Tuesday, March 29, 2011

Gold Meanders To Slight Loss As Early Morning Slump Largely Undone

Gold tumbled down in overnight trading, following crude oil down. Today's nadir of $1,410.50, though, was slightly higher than yesterday's. With respect to the usual trouble spots, there was some lack of clarity on the Coalition end game in Libya today. A London conference failed to settle some questions about what'll happen to Gadaffi. Regarding Syria, senior lawmakers with the U.S. government had thumbs-downed intevention on the protestors' behalf. For now, anyway.

The metal seems to be looking for more trouble spots rather than at the headline-grabbers. For example, a bad consumer-confidence reading released at 10:00 AM ET today points to a recovery that's more vulnerable than believed. Although expectations were for a sizable drop, the bad news entailed by the number helped gold in its morning rally. Again today, the metal started climbing just before the pit session started up. The rally, although uneven in spots, continued until it reached its day's peak of $1,424.60 just after 11:30.

Then, it turned down in part because of increased risk appetite that pushed U.S. stocks up. This time, gold's slide was not caused by a rise in the greenback. The slide lasted an hour and twenty minutes, with gold down to $1,415 before reversing course at 12:50 PM. For the rest of the day, the metal inched upwards in a very gently rising trend that looked almost horizontal for most of its stretch. That shuffling wasn't enough to turn a loss into a gain. As of the close, the spot price was $1,418.70 for a loss of $2.20 on the day. The Kitco Gold Index attributed -$3.50 to predominant selling and +$1.30 to a weakening greenback.

The metal's six-month chart, from Stockcharts.com, shows it declining for the fourth day in a row:

Gold is indeed looking ahead. With the Libyan situation largely in hand, and the other trouble spots experiencing little more than mass protests combined with hopes of peacefully transferring power, the gold market's eyes have shifted to the U.S. So far, there hasn't been much to bestir the metal upwards. With gold stuck in consolidation, any further falls might not be that extensive. A plummet will likely be met with a lot of bargain hunting, as buying the halt of the last one worked out. Gold's Relative Strength Index (RSI), found at the top of its chart, is close to the neutral level 50. During bull runs, the RSI sinks to that level and gold then turns up. This rule has worked so far, and it may work again.

Turning to the U.S. Dollar Index, it sagged a little in today's regular trading but it didn't lose that much ground. Slumping down to 76.20 in early morning, it indecisively fluctuated around 76.27 until 3:30 when it slumped again. Despite some testing, 76.15 stopped the Index from falling further. As of 5:30, it was resting at 76.165.

Its own six-month chart, also from Stockcharts.com, shows it continuing to decline today:

The Index's secondary upturn might well be over, but its rate of decline doesn't give much hope for a resumption of its speedy falls. For the second day in a row, its Moving Average Convergence-Divergence lines (found at the bottom of its chart) have been in a bullish configuration: the bullish cross was made yesterday. As today's slump indicates, that cross may be misleading. The MACD lines have been quite close to each other for more than a month, so yesterday's bullish cross may be a fluke. Given the Index's bearish trend, further slumping is more likely than a significant upturn.

Again, gold slumped in the wee hours of the morning - at the time when the Libyan news cycle is most active. The metal seems to be discounting an eventual rebel victory and return to stability for that country. For the second day in a row, American trading has partially reversed London's gloomy assessment of the metal's fortunes. Bad economic news consistent with stagflation would make gold rev up again, but there's little to no indication of a stagflationary phase yet. So, the rambling continues. We may see a repeat of the gloominess in overnight trading, particularly if the Libyan rebels keep advancing with Coalition help.

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