Gold, After Early-Session Tumble, Makes It Above $1,100

Although the break above $1,100 is still short-term at this point, it points to the head-and-shoulders pattern (discussed recently on this blog) becoming a busted one. That's good news for the metal, as it's been more the case that bullish patterns of that sort have failed.

The regular session didn't start out all that well. After fluctuating around $1,098, the metal went for a tumble starting at 9 AM ET; by 9:15, it was at $1,093. A partial recovery prefaced another decline that took the price down to $1,090.40 as of just before 9:45.

Since then, there was a real rally. Although gold moved up unevenly, the upsurge was fairly swift. Right around 11:15, the metal broke above $1,100 on its way to above $1,105. As of 11:27 PM ET, spot gold was at $1,105.50 for a gain of $14.50 on the day. The Kitco Gold Index divided the gain into $7.20 for predominant buying and $7.30 for a weakening greenback.

The U.S. Dollar Index has sunk after a relief rally early in the session. A rally started as of 7:35 at 81.62, which got up to 81.96 as of 10:15. Since then, a quick drop pulled the Index down below 81.7 by 10:10. Afterwards, the Index was trading in an unevenly-bordered range that softened on the downside. As of 11:29 AM ET, it was at 81.64.

The sub-$1,100 demand that's been keeping gold from declining all that much is continuing to work, enough for it to be deemed a valid theme. Gold may not hold above $1,100 by the end of the week's session. If it does, then a real turnaround may be in the offing. The afternoon part of the session may see some more excitement, although the market is more likely to simply avoid any further disappointment. Whether the U.S. Dollar Index keeps slumping will have a big influence on the outcome.


Update: Gold made it above $1,105 in that same run, to $1,107.90 specifically, but pulled back to $1,100 before rallying again. $1,100 was actually touched twice while gold remained in a range with $1,102 as the top. Lasting from 12:35 to 1:15, it was broken on the upside by a more modest run. As of 1:37 PM ET, spot gold was at $1,104.20 for a gain of $13.20 on the day. The Kitco Gold Index divvied up the gain into $6.90 for predominant buying and $6.30 for greenback weakness.

The U.S. Dollar Index stayed in that ragged trading range, bordered by 81.6 on the downside and 81.71 on the upside, until it sluggishly rose above starting at 12:35. After a gentle and initially laboured run up to 81.8, it pulled back into the confines of the range. As of 1:39 PM, it was at 81.695.

There's likely to be quiet until the end of the session, which means that gold's chances for a weekly gain aren't that great. But, $1,100 is likely to survive as a renewed support level. The rest of the afternoon will speak to both.


Update 2: Gold didn't make a gain on the week, but it was much closer than I had thought. Instead of quieting down, the metal kept rising throughout the rest of the afternoon except for the last hour and twenty-five minutes. The $1,109.40 top of the day, reached precisely at 4 PM ET, would have put gold in the weekly-gain category had it held. It didn't, though; after spending forty-five minutes in a trading range centered at just above $1,108, gold slid down a little to close at $1,106.70. The gain for the day came in at $15.70; the Kitco Gold Index split it into $8.10 due to predominant buying and $7.60 due to weakening of the greenback.

That near-end decline made for a small loss of the week: $1.20, or 0.108%. Gold was almost within spitting distance of a second weekly gain, which would have been quite the achievement given how the metal fared over the course of this week.

The U.S. Dollar Index resumed its slump in the later-afternoon part of the session. After the peak at 1:10 PM, a two-stage rolling decline turned into a steadier one at 2:20. It continued until just before 4:05, when the Index reached 80.55. A relief rally during the rest of the session left it at 81.61 as of 5:30 PM.

Its daily chart, from Stockcharts.com, shows the extent of the drop from yesterday's excited levels:

Although unpredictable at the time, the RSI indicator's drift into almost-oversold territory did presage today's drop. So did the apparent resolution of the Grecian part of the Eurocrisis; bringing the IMF in proved not to be injurious to the Euro, despite what some forex traders had thought. That same indicator, found at the top of the chart, is now well below the oversold threshold. On the other hand, though, the MACD lines at the bottom are still in a solidly bullish zone. For the past four months, the Index has had a good run upwards whenever they've been. Unless some major bearish driver shows up, which it may thanks to the U.S.-PRC currency imbroglio, I would assume that today's drop is merely a secondary reaction in an uptrend.

The gold chart shows something similar to what took place early this month, although the shoe is now on the other side of the foot: a head-and-shoulder pattern was busted.



