The $1,325 support level held, although it was tested a few times. The most serious test was the first, before regular trading had started, which yielded the day's low of $1,321.70. Having bounced back above $1,325, the next two tests hardly penetrated below that level. The next one bounced off without any real penetration; it took place around 11:15 AM ET.
From it, gold marched up to above $1,330 and carved out a range betwen that level and $1,335. A new daily high of $1,336.10 was made at 2:00. Sliding down to the 1330 level, the metal bounced back up and settled in the higher part of the range. As of the close, the spot price was $1,332.80 for a drop of $1.30 on the day. The Kitco Gold Index attributed -$3.40 to predominant selling and +$1.70 to weakening of the greenback.
A Wall Street Journal report reflects the new bearish sentiment when it interpreted the failure to rally on the surprise 0.5% decline in fourth-quarter U.K. GDP as: "Some of gold's allure as a hedge against rising consumer prices took a hit Tuesday on news that the U.K.'s economy contracted 0.5% in the fourth quarter of last year, well below economists' expectations of a modest expansion." Note the spin: bad news was bad news for gold because it says inflation isn't coming. Other than showing bearishness, this intepretation looks ahead to signs of rising inflation in the developed world. The article also quotes an opinion that the earlier bottoming was prompted by panic selling.
Gold's six-month chart, from Stockcharts.com, shows the recent decline levelling off:
It also shows gold reaching levels not seen since late last October. The metal's breakdown to $1,325 makes now for a rolling top made over the last four months. That said, a further breakdown is unlikely to get very far. The breakdown this year, in terms of seasonality, mirrors last year's breakdown; it ended with climax selling on February 3rd and a choked-off continuance the next day. The cause last year, the People's Bank of China hiking reserve requirements, has had an influence this year but mostly as a threat. Had I been conspiracy-minded, I'd opine that new-year gold-market rattling is the PBoC's way of getting a discount for mainland Chinese buyers. That said: if a further breakdowns occur, the rolling-top pattern will acquire more force. Unlike last year, this year's early declines are prompted by diminished appeal for safe havens.
Turning to the U.S. Dollar Index, it had a good early morning but a bad time for the rest of the day. Its initial rise to above 79.35 was given back in later morning and, after a recovery, the afternoon. Strangely, the Index began falling when the unexpectedly good January consumer-confidence index number was released. This normally unusual downturn could be attributed to the U.S Dollar being sold for U.S. equities, net of any increased foreign demand that would have to be exercised through buying greenbacks. After almost getting back up to 78.3 between 11:00 and 11:30, the Index turned downwards and sunk to below 78. As of 5:30 PM, it was at 77.905.
Its own six-month chart, also from Stockcharts.com, shows the Index poking below where it was in early November:
It's far from its six-month low, but it's moving towards there. 78 is an important support level, and the Index may continue hesitating around there. Its Relative Strength Index, found at the top of its chart, is quite close to oversold. There's nothing sacred in that borderline; it was below oversold for almost three weeks in late September and early October. The potency of the support level, though, gives reason to suspect its decline will halt or even reverse in the near term.
Turning back to gold, an important test was made today and the metal emerged a passer. $1,325 had halted at least two previous declines, and has halted a third for the moment. Should gold be knocled down below and stay below, there's going to be a lot more panic selling - and, perhaps, a climactic bottom. As with yesterday's action, Asian demand will give a clue as to the action tomorrow.
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