Gold Stays Above 1330s As Egypt-Related Safe-Haven Demand Fades

The Egypt-induced chills have faded from the marketplace, and the allure of gold has faded along with those chills. As is often the case in the gold market, spills follow chills. Today's pullback, though, wasn't that bad as conditions returned to a normal that takes Egypt's turmoil in stride. Despite a morning spill that took the metal briefly below $1,225, that support level ended up holding; so did $1,330. Gold's loss at the end of regular trading was only a little more than five dollars below Friday's elevated close.

The regular day didn't start off all that well. $1,330 was broken through on the downside before the pit session started, which was explained by a better-than-expected consumer-spending number for December. The 0.7% increase beat expectations for +0.6%, even though the 0.4% rise in personal income matched expectations. The American consumer is evidently getting ready to spend again, with a drop in the savings rate going along with such desire. Gold stayed flat after the release, but continued downwards until bottoming just before 9:30 AM ET at $1,322.20.

Then, the climate changed. Gold first ramped up then trundled upwards until $1,330 was definitely surmounted. A late-morning bob down to $1,228 was preceded by a noontime run up to $1,336. Staying at that level for an hour, gold gave up and sunk back below $1,330 again just after the pit session ended. Bobbing around $1,330 in mid-afternoon, the metal mounted a slighter but steadier climb after 3:30. As of the end of regular trading, the spot price was $1,333.00 for a loss of $5.40 on the day. The Kitco Gold Index attributed -$12.50 to predominant selling and +$7.10 to a weakening greenback. Interestingly, the close at the end was only thirty cents below the price at the end of the pit session, despite the metal's post-pit gyrations.

Its six-month chart, from Stockcharts.com, shows its down day as being slight, and part of its candlestick protruding above Friday's body:



The slump actually looks good when the gloomy spin of an afternoon Wall Street Journal article is factored in.

Gold market participants have been "a little disappointed that the fear factor didn't come into play more," said Stephen Platt, an analyst with Archer Financial Services in Chicago.

During the previous session, the metal rose 1.7%, amid fears surrounding civil unrest in Egypt, the Arab world's most populous country and home to the Suez Canal, a key artery of global trade.

But the gains are proving short-lived during the metal's broader correction.

Gold has lost 6.3% this year as cautious optimism about the global economy and strength in equities markets erodes the appeal of the precious metal as a refuge asset. Gold is bought by some investors because it isn't as tied to economic cycles as other investments like industrial metals or stocks.

"As long as the oil supply doesn't get cut off, the Egypt situation isn't going to greatly impact the world's economy," said Ira Epstein, director of the Ira Epstein division of the Linn Group.

Shrugging off gold's snap-back as a one-off wonder is understandable given gold's recent woes, but the technical picture shows a recovery from plummet levels that have repaired a major support level. I'll grant that the economic-optimism headwind is still there for gold, and there may be an early-February letdown still ahead, but the spin shows that a technical repair job was basically ignored. Sentiment-watchers, take note.

The U.S. Dollar Index went through a greater letdown, relatively speaking. After slumping below 78 in pre-regular trading, it continued slumping through the early-morning part of the regular shift. Not bottoming until it reached just above 77.5, it recovered subsequently but couldn't get above 77.87 even at its best of the afternoon. The recovery thwarted, it settled into a range centered around 77.75. As of 5:30, it was at 77.735.

Its own six-month chart, also from Stockcharts.com, shows it back at its pre-turmoil levels of last week:



In a way, it's fitting that virtually all of the Index's gains from the Egypt turmoil would be wiped out while gold's weren't. Gold was the major beneficiary from the turmoil; the greenback wasn't. Also, gold suffered a plummet that the U.S. dollar didn't. Like gold's the Index's chart shows a leveling off from recent declines. Its indicators at the top and bottom of its chart are still bearish, but less so than before.

With sentiment stll gloomy, with little cry of gold coming into its own as a result of Egypt's near-revolution, the gold market isn't in that bad of a state right now. There's little overoptimism. There is a good chance that the recovery trade will go back to whittling away at gold, but Asian physical demand is still steady-to-strong. Without a nasty surprise, the metal looks like the worst of its drops are over.

Of course, we've yet to hear from the People's Bank of China. If another tightening move is taken in stride by the gold market, that would be the sign of a seasonal bottom forming.