Unlike the inverse head and shoulders pattern that was drawn out between late January and early this month, the current one is a topping formation; its neckline was at $1,100. Gold did drop a fair bit below the neckline, and stayed there for a couple of sessions, but today's close put it above. Interestingly, the two head-and-shoulders overlap in time; the topping one started in mid-February.

It's part of techncial-analysis lore that a head-and-shoulders pattern is one of the most reliable in the stock market. Based upon recent experience, I have to say that they're not that reliable (except in the short term) for the gold market.

That point being made, the chart right now doesn't look all that impressive otherwise. There's still a short-term pattern of two lower highs and lower lows that have been made. Even with today's recovery, gold has a fair bit to go before that short-term bear trend can be considered erased. On the other hand, the sub-$1,100 bargain hunters have proven to be a real force in the market...even if they're going to be disappointed at week's start unless a real decline sets in Sunday night (ET).

This week's Commitment of Trader chart for the gold contract, current to last Tuesday, shows very slight shrinkages of both commercial and non-commercial longs. On the short side, non-commercials jumped by 18.5%. Given that gold was at the cusp of its decline that day, that jump showed a little prescience on the part of those shorters. Commercial shorts shrunk a little, as did total open interest.

The same wasn't the case for the U.S. Dollar Index CoT figures. Total open interest increased by 10.2% as non-commercial longs increased theirs by a slightly higher 10.8%. That showed some foresight, as Tuesday was the day before the Index rocketed up. Non-commerical shorts also increased, by 5.75%.

A Reuters report credited the weaker greenback and the EU-IMF rescue deal reached at the Eurosummit this morning as two main factors for gold's rise. It said that the gold market was expected to take its cue from the currency markets. Anong other points, these were therein:

* Gold supported by a stronger euro as the euro zone leaders won approval for an aid deal for Greece....

* Short-covering ahead of the weekend following April option expiration on Thursday triggered buying.

* Geopolitical tensions after a South Korean naval ship sunk in waters near a contested sea border with North Korea supports.

This week has made for a fairly wild ride, on both ends. The busting of the classical topping head-and-shoulders pattern was encouraging, but it also reinforces an overall trading-range characterization of gold's action over the course of this year. On the face of it, there's not the same hope that gold will continue to rise because the bargain-hunting support won't be there at higher levels. The best hope for gold right now is still a backtracking greenback.

Thanks for reading, and enjoy the respite of the weekend.

Recent ETF Drops Made Up For By Physical Demand, Particularly In India And China

Although reversing now, the SPDR Gold Trust ETF (GLD) has disbursed a fair bit of gold earlier in the year. On the other hand, demand for physical in two important gold-consuming nations - India and China - is thriving. Gold buying has become trendy in both countries.

The first page of a Commodity Online article, "Gold coins, bars glitter as Gold ETF demand wanes," elaborates upon that trendiness and the innovations sellers are coming up with to encourage more buying. On the second page, which notes that ETF demand has shrunk to the tune of 15 tons worth of outflows this year up to mid-March, it's also noted that the resilience of gold's price has to come from other demand as supply is too inflexible to be cut off quickly enough.

[T]here is some evidence that Jewellery demand is picking up. The Bombay Bullion Association puts Indian imports of gold in February at 35t, more than four times the level of February 2009. Industrial and electronic demand might be recovering faster than we expected. Dehedging in Q1 2010 is likely to be limited, now that Barrick have closed out their book, but it was also very slow in Q1 2009, so on a year-on-year basis this might be a positive factor.

Yet even if we take the most negative view on supply and the most positive on demand these views are still not able to account for the shortfall in ETF demand. Perhaps then there, is another major factor bringing the market into balance, even at these prices? Is there a central bank purchase we do not know about? Has investment moved from the easily visible exchange-traded products to less visible bars, or even to a classic under-the-mattress purchase of coins?”

Although the central-bank speculation seems a bit of a reach, the other questions are good ones. Bars and coins? Maybe...

A Short Picturesque Guide To Indian Gold Demand

The Globe and Mail's guide, entitled "In Gold We Trust," points out that the bulk of gold demand is still for jewelry.

According to the World Gold Council, which represents 27 major gold producers, 68% of the worldwide demand for bullion over the five years from 2004 to the end of 2008 was for use in jewellery, compared with just 19% for investment purposes and 14% for industrial uses. On a geographic basis, the council says that East Asia, the Indian subcontinent and the Middle East accounted for 70% of global demand in 2008.

That makes the jewelry market an important one for gold watchers, particularly the Indian market as India has been rated as the #1 nation for gold demand. Like with the Chinese, Indian have a tradition of keeping a lot of their wealth in gold - particularly, in jewelry form.


