The opening of the pit session saw the metal gyrate around the $1,364 level for some time. Data items showing the U.S. economy wasn't as good as it had looked, like a surprise drop in consumer sentiment and a smaller-than-expected rise in December retail sales, were good for short-term spikes that didn't last.
Just before 11:00, the metal took a nosedive to below $1,360; a half an hour later, it hit its daily low of $1,354.30. This price marked the end of the morning decline. From there, gold rose into a raggedy range that centered around $1,360. Initially bordered by $1,358 and $1,362, it narrowed somewhat as the afternoon dragged on. A final blip-up at the end put the metal's closing price at $1,361.80 for a drop of $12.20 on the day. The Kitco Gold Index attributed -$13.40 to predominant selling and +$1.20 to a weakening greenback.
Its six-month chart, from Stockcharts.com, shows it hugging the lower end of its range:
Given that it never got above the lower part - it never hit $1,400 - there's the question of it falling below the $1,350 bottom. Not this day, it didn't, but it did come close to $1,350. Should it break through, the next support level is $1,325. Gold falling to there would put it in correction territory.
If it does, the resultant drop won't likely be that far. As the Wall Street Journal notes, its drop is being diven by economic optimism as well as renewed confidence in Euroland sovereign finance. Recent developments have put the question mark on the reasons why people were eager to buy last fall. Alix Steel over at TheStreet.com noted that Ben Bernanke's optimistic remarks yesterday added to the selling pressure.
If you read between the lines, this could mean that the Fed could stop or alter its $600 billion bond-buying program before it runs out in June, a move that would limit the flow of extra money in the system. Investors had been buying gold as protection against this program, which many expected would devalue the dollar.When optimism reigns, gold suffers. That's the nature of the fear trade.
Will the rout continue? It may, but any such breakdown is likely to lead to a buying opportunity.
Of course, gold isn't the only fear-related asset to face a breakdown this week. Unlike the metal, however, the breakdown of the greenback is new this week; last week, it was on a roll. The U.S. Dollar Index did recover early this morning from its earlier drop, but only to 79.40. It turned tail as of 7:30 and, influenced by the disappointing data items above, sunk below 79 by 10:10. Then, influenced by gold's drop, it recovered but didn't make a higher high. It spent the afternoon drifting down and closing at 79.05. Like gold, the Index was impacted by the fading of the Eurocrisis from visibility.
Its own six-month chart, also from Stockcharts.com, shows it scraping against the bottom of its own range:
This down day is the fifth in a row for the Index. In one week it traversed from the top of its range right to the bottom. It may well stay in its range, because the economic-optimism factor is less impactful of the greenback than gold to the extent it relates to the U.S. economy. Like gold, the range-bound status of the Index makes the techncial picture obscure.
What gold has in store for next week isn't clear. Physical buying in Asia will make its appearance, but that cushion might be sliced through by more no-fears selling. For now, gold's still stuck in its range.
In closing, I'd like to thank you for stopping by and read what I've got. Have a great weekend, and enjoy the upcoming holiday if you celebrate it.
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