Gold Bounces Up, Gets Above $1,390 But Closes Below

Even though the Suez treaty obligates the Egyptian authorities to let those Iranian warships through, the granted permission did add to a gold-helping tension as the Middle East still simmers. Stuck around $1,384 at the beginning of regular trading, the metal mounted a four-stage rally before tailing off and swinging back to a modest gain on the day. Its gain for the week was far more substantial: $32.30, or 2.38%.

With the exception of the second stage, which coincided with the Suez announcement, the rally was fairly laborious. In all but that case, the metal gave up most of the gains made between the previous trough and the last peak. The day's high of $1,393.20 was made around 12:30 PM ET, and was followed by a two-stage letdown that left gold only a little above $1,385. A final run got gold poking above $1,390, but it fell back right at the end of the session to close at $1,389.10 for a gain of $4.50 on the day. The Kitco Gold Index attributed -$2.15 to predominant selling and +$6.65 to a weakening greenback.

Its six-month chart, from Stockcharts.com, shows another day of small but solid gains:



Today's high matched the interday high of January 13th, making for an almost unambiguous higher high. Should gold advance more on Monday, it'll be completely unambiguous. All it would take would be a higher low, almost a certainty given what's taken place, and a short-term uptrend will be solidly in place. Right now, there's the potential of a large inverse head and shoulders bottom with $1,390 serving as the neckline. It's only a matter of time before gold pulls back, but any fall followed by a run back at $1,390 would bode a run up to $1,400. I should add that inverse head-and-shoulder patterns have a dubious record during consolidations, so a post-pullback break above $1,390 might not lead to an upwards sail.

The U.S. Dollar Index took another beating today, again in the morning. Taking a spill that left it hovering around 77.85, the Index tried to recover but got bogged down. A second spill, coinciding with the Suez announcement, pushed it down to as low as 77.5 before it bounced up to 77.65. Meandering between there and 77.6, the Index inded the week at 77.62.

Its own six-month chart, also from Stockcharts.com, shows its declining to the point where its recent rise is in question:



Its drop has put it two-thirds of the way to completing a head-and-shoulders top, which would reverse its previous inverse head-and-shoulders bottom. That formation isn't over, but it does suggest that my previous comments about not betting against the greenback should have the question mark put on them. The Index's recent gains now look like a secondary reaction to a downward trend which may resume even though it seems to be due for a bounce. Since this breakdown is in the absence of a general aversion to safe havens, it should be good for gold all told.

Gold rise this week has actually been surprisingly good. Ever since its washout almost three weeks ago, it's been either climbing or moving sideways with little pullback. The mid-to-late January plummet has almost been completely erased. I'd still be skeptical of a return to the exciting fall days, but the metal's shaken off its correction fairly quickly. Bodes well for the spring.

In closing, I'd like to thank you for stopping by and seeing what I've got. Have an enjoyable holiday weekend, and enjoy any respite from the weather that's given you. If none, hang in there.