The day started out fairly well after the metal shook off an overnight decline which took it briefly below $1,395. Jumping up to $1,403 when the pit session got rolling, the metal stayed above $1,400 until mid-morning when it declined in anticipation of a good consumer-confidence number - one well above expectations. Once the news was released, it stalled and then turned upwards as demand picked up due to more trouble in Libya. Vaulting as high as $1,407.50, the metal lost ground along with oil as technical selling entered the market. Just after noon, gold lost more than ten dollars an ounce to bottom around $1,396.
Then climbing to $1,399, it rallied listlessly and was interrupted by a pullback in the middle. Bobbing around $1,400 in mid-afternoon, the metal sunk again but bottomed at a higher level than was reached by the before-noon slide. There was little last-minute rallying, and what little there was got almost erased by the time the electronic-trading hitch ended. At the end of regular trading, the spot price was $1,399.00 for a drop of $7.60 on the day. The Kitco Gold Index split the loss into -$5.50 due to predominant selling and -$2.10 due to greenback strengthening.
Gold's six-month chart, from Stockcharts.com, shows an upwards common gap due to yeaterday's hiatus:
Standard gap analysis says this gap is likely to be filled by a decline, but it should be remembered that there would be no gap had yesterday's action been included in the chart. That noted, there is a chance that gold will come down simply because it's gone up so much. Its Relative Strength Index number, found at the top of its chart, is close to overbought. That's a fairly good performance this soon after a new record high. The length of time spent in a bullish configuation by the Moving Average Convergence-Divergence lines at the bottom of its chart is more characteristic of a bull market than a bear market or even a consolidation.
That said, gold is presumptively in a range-bound consolidation phase until a new record high is made. Anyone who thinks that the metal's shaken off its doldrums and is prepared to take out $1431 is free to act on such an assumption, but the typical action of gold after a nice run like last fall's is to consolidate. Should gold follow suit once again, its current price is at the higher-risk zone with respect to an intermediate-term entry point.
After a strong two-stage run in overnight trading, the U.S. Dollar Index sunk back down and spent a fairly quiet day in today's regular session. Initially slumping, it didn't reverse itself until mid-morning. Then, its lesser rally couldn't get it up above 77.9. Slumping back down again, it ended up zeroing in on 77.8. As of 5:30, it was at 77.805.
Its own six-month chart, also from Stockcharts.com, shows its action on Monday as well as today. Today's candlestick's large upper wick shows its overnight strength:
The small body of the candle, though, does shows the muted trading of today. It seems to be poised for more climbing, but any further rallies should be treated skeptically unless it gets well above 79.5. Its recent turnaround still looks like a countertrend rally, a break between last month's droppage and - possibly - next month's. Of note is the fact that the greenback has not been rallying that strongly due to the Mideast and North African crisis. Gold, of course, has.
Given that gold's six-day winning streak is now history, the question remains about where it goes next. This month's rally has been treated skeptically, including by me, in part because the Mideast crisis was a fortuitous boooster of the metal. In its absence, gold would likely have been more hesitant and more obviously range-bound. The crisis can't last, and gold's fate will be influenced by the level it's at when the turmoil's ebbed. The pre-noon slide may be a harbinger or it may be an aberration, like declines earlier on in this rally. Asian buyers stopped co-operating last night: if they return to buying, then gold will be cushioned against any serious decline from this level. It's their call.
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