Gold Plummets In Late Afternoon On Rumour Gadaffi Was Shot

Again, gold descended during the electronic-trading part of regular trading - but this time, it was with a vengeance. Gold followed oil down after a rumour spread which said Libyan ruler Muammar Gadaffi had been shot. That rumour later proved to be untrue, but it exposed an air pocket in gold. A Wall Street Journal report, written before the rumour caught fire, has a quote with a skeptical take on the rally. The drop explosed tiredness that was already there. Partially reversed at the end of the electronic-trading hitch, it bumped gold from a small gain to a fairly substantial - almost double-digit - loss.

The metal started regular trading above $1,415. Hit with good news on the jobless-claims and durable-goods front, it descended below $1,415 at 9 AM ET. Not stopping until a little after 10:00, it settled into a range between $1,410 and $1,415 that was broken briefly on the low side around 11:20 and tested on the high side in early afternoon.

At the time the rumour spread, gold was a little above $1,415 but not successful at breaking out of that range on the high side. It started to slump around 1:45, and then suffered through a two-stage roller-coaster drop that left it at $1,402. A reaction that pulled it up a little above $1,405 gave way to a thud taking it down to its daily low of $1,391.40. Recovering to just above $1,395, the metal had enough relief in its rally to get above $1,400 again; the last forty-five minutes saw almost no fluctuation. At the end of regular trading, the spot price was $1,402.10 for a drop of $9.60 on the day. The Kitco Gold Index attributed -$14.70 to predominant selling and +$5.10 to a weakening greenback.

Gold's six-month chart, from Stockcharts.com, shows today's thud as an all-but complete reversal of yesterday's gains:



It;s been a nice run these last four-odd weeks, but it had to come to an end sometime. As noted yesterday, gold's Relative Strength Index (RSI, found above at the top of its chart) went on an unusully complete round trip from all-but oversold to overbought. There are times during bull runs when the RSI stayed in overbought territory for some time, but this rally was not to be one of them.

There's a chance that this afternoon's drop will merely prove to be gold falling out of bed. It was triggered by a rumour that proved to be false, but the air pocket showed that the metal is feasting upon present troubles. Resolution, whether by assassination or less galvanizing means, will lead to it descending. Its pullback today, if not reversed, will keep it in its long-term $1,325 - $1,425 range: it was near the top when it plummeted. Should today's drop preface a pullback, the metal will likely stop between $1,360 and $1,380. It won't go back to levels it saw near the end of January. If gold merely fell out of bed, it may pause for a bit to collect its wits.

As for the U.S. Dollar Index, it again had one of those mornings. Strangely, the good economic news released at 8:30 AM only caused a blip-up; soon afterwards, the Index was falling again. Its early-morning slump didn't end until it had touched 77.0. A brief run-up gave way to a temporary low of 76.975 just before 10:30. After trying and failing to reach 77.25, it settled into a range between 77.05 and 77.15; it slid into the lower-middle part of that range in later afternoon. As of 5:30, it was at 77.08.

Its own six-month chart, also from Stockcharts.com, shows it bouncing off a significant support level - that same 77.0:



At the bottom of its chart are the Moving Average Convergence-Divergence lines. Today, they crossed over into a bearish configuration. That doesn't bode well for the Index, although staying above 77.0 would suggest indeterminacy rather than an outright drop. If it does fall through, 76 beckons; so does a new six-month low. How the Index acts from here will show whether or not it's in for another string of drops. I should add that it didn't react either way to the now-scotched rumours about Gadaffi's assassination.

As for gold, it reacted badly. Even if today's drop is the harbinger of a short-term pullback, the metal's still in a good position. Its rally has been strong and fairly smooth, and accompanied by a lot of skepticism. Market timers haven't gone gaga over gold while it's been rising, which suggests there's not that much air in the air pocket all told. If a pullback, the metal will be in a position for a fairly healthy advance once it gets its mojo back.