Tuesday, April 26, 2011

After Rough Session, Gold Scrambles Back To Close With Miniscule Loss

On the eve of the Fed announcing the results of its two-day policy meeting, not to mention Ben Bernake's first press conference, gold had gotten the jitters. Because of a tumble last night, which was not completely made up for in early morning, the metal spent almost the entire day in the red. Its daily high, of $1,508.90, was made just before the afternoon ended. The last-hour surge that ended with that high lacked the staying power to keep gold from closing with a tiny loss. But, it was close.

The metal started off with a droop to $1,503, which was recovered from by a jump to $1,506. Then, starting at 8:45 AM ET, it began to lose ground in a selling slide that accelerated as it reached its nadir of $1,491.80 at 10:15. Unlike yesterday morning's tumble, this one ended without a false recovery climb. Instead, the metal made a real climb all the way back up to $1,502.

As noon approached, it sunk back to a range between $1,498 and $1,500. Some buying power came in, but only enough to get it up to the low 1500s. Staying stuck there for most of the afternoon, gold got some traction at 4:00 and managed to climb up to its daily high before slipping back a little. There was no evident reason for this climb, except perhaps for inflation influences seeping in to corporate earnings reports. Its run could be ascribed to a return of confidence, after the metal managed to regain $1,500, based in the greenback acting lackadasically. As of the close, a last-minute slip took away that only gain of the day; the spot price ended at $1,507.10 for a loss of only $0.30. The Kitco Gold Index attributed -$5.40 to predominant selling and +$5.10 to a weakening greenback.

Gold's six-month chart, from Stockcharts.com, shows its first unambiguous decline in nine sessions:

There's still a fair bit of bullishness, as indicted by the afternoon recovery from the morning spill. Despite today's downtick, gold's Relative Strength Index (found at the top of its chart) is still in the overbought zone. What's unusual about today's decline is, the first drop after a long stretch of gains is usually substantial; today's barely registers. Given that afternoon recovery, there's reason to believe that the Fed holding the course tomorrow is already priced in.

Turning to the U.S. Dollar Index, its own action today was flat-footed. The bulk of its declining took place early this morning, before regular trading started. The beginning of the session saw it recover to 73.95. Unfortunately, that was close to the high of the day: the Index spent the rest of the session doing the one-step-forward-two-steps-back routine. Losing ground, although slowly, the Index had trouble falling below 73.75 but got near as the afternoon wore on. As of 5:15, it was meandering at 73.77.

Its own six-month chart, also from Stockcharts.com, shows it bumping aginst the lower part of its recent range:

Not yet falling below the 73.75 resistance level, its decline today still brought it close. Rather than taking a stab at a secondary recovery, it instead languished. Needless to say, its trend is still down. The Index seems to be discounting continued Fed dovishness.

For a breakdown day after a long-toothed short-term rally phase, gold did fairly well. Although the metal may still face a rough time tonight, the uncertainty engendered by the Fed's policy meeting hasn't fazed it all that much. Nor has silver's breakdown from near $50 to $45. There's still a risk of an about-shift by the Fed tomorrow, which should weigh down the metal tonight. If the Fed stays the course, then things look fairly good for gold - unless traders decide to sell on the news.

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