Gold Gains Yet Again, This Time Bolstered By U.S. Dollar Fall

After starting off regular trading below $1,145, gold made it to above $1,150 but remained stuck near that level. In the same timeframe, the U.S. Dollar Index has slumped back below the 81.5 level.

In one hour, from 8:00 to 9:00 AM ET, the metal rose almost eight dollars an ounce to $1,152. Since then, it's been bobbing around in a ragged trading range centered at $1,150. A second run, starting as of 10:10, took the metal up to $1,154.00 by 10:45, but the rise was uneven and petered out. Since then, $1,150 has served as a floor but the price has not been able to rally much above it. As of 11:46 AM ET, spot gold was at $1,152.50 for a gain of $4.50 on the day. The Kitco Gold Index split the gain into $3.00 for predominant buying and $1.50 for weakening in the greenback.

The U.S. Dollar Index, after an attempted recovery that led to a double top, went for a slump starting at 9:35. Rallying until 8:20, it descended and then ascended in a saucer-shaped pattern that got the Index above 81.75 around 9:30. Since then, it slid down in a fairly even decline that brought it below 81.5 by 11:00. Bounciong off that level, it recovered to 81.55 before turning back down somewhat. As of 11:48 AM, it was at 81.505.

Gold was sitting on a gain as morning trading was ending, but that gain may erode over the rest of the regular session. Afternoon trading will show.


Update: Early afternoon trading was dampened, but no decline set in. $1,150 still held.

Another run-up began as of 11:25 AM ET, which pulled gold up to a new daily high of $1,154.90. Like the last attenpt, this one turned into a spike as the price pulled back. Unlike the last downtrend, though, the pullback from this spike left gold at above $1,150. From just after noon, the metal was in a trading range, between $1,151 and $1,153, with hardly a test of the downside. As of 1:53 PM ET, the spot price was $1,152.00 for a gain of $4.00 on the day. The Kitco Gold Index attributed $3.30 to predominant buying and $0.70 to a weakening greenback.

After an attempted pullback that ended at 11:35, the U.S. Dollar Index slumped a little more but that drop ended at noon. Since then, the Index has been in a trading range with slightly rising centre as 81.5 was crawled above. As of 1:55 PM, it was at 81.55.

Gold has been responding well to any drops in the greenback so far. Unless the Index moves up substantially, there's a chance the metal will close above $1,150 this day. That chance was miseed yesterday, but today may bring it. The rest of the session will tell.


Update 2: This time, the close was above $1,150. Despite a slip-down near the end of the session, $1,150 held as a support level all afternoon. Continued, if slight, U.S. dollar weakness helped.

The overall trend for the rest of the afternoon was slightly down, though. The floor of the $1,151-$1,153 range held until just after 3:00 PM ET, despite a test of it between 2:20 and 2:30. After 3:00, gold slipped down to $1,150 and established a new range between that floor and $1,151. Tested on both the downside and the upside, the range temporarily was bent on the low side between 5:05 and 5:15. An end-of-session jump brought gold slightly above the top, leaving the metal at $1,151.20 as of the close. The gain on the day was $3.20; the Kitco Gold Index (KGX) divided that gain into +$1.85 due to a weakening greenback and +$1.35 due to predominant buying. The KGX itself closed at another record high. Today's value slightly bettered yesterday's, which is at the rightmost end of this one-year chart of both the KGX and gold itself:



The KGX, graphed by the blue line, shows the record high made yesterday. Gold itself, of course, is not close to making a record high in U.S. dollar terms.

Moving to the greenback, the U.S. Dollar Index drifted for the rest of the afternoon; the overall direction of the drift was slightly downwards. The Index never made it above 81.6 during the rest of the afternon session; it also didn't drop below 81.5 until 4:35 PM. Once down there, it fluctuated in a tight range with 81.5 the ceiling and 81.465 the floor. Although the former was broken through, the normal flexibility in Index resistance and support levels suggests that 81.5 still has potency as a short-term support level.

Its daily chart, from Stockcharts.com, shows a slight decline from a mostly higher level for today's session:

Although the close was lower than yesterday's, the Index did poke its nose up above a resistance level that had largely confounded it yesterday. 81.5 may be more resistance level than support level over the longer term, but the Index has benefitted from Greece-related Eurojitters as has gold.

Today's turndown isn't significant as yet, because the Index is in indeterminate territory. It's not yet clear whether the recent short-term rally is merely an extended relief rally, a short-term reaction to a longer-term downtrend, or whether it's in a real rally that'll take it up to levels reached on March 25th and 26th. Some technical analysts may see a flag in the drop during the last week of March. A flag is a continuation pattern, bullish if it droops downwards and the "flagpole" is an uptrend. Both are the case with the end-of-March drop.

So far, the Index has been co-operating with the flag interpretation even if the rally that began four sessions ago is laboured. However, this kind of pattern depends upon continued bullishness interrupted by an oversold state needing a temporary decline to set right. Recently, the Grecian mess has given the impetus upwards. It's been a continuing driver, but I can't say for how long. So, I have to leave the flag up in the air for now (sorry.)

Moving back to gold, its daily chart shows gold's rally has extended to six straight session gains:



This achievement is unprecedented over the last six months. Even in the halcyon days of last fall, gold never closed up on six sessions in a row. I couldn't even find a precedent over the last year. Of course, the magnitude of the rise has to be taken into account: it started at just above $1,100, making the total six-day gain less than 5% overall.

There's more reason for cheer in the chart action: yesterdays and today's gains made for a new milestone for this year's action. Gold closed above $1,140 only one day in a row previous to yesterday; that day was Jan. 11th. Today, gold closed above that level for the second day in a row. Since gold opened above $1,140 on Jan. 12th, the candlesticks' bodies for the 11th and 12th were both above $1,140. If gold opens above $1,140 tomorrow, it'll make for three days in a row - another 2010 record. As it is, the latter record was tied today.

That being said, the rally has run on for a long time and looks like it's running out of gas. I know it appeared to do so on Tuesday and didn't, but gold looks even more like it's running on borrowed time now. As I said yesterday, what'll count is not when the rally ends but where gold's left at when the next short-term decline ends. After a five-day streak back in late February and early March, the entire run was erased. This one may not be.

A Reuters article, although saying that gold ended flat instead of up, makes note of the $1,150 resistance level that's seen as inhibiting any further gains.

The fact that gold had a technical break-out on Wednesday while the dollar was also rallying "speaks volume" for the metal's strong underlying demand, said Adam Sarhan, chief executive officer at New York-based Sarhan Capital.

Sarhan said that it will be key for gold to close above $1,150 an ounce for the week, as the metal has risen toward the mark several times but had failed each time.

"If it does rise above $1,150, that means we can confirm the break-out. If it doesn't, we expect some sideways actions to continue."

Noted in the article is the fact that the metal made another record high in Euro terms; also discussed is the recent positive correlation between the greenback and gold as a result of the still-smolderning Eurocrisis.

Seeing gold close with another gain is heartening, 'tis true, but the trend has to turn sometime. I'd be surprised if gold posts another daily gain tomorrow. If not, then there's fodder for those trading-range believers who think that the top of the range is in fact $1,150.