Gold Hits Another Record But Slides Down In Afternoon

Spot gold has a new record: $1,441.30, set near noon ET today. That record came at the cusp of a steady rise that started long before the pit session did. In the afternoon, the gold market got a bit of the frights as it awaited the Fed's Beige Book of economic conditions. The details therein weren't all that bad from an inflation-watcher's perspective. Firms are acquiring pricing power, the ability to preserve their margins by passing along input-price jumps to the consumer. Growth was described as proceeding at a “'modest to moderate'” rate. There are signs that the commercial real-estate sector is licking its wounds and picking up a bit. The report demurred with respect to inflation because wages aren't going up. Allied testimony from Ben Bernanke revealed that he believes any commodity-induced inflation will be a blip and little else. He also revealed that the Fed is more than three-quarters finished with QE2.

To a goldbug who thinks that U.S. inflation will be a problem in the near future, the Beige Book is close to a dream. It, along with Bernanke's own words, implies the Fed will be slow to react unless wages start rising at a nice clip. If not, then the FOMC will go along with the current easy-money policy. If the inflationist scenario is upon us, the U.S. central bank has pre-announced its blinders. This take is not one that the gold market seemed to share. Already declining before the Beige Book was unveiled, the metal fell a few dollars within ten minutes after its release at 2:00; it continued to decline until 3:00. Only a partial turnaround saved gold from booking a loss today; at the end of regular trading, it sported a small gain.

As noted above, the metal's morning rise was fairly steady although punctuated by fluctuations and mid-morning marking time. Helping gold up was a drop in the U.S. Dollar Index to a little above 76.5. The greenback turned upward in mid-morning, although not by much, and gold's top today was touched just before noon. Right around 12:00, the metal stumbled to the tune of three dollars. Picking up, it failed to best its record high; after that, it began its downward journey. It had sunk to about $1,435 before the Beige Book was released; its regular trading low, reached an hour later, was less than $1,431. Perhaps the Beige Book brought out technical selling rather than nervousness, but the hour-long drop after its release suggests otherwise.

Once bottoming, gold reversed and took back most of the ground it lost in the next hour and three-quarters. Getting stuck at $1,337, it underwent another stumble before a final upward stride. As of the close, the spot price was $1,435.70 for a gain of $2.50 on the day. The Kitco Gold Index attributed -$4.20 to predominant selling and +$6.70 to a weakening of the greenback.

Gold's six-month chart, from Stockcharts.com, shows the metal's action ending inconclusively today:



To appearances, gold's uptrend is still going strong. Today's close added little to yesterday's leap, but there's little weakness on the technical front. The only question mark is found at the top of gold's chart. Its Relative Strength Index value is now above the overbought level of 70. That elevation isn't necessarily a strike against the current rally: gold has stayed overbought for as long as a couple of weeks during a strong up-move. As of now, the RSI's a cautionary sign.

Turning to the greenback, the U.S. Dollar Index had another bad morning - but this morning's whittle-away ended earlier than others have in the recent past. After a swift drop, the Index double bottomed at 76.52 at 10:45. Then, it slowly climbed up above 76.7 before levelling off around 76.65. As of 5:30, it was at 76.675.

Its own six-month chart, also from Stockcharts.com, shows it declining to a new multi-month low:



The Index's drop has been slower and more interrupted than its slip-slide in January, but it is back on the declining track. Its own RSI value is only a little above oversold. Its Moving Average Divergence-Convergence lines, found at the bottom of its chart, are in the same bearish configuration that first appeared a week ago. The negativity is slight, but it's there. The greenback is sinking sluggishly because its status as a prime safe haven is slowly being cracked by the appearance of inflation as heralded by the oil spike. Plus, the European Central Bank seems more hawkish about inflation than the Fed.

Gold may have only got tired out today. Desite its afternoon slide, the metal still made another record high. It might be due for a rest, in which case it would slide in overnight trading as well. Unless it hits $1,420, there's no real reason to see any pullback as anything other than a normal retrenchment.