Monday, March 28, 2011

After Tumbling In Overnight Session, Gold Recovers Somewhat

Gold was pushed down hard this morning before regular trading began, as a recovery in the greenback and a decline in the price of crude triggered profit taking that turned into another rough slide. Despite that tumble setting a gloomy overture for regular trading, the metal managed to climb a fair bit from the low and limit the loss from Friday's close to single digits.

When the pit session started, the metal was just off its daily low of $1,409.50. The U.S. economic news of the day was largely upbeat: in both release slots, 8:30 AM ET and 10 AM, gold's climb-back was halted. Still, those pause points didn't sustainably deter gold from a morning rise that became more uneven as early morning turned into late. The metal had the greenback to thank: after its overnight rise, it slumped back in the morning part of regular trading. Gold hit its pit-session peak of just below $1,424 at 12:10 PM.

Then, run down from the recovery climb, gold slowly slid down in early and mid-afternoon. Troughing just above $1,418 around 3:00, it trundled upwards for the rest of the session with a long rest just above $1,420 in the middle of the trundle. As of the close, the spot price was $1,420.90 for a drop of $9.30 since Friday's close. The Kitco Gold Index split the loss into -$8.60 for predominant selling and -$0.70 for a weakening greenback.

Gold's six-month chart, from, shows today as the third decline day in a row:

As is also evident from the chart, today's decline was more serious than yesterday's. Despite last week's new record, the metal is still consolidating - and pullbacks like the one we've seen over the past three trading days are part of the consolidation. The rebels in Libya are making inroads into Gadaffi-held territory, and the Coalition maneuvers are going smoothly. There's still trouble in Syria and Yemen, but the gold market is becoming inured to the trouble in the Mideast region. There's some sign of weakening in the U.S. recovery, but not enough to prompt any further quantitative easing. If anything, Fed figures are sounding out the possibility of ending QE2 early. This all means gold lacks a new driver, and the old ones are losing their force. In the absence of a new driver that will give gold a nice strong push, the metal will continue consolidating. There might be some more pullback in store for it, especially if a breakthrough take place in Libya. Gadaffi fleeing, or being defeated, would not be good for gold.

As for the U.S. Dollar Index, its overnight gains did not translate into a good morning. As indicated above, the Index went for a tumble just after 8:30 that lasted for two hours and left it just above 76.0 from 76.4. Subsequently, it had its own partial recovery as it trundled back up. Defeated at 76.2 in early afternoon, it slid back but resumed climbing to hover around that level in late afternoon. As of 5:30, it was still rambling at 76.2050.

Its own six-month chart, also from, shows it slumping today from its open:

Despite that slump, the Index's secondary recovery is continuing. It pushed slightly above its previous short-term interday low, and came close to touching its then-support level of 76.5. Although such indicators tend to be misleading against the trend, its Moving Average Convergence-Divergence lines (found at the bottom of its chart) made a bullish cross today. The Index is drawing strength from Fed notables' jawboning about ending QE2 early and from some good economic news coming from the U.S. It may continue to hoof back up, but it will face resistance at 76.5.

Although gold closed with a sizable loss today, there is some interest in bargain hunting coming back. The price point vary from below $1,420 to below $1,400. If the metal does manage to slump below the latter figure, dormant bargain hunters will wake up. That's the flipside to the frustrating pullbacks in a consolidation.

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