Monday, April 25, 2011

Gold, Buffeted In Part By Fluctuating Greenback, Ends With Small Gain

Gold was doing quite well before regular trading started. Boosted by official speculation in mainland China about reducing its U.S. dollar holdings by two-thirds, and by a surge in silver, gold made it to the high 1510s before regular trading got rolling; at 4 AM ET, it set a new record of $1,519.30. It sunk down to the low 1510s by the time the pit session got rolling, but a sustained recovery in the greenback knocked it for a loop at 9:45 AM. Around the same time as gold's skid, WTI crude oil tumbled from above $113 to $111.

Before supported at $1,510, the metal slid down to $1,504 before the selling wave relented and it regained its footing - but not for long. After climbing back to $1,508, it skidded further to a day's low of $1,501.20. Only then did it get enough of a solid footing to climb, which it did in late morning to above $1,512. Oil pulled back up too, to above $112.

The afternoon saw the metal settle down into a range between $1,508 and $1,511. In sympathy with the greenback, which also settled down in the afternoon, gold stayed in that range until just before 4:00. It then slipped into a lower one bordered by $1,506 and $1,508. After all the volatility, it came to the close on the plus side - in large part because of the larger gains made in the overnight session. As of the end of regular trading, the spot price was $1,507.40 which made for a gain of $2.70 since Friday's close. The Kitco Gold Index split the gain into +$1.00 for predominant buying and +$1.70 for a weakening greenback.

Gold's six-month chart, from, shows its fluctuations today largely cancelling out:

Its Relative Strength Index, found at the top of its chart, paints a picture of a short-term rally that's living on borrowed time. Gold is still overbought, as it has been for all of last week. Its stretch of gains, admittedly due to a timing quirk of the chart, is now stretched out to a rare nine in a row. When this perspective is added, gold's tumble just before 10:00 is understandable. More remarkable was the recovery to $1,513. I know I've said this before, but the metal's still ripe for a pullback.

As for the U.S. Dollar Index, it had a good run this morning that got rolling before regular trading started. Stuck at 73.8 a little after 7:30, the Index forded up to almost 74.00 before slipping back to 73.87. Double-bottoming there, it mustered enough strength at 9:35 to jaunt up to 74.18 before it ran out of power at 11:20. Then slipping back, it descended into a slightly falling channel that turned into sideways motion. During the afternoon, it was largely quiescent as it hung around 74.00. As of 5:15, it hit 74.00 exactly.

Its own six-month chart, also from, shows it stuck around 74:

The Index followed its three-day plummet last week with hardly any movement at all. Although the interday fluctuations have been there over the past three trading days, the difference between open and close have been miniscule. So has its overall movement after having made a new 30-month low of about 73.3. It's almost as if the Index were licking its wounds. Its own Relative Strength Index shows that it isn't oversold, but it's close. The greenback, after it shakes off its lassitude, may be preparing for another countertrend jump.

Again, gold continues to show a fair bit of strength at nosebleed levels. Festival-prompted Indian demand is coming in strong, close to the level seen on bargain-hunting sprees, even with gold close to new records. Tonight's overnight session may see a little more gain squeezed out of the metal, despite its short-term rise becoming long in the tooth.

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