Wednesday, March 30, 2011

Gold, After Flailing About, Closes With Modest Gain On Weakened Greenback

It was quite a ride today. In Libya, hopes of a steady rebel advance was frustrated by Gadaffi's forces recapturing a strategic oil town. Despite Coalition airstrikes, the rebels are far from enjoying a cakewalk because Gadaffi's ground forces are better trained and organized. In Syria, President Assad is claiming that the protests have been inflamed by a foreign conspiracy. In Japan, engineers are weighing whether or not to entomb the entire Fukushuma Dai-Ichi plant to halt the radiation leaks. That would mean Japan Electric would have to write off the entire plant, but entombing has a good chance of making the area safe again.

Early this morning, gold got a boost from the bad news for Libyan rebels as did oil. Instead of tumbling, as it did in two previous early-morning streches, the metal rose. Accelerating as regular trading began, it peaked at $1,431.40 at 8:30 AM ET. The March ADP report, showing private-sector payroll growth of 201,000 jobs, either helped or at least didn't hurt the run-up. From that point, though, the metal tired out and sagged back to $1,424 by 10:30 AM.

Then, a tumble came. Overwhelmed by a greenback rally, gold skidded from $1,424 to as low as $1,417 in a ten-minute selling blast. Recovering to $1,420, it again lost its footing and slipped down to a daily low of $1,411.10. That skid took place despite the greenback itself falling at 10:45, which coincided with a relief jump by gold.

The selling wave, perhaps prompted by panic, proved to be overdone. The metal reversed course at 11:15 and climbed fairly swiftly to as high as $1,425. A futher tumble of the greenback provided the lift.

By that time, gold had had it; so did the greenback. Peaking just before 1:00, it spent the rest of the afternoon drifting between $1,422 and $1,424. It managed to climb up to the higher end of that range just before regular trading ended. After all those leaps and skids, the metal was left with a fairly decent gain. As of the close, the spot price was $1,423.80 for a rise of $5.10 on the day. The Kitco Gold Index split the gain into +$3.50 for predominant buying and +$1.60 for a weakening greenback.

Gold's six-month chart, from, shows it breaking its four-day jinx:

A bounce-back had to happen sometime. Despite the gold market moving largely away from watching Libya, perhaps because traders assumed the situation was well in Coalition hands, a surprise Gadaffi victory had enough impact to give the metal a bit of a boost. Still, it's an open question of whether today's rally was caused by the recent decline going too far for too long. The Relative Strength Index, found at the top of gold's chart, did indicate a bounce when it moved down near the 50 neutral level. As for now, that rule still works. It doing so indicates that the prevailing winds are to gold's back.

As noted above, the U.S. Dollar Index fared well in early morning but had it bad when late morning came around. From indecisively muddling around between 76.25 and 76.3, the Index climbed up to a little above 76.4 by 10:30. Failing to rise further, it hung there for about fifteen minutes and then stumbled to just above 76.2. A relief rally didn't go very far; by early afternoon, the Index stumbled again and touched 76.0. The next relief rally was more durable, but exhausted itself. For the rest of the afternoon, the Index rambled sideways around the 76.08 level. As of 5:30, it was still aimless at 76.08.

Its own six-month chart, also from, shows it pulling back from yesterday's slight advance:

The Index fell back after its own Relative Strength Index approached the 50 neutral level from the lower end. That's a sign that the wind's blowing in its face. Its chart looks as if it's going to resume its decline again, but so far the action's been fairly leisurely. It should continue to waver between 76.5 and 75.5.

Gold had a rough climb today, but climb it ended up doing. Deep bargain hunters waiting for a decline below $1,400 have been disappointed again. Unlike yesterday, today's daily low took place in regular trading rather than in the overnight session. Again, though, the metal rallied when it approached $1,410. Gold may face more rough hoofing in tonight's overnight session, but $1,410 looks like a viable bargain point.

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