Gold Touches $1,190, Falls Back

Regular trading didn't start off with much excitement, but gold got rolling around 8:30 AM ET. In the next forty-five minutes, the metal rallied from $1,176 to more than $1,190. Pulling back to $1,186, the metal rallied again. The ISM manufacturing index number appeared in the middle fo the second rally, and gold seemed to take heart from its above-consensus level. Although dropping to 55.5%, it was still above expectations for 55.0%. Gold peaked at $1,191.60 twenty minutes after the ISM release. The metal then fell back to $1,184, and fell further after dawdling at that level. As of 11:52, the spot price was exactly $1,180.00 for a drop of $1.40 since Friday's close. The Kitco Gold Index attributed -$12.20 to predominant selling and +$10.80 to weakening of the greenback.

The U.S. Dollar Index declined through most of the regular morning session, breaking and staying below 81 in the process. The decline wasn't that fast, except for a fall around 9:45 AM, but it was fairly steady until about 11:30. As of 11:56, the Index was at 80.88.

A falling greenback had helped gold a fair bit, but that advantage was erased by the mid-late morning decline. Increase in risk appetite had something to do with the retreat, as the stock market pulled and stayed up. Gold might pull back to a gain in the afternoon, but such an outcome looks iffy at afternoon's threshold.


Update: After bottoming at $1,180, the metal did recover somewhat. The recovery kicked in around 12:30 PM ET, after more than a half an hour spent near $1,180. Stalling initially, the metal climbed up to a gain as it settled in around $1,184 before inching back. As of the end of the pit session, or 1:30, the spot price was $1,182.70 for a gain of $1.70 on the day. The Kitco Gold Index assigned -$8.30's worth of change to predominant selling and +$10.00's worth to greenback weakness.

The U.S. Dollar Index, after hitting bottom of 80.775 as of 11:35, slowly climbed up before trending sideways at just above 80.9. As of 1:30, it was at 80.92.

$1,190 looks out of sight now that the pit session is over. The metal may continue to hang on to a gain during the electronic-trading hitch, but it won't be much of one.


Update 2: It did clock in a gain, and not much of one. Except for a brief dip, the electronic-trading hitch saw the metal drift between $1,182 and $1,183.50; the close came right at the bottom of the zone. As of the end of regular trading, the spot price was right on $1,182.00 for a gain of $0.60 on the day. The Kitco Gold Index (KGX) attributed -$9.70 to the predominant-selling category and and +$10.30 to the weakening-greenback one. Both categories sum up to the raw change on the day.

The KGX, ex-greenback, has gone through an all-out correction since it hit its high on June 7th. As this 6-month chart of it shows, the drop has been all the way from 1100 to a little more than 950 for a drop of about 13.5%:



Had it not been for the greenback's own drop, the current summer pullback would have been an all-out correction in US$ terms. Gold has dropped more than 14% from its record high in Euro terms.

The U.S. Dollar Index hardly moved during the rest of regular trading. The center line of a little more than 80.9 lowered a little as mid-afternoon turned into late. As of 5:30 PM, the Index was at 80.88.

Its daily chart, from Stockcharts.com, shows its continued drop as another support level was tested:



The Euro has broken well above $1.30 and its upwards run is continuing relatively unimpeded. That was the main impetus behind the testing of the 81 support level and close slightly below it. As is evident from the chart, my belief that the Index was basing around 82 proved to be wrong. From the high of almost two weeks ago, the Index has lost about two and a half points. That's about the same amount of loss as was made in the last short-term downturn, although this one took longer. The Index's RSI level, found at the top of its chart, is well below the oversold threshold of 30.

Again, the parallels between the last two months and May of '09 are fairly evident:



The earlier period is near the left of the graph. The intermediate-term decline taking place right now has been more stretched out, and the oscillations in both indicators on the top and bottom of the chart have been more volatile this time, but the same sharp drop is evident. Should the parallel continue, the Index will jump up a couple of points or so but soften afterwards.

As for gold, its own daily chart shows a fourth day of gains - but just barely:



Gold's own RSI has been fluctuating between the high 30s and the 50 neutral level, befitting a time when the metal has softened. Despite gold still being well below $1,200, and the risk of an outright decline for tomorrow, the metal has fared better in relative terms than it has in the last two post-tumble days. The doldrums for the metal may be coming to an end.

A post-pit Reuters report says gold's rally was dampened by reduced safe-haven demand due to the U.S. equities rally. Amongst the points made therein, these were included:

* Selling by short-term traders more than offset underlying
physical demand in earlier trade - Michael Daly at futures broker PFGBest.

* Lack of trading interest ahead of Friday's July nonfarm payroll data - Daly.

* Gold has traced out a new downward trendline on charts, and a new technical buy signal will be triggered if gold breaks out the upper part of the trend.

As its chart shows, it's close to breaking that downward channel but there's still a little way to go. There is some chance that the metal will decline tomorrow as the four-day rally looks like it's running out of steam. Gold is also less of a bargain that it was almost a week ago, which will tend to hamper physical buying. The metal is still holding up, though, and it might be basing. If tomorrow's action shows a rally, there's some reason to think the weak seasonality is coming to an end.