Gold Rebounds To MIniscule Loss

Today turned out to be more tumultuous for gold than yesterday, with most of the excitement coming on the upside. Sinking earlier, and having the drop accelerated by a good initial jobless claims report, gold had sunk to as low as $1,350.50 shortly after that report's release. Muddling along in the mid-1350s after an upturn, the metal was kick-started by a credible rumour that Egyptian President Mubarak was going to be stepping down. Even though the rumour was scotched later, it still had the effect of pushing gold back up to the 1360s. The end result was the metal closing at almost even.

The Egypt-related run started at 10:30 with gold around $1,354. An hour later, after a three-step jump, the metal brushed $1,367.40. The rest of the pit session saw it drift down to the $1,362 level and taking a breather there. Afterwards, it slowly sunk down to as low as $1,360 before mounting a modest recovery in late afternoon action. As of the close, the spot price was $1,363.30 for a tiny drop of $0.30 on the day. The Kitco Gold Index attributed +$10.10 for predominant buying and -$10.40 for a strengthening greenback.

Gold's six-month chart, from Stockcharts.com, shows today's candestick looking like little more than a tack:



The volatility today is shown by the 'body' of the tack. Had the Mubarack drama not surfaced, it's likely that the metal would have made a more substantial loss today. That noted, $1,360 has held as a support level after all the excitement died down. Gold may try to sink again tomorrow, in a post-Egypt funk, but such a sink isn't likely to be that large. Technically, the gold chart is still looking fairly good.

Moving to the U.S. Dollar Index, any effect the Egyptian flare-up had was downwards. Aided somewhat by the jobs report, the Index managed to get above 78.3 before pulling back. Another run got it up to a day's high of 78.34 at 10:15 before another pullback kicked in. Initially blipping up when the Mubabrak rumour spread, it changed its mind and dropped to a little above 78. That support level holding, the Index recovered most of its drop as it settled into a range between 78.17 and 78.26. As of 5:30, it was at 78.20.

Its own six-month chart, also from Stockcharts.com, shows it completing its inverse head and shoulders pattern:



The neckline of the pattern is about 78.2, which the Index crossed today. That completion augurs for an Index rise, although to what extent can't be said. Given that gold and the dollar have reverted to a roughly inverse correlation in recent days, any such run-up won't be that good for the metal unless it's prompted by a return of the fear trade.

Today, gold was tested and not found wanting. Granted that it took a surprise development from protest-torn Egypt to bring about a recovery, but gold jumped on the even more surprising outbreak last week and held its gains nonetheless. The metal may edge back down to the 1350s again, but any such pullback can be seen as merely that.