Gold Dives Due To Profit Taking After Making New Record High

Profit-taking finally hit gold, and pushed it down quite a lot, but the metal managed to ford up to a new record high of $1,449.10 this morning. About half of the damage done during the afternoon tumble was to the metal's earlier gains. As a result, it closed with a single-digit loss today; that loss ended its six-day winning streak.

Gold fell just before regular trading started, but recovered to drift along the $1,440 mark. Starting at 10:30, just after the greenback stumbled, the metal leapt up above $1,445. Its new record was made shortly afterwards, and it hung around $1,446-7 until 12:30 PM ET.

Then, a recovery in the greenback plus a drop in the price of WTI oil triggered a selling wave that got gold tumbling all the way down to $1,430. Then fluctuating between that level and $1,435, the metal faced further selling pressure that introduced it to its day's low of $1,423.00. Tumble over, it recovered somewhat and managed to trundle back up above $1,430. As of the close, the spot price was $1,430.80 for a drop of $7.80 on the day. The Kitco Gold Index attributed -$13.10 to predominant selling and +$5.30 to a weakening greenback.

The metal's six-month chart, from Stockcharts.com, shows it coming to rest slightly above yesterday's opening:



It was only a matter of time before profit-taking overwhelmed demand. Despite last month's run-up, gold is still in a consolidation phase. Its new record wasn't much higher than its previous one. Gold's Relative Strength Index (RSI) line, found at the top of its chart, is well below the level it was at when the metal made its last record high. That's known by chartists as a "negative divergence," and it doesn't bode well for gold. Given that the metal's still consolidating over the longer term, it may pull back again unless the bad-economy driver keeps pushing it up.

As for the U.S. Dollar Index, its rise early in regular trading did not best its earlier peak in the wee hours of the morning. Topping around 75.9, it lost its footing and then tumbled all the way down to 75.445. Regaining its footing just after 11 AM, it recovered some ground but couldn't get above 75.7 in that early-afternoon recovery. Taking a rest, it trundled upwards but ended up falling back into a 75.65-75.7 range. As of 5:30, it was rambling around at 75.675.

Its own six-month chart, also from Stockcharts.com, shows its fall today as not that large when compared with yesterday's jump:



The Index tried to make it above 76 these last two days but barely succeeded; those rises proved to be quite temporary. It may take a breather from both its earlier swift decline and recent rise unless oil continued to plow upwards.

The aftereffect of gold's new record may have been disappointing, but it still made a new record. Recent short-term drivers have pertained to a weakening U.S. economy, as show by its reaction to a few recent reports. The gold market seems to be discounting another round of quantitative easing by the Fed. If QE3 is announced, then things will be sanguine for the gold market. If not, then a disappointment discount will visit the metal. As for tonight's trading, there's little reason for gold to keep on tumbling. It should be quiet, and it may benefit from a relief rally.