After Early-Morning Dip, Gold Roars Back

For a while, it looked like gold was not going to see $1,130 today. Due to a report quoting an unnamed Grecian government official denying that the IMF is being squeezed out of a standby rescue package, gold turned up and went on a real run. The now-squelched rumour claiming the IMF was being excluded helped drive gold down earlier in the day.

When regular trading opened, gold dawdled with an initial downward bias. By 9:00 AM ET, the metal was hanging around $1,128. Shortly afterwards, it took off and quickly ascended to $1,134. A pullback to $1,132 proved to be a pause prior to a renewed rally that took the metal up to $1,136 by 9:50. A further pullback to near $1,132 prefaced another run to a higher level; by 10:30, gold was above $1,136 and slowly ranging up to $1,138. As of 11:34 AM ET, the spot price was $1,137.80 for a gain of $7.00 on the day. The Kitco Gold Index assigned -$5.40 due to a strengthening greenback and an unusually large +$12.40 due to predominant buying.

The U.S. Dollar Index enjoyed a rally from 7:30 to 8:55, which petered out and turned into a gentle decline. From above 81.6 as of 9:00, the Index slid to slightly below 81.5 by 9:55. Since then, it was in a gently falling trading range whose floor was 87.475. Having poked it on the downside as of 11:35, the Index recovered to stay above the floor before managing another poke. As of 11:40, it was at 81.47.

It was a real turnaround for gold in late-morning trading, one that put the metal in sight of $1,140. There's a chance that the metal will see that level before the day is through.


Update: It didn't happen at this stage, but it was very close. After almost touching $1,140, gold pulled back a little.

The peak of this morning's rise was hit at just after 11:30 AM ET. At that point, spot gold reached $1,139.90. Subsequently, the metal pulled back and settled into a trading range between $1,136 and $1,138. Broken on the downside briefly, between 12:45 and 1:00, the metal returned to the range until falling below it again at 1:25. As of 1:47, spot gold was at $1,134.90 for a gain of $4.10 on the day. The Kitco Gold Index assigned -$5.90 to the weakening-greenback category and +$10.00 to the predominant-buying category.

The U.S. Dollar Index basically churned in the early-afternoon part of the session, in a trading range with 81.475 on the downside and 80.55 on the upside. The Index did descend below the floor for a twenty-five minute period ending at noon, and pierced it on the upside at 12:35, but in the main it held. As of 1:49 PM, the Index was at 80.513.

Perhaps the gold market has seen its peak of the day. Even if so, the metal will have had an unexpectedly good run on the first day of full trading since last Thursday.


Update 2: It didn't best its peak. The rest of the day saw an attempted recovery that fell short of new highs and a slump to a lower trading range.

The attempted pull upwards started just after 2:00 PM ET, when gold had come to rest after sinking to just above $1,134. Pushing the metal up to $1,138, the rally fizzled right after 2:15. Returning to $1,136, gold dawdled at that level from 2:30 to 3:45, at which it sunk another two dollars an ounce to reach $1,134 again. The rest of the session was spent between $1,134 and $1,135. At the close, spot gold was at $1,134.30 for a gain of $3.50 on the day. The Kitco Gold Index (KGX) attributed -$3.90 to strength in the greenback and +$7.40 for predominant buying. The KGX itself, which measures gold's performance ex-greenback, made another record closing high today.

The U.S. Dollar Index took a tumble in mid-afternoon, which broke the trading range mentioned above and brought the Index down below 81.4. From after 2:30 to the end of the session, it stayed between 81.32 and 81.38 as it cooled down. At the end of the trading day, it was at 81.36.

But its daily chart, from Stockcharts.com, shows that yesterday's recovery largely continued:



Even though it got exhausted in late afternoon, the squelched rumor about the Grecian government objecting to the IMF's presence was enough to keep the Index on the recovery track for just another day. 81.5 was risen above interday, even if the close was below that level. Seemingly, the Index is in for another pause.

However, the MACD lines are still in a bearish configuration. That makes three days in a row that they've been so. The strength of the current recovery rally has only taken the Index up to half the level covered by the three-day rally on March 23rd-25th. As of now, it looks like a holding pattern has set in. I should add that the 50-day moving average is still well above the 200-day one, and both are moving upwards. To a technician, both say that the bull run over the longer term is still intact. Over the shorter term, 80.5 is the level at which the Index would signal a downwards move; right now, it isn't even close to there. 81.5, though, has been hard to close over.

Turning to gold, its daily chart shows the continuance of the now-four-day bull run that took it up to the $1,140 level interday:



The level was only touched, while it was closed at on March 3rd. The first week in March saw a more serious and sustained attempt at scaling above $1,140. Although the multi-day run upwards may not be over, there isn't enough momentum to say that a serious attempt at $1,140 is on the verge of being made.

That being said, I have to remind everyone about the longer-term trading range that gold has been stuck in all year. Its top is that same $1,140, and the place gold is in right now is almost at the top of it. Unless a driver with some power propels gold upwards, this move is likely to peter out at a level not much higher from what it is at as of the end of today. Regarding technical positioning, gold's MACD lines continue to show a bullish configuration. There might be one more rally day tomorrow, but the metal does look exhausted at these levels. Thankfully, the strong support at $1,100 is still there; in fact, if gold does sink to that level again, it'll look like an even better bargain comparatively speaking.

A Reuters report, as webbed by Ninemsn.com, notes that gold hit a one-month high today and gold in Euro terms hit another record. The cause given was safe-haven buying.

Bullion's gains in the face of a stronger dollar indicate the inverse relationship between the metal and the U.S. currency will occasionally break down, if risk-averse investors pile into gold due to related to economic jitters, traders said.

"People are still worried about the euro and the Greece situation, and gold is partially getting support from the economic recovery as people are looking to get ahead of the inflationary trade," said Zachary Oxman, managing director of TrendMax Futures.

Also mentioned was the price of crude moving up, which added to the demand for gold as an inflation hedge.

I have to admit that today's extension of the current rally was surprising. To the extent to which I'm everyman, it suggests that more than a few people have been caught off-guard by the rally. It may continue tomorrow, although I have to reiterate that the trading range that's prevailed all this year suggests that the scope for further gains is limited. Someone has to be the wet blanket.