Friday, March 18, 2011

Gold Ends With Double-Digit Gain On Libya, Weaker Greenback

Although the Japanese nuclear disaster is still hanging in the air, with little or no progress made, the gold market's attention was focussed on the Libyan situation. The U.N. deciding to approve a no-fly-zone, arms embargo and asset freeze got gold rolling upwards yesterday evening, and the upward climb continued through most of the overnight session. A sinking U.S. Dollar Index helped the metal too. This morning, shortly after 8:30, the Libyan foreign minister announced that Gadaffi's government would comply with a cease-fire. Pockets of batttling continued. This afternoon, President Obama issued an ultimatum to Gadaffi: cease advancing on the rebel-held city of Benghazi and withdraw from recently-captured cities or else face the militaries of yet another coalition - this one led by France and the U.K.

Both the ceasefire announcement and President Obama's ultimatum led to spot slides in gold; both skids were recovered from. But, the first skid took the wind out of gold's pre-pit-session rally and drained its upward momentum. Still, the metal closed the day with a strong double-digit gain that was helped by further falls in the greenback. For the week, the metal was almost exactly unchanged: from last Friday's close, it gained 10 cents or 0.00704%.

Beginning the pit session with a nice rally, gold was shoved down by the Libyan government's acceptance of the U.N. security resolution's ceasefire announcement. Going from $1,424 to $1,416, the metal had the wind knocked out of it and spent some time lingering in the high 1410s. Another rally, prompted by reports that Libyan troops were still fighting, got to $1,323 before the metal skidded down to around $1,420. Then, it and the U.S. Dolar Index fell in tandem. The steady slide in late morning and early afternoon climaxed with another flash skid that greeted President Obama's ultimatum. Recovering quickly from the $1,413 bottom, the metal rallied unevenly but was not able to get above $1,420 again. The falling greenback helped overall. As of the close, the spot price was $1,419.70 for a sizable gain of $15.70 on the day. The Kitco Gold Index split the gain into +$8.10 for predominant buying and +$7.60 for a weakening greenback.

Gold's six-month chart, from, shows today's sizable gain:

Although a close above $1,420 proved to be too daunting, the metal's third gain day in a row has been quite the achievement after Tuesday's plummet. It's recovered most of its ground lost on that day. Its Relative Strength Index (RSI), found at the top of its chart, has bounced back while around the 50 neutral level. Despite gold's blindsiding and later funk, that's still indicative of a bull run. Moreover, the metal's not that far from its record high despite the Libya intervention. Discrete steps towards an end to the civil war caused panic slides, but little else. Although the crisis drivers moving gold up are fading, the metal's done fairly well for itself. A future post-crisis pullback would merely be that.

As for the U.S. Dollar Index, there's little to say in its favour today. Losing all the ground it gained from the yen's surprise plummet, it entered regular trading around 75.9. Moving ever-so-slowly downwards until noon, it lost ground in a two-stage slide that lasted for the entire afternoon. At the end of the week, it close near its day's low at 75.55.

That wasn't the only low that showed up. As its own daily chart from shows, it closed today at a much more significant low:

As the chart makes clear, the Index came to rest just above a new fifteen-month low. November 4's low has now been worsted. Although the Index's own RSI level is just above oversold, its declining trend is back and active. The next stop is 75.

Gold, including Monday's rise, ended the week almost exactly where it ended last week. For a plummet week, that's quite creditiable. That said, there is a chance of a post-crisis decline as the Libyan civil war winds towards a resolution. What resolution that will be, is yet to be determined. Gadaffi might end up staying on his perch with his wings clipped. Gold still has enough rally power, though, to keep its overall bullishness intact. Late January's climactic bottom is long behind it.

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