Another Good Day For Gold

Although the early rally lost steam, the metal picked up enough bullishness to bring it back from a slight loss position later in the pit session. The optimism faded during the electronic-trading hitch, but enough remained for gold to post a respectable gain for the second day in a row.

Thanks to a nice head start in the the pre-London and London sessions, gold spurted up when the pit session began. Helped by the National Federation of Independent Business' Small Business Optimism index falling 0.6 points to 92.6, the metal reached its daily high of $1,387.80 at 8:45 AM ET.

Then, it pulled back until it reached a ragged range between $1,374-$1,376, where it stayed between 10 o'clock and 11. Regaining ground, it lumbered up in a two-stage advance that got it above $1,384 at the end of the pit session. As of the end, or 1:30 PM, the spot price was $1,384.60 for a gain of $8.60 on the day. The Kitco Gold Index split the gain into +$8.20 for predominant buying and +$0.40 for a weakening greenback.

That price was fairly close to the afternoon peak. The electronic-trading hitch started off with a dip that took gold down to $1,381. There was a recovery up to $1,384, but a mild headwind developed and the metal drifted back to the $1,381 level as regular trading came to a close. At the end, the spot price was $1,381.30 for a respectable gain of $5.30 on the day. The Kitco Gold Index divided the gain into +$4.50 for predominant buying and +$0.80 for greenback weakening.

Its six-month chart, from Stockcharts.com, shows its second gain day in a row pushing it to about where it was four trading days ago:



It's still at the lower end of its range, and the plummet it suffered last Tuesday has hardly been touched. Still, the metal has had a fairly decent recovery from its low last Friday. The picture from its Moving Average Convergence-Divergence (MACD) lines at the bottom of the chart looks iffy, as the lines are in a bearish configuration, but this indicator tends to be misleading when an asset's range-bound. Provided that the range holds, it gives a bearish picture at the bottom. Since gold's range is holding, at least for now, this indicator can be treated skeptically.

Moving to the greenback, the U.S. Dollar Index had a nice jump before 10:00, perhaps pushed there because of gold's prior fall. Reaching 81.15, it stayed in a 80.025-81.15 range until the bottom fell out at 11:00. From then, it undulated in a lower range bordered by 80.75 and 80.95 with the upper part of the range receding as the afternoon turned late. As of 5:30 PM, the Index was at 80.84.

Its own 6-month chart, also from Stockcharts.com, shows it near the top of a range. Today's daily loss was the second one in a row:



There wasn't much of a loss, but that's consistent with the top of a trading range. [The risk for a shorter, of course, is the range being broken to the upside.] The Index's own MACD lines show a barely bullish configuration, as the Index's recent fall has weighed the more volatile black line down. If the Index is consistent with its range-bound behavior, it should continue to sink.

As for gold, the worries about Portugal's ability to service its debts and talk of a bailout has benefitted the metal more than the greenback right now, even if the reverse was the case last week. The metal's sell-down looks overdone in retrospect, and it has successfully rallied from the bottom end of its range. This doesn't make for any guarantee of a run to $1,400 again, but it does mean that a gold bull can breathe more easily.