Monday, January 24, 2011

Gold Gets Routed Again After Pit Session

For a while, it looked as if gold would shrug off last week's rout and mark time. Unfortunately, such proved not to be the case after 2:45 PM ET. Technical selling, following the dissipation of a mid-morning recovery, led to gold sporting a $7.50 decline after the bottom fell out.

The resistance level at $1,350 reasserted itself in regular trading. Although gold was above that level for part of the overnight session, an early morning decline got it below again. It was close to $1,350 when regular trading started, but tailed down to $1,342 by 10 AM ET. An aborted rise beforehand gave way to a more sustained move that got gold up to $1,348. Again, the move failed to take and gold drifted downwards to $1,344 and stayed around that level for more than an hour. As of the end of the pit session, or 1:30 PM, the spot price was $1,344.90 for a gain of $2.50 on the day. The Kitco Gold Index split the gain into +$0.20 for predominant buying and +$2.30 for weakening in the greenback.

The metal stayed slightly above $1,344 until 2:00, when it sunk slowly to the same level it bottomed out at in the morning. $1,342 held until the above-mentioned 2:45, at which the bottom fell out. Within a half an hour, it had stabilized in a range between $1,334 and $1,336. Adding insult to injury, gold took a dive at 4:20 that got it down to its daily low of $1,331.60. Recovering from that spill, it closed near the bottom of its post-drop range. As of the close, the spot price was $1,334.50 for a drop of $7.50 on the day. The Kitco Gold Index attributed -$9.20 to predominant selling and +$1.30 to greenback weakening.

Its six-month chart, from, shows it still slumping after breaking $1,350:

Today's drop makes for the third in a row. As the chart shows, gold's in a short-term downtrend and seems on the way to test its next support level of $1,325. The technical indicators at the top and bottom of the chart are still bearish, as is gold's short-term downtrend. The only potential respite is in the metal's Relative Strength Index, which is close to the oversold level. Unfortunately, a truly oversold condition is likely to coincide with a test of $1,325.

This day was another bad one for more than just gold as equities become more appealing. The U.S. Dollar Index's decline phase didn't match gold's in terms of time; the greenback's big slump came in the morning while gold was essentially marking time. From above 78.4 before 8:00, the Index went down in fits and starts until it reached its regular-trading bottom of 77.8 at 11:35. Thus spent, the Index recovered to the 78 resistance level and spent the afternoon licking its wounds by hovering just above 78. As of 5:30, it was at 78.015.

Its own daily chart, also from, shows its own decline continuing after breaking through its former support level of 79:

As with gold, that breakdown meant the damage was done. Although the Index has had only two down days in a row, the last four out of five have been decliners. Like gold, it's close to an outright oversold position. The Index may bounce off 79 here and try for a relief rally, but such a rally likely won't last very long. As economic optimism continuues, it remains open season on safe havens.

Gold itself is being questioned in India as downwards price acclimatization sets in. The same skepticism may appear in the rest of Asia to a degree, but bargain hunting still lives. Again, the response to a newer lower price will give a clue as to how the metal will fare tomorrow.

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