After Morning Run-Up, Gold Slides Down

Although a spurt at the beginning of regular trading failed to hold, gold stayed above $1,110 except for a short period between 10:00 PM ET and 10:45. That dip carried gold from just above $1,111 to $1,107, but it was reversed by a run from that level to above $1,114 between 10:05 and 11:15. Although the metal pulled back from that peak, it still held above $1,110 comfortably. As of 11:52 AM ET, the spot price was $1,112.10 for a gain of $5.50 on the day . The Kitco Gold Index split the gain into $1.70 for predominant buying and $3.80 for a weakening greenback.

The U.S. Dollar Index had a nice run early in the regular session, which topped out at 81.46 as of 9:15. That run provided a potential air pocket that, as it turned out, wasn't there. After descending into a ragged trading range centered around 81.38, the Index slumped again from 10:45 to 11:11. Bouncing off the 81.26 level, it climbed back up; as of 11:53 AM ET, it was at 81.34.

So far, gold's been acting fairly well. One of those mid-morning drops was shrugged off, which says that the market internals are pretty good right now. Gold looks likely to keep holding its own during the afternoon session.


Update: The price slid down a bit in early afternoon trading, with $1,110 not holding. After lingering around the $1,112 level, the slide continued at 12:15 PM ET. Reaching $1,109.50 just before 12:30, the metal settled into a trading range with descending tops and a floor of $1,109. The descending-top part ended between 1:00 and 1:30. As of 1:39, spot gold was at $1,109.10 for a gain of $ on the day. The Kitco Gold Index attributed -$0.70 to predominant selling and $3.10 to greenback weakness.

The U.S. Dollar Index had a bit of a run up between 11:20 AM and 12:45 PM, which brought it from below 81.3 to almost 81.5. Since then, it pulled back a little; as of 1:40, it was at 81.38. Overall, the Index hasn't moved all that much so far.

The conclusion in the original post may have been a little too optimistic. Gold has softened, and $1,110 may not be as solid as I had assumed earlier. The rest of the afternoon's trading may be less saggy, but it looks like $1,115 is out of reach for today's session.


Update 2: The decline did continue, but not for much longer. $1,115 proved to be out of reach, $1,110 wasn't solid, but gold didn't fall much further from that level. For a while in the late afternoon, the metal got above it.

The above-mentioned trading range was broken on the downside as of 1:38 PM ET initially and 2:00 for real. The resultant decline took gold down to $1,107.50. Making a double bottom, gold turned up at 2:30 and settled into a churn just below $1,109. By 4:00, the price had vaulted above $1,110; a range developed between that level and $1,111 for the next forty-five minutes. However, the price turned down and gold fell through that floor. As of the close, the spot price was $1,109.00 for a gain of $2.30 since last Friday's close. The Kitco Gold Index attributed -$2.60 for predominant selling and +$4.90 for a weakening greenback.

The pullback of the U.S. dollar index continued in the later afternoon, but the decline levelled off just before 4:00. By the time it was finished, the Index touched 81.35. The last hour-and-a-half of regular trading was spent adrift in a near-trading range that was slighly concave. As of 5:30, the Index was at 81.265.

Its daily chart, from Stockcharts.com, shows a surprising near-gap between today's action and Friday's:



It's been a bit of a come-down day for the Index, even if the overall chart readings are still solidly bullish. Last week's leap has been mostly reversed. That leap, though, was prompted by speculation about a messier resolution to the Eurocrisis than the one that was. It had been far more anticipatory (and cynical) than the drivers for earlier jumps. There's really not that much surprise in seeing the pullback because things are calming down in Euroland and the anticipations of an all-out crisis event like Grecian government inability to sell bonds never emerged. Instead, the latest issuance was successful.

This interpretation ties in with an overall framework of bullishness, though. It still looks like the Index got ahead of itself last week, but there's no indication that any serious reversal is coming. There really won't be unless it goes down below 80.5 in a sustainable way.

As for gold, its own chart shows an encouraging three-day rise that's gotten it above the important $1,100 level:



From one angle, gold's done well over the past three trading sessions. It looked a lot like the break below $1,100 last Tuesday would harbinge another serious decline; there were people expecting it to plummet down to $1,050. Instead, after a couple of days' muddle, the metal reversed course and climbed above $1,100. For a time when the U.S. Dollar Index had been vaulting upwards, gold put on a good show.

On the other hand, its present price is still well below the last peak made on March 17th. In the shorter term, there are still two higher highs and lower lows evident on the chart. Gold's MACD lines are still in a bear zone, as indicated by the histogram at the bottom of the chart. Gold may peak at this level, which would not be a very good technical sign for the metal.

The best hope right now, if gold turns down tomorrow or Wednesday, would be for the decline to come to a halt around $1,100. That bottom would further confirm that the $1,100 support level is real.

Moving back to today's action, a Reuters report credits today's gain to economic optimism causing a rise in the commodities complex in general. Amongst others, these points were therein:

* Gold buying backed by a stronger euro, boosted by last week's euro zone agreement on emergency fund for Greece.

* Better economic data boosts risk appetite, lifting gold and other industrial commodities across the board - traders

* Momentum dent after U.S. data showed PCE price index, a key inflation gauge, rose less than January.

* Boosted by commodities gains led by an oil rally, but volatility expected to rise in shortened trading week - RBC.

Volatility may indeed rise over the next three trading sessions; the softening this afternoon may continue tomorrow. However, gold's still directionless over the longer term - and demand below $1,100 has held up well. Tomorrow may see directionlessness in the shorter term too.