Friday, March 11, 2011

Gold Rebounds On Lower Greenback, Oil Relief Rally

The massive earthquake off Japan dominated the news today, and was credited with helping gold climb back to peak at the $1,425 level, but the sinking U.S. Dollar Index also helped. So did a slight rebound in the price of crude oil, which coincided with gold's partial recovery. The metal closed with a strong but single-digit gain on the day. For the week, though, it endured a loss of $13.20 or 0.921%.

Regular trading began with another disappointing slide after a brief uptick. Starting at 8:30 AM ET, despite the retail sales number for February being below expectations, gold first slid then skidded down to around $1,407. Perhaps the strength indicated by the raw 1.0% gain, and the 12-month 8.9% advance, was strong enough to bring back a little recovery-trade switching. Double-bottoming just after 9:30, gold stepped up to $1,410 then hesitated before making a run at $1,415. The morning hex broken, the metal applied itself to an irregular but steady advance. The greatest irregularity was a strong but short-lived jump around noon.

Peaking at 1:45 at $1,425.50, the metal got exhausted a short time after the greenback's slide came to a halt. Interestingly, the yen was the currency that benefitted from the earthquake once it recovered from its temporary spill. Advance turning into retreat in mid-afternoon, gold slowly slid back to $1,416. Stopping and then inching up near the end of the session, the spot price closed the week at $1,419.60 for a gain of $8.50 on the day. The Kitco Gold Index attributed -$1.40 to predominant selling and +$9.90 to a weakening greenback.

The metal's six-month chart, from, shows a fairly strong rebound but one insufficient to breach the $1,425 resistance level:

Gold's ceiling today is reminiscent of the barrier it bumped against late last year after its fall bull run was blocked. Thanks to last month's run, this revisitation makes for a pullback. The metal's Relative Strength Index (RSI), found at the top of its chart, is still above the 50 neutral level although not by much. In bull runs, a descent to around 50 marks the end of a pullback. Gold's fall may not be over. On the bottom of its chart, the Moving Average Convergence-Divergence (MACD) lines made a bearish cross today. Although today's strength is reassuring, the metal may have more drop in store for it.

Turning to the U.S. Dollar Index, its drop today all-but matched its climb yesterday. After starting off regular trading with a second peak at 77.35, it turned around and slid steadily until noon when it reached 76.85. Then bogged down, it rested for two and a half hours until sliding again in two stages during later afternoon. A final hop, up from 76.65, enabled it to end the week at 76.71.

Its own six-month chart, also from, shows today's skiddy decline erasing yesterday's strong advance:

So, the Index is back to yesterday's open. As consistent with an asset in a bear trend, its RSI got close to 50 on yesterday's advance and turned downwards with today's decline. For the last two days, its MACD lines have been in a bullish configuration. The Index may have more advancing in store for it, but so far this countertrend rally looks weaker than early February's.

It was a bad day for gold yesterday, but today's partial recovery means any panic will not carry over into the weekend. There's no further sign of any desire to tighten by either the Fed or the ECB, and the Bank of England did not tighten yesterday. Gold reacted badly to oil's slide yesterday, but it took today's later-afternoon slide with little slippage. If the decline should continue, bargain-hunting interest will kick in below $1,400.

In closing, I'd like to thank you for stopping by and reading what I've got. There'll be another short story published here on Sunday. Have a great weekend, and I hope it's not too soggy where you are.

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