Gold Descends Slightly From Mid 1360s

Gold gave traders a bit of a ride today. After a bit of a boost from Ben Bernanke's speech to a House committee, some doubts visited gold as it sunk to a day's low of $1,357.20 at 11:30. That drop was only temporary, but the recovery was muted and didn't stick in later afternoon. As a result, the slight gain gold was sporting at the beginning of the pit session turned into a miniscule loss when regular trading ended.

Chairman Bernanke's testimony before the House Budget Committee contained the same narrative as his earlier speech to the National Press Club: QE2 and the still-continuing zero-interest-rate policy are both justified because the U.S. economy is sluggish and there's no sign of inflation. The late-morning drop, for whatever reason, coincided with the tail end of his speech. Perhaps it was the part about the recent rise in U.S. interest rates being a sign of optimism rather than impending inflation.

Whatever the reason for the drop, it was all-but reversed between 11:30 and 1:20. Although gold did not make a new daily high as a result of that recovery, it managed to claw back close to all of its earlier fall. Unfortunately, another drop was carved out after that 1:20 peak - but this one was milder, bottoming around $1,362. That level provided a short-term floor, but $1,364 made for an effective short-term ceiling. At the end of regular trading, the spot price was $1,363.80 for a drop of $0.40 on the day. The Kitco Gold Index attributed -$7.10 to predominant selling and +$6.70 to a weakening greenback.

Gold's six-month chart, from Stockcharts.com, shows the day being one of stasis all told:



Today's action looks more like a rest-stop than anything else. With no new data on the U.S. economy today, all the gold market had was Bernanke's testimony as an item to wrap the head around. The recent advance has been fairly strong, so it isn't that much of a surprise seeing it halt like it did. Despite that smidgin of a loss, gold held up fairly well today with its late-morning dive being mostly erased.

As for the U.S. Dollar Index, it too suffered a dive today but it didn't recover from its own. Getting up to almost 78 before regular trading started, it swooped down in early and mid-morning. Recovering only partially, it made a lower low of 77.505 in early afternoon. Recovering only partially again, it edged up to around 77.6. As of 5:30, it was at exactly 77.60.

Its own six-month chart, also from Stockcharts.com, shows its rather substantial decline today:



77.5 held, though, and the Index is still on track to make a short-term inverse head-and-shoulder bottom. Today's decline was a little abrupt, but the pattern will hold good unless its dive continues to below 77.

All told, the action in gold wasn't that bad today. Its near-unchanged status shows that the jump-up yesterday morning is fairly robust. There is a risk of selling pressure coming from mainland China on Monday when markets open fully, but further stability for the rest of this week may hold off some of the pressure. Even if gold falls, a repeat of January 27th's plummet is slight and $1,340 would provide solid support if a decline begins in earnest. More and more, the 27th looks like the seasonal low.