Gold Recovers To Above $1,135, Slides Back

After gold's early morning decline to below $1,125, it looked as if today's regular trading session would include another drop or even plummet. As of late morning, it hasn't. Instead, despite an initial drop, gold rallied before pulling back later in the morning.

The rallying was somewhat intermittent, as some fear still remained. After jumping up to the $1,133 level, the gold price entered into a widening spiral that took the price up above $1,135 and down below $1,131 before the spiraling resolved into a rally that took the price above $1,137 by 10:25 AM ET. Since then, the price has pullled back even below $1,135, but not to the levels seen at the bottom of the spiral. As of 11:44, the spot price was $1,134.30 for a drop of $2.50 since Friday's close. The Kitco Gold Index attributed +$0.60 to predominant buying and -$3.10 to a strengthening greenback.

There was a bit of a pullback for the U.S. Dollar Index after it reached above 81.25 as of 8:30. Starting an hour later, the Index drifted down from the 81.2 level to a little below 81. That level ended up holding, though, as what little conviction the downturn had drained away. As of 11:45 AM, it was at 81.04.

The Goldman decline was accentuated by a volcano-related scare over Greece and its government's bailout package, which has since faded away. Although gold has not rallied, it has ended up showing some resilience at its lower level. Early afternoon trading may see another decline, but this morning's market action indicates that it won't be a serious one (if one at all.)


Update: So far, there hasn't been one; instead, gold has stabilized. After sinking to $1,132 by 11:15, gold pulled up to $1,135 only to sink again to below $1,131 by 12:15. That point marked the end of the late-morning decline. Between 12:15 and 1:20, the metal eased up but had trouble breaking above $1,133.00 After trying three times, and bottoming at a higher level after each attempt, it broke through and sailed up above $1,135 by 1:30. As of 1:43, the spot price was $1,135.00 for a loss of $1.90 on the day. The Kitco Gold Index assigned +$0.90 to predominant buying and -$2.80 to a strengthening greenback.

The U.S. Dollar Index stayed above 81, but barely. After climbing to 81.15 by 12:10, the Index sunk back to just above 81 by 1:00. Since then, it's been in a range between 81.0 and 81.05. As of 1:45, it was at 81.01.

Gold hasn't acted that badly today. There's a possibility that there'll be a drift-down for the rest of the afternoon, but any decline in that period is very unlikely to be more serious than that. There's some chance that gold will shift over into the gain column.


Update 2: It didn't, but there was no further decline. The last four hours of trading were quite similar to the 10:00 PM - 2:00 AM ET shift.

To be more specific, the price hovered around $1,135 for the rest of the afternoon. Bordered by $1,134 on the downside and $1,136 on the upside, the metal stayed in that range except for a brief blip above it just before regular trading ended. At the close, the spot price was $1,135.20 for a loss of $1.60 on the day. The Kitco Gold Index divided the day's loss into -$1.40 for strength in the greenback and -$0.20 for predominant selling.

The U.S. Dollar Index continued to slide downwards, sinking below 81 in the process. After nudging that level in mid-afternoon, the Index fell below as of 3:25 PM. It didn't sink that far, not getting below 80.9. Instead it spent late afternoon in a range between that level and 80.95. As of 5:30 PM, it was at 80.91.

Its daily chart, from Stockcharts.com, shows 81 being breached today on the upside but not overcome:



The difference between the opening and the closing, despite the stretch in between, was miniscule. For the third day in a row, the Index was up on the day; this last day was prompted by Greece-related jitters once again.

The question, of course, is how much higher? So far, the Index's rise can be pegged as little more than an extended relief rally. The last top was above 81.5, and the Index currently has a ways to go before reaching that level. It did break above the 80.75 high that made for the top of last Monday to last Thursday's trading range, but the top of that range was established at the low set at the end of the month. I'll grant that not much other than jitters was there to drive the Index higher, but that also indicates no real driver to push it up substantially. The current rally has some conviction, but it's still within relief-rally bounds.

So, I have to say that the picture right now is indeterminate. Despite the good performance by the Index over the last three trading days, the MACD lines are still in a bearish configuration. The raw level of both is consistent with a rally that's gone tired. Although the MACD crossover is a lagging indicator, there's often a little warning when it's about to cross over: a rise that brings the two lines close to each other followed by another one or a pause at a higher bottom than the last. So far, the Index itself hasn't shown either of them.

But, there's no real conviction in the drops either - no sign that the Index is going to go into a serious tumble. A jump above 81.5 would preface another bull run, whether strong or weak.

Turning to gold, its own chart shows today's action resembling the action shown on other post-plummet days:



The good news is, that action is consistent with the short-term bear phase nearing its end. With the sole exception of a close lower than the open, today's candlestick is similar to the one the day after the huge Feb. 3rd plummet. A closer similarity is found on the day after Jan. 20th and 21st's double plummet. The downward slide after the earlier double plummet had a little more to go, but Feb. 4th's marked the end of the declines. Of course, gold was much lower on Feb. 5th; well into bargain territory, while today's close really isn't. I wouldn't get concerned unless the price falls below today's low of around $1,124. Gold was driven down in the wee hours of the morning by panic related to the Eurozone and the Grecian debt crisis. Recently, during those frights, gold gets driven down but later comes back: panic-button buying of the greenback ebbs, and safe-haven buying of gold kicks in. Granted that the panic botton is still connected to the greenback, not gold, but the action after some calm has returned shows that gold has a tendency to benefit also. Unless things have changed back to where they were early this year, when the U.S. Dollar Index was rocketing up, I see no reason to expect the opposite. It's too early to say that the current bear phase for gold is ended, but the end is in sight unless the metal does not behave as it had in recent weeks. As noted above, the Index isn't rocketing upwards; it's tired.

The post-pit-session Reuters report ascibes the bounceback to short covering. Amongst the point in the article these were therein:

* The metal retraced initial decline as investors covered short positions following Friday's 2 percent sell-off - traders.

* Boosted by economic optimism after a gauge of the U.S. economy's prospects was stronger than expected and rose to a record high in March.

* Cautious tone in gold market after the SEC charged Goldman Sachs Group Inc (GS.N) with fraud in structuring and marketing a debt product tied to subprime mortgages.

* The news took a toll on investor sentiment as major hedge fund Paulson & Co, also a notable gold investor, was named by the SEC as working with Goldman in creating a collateralized debt obligation. Paulson was not charged.

* Gold prices' limited losses on Monday quelled speculationthat Friday's sell-off in gold was related to any liquidation by Paulson - traders.

That last point shows a bit of post-Goldman panic crept in to the gold market, which was allayed today.

There's a chance that tomorrow's action will end with a gain on the day. Further falls may come this week, but it's unlikely that the price will go below $1,120. On the off-chance that $1,100 is reached, the range that gold's been in for the first three months of this year will have been re-established. Given the high reached a week ago, and given the steadiness with which gold approached it, a drop to that level is unlikely. Panics allayed often coincide with panic bottoms.