Thursday, March 17, 2011

Gold Climbs Back On Rising Commodity, Equity Prices

Evidently, correlations don't only go to one during flash bear markets; they stay near one when the relief rally kicks in. As the sense of emergency about the Japan tsunami slowly fades from the outside world, both equities and commodities are pulling up again. Some good news relating to the stricken reactor is beginning to hit the wires: executives from Tokyo Power said the first small steps towards getting the radiation leak under control have been taken. Although attempts to power up the cooling system failed, some gains were made with water to cool the spent rods. Gold joined in the equity-commodity rise, making today the second day in a row for it to
clock in a modest gain. For two post-plummet sessions, that's pretty good.

It didn't start off that way. Despite February inflation coming in at an expected 0.5%, and the core inflation rate showing an above-expectations 0.2%, gold fell when regular trading began. Dropping before and right after the news was released, the metal broke through the $1,400 level that it had regained with some effort earlier in the morning. Stabilizing below $1,401, the metal fell back again just before and right after equity markets opened. After 9:35, it blipped down to $1,396. Perhaps the latest initial jobless claims report, which showed a lower number of 385,000, had something to do with it - but perhaps not. Industrial output, released at 9:15 AM ET, showed an unexpected drop of 0.1% in February; expectations were for a 0.7% rise. This bad news was released just before gold's slip to $1,396; the metal reacted unexpectedly.

That slip-down proved to be climactic. Gold recovered smartly after it, and climbed easily above $1,400. The Index of Leading Economic Indicators was released at 10:00, when gold paused; it showed a nice but below-expectations rise of 0.8%. On the other hand, the Philadelphia Fed's manufacturing index showed its highest level since 1984 with a result well above expectations. By the time the rally petered out, gold had touched $1,405. From that peak, made at 11:00, it sunk down and meandered above $1,400 until two hours later when it inched up to a higher range of $1,403-$1,405. It stayed in that range for the rest of the afternoon. Some late-afternoon testing on the high side squeezed out a daily high of $1,406.40, but $1,405 proved to be a durable ceiling. As of the close, the spot price was $1,404.00 for a gain of $2.50 on the day. The Kitco Gold Index attributed -$3.25 to predominant selling and +$5.75 for a weakening greenback.

Gold's six-month chart, from, shows the low coming worryingly close to the Tuesday plummet low:

That low was the result of gold tumbling last evening, when it fell well below $1,390. Once again, the tendency to drop post-plummet was counteracted by some buying pressure. Part of it was bargain hunting, but also part of it was the cumulative effect of a preponderance of news items that are normally good for gold. The metal's Relative Strength Index (RSI), found at the top of its chart, shows a fairly good bounceback from the 50 neutral level. Turning back up around 50 is characteristic of a bull phase.

As for the U.S. Dollar Index, it had an unusually quiet session after taking quite a slide in overnight trading. Stuck around 76.0, it wobbled to and fro throughout the day; none of those above news items moved it much at all. As of 5:30, it continued to tend to its scratches at 75.97.

Its own six-month chart, also from, shows its lengthy skid down to 76.0:

Although the Index is slightly below 76, that support level is still potent. Today's undulations during regular trading show that potency. Still the Index took a significant spill today and its downtrend seems re-established.

Gold is showing a fair bit of strength after its rout two days ago, an unusual amount of strength given the usual afterslide that comes with plummets. It hadn't reacted all that much to news that would normally get it rolling, but the overall effect has been to add strength when weakness would normally be expected. Tonight's session may be choppy again, but gold traders in other countries may soon get the messgae that the metal's fairly resilient right now.

Oh, by the way...Happy St. Patrick's Day. May the luck of the pre-Eurocrisis Irish be with you.

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