turned down again. As of 11:57, it was stuck at 80.60.

Gold has tested $1,190 gain today, but so far has not seriously breached that level. It may do so this afternoon, but a continuation in the high 1180s looks more likely.

Update: After that break above $1,190, the metal did sink back into the high 1180s. At the nadir of the pullback, it was only a little above $1,185. It bounced back somewhat but stayed in the lower end of the upper 1180s. As of the end of the pit session, or 1:30, the spot price was $1,185.40 for a gain of $3.40 on the day. The Kitco Gold Index attributed -$0.40 to predominant selling and +$3.80 for greenback weakness.

The U.S. Dollar Index stayed largely where it was in early afternoon. A slight upwards bias didn't get it above 80.65. As of 1:30, it was 80.62.

So far, gold has stayed in the higher 1180s and shows no sign of advancing much from there. Although it may bend $1,185 to the downside, it will likely rack up a gain for the day.

Update 2: Gold did manage to close with a gain, and most of the volatility in the electronic-trading hitch was upwards before retracements. Gold got as high as $1,188 before falling back, and dipped as low as $1,185 after that peak. The subsequent recovery wasn't much in extent. As of the close, the spot price was $1,185.60 for a gain of $3.60 on the day. The Kitco Gold Index assigned -$0.80's worth of change to predominant selling and +$4.40's worth to a weakening greenback.

The U.S. Dollar Index's slight upwards bias faded in mid-afternoon, but the pullback wasn't that much in extent. Except for a brief period in late afternoon, the Index stayed above 80.55; after that brief period, it rebounded. As of 5:30, the Index was at 80.61.

Its daily chart, from Stockcharts.com, shows its latest decline continuing to a rather significant spot:

Significant to a technical analyst, anyway. The Index has touched its 200-day moving average, drawn in red in the middle of the graph. That average is way below the 50-day, drawn in blue, so the Index is still far away from a "death cross." Nevertheless, the distance is also testament to how far the deterioration has progressed. The Index's RSI level keeps getting deeper into oversold territory, with little effect on its declining as yet. Today's session marks the fifth down day in a row.

There's no indication that the current downtrend will reverse by any significant margin. The 200-day moving average is widely seen as a support level amongst techncial analysts, so some technical buying may be encouraged by today's descent - even if a plain chart reading shows a lot of risk in doing so. The Index can't fall forever, so eventually it'll reverse, but the last two short-term drops almost makes it look as if it could drop forever. As with yesterday's there's no sign of any upward reversal in the offing.

As for gold, its own daily chart shows the opposite streak:

Today's slight gain makes it the fifth up day in a row for the metal. Gold managed to get, and stay, above $1,180 today. That puts it back in the range it was in before July 27th's plummet.

Gold's own RSI value is close to the 50 neutral level at which that indicator has topped in the metal's summer doldrum stretch. Down below, at the bottom of its chart, gold's MACD lines are very close to a bullish crossover. Should gold hold above $1,180, it will be a good sign of some sort of recovery settling in.

A post-pit Reuters report says physical buying has helped gold's technical position improve.
Scott Meyers, senior analyst at New York-based Pioneer Futures Inc, said that gold's direction hinged on the stock
market's performance, as a possible equities sell-off could spark higher gold prices.

He said an improved technical picture should also lift prices, after the metal tried and fail last week to break below a rising trendline in place for two years.

"There was a three-day bottom formed at $1,160 last week, and the market held there well. From a short-term technical perspective, it is indicative of a market that does perform well and will possibly advance to another level" above $1,200 an ounce, Meyers said.

If so, then gold is on the track to a better autumn. It still has some headway before reaching $1,200, as seen in its recent difficulty with the $1,190 level, but the technical picture is brightening. Maybe tomorrow will be three-time-lucky for $1,190.


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