In another story, Indian gold imports declined to 28.8 metric tons in February for a more than 15% drop as compared with January's figure. Although February saw some low prices, the four-figure level took somewhat of a toll.

Indian Gold Buyer Still Skittish

According to a report by the Economic Times, the resurgence in Asian physical demand hasn't penetrated into the Indian wholesale bullion market.

"Buying is very price sensitive this time..there is demand but people are very cautious," said a dealer at a private bank, which deals in bullion.

It remains to be seen if this reluctance will reverse; most likely, barring currency influence, it would if gold prices stay steady.

Gold Up Slightly After EU-IMF Deal Announced

The EU has agreed to a joint rescue effort for Greece with the IMF, which helped push the Euro up a little. Its gains were limited by forex traders not thinking much of the arrangement, even though the expected fall in the Euro didn't happen as a result.

After hovering around the $1,090 level when evening trading began, gold moved up to $1,094 starting at 10 PM ET. After holding just below $1,095, the metal broke above that level as of 1:30 AM and, after a blip followed by a smal decline, started hovering at the $1,097 level. The gain from the agreement announcement was muted, but there was one. Starting at 7:00, the metal made a run at $1,100; the price touched that level, but failed to surmount it. As of 7:57 AM ET, spot gold was at $1,098.60 for a gain of $7.60 on the day. The Kitco Gold Index split the gain into +$1.40 for predominant buying and +$6.20 for a weakening greenback.

Although the agreement had its influence, the U.S. Dollar Index had dropped almost continuously overnight. After reaching 82.20 as of 6:55 PM, the Index underwent its steepest decline of the overnight session; by 8:10 PM, it was slightly below 82. After a pause, the decline continued at a slower but steady rate. The above announcement of the EU-IMF rescue package deal didn't hasten the decline, but made it more uneven. As of 7:10 AM, the Index reached its nadir at just above 81.6. Since then, it's recovered a little. As of 8:80 AM ET, it was at 81.75.

A Reuters report, webbed by the Globe and Mail, credited the rise of the Euro for gold's own rise, along with increased risk appetite. The gains for the latter were muted because the deal provides no immediate aid; the Grecian government still has to borrow at still-high market rates:

“The EU agreement means that no money will be forthcoming immediately, but at least there will be a back stop should Greece have financing difficulties over coming weeks,” said Credit Agricole in a note....

“The fact Greece will have to borrow money only at market rates, ongoing worries about other EU countries' fiscal problems and ECB President Trichet putting somewhat of a dampener on sentiment by criticizing IMF involvement in the deal (have) kept the euro under pressure.”

Two other items were mentioned that tie in with gold's relative strength recently. The SPDR Gold Trust (GLD)'s holdings increased 4.568 tons yesterday, suggesting bargain-hunting buying, and Asian physical demand is thriving.

Despite gold's resilence, a survey of traders found that ten out of twenty believe that gold will drop next week. As reported by a Bloomberg article, webbed by Business Week,

Ten of 20 traders, investors and analysts surveyed by Bloomberg, or 50 percent, said bullion would fall next week. Six forecast higher prices and four were neutral.

One reason cited for a continued drop in the gold price was expected weakness in the Euro despite the deal.

“The underlying problems of heavily indebted euro zone economies are overshadowing everything at the moment and weighing heavily on the single currency,” Andrey Kryuchenkov, an analyst at VTB Capital in London, said in a report. “The euro will still suffer and could still drag gold a tad lower.”

The opening of regular trading saw a slump in gold, even though a slight run upwards to $1,099 was prompted by a lowering of fourth-quarter U.S. GDP growth from 5.9% to 5.6%. The expected number was 5.7%. That bump-up turned into a spike as gold fell back to $1,097. The U.S. Dollar Index was unaffected, continuing its recovery from overnight decline. As of 8:43 AM ET, spot gold was at $1,097.60 for a gain of $6.60 since yesterday's close. The Kitco Gold Index shaved the part of the gain attributed to greenback weakening to $5.10, but increased that part attributed to predominant buying to $1.50. The U.S. Dollar Index was at 81.80.

Again, the loss potential below $1,100 was muted overnight, although the gains due to U.S. dollar pullback have also been muted. It's possible that demand for gold will pick up now that this iteration of the Eurocrisis is being solved, but such demand isn't that evident yet. Today's session will show whether gold can hold its strength at these lower levels.

