It started off regular trading by drifting downwards, which did not reverse until 9:30 AM ET. At that point, the greenback slid from above 77.55 to below 77.25. It falling, combined with the brew of tension, got gold rallying strongly from 9:30 to 10:30. In that hour, the metal gained almost twelve dollars an ounce. Levelling off when the greenback recovered, it hovered around $1,412 and then inched up. A final burst upwards just before 1:00 enabled it to rack up a daily high of $1,417.80.
After that peak came the afternoon letdown, but today's bottomed at $1,408 - well above its level at early morning. After some hesitation, it inched upwards again as the electronic-trading hitch neared the end. At the close of regular trading, the spot price was $1,411.70 for a gain of $12.70 on the day. The Kitco Gold Index split the gain into +$4.90 due to predominant buying and +$7.80 due to a weakening greenback.
Gold's six-month chart, from Stockcharts.com, shows it getting close to its $1,420 resistance level:
To all appearances, the metal is in a strong bull run. In less than a month, it's added more than $100 to its price with little pullback along the way. Its Relative Strength Index level, found at the top of its chart, is characteristic of a bull-market run. Gold doesn't get to a smidgen below the 70 overbought level except in bull market phases. To go all the way from the verge of oversold to the verge of overbought is fairly unusual for the metal. Normally, an oversold condition is seen during corrections or consolidation phases; during the former, the RSI doesn't get much above the 50 neutral level. During full-bore upward runs, RSI tends to sink to neutral but doesn't get much below. Even at the start of its fall run in late July, the RSI didn't get much below 40 before gold took off.
I'm harping upon this round trip from oversold to overbought because it shows gold possessing unusual strength right after a correction. The metal's daily high was about fourteen dollars away from making a new record.
Turning to the U.S. Dollar Index: as indicated above, its slight rally early in the morning turned into a swift decline that left it briefly below 77.25. The other safe haven isn't doing so well now that oil is ratcheting up; in fact, it's no competition for gold at all. Recovering after that tumble, the Index climbed back up but couldn't touch 77.5. Giving up, it eased downwards for the rest of the afternoon. As of 5:30, it was at 77.36.
Its own six-month chart, also from Stockcharts.com, shows it breaking below a significant level today - that same 77.5:
As is evident from the chart, the Index has broken through the neckline that makes for a completed head and shoulders top. Unusually, this top is a continuation pattern: it indicates that the Index's January fall is going to go farther. How much farther, I cannot say - but I wouldn't be surprised if it challenges its January low of 77.0. If it breaks below and stays there, then it will have established a lower intermediate-term low that will solidify a downtrend. I have to say I regret my chipper comment earlier about not betting against the greenback.
The U.S. Dollar falling while gold is rising, is a break from recent crisis patterns. Beforehand, both rose: they doing so in tandem is the main reason why the traditional negative correlation between the two has sometimes turned positive. This crisis is different: it hearkens back to the '70s. Gold might pull back if Lybia falls and brings an end to the suspense, but it will have had a surprisingly good run nonetheless. It might also have enough gas to rack up to a new record high beforehand.
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