Again, Gold Falls Back After Early Morning Run-Up

Again, the daily peak for gold came a little after the 8:30 economic data announcement slot. Today, it was the U.S. housing starts numbers for December. The number of starts fell 4.3%, but permits leapt up by 16.7%. The gold market put the two together and got a result to bulls' liking. After a back-and-fill, the daily high of $1,380.40 was reached just after 9 AM ET. Sadly, those gains were more than erased but gold still wound up with a small gain on the day. The tumbling U.S. dollar gaveth, and the recovering U.S. dollar tooketh away.

The metal was down to $1,370 by 10:00, erasing the pre-regular-session gains and making for a new low on the day. After a spill followed by a blip-up, it settled into a range between $1,370 and $1,372 that became less ragged as morning turned into afternoon. At the end of the pit session, the spot price was $1,371.00 for a gain of $3.30 on the day. The Kitco Gold Index attributed -$5.90 to predominant selling and +$9.20 to overall weakening in the greenback.

Electronic trading started off boringly, but added some "excitement" at 2:45 PM ET when the metal slipped to its daily low of $1,366.40. Reached at 3:00, perhaps as a sort-of welcome to the arrival of President Hu Jintato that prompted an unofficial Congressional remonstrance, it crawled back up to the bottom of the earlier range. Near the end of the session, it was hugging $1,370; at the end, it reached $1,370.50 for a day's gain of $2.80. The Kitco Gold Index assigned -$4.70's worth of change to predominant selling and +$7.50's worth to greenback weakening.

Gold's six-month chart, from Stockcharts.com, shows it virtually unchanged as it keeps sneaking up from the bottom of its range:



Again, its range held. Again, the technical indicators at the bottom and top of its chart are clouded because of its range-bound behaviour. There's no threat of it breaking the bottom of its range right now.

That solidity makes for a marked contrast to the U.S. Dollar Index, which did break through the bottom of its own range. Around the time that gold was making its daily high, the Index was making its daily low of 78.29. The Index managed to recover most of its morning loss, in a fairly solid trundle back upwards, but 79 remained out of reach. As of 5:30, it was at 78.61.

Its own six-month chart, also from Stockcharts.com, shows a definite break below the floor of its 1 1/2 month range:



In yesterday's afternoon report, I said that the greenback was more vulnerable to a floor break than was gold. That proved to be the case, although the range broke down more quickly than I had expected. Now that it has, the Index's technicals are unmistakeably bearish. The only hint of hope comes from its unusually low relative strength index (RSI) value, found at the top of its chart. The RSI level isn't that far away from oversold.

Disappointing news still gives gold a jolt upwards, but the jolt doesn't last. (Part of me is tempted to call it a "news stimulus.") There's little to no momentum interest in the metal, as the momentum players have largely decided that gold's in for a pause or a pullback. What's kept the post-November action on the level is physical buying, larely from Asia. Some is seasonal, but some is rooted in bargain-hunting. As long as that demand is still coming forth, gold owners have little to worry about at this level. So far, any nasty surprises have been absorbed.