Friday, January 7, 2011

Gold Plummets, Snaps Back, Closes At Slight Loss

It was quite the roller-coaster day for gold, which ended with the metal sporting a slight daily loss. Anticipating good news from the U.S. nonfarm payrolls number, the metal descended in early morning and plunged right at the opening of the pit session. The day's low of $1,352.00 was reached at the opening.

Then, gold turned tail and began spurting up. The payroll report, which showed modest job growth and an unemployment rate of 9.4%, had payroll growth less than expected. The drop in the unemployment rate was interpreted to mean a shrink in the labour force as well as job growth. That spelled bad news for the greenback, in the immediate term, and very good news for gold. The metal quickly jumped to above $1,365 on the release.

Aftewards came a pause and another jump, and an outright rally which took place while Ben Bernanke was testifying to a Senate committee. He indicated that he and the FOMC were staying the course with QE2, despite some good news from the economy lately; the encouraging data weren't enough to convince him to halt it. The metal, after a further jump that put it in a $1,365-$1,370 range, rallied from 9:45 AM ET to 11:00, when it reached its high of the day of $1,380.10.

That's when the excitement waned off, in large part because the U.S. dollar shrugged off its scare and regained its footing. In a two-stage decline, gold shed its gains on the day as the end of the pit session approached. A partial recovery after $1,245 brought the metal up from the $1,366 level. As of the pit's end, or 1:30 PM, the spot price was $1,369.10 for a drop of $2.00 on the day. The Kitco Gold Index split the loss into -$0.20 for predominant selling and -$1.80 for a strengthening greenback.

For the rest of the day, there was little movement; what movement there was, was concentrated in the early part of the electronic-trading hitch. At the end of the week, the spot price was $1,369.80 for a drop of $1.30 on the day. The Kitco Gold Index attributed +$2.30 to predominant buying and -$3.60 to greenback strengthening.

Gold's six-month chart, from, shows a certain unreassuring symmetry:

Today's low tailed off at about the point where November 25th and 26th's dips did. The metal reached a low not seen all though December. Although it snapped back, today's decline marks the fifth down day in a row. Today's snapback may have marked a short-term reversal, but $1,325 still looms in the shadows. A slump to that low a level could represent a buying opportunity.

The U.S. Dollar Index got a real scare from the jobs report, but it shrugged the panic off and ended up rallying to end above 81. It gyrated between 81.07 and 80.67 from the payrolls release to 11:00, hugging the lower end in the last hour of its floundering. That time, which marked the peak of the morning gold rally, saw the greenback regain its footing. The Index ended up climbing to new highs, reaching 81.1 by noon. 81.0 became the floor as its fluctuations narrowed dramatically in the afternoon. At the end, the Index made a final jump upwards to close at 81.13.

Its own six-month chart, also from, shows the fifth day of its short-term rally petering out:

The Index's fifth gain in a row has definitely put it at a trend-changing higher short-term high. There's less than 0.4 points to go until it bests its end-of-November high of 81.5. That stretch of gains is unusual, and it's likely to come to an end soon, but the Index's technical position has improved. The Moving Average Convergence-Divergence lines at the bottom have crossed over into a bullish configuration.

Since the greenback's advance is one of the two main factors frustrating gold, the other being good economic data from the U.S. economy, that technical improvement doesn't bode much hope for gold in the near term. In the metal's favour is physcial buying remaining strong, which has had a cushion effect on its declines. This week wasn't anything to write home about, but it could have been worse.

In closing, I'd like to thank you for stopping in and reading what I've got to write. Enjoy your weekend, whether cold or frozen.

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