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.