Gold Gets Above $1,115 But Falls Back

Yesterday's decline has become today's memory. Although $1,115 failed to hold throughout the morning, it was bested for about three hours. Prompted in part by disappointing U.S. jobs data, and a drop in the U.S. dollar, the metal erased yesterday's drop.

Gold came out of the gate strongly at 8:15 AM ET. A spike just after that time was erased by 8:37, but it proved to be prefatory to a more extended rise that started off slowly but accelerated. By 9:10, the price was well above $1,117. The ride became more rocky after that point, but gold made a higher peak at 9:30 that took it up to $1,119.40. Then, it stalled. $1,115 held until just before 11:00, but a stumble followed that was mostly recovered from. As of 11:40 AM ET, spot gold was at $1,114.80 for a gain of $11.50 on the day. The Kitco Gold Index divvied up the gain into +$5.35 for predominant buying and $6.15 for a weakening greenback.

The U.S. Dollar Index did weaken over the regular morning session, droping below 81, but it did recover to re-surmount that level at about the same time gold dropped below $1,115. After a drop following the disappointing ADP report at 8:15, a recovery rally set in that was more than erased by a further slide. 81 was broken on the downside briefly at 10:05, and for longer at 10:25. The 81 support level ended up holding, though, as the Index turned around and rallied up to 81.14 before pulling back. As of 11:42, it was at 81.04.

So far, it's been a good day for the metal. A likely explanation for yesterday's drop and today's gains is thin trading exaggerating volatility. If so, then further volatility might show up over the rest of the week. It might this afternoon.


Update: Things were quiet for gold in early-afternoon trading, even though there was a slight downward bias to the trading.

After bottoming below $1,113 as of 11:15 AM ET, gold rose slowly until it made a double top at $1,116. Afterwards, as of 12:45 PM, it went on a quicker slide that carried it down to a slightly lower level - $1,112.50 - which was gotten to as of 1:15. Subsequently, gold dawdled for a time until rising again. As of 1:51 PM ET, the spot price was at $1,114.10 for a gain of $10.80 on the day. The Kitco Gold Index attributed $3.70 to predominant buying and $7.10 to greenback weakness.

The U.S. Dollar Index has sunk a little, after its late-morning rally. Peaking as of 11:25, it went from 81.14 to 80.9 over the space of eighty minutes. A partial rebound put it in a tight trading range centered at around 80.97. As of 1:52, it was at 80.95.

Things have quieted down, and it's likely that the rest of the afternoon's trading will result in a similar muddle-through. March looks like it's going out like a lamb with respect to the gold market.


Update 2: It did, even though the lamb was fairly droopy. Gold drifted between $1,115 and $1,111.50, but the upturn and downturn were both mild.

The upturn peaked as of 2:15 PM ET at $1,115.50. From then 'til 3:20, the price drifted down to reach about $1,111.50. Afterwards, gold drifted along in a range that sloped slightly upwards; it went out like a lamb. As of the close, the spot price was $1,113.60 for a gain of $10.30 on the day. The Kitco Gold Index split the gain into +$4.60 for predominant buying and +$5.70 for a weakening greenback.

After drifting up above the 81 level, the U.S. Dollar Index also went out like a lamb. The above-mentioned trading range was broken on the upside as of 2:15. After the run-up, which ended as of 3:05, the Index settled into a higher trading range centered around 80.06. It ended the regular session, as of 5:30, at 81.05. So, resistance of 81 was tested but not broken.

The daily chart, from Stockcharts.com, makes yesterday's rally look like a relief rally:



From the perspective of the daily chart, today's decline doesn't look all that bad - especially when compared to Monday's. It's significant, though, because a big drop like Monday's is usually follwed by at least a relief rally. Had the bullish winds been blowing strong, the Index would have been picking itself up and making another run at 82. Instead, it's bumping against 81 again.

Today's action does not suggest an all-out trend reversal. The distance the Index has put above both moving averages makes it look like it's in need of a pause or consoliation phase. That's what the nearly month-long slide starting Feb. 22nd was; it prefaced another run up to multi-month highs.

