After Bouncing Around, Gold Holds Steady With Miniscule Gain

It was a day pockmarked with gyrations, mostly on the downside, but the underlying tensions in the world provided enough demand for gold to rebound from those drops and close with a very small gain. The $1,410 -$1,415 day range it was in before the pit session got rolling was tested three times on the downside, and bent out of shape twice. Nonetheless, gold moved back into the range by the close.

Starting a little above $1,415 at 8 AM ET, the metal slid down to $1,409 before rebounding to around $1,410. Aiding and abetting the slide was a better than expected personal-income gain, with a worse-than-expected rise in personal consumption. Jitters before the release of the National Realtor Association's pending home sales index, at 10:00, drove gold down to $1,408. Those nerves proved to be misplaced, as January's number showed a decline of 2.8% and December's was sharply revised from a 2% increase to a 3.2% drop. Drawing strength from that awful revision, gold leapt up to $1,416.

However, the $1,415 ceiling did it work. Gold descended to around $1,414 and stayed there until morning had turned into afternoon. Then, it slowly declined until it fell out of bed to $1,409 around 1:30. That doleful end to the pit session was mostly reversed as gold headed up to $1,411. Then, the decline resumed as more selling entered the picture; around 2:45, the metal touched a daily low of $1,404.00. Again, the fall was reversed by new buyers coming into the market. Gold climbed back to around $1,411 and stayed there as the battered range ended up holding. As of the end of regular trading the spot price was $1,411.20 for a gain of $1.60 on the day. [Unfortunately, I missed the Kitco Gold Index read for the end of the day - my apologies. The strengthening-greenback component was around +$7.00, while predominant selling was near -$5.40.]

Gold's six-month chart, from Stockcharts.com, shows today's action as stuck in a wider short-term interday range of $1,400 - $1,420:



Despite today's falls, the body of today's candlestick is higher than those of the last four days. Gold's RSI level, found at the top of its chart, is still close to the 70 overbought level. Reversals still make their appearance, but new demand is plentiful enough at lower prices to make them a temporary intraday phenomenon. This underlying strength is keeping a substantial pullback from visiting the metal.

The U.S. Dollar Index lacks such strength, as is evident from its descent below 77. After plummeting early in the morning, the Index stayed stuck in a range between 76.75 and 77.0. A late-morning attempt to get above 77 was defeated, as was a second attempt a little after 1:00. Thus double-topping, the Index slumped to around 76.9. As of 5:30, it was at 76.885.

Its own six-month chart, also from Stockcharts.com, shows a slow but definite erosion of its value in the short term:



The Index has moved below the 77 support level, but not by much as of now. Its Moving Average Convergence-Divergence lines, found at the bottom of its chart, are three trading days into a bearish configuration. Despite the deteriorating technical picture, 77 still has made for a potent support level. If the Index continues dropping, it's likely to do so without much conviction at these levels.

As for gold, subsurface demand surfacing at lower levels has kept it above $1,410. Although shocking (or galvanizing) headlines from the Middle East and North Africa are now absent, tensions still simmer; the same goes for inflation worries. This simmerage has put a flexible floor under the metal for now. Gold might sink below $1,410 in the overnight session, but a test of $1,400 looks unlikely as long as that underlying demand is still there.