Tuesday, March 15, 2011

Gold Licks Its Wounds After Plummet, Closes Below $1,400

Today was an awful day for gold, with yesterday's safe-haven boost from the Japan nuclear diaster turning into a rout starting from the time evening trading began. Silver was hammered even more badly, and WTI oil sunk well below $100 due to a combination of Gadaffi tactical victories and an asset rout that also hit more recovery-tied commodities like copper and platinum. Gold got caught in the downdraft as it was sold to provide ready cash at first, and later bailed out of to escape the plummet. The king of Bahrain declared martial law today, in the wake of the fizzled Saudi Arabian "Day of Rage" protest four days ago, but the gold market didn't care. Today, it had much bigger cares.

After recovering somewhat from last night's tumble, gold had made it back up to $1,415 as of 4 AM ET. Starting then, another rout developed that climaxed when the pit session opened. A little after 8:30, the worst was over once gold hit its daily low of $1,380.10. From there, the metal reversed course and managed a two-stage recovery rally that got a boost in its second stage by the U.S. stock market opening much lower. The selling cascade was triggered in Japan, and didn't carry over to gold when U.S. stocks were ravaged in sympathy with the Nikkei's mini-crash last night. Also helping gold was a reversal of the greenback rally that took place before regular trading began.

The metal put on a good show in mid-morning, peaking just below $1,404 at 11:00. Unfortunately, the former $1,400 support level put on a good show as a resistance level. Failing to surmount $1,400 sustainably, the metal fell into a wide range between $1,392 and $1,398. Fluctuating in that range all through the afternoon, the metal closed in the middle of it. At the end of regular trading, the spot price was $1,395.70 for a loss of $33.10 on the day. Due to the greenback's yo-yo'ing, the Kitco Gold Index attributed the entire loss to predominant selling.

Gold's six-month chart, from Stockcharts.com, shows the extent of the damage today:

Yes, today was a bad day even though gold managed to close well above its lows. In yesterday evening's wrapup, I expressed some concern over gold's Moving Average Convergence-Divergence (MACD) lines making a bearish cross. Unlike the bearish crosses of the past, yesterday's came before gold had plummeted instead of after. To be frank, I wish I had been more definite about my concern. Needless to say, the MACD's bearish cross proved to be unusually prescient this time 'round. Normally, a bear cross comes after the damage has been done.

The metal's Relative Strength Index (RSI), found at the top of its chart, got beaten down to a little below the 50 neutral level. In bull phases, going down to 50 marks the end of the downturns. Such may be the case for this rout, but bargain hunters would have to co-operate to make it so. As the chart indicates, the aftermath of a plummet is often a lesser slide before the metal settles down and licks its wounds.

Turning to the U.S. Dollar Index, its action in today's regular trading was both familiar and strange. Like it's done during its recent downturn, the Index lost a fair bit of ground this morning in a decelerating slide. Unlike recently, though, today's downturn shed all of its gains from the overnight session. The greenback benefitted from some safe-haven buying last night and early this morning, peaking at a little below 77 as of 8:45, but the morning part of regular trading melted all those gains away. Descending much more spottily in the afternoon, after two failed attempts to surmount 76.5, it shuffled along at below 76.4. As of 5:30, it was meandering at 76.34.

Its own six-month chart shows its round trip in the form of a candlestick that's virtually all wick:

The top wick is especially long, showing the giveback of its overnight gains. The Index is content to wander between its March 7th low and March 11th high for now. Unless it makes a definte breakdown below that low, I'd expect it to keep floundering about where it is.

As for gold's path this overnight session, it depends on the Asians. In India, there have been many expressions of interest in getting gold below $1,400 from traders and stockists. Unless the plummet convinces them to lower their price points, they'll have a hand in keeping gold stable. Last night, there was no safe haven buying from Japanese and other Asian sources on the Singapore and Hong Kong markets. If that turn-away continues tonight, gold may be in for another - likely lesser - slide. If bargain hunters pony up, gold may skip the after-slide and commence to lick its wounds.

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