That run was shorter than the previous one, and not as extensive, but the Index isn't at the point where it looks like it's going to reverse course. There's no chart pattern that suggests a reversal in the offing.

The MACD lines, although still in bullish configuration, are close to turning into the bearish configuration. Once there, as shown by the histogram that they run over on the bottom of the chart going negative, there may be a more sustained drop - but, if recent precedents are followed, it's likely to be mild. For now, it's in pause mode.

With respect to gold, its daily chart does show that gold went out of March like a lamb (and in like a lion):



Today's interday bottom was at the same level as yesterday's, but the top was higher. So, of course, was the close. Gold's own MACD lines are close to turning from a bearish configuration to a bullish one. The last time they crossed over in that way, both were considerably lower.

It's too early to say that the recent short-term declining phase is over, but it's not as clear-cut as it was. This time, gold made a bottom at a level considerably above the $1,060ish floor of the longer-term range it's been in. It's now closer to the $1,140 top. If a rally does develop from this level, that's a sign of hope even if not encouraging. A clean and sustained break-out above $1,140 would encourage.

A Bloomberg report, as webbed by Business Week, highlights the fact that (despite the recent slogs) gold still clocked in a quarterly gain for the sixth straight quarter - the first time that's happened since 1979. The greenback was fingered as the cause of the upturn:

The greenback slipped as much as 0.7 percent against a basket of the euro and five major currencies as U.S. companies eliminated more jobs than forecast in March....

“The dollar is pretty weak,” said Dan Faretta, a senior market strategist at LaSalle Futures Group in Chicago. “We’re looking for a rebound in the economy, but the jobs numbers aren’t getting any better. We’re going to see the dollar pull back and continue to fall. It’s going to be bullish for gold and commodities across the board.”

The rest of the article contains some other facts about this month, including the rise in both SPDR Gold Shares Trust holdings and Indian gold imports.

Today does look better than yesterday for gold, but I have to say that the metal isn't out of the trading-range woods. That being said, gold's had a good month and the quarterly gain shows that the long-term bull market is still in place. Tomorrow is the last trading day of the week, and it should be a quiet one even if there's more volatility...even if there's more upside volatility, which may not be sustained when the market gets up to speed next week.


Special Recap: On January 3rd, the day before this year's trading got rolling, I posted an "Attempt At A Forecast" for 2010. Excerpted are the last four paragraphs, with two explanatory insertions:

I don't think the gold price will sink like it did the [during the '08 credit crisis], because a new credit crunch is quite unlikely. However, there are similarities between the current pullback and the one in the spring of '06. Gold got ahead of itself back then, and took more than a year to surpass the '06 high of about $720. What got gold rolling to newer highs in '07 was the pick-up in inflation, but the early '06 market overdiscounted it - went too far, too fast for the time.

We're in a similar situation now. The emerging-economy central-bank purchases were too vaunted, and it was forgotten that those purchases only make sense when done prudently. $1,050-$1,100 was prudent in retrospect. Buying at $1,200 would not have been.

There's no real reason for gold to go down, as explained above, but there's no real reason for gold to go up right now. There would have to be a real inflation and/or [U.S. dollar] devaluation shock to get gold shooting up. I don't see either on the near-term horizon. If anything, the greenback's chart indicates a reversal of last year's plummet.

Thus, I'm predicting that gold will spend 2010 in a trading range, between $1,050 and $1,200. Any sustained move above $1,200 will be prefaced by a few tests of that level.

Although it's written self-consciously formally, it's not been that inaccurate so far - even though I didn't anticipate anything like the Eurocrisis. Gold has gone nowhere near $1,200 since I wrote it, although $1,160 was surmounted in early-mid January, but it did bottom at only slightly below $1,050 on February 5th. Interday: the close that day was above $1,050.

The year is only one-quarter over, of course, but the forecast hasn't been derailed despite some excitements and scares these last three months.

True Confession: Right after I wrote it, I was afraid that I had been too pessimistic. In early February, I was worried that I had been too optimistic.