Gold Slumps After Overnight Recovery

Regular trading opened with gold muddling about in a trading range between $1,093 and $1094.50. That range was broken through on the downside just after 9:30 AM ET, right around the time when gold slid down six-and-a-half dollars an ounce. That decline lasted for a full hour, and wasn't waterfall in nature, but it left its mark on the gold market nonetheless. The relief rally that started at 10:30 was stronger than recent ones; as of 11:05, gold touched $1,093. But, the price turned down again anyways. As of 11:49, spot gold was at $1,091.60 for a gain of $4.10 on the day. The Kitco Gold Index divvied the gain up into +1.50 for predominant buying and +2.60 for a weakening greenback.

The U.S. Dollar Index has pulled back somewhat after a rally that began right at 8 AM. That rally peaked above 81.9 as of 10:34; the decline pulled it back to just above 81.7 before the Index settled into a slightly rising trading range. As of 11:50 AM, the Index was at 81.81.

So far, things have not gone all that well for the gold market but the declines have been muted. The afternoon session will show is any others visit the metal.


Update: For the early afternoon, the gold market has been quiet fluctuation-wise. Since about 10:45 AM ET, the metal's been in a trading range between $1,090.50 and $1,093. Since 1:15, the price has been at the top of the range and sometimed edging above it - but the price fell back later and edged the lower end of the range. As of 1:40 PM ET, spot gold was at $1,092.40 for a gain of $2.90. The Kitco Gold Index attributed +$3.70 to predominant buying and -$0.80 for a strengthening U.S. dollar.

The U.S. Dollar Index strengthened as of 1:30 after spending the ealy afternoon in another slightly rising trading range - this one, broken into two stages. As of 1:43 PM ET, the Index was above 82 at 82.10.

To all appearances, the dull afternoon is likely to continue.


Update 2: It did continue. The decline noted above ended at 1:50 PM ET, when gold sunk below $1,088. Subsequently, it jumped up, rose more slowly until just before 3:00, and then spurted up to $1,095. Turning down, it then entered into a narrowing range with $1,090 floor that ended with a small but definite gain on the day. At the close, spot gold was at $1,091.00 for a rise of $3.50 since yesterday's closing value. The Kitco Gold Index ascribed a $6.20 gain for predominant buying and a $2.70 loss for strength in the greenback. The two values sum up to the day's gain.

The U.S. Dollar Index managed to stay above 92 for the rest of the afternoon. A modest rise between 2:10 and 3:00 ended with a fifteen-minute drop that took the Index down to 82.015. Another rise then commenced, which left the Index in a trading range between 82.125 and 82.22. As of 5:30, it was at 82.175.

Its daily chart, from Stockcharts.com, shows today's gain as built upon yesterday's and that of the day before:



There seems little that can stop the Index from climbing. For another day, a new high not seen since last May was made. The only wrinkle in the chart is the RSI line at the top: it's not quite at an oversold level, but it's very close. A successful fix to the Eurocrisis, one that'll likely bring in the IMF, would take the wind out the greenback's sails for the time being. There's no sign of a stop now, but the Index can't keep rising forever.

Greenback strength is one of the reasons why the rise in gold today was muted, as the chart of it shows:



Today's action looks something like a relief rally, even though it was a bit of an achievement given the greenback's own rally. The decline this month has shown lower highs and lower lows, but the extent of it has not been that bad. Bargain-hunting has evidently intervened. There may still be more drop coming, but appearances suggest right now that it'll be muted.

A Reuters article characterized today's session as "choppy," and made these points amongst others:

* Gold ended stronger with U.S. equity prices, but prices
were limited by declines in oil, which earlier helped boost the yellow metal, and a sharp drop in the euro - traders.

* April gold options expiration contributed to price volatility in gold futures - traders.
* "It's really been a back-and-forth movement. But, after Trichet made those comments, gold came under renewed pressure after the dollar rallied and the euro broke down." - David Meger, vice president and director of metals trading at Vision Financial Markets in Chicago.

* Gold was bought earlier in tandem with gains in U.S. share prices and oil prices - traders.

In a sense, today's action wasn't that surprising. Gold was due for a rebound anyway, and the U.S. Dollar Index's continued ascent can be chalked up to continued upward momentum. Support from bargain-hunting is still holding, and the risks of a plunge from these levels is diminishing. Tomorrow's trading may contain unpleasant surprises, but yesterday and today's action suggest they won't be devastating.

The Case For Gold ETFs

Forbes has evidently decided it's time for gold right now. One of three articles on the metal deals with the advantage of owning gold in ETF form, at least in the author's opinion. Asher Hawkins has provided a brief guide to the SPDR Gold Trust ETF and spells out why he considers it to be a better choice than buying physical bullion. He mentions in passing that John Williams of Shadowstats.com buys physical coins because he expects to barter with them once the crisis hits.