Gold Leaps Above $1,360 In Morning, Stays There

The gold market' lack of dive in response to the People's Bank of China raising its key interest rate 25 basis points to 6.06% prepared it for a nice run today. An initial, mild slump below $1,350 was shaken off, and gold later jumped up to the high 1350s several hours before the pit session started. That jump didn't last, and the metal descended again to $1350 but not lower. The lack of drop put the market in a good, buying mood for the opening of regular trading. Shooting up at start of the pit session, the metal didn't build on that leap but didn't lose it either; the rest of the day was fairly quiet. Consequently, gold ended regular trading with a double-digit gain.

It didn't take long for gold to shoot up to $1,366 from $1,351 once regular trading began - about fifteen minutes. A little pullback left the metal between $1,362 and $1,364 afterwards. It got a goose from a lower December jobs-opening number, which faded but prefaced a slight advance until 11:30. A pullback around noontime gave way to another advance that made a new daily high of $1,369.30 around 1:00.

That advance failing, the metal pulled back to around $1,364 and hovered near that level for the rest of the regular session. At the end, the spot price was $1,364.20 for a gain of $12.10 on the day. The Kitco Gold Index split the gain into +$10.30 for predominant buying and +$1.80 for a weakening greeenback.

The metal's six-month chart, from Stockcharts.com, shows its leap-up as consistent with its earlier bottom:



Whether it be a V-shaped bottom of a punctured U-shaped bottom, a bottom it is. The metal managed to poke above its last short-term low of $1,360 made around mid-January. Counting the false start as a short-term bottom makes today's close a significantly higher high from the last one. Omitting it as an anomaly leaves gold less than twenty dollars away from topping out at a higher high. A close ten dollars above today's would make for two-thirds of an inverse head-and-shoulders bottom. Head-and-shoulders formations aren't that reliable for the gold market in consolidation phases, being subject to bobbles, but making one would confirm that the downtrend is over. That said, it's not that likely that gold will take off again - the last bull run was too recent.

Turning to the greenback, the U.S. Dollar Index didn't have a very good morning after slipping below 78. From 9:50 to 11:35, the Index slid from almost 78 to just above 77.6. A subsequent reversal got it to just above 78 before it settled into a narrow range with that number the top and 77.95 the bottom. As of 5:30, it was at 77.97.

Its own six-month chart, also from Stockcharts.com, shows its relatively minor pullback in the framework of an overall recovery:



The Index did fall today, but it's on track to make an inverse head-and-shoulder bottom of its own. Although narrow and brief, completion of that pattern might give the Index enough legs to get back up to 79. On the bottom of its chart, the Moving Average Convergence-Divergence lines have crossed over into a bullish configuration. Both of these patterns, when put together, suggest that the greenback is going to be joining gold in a short-term run-up. Interestingly, the Index's reveral roughly gibes with a huge protest in Egypt today - even if gold's action didn't.

I know I'm repeating myself when I say that the most likely pattern for gold is a consolidation stretch, which may last for several months more, but that's how the metal behaves after a nice run like last fall's. A consolidation phase gives a chance to accumulate gold, so it has its own upside. If this year resembles last year, gold will stay stuck until early spring and give up most of the gain in summer before booting up in the fall. There's little sign of a scary mini-bear market like '08's on the horizon, and QE2 still lives. Gold may continue on momentum tomorow, but we're not at the point when Asian buyers will throw in their hand and adjust to today's higher prices. It seems only a matter of time before they do.