Gold Has Roaring Start To New Month

Although accentuated by thin trading today, due to the holiday weekend coming up, gold still put on a show this morning after it was cued by an encouraging first-time U.S. jobless claims number. Gold's rise right after its release was accentuated by a drop in the U.S. dollar index below 81; that fall helped the metal surmount the $1,125 level.

Regular trading actualy began with a slight decline, of about two dollars. It reversed after the jobless-claim number was released, and paused at the $1,116 level before taking off. From 8:40 AM ET to 8:50, gold put on eight dollars an ounce in a mirror image of a waterfall decline. After hitting $1,124, it hung around that level in an increasibly volatile spiral which was replaced by a jump above $1,126 around 10:30. After spiking up to $1,128.70, the metal pulled back a little before stabilizing. As of 11:34 AM ET, the spot price was at $1,126.90 for a gain of $13.30 on the day. The Kitco Gold Index split the overall gain into +$9.80 for predominant buying and +$3.50 for a weakening greenback.

The U.S. Dollar Index didn't fare all that well in the morning, even though the release of the jobless-claim number only pushed it back to the 80.0-80.1 range it had tried to rally out of. The 81 level wasn't breached until 9:54, and not sustainably breached until the middle of a three-minute drop at 10:40. Since that drop, the Index has continued declining. As of 11:35 AM, it was at 80.80.

I have to admit to being surprised at the extent of the gold rally today, even if it's been amplified by pre-holiday thinness. Still a rally's a rally. The afternoon part of the session will show if it keeps.


Update: So far gold's gains are holding. After sliding down a little after its peak, spot gold's been hovering around the $1,126 level. The trading in the early afternoon session has been largely directionless: as of 1:55 PM ET, the metal was around $1,126.70 or so. [Note: Due to an outage at Kitco.com, I don't have the values for the Kitco Gold Index. I used this chart for the price itself. ]

The slump in the U.S. Dollar Index continued to about noon, when it bottomed around 80.7. Since then, it's been in a range between 80.7 itself and 80.8 with a slightly upwards bias. As of 1:54 PM, it was at 80.79.

It's quite likely that the drift will continue for the rest of the afternoon, as the holiday weekend is only several hours away. If so, then gold will close at around $1,125 and make this an unexpectedly good week.


Update 2: The metal did drift for the rest of the session, with a slight downward bias until near-end that left it at a little above the number I had picked out of my hat. At the end of this holiday week, it closed at $1,126.40. The Kitco Gold Index apportioned the day's gain into +$8.20 for predominant buying and +$4.60 for U.S. dollar weakness.

For the holiday-shortened week, gold put in a solid gain. From last Friday's spot price of $1,106.70, gold added $19.70 over the last four days - even if the last two were responsible for a little more than all of it. In percentage terms, the week's gain was 1.78%.

The final hours of the week were not kind to the U.S. Dollar Index. After fluctuating in a narrow region centered at 80.78 from 1:15 PM ET to 3:00, it slid down in a two-stage decline that took it to 80.665 by 5:00. Rebounding a bit, it ended the week at 80.72.

Its daily chart, from Stockcharts.com, shows that the wind has gone out of the Index's sails, except for a short-term bearish one:



Although thin pre-holiday trading likely added to the decline, there still was one. The Eurocrisis, or this iteration of it, is fading into memory and it shows on the chart. The safe-haven demand that pushed the greenback up is leaking out of the greenback market like air from a balloon. Today's decline took out the 81 support level, which had held up 'til yesterday. Today's close left the Index within sight of the more important 80.5 level. If that support is punctured, then we're looking at a bit of a different picture from the bullish one. I mention this thought only in passing, but there's a long-shot chance that the Index will go all the way down to 79.5. A close around that level would put the entire upturn into question.

Less hypothetically, the MACD lines at the bottom made a bearish cross today. As shown by the histogram that's underneath them, the black line is now below the red line. In recent times past, this crossover has led to a slow decline in the value of the Index.

It might be a one-day fake-out, though, Given that thin trading tends to accentuate volatility, I wouldn't put much stock in it unless it's confirmed next week when the volume will return to normal. The bulls might have ducked out a day early.

The same qualifier applies to gold and the bears. In price terms, as its own daily chart shows, today was a good day - particularly after yesterday:



It certainly shows that the head-and-shoulder topping formation completed early last week is now busted. So is the recent short-term downtrend: the two higher highs and higher lows have been followed by an advance that's taken gold up to the same level of the lower high. The advance may not be finished yet. If next week's trading puts gold up further, the high of March 16th-19th will have been followed by a higher high.

That would not necessarily be bullish, except in the short term, but it would definitely not indicate bearishness. Of course, there is the chance that today and yesterday's thin-volume advance will not be endorsed during next week's more regular-volume trading. In that case, today's return to the $1,125-$1,130 resistance zone will have to be treated as an aberration.

So would the bullish cross made by the MACD lines at the bottom of the gold chart. During this MACD bear phase, when the black line was below the red line, there was a one-day crossover that proved to be a fake-out. Today saw another crossover, but it may be another misleader. Although the techncial position of gold looks strong, it may be distorted by the pre-holiday effect.

That being said, seeing gold's action endorsed on Monday would be worth a thousand encouraging words.

Because the trading week ends today, there's no Commitment of Traders reports or graphs for this week yet. Although tomorrow is a statutory holiday, they may nevertheless be released then at 3:30. Or, they may be released Monday.

The regular day-end Reuters report credits a rally in crude and increased risk appetite for today's advance. Amongst other points, these were made:

* A combination of rising oil values and a rally on Wall
Street improved investor sentiment across all asset classes - traders.

* Gold in a broad upward channel; a break of $1,135-1,145 could see prices retest record high set in December - CitiFX.

* If stock market rallies, gold equities should outperform gold bullion - Rick Bensignor at Execution Noble LLC.

* Gold equities gauge Arca Gold BUGS index .HUI jumps more than 5 percent, surpassing the 1 percent gain in bullion

I note as an aside that the Citi forecast comes from its foreign-exchange department.

Despite my demurs, I can say that gold put down a good rally over the last two days. It sets up a good holiday mood. May you enjoy yours, and thanks for reading.