Tuesday, January 18, 2011

After Morning Spike, Gold Settles Back

The opening of regular trading climaxed an early-morning run that was in part fueled by the announcement that U.K. 12-month inflation as of December had risen to 3.7%. The New York Fed released its disappointing Empire State Manufacturing Index January number, whose value of 11.9 was well below expectations for 13. The latter item gave the final push to gold as it reached its daily high of $1,377.40 around 8:50 AM ET. Gold's closing figure, although accompanied by a decent gain, was well below that high.

Although it had a bumpy ride, the metal's overall trend was downwards until well after the end of the pit session. Just before 10:00, it was just below $1,368. After that reversal, its path got a lot choppier with secondary recoveries overlaying a gently declining trend. A near half-hour freeze at the end of the pit session was around the value gold had at that end, or 1:30 PM. As of then, spot gold was virtually unchanged from its value at 10:00: $1,368.30, for a gain of $6.80. The Kitco Gold Index split the gain into +$1.35 for predominant buying and +$5.45 for a weakening U.S. dollar.

The pause ended with a further decline at the beginning of the electronic-trading hitch, starting slowly but quickening until the metal hits its daily low of $1,363.70 at 2:30. From then, a solider recovery set in for the rest of the afternoon. By the time the hitch was over, the metal had gotten back to almost where it was at the end of the pit session - and just a little below where it had been at 8 AM. At the end of the regular day, the spot price was $1,367.70 for a gain of $6.20. The Kitco Gold Index attributed -$0.60 to predominant selling and +$6.80 to a weakening greenback.

Its daily chart, from Stockcharts.com, shows it still hugging the bottom end of its range:

Again, bargain-hunting and earlier strength in physical demand kept gold above the $1,360 level. Although the greenback has been following gold down, today's weakness in the currency could be seen as helping the metal. Since gold is still range-bound, the relative-strength index at the top of its chart and the Moving Average Convergence-Divergence lines at the bottom don't present a clear picture. I note, though, that all the lines have made newer lows while gold bounced off its range most recently. They indicate that the metal is still vulnerable to a breakdown, even though demand has forestalled such an eventuality for now.

As for the greenback, the U.S. Dollar Index did not have a good morning until 9:40 AM ET. Rolling from upwards to downwards, it climaxed the fall with a plop to 78.55 before turning around. That reversal, occurring in two stages, got the Index above 79 by noon. It held above until 2:55, when 79 turned from the floor into the ceiling. Despite that fall-through, the Index did little afterwards as 78.95 became the floor. As of 5:30 PM, it had poked minisculely above 79 to reach 79.005.

Its own six-month chart, also from Stockcharts.com, shows that it's also vulnerable to a breakdown of its month-and-a-half range:

The Index has not broken the floor, but today's stab-through went lower than yesterday's. Like gold's, the Index's technical picture is made muddy by its range-bound behavior; if anything, the latter's technicals look less shaky than the former's. Despite that, a straight chart read suggests the greenback is more vulnerable to a breakdown than is gold. The U.S. dollar doesn't have the same bargain-buying support that gold does, also.

Despite the mid-morning letdown, gold didn't do all that badly today. A gain is a gain, even if double digits melted away into single digits. Buyers still think that the 1360s is low and act accordingly. That demand is seasonal in the case of Indians, but it's still there. As a result, gold may not do all that much tonight unless a newfound bullish factor pushes it up.

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