Monday, March 21, 2011

Gold Ends Up With Decent Gain, Falls From Earlier Highs

Although world attention is focussed on the Libyan war, another regional trouble spot flared up today. Yemen's leader, President Ali Abdullah Saleh, is facing an open mutiny with two generals defecting to the rebels' side. What turned the tide was reaction to an earlier crackdown of a protest in which 46 protestors were killed. Three ministers and dozens of members of parliament have already quit; there's a sense that Saleh is inevitably going to be a goner. With respect to Libya, a gold wrinkle has emerged: the central bank holds 143.8 tonnes of gold and is still under Gadaffi's control. "Gadaffi's gold" is in Libya and cannot be subject to the asset freeze. With more than $6 billion worth of the metal at his disposal, he may dip into that till to secure the wherewithal to keep fighting.

Gold started off the week with a jump upwards, and added to the jump in the overnight session. The ascent climaxed with the opening of regular trading: the day's high of $1,436.10 marked the end of a run at the start of the pit session. Turning downwards after 8:45 AM ET, and that got aggravated just before the stock market opened with a nice gain, gold slipped down to $1,428.

Then it climbed and fell back. Two spurts, up to $1,432.50 and $1,434.50, didn't last but overall gold rose slightly in later morning. Settling at around $1,432 by noon, gold hovered there until it slid down on a selling wave starting at 12:30. Oil had sunk back for some time as of then, although it made a newer low at the time gold skidded. The decline, which lasted more than an hour, was triggered by a combination of oil's slide and some profit-taking as the market becomes acclimatized to the air strikes. Bottoming at $1,426, the metal stayed in the high 1420s for the rest of the afternoon. A drift upwards was followed by backtracking, just before gold rambled to end with a decent gain. As of the close, the spot price was $1,427.10 for a gain of $7.40 since Friday's end. The Kitco Gold Index split the gain into +$4.60 for predominant buying and +$2.80 for a weakening of the greenback.

Gold's six-month chart, from, shows its fourth daily gain in a row:

The metal is now back in the same zone it fell from last Tuesday. Although still consolidating from a broader perspective, gold's recovery suggests it may make a run at a new record in the near future. For that to happen, though, there has to be a new driver. So far, the drivers from the international-turmoil arena have only sufficed to get gold either up to a tepid new record or at the upper end of its consolidation channel. (Note that gold's plummet last Tuesday brought it well below that channel.) So, despite the enthusiasm out there, the chart suggests gold will continue to consolidate. The usual sources of supportive demand, despite Japanese consumers edging into the market, are not participating as they used to. ETF demand is picking up, but from a fairly low base. There's no new flood of demand, as yet, to haul gold up to a new plateau. So, odds are that gold will continue to consolidate. There is somewhat of a risk that it'll pull back.

The U.S. Dollar Index continues to sink. Despite a nice jump around the time the equity markets opened, the Index resumed falling and managed to trend downwards to below 75.4. A mid-afternoon recovery was so slight it might as well have been a sideways move; 75.5 remained out of reach. As of 5:30, it was lingering at 75.42.

Its own six-month chart, also from, shows its decline continuing apace:

In fact, as the chart shows, its latest climb-down has been fairly swift. This marks the third day in a row the Index has declined. The previous run-up was only a fall-up. It is still making new fifteen-month lows; its low of December '09, just below 74.5, is about a point away. The Index shook off a short-lasting bullish cross of its Moving Average Convergence-Divergence lines, found at the bottom of its chart; a bearish configuration is back. Its Relative Strength Index is only slightly above the 30 oversold level, which may bode a secondary upturn some time. But, from an intermediate-term perspective, it's still downward-ho.

In part helped by the fall in the greenback, gold is back to the upper end of its consolidation zone. It may show some hesitancy now, as markets are beginning to take the Libyan war in stride, but international conditions are still clearing the path upwards. Overnight, gold should continue fluctuating as new drivers are sought out.

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