Hope for a Libyan ceasefire, which the African Union brokered last night but whose details are still sketchy, was good enough to drive down the price of WTI crude by almost five dollars a barrel. From above $113 at Friday's peak, oil descended to below $109 in a fairly smooth fall. Most of the damage was done in regular trading today. Although gold was less affected than oil, the metal also fell today on the hopeful development. Also, although this effect didn't show up in overnight trading, the last-minute budget deal this weekend eased some uncertainty. The U.S. Dollar strengthened, although not by much in regular trading, which added to the headwind. At the end, the metal was off by more than ten dollars an ounce.
Regular trading began with a recovery after a stumble to $1,465. Gold tried to get back on the upward track, but was stymied at $1,470. Except for another stumble around 10:30 AM ET, the metal settled into a ragged range between $1,468 and $1,470 until noon. The few attempts to get above $1,470 petered out after a dollar or so above that level.
Once noon arrived, the metal pulled back to as low as $1,464 but recovered somewhat. Not making it above $1,468, it then yielded to a sustained bout of selling pressure that was in large part sparked by the drop in oil and disappointment in its performance. For a time, it was batted down below $1,460. Again clambering up in a relief rally, it spent later afternoon in a range between $1,462 and $1,464. As of the close, the spot price ended in the middle of the range at $1,463.20 for a loss of $11.80 since Friday's close. The Kitco Gold Index split the loss into -$8.10 for predominant selling and -$3.70 for a strengthening greenback.
Gold's six-month chart, from Stockcharts.com, shows today's pullback taking away most of yesterday's pop-up:
Although the Libyan ceasefire hope drove it down, I note that its Relative Strength Index (found at the top of its chart) was in overbought territory last Friday. The $1,460 level, at which it bumped up against before jumping up of Friday, proved to be a support level today. Given the proposed ceasefire's downward influence on gold, $1,460 may melt away if a definite ceasefire is promulgated and followed through upon. The drop in oil shows the oil market is taking the possibility seriously. The gold market may not as yet. Still, a pullback would be healthy after last week's run-up. If upcoming U.S. economic data shows more evidence of a softening recovery, the metal may shake Libya off.
Turning to the U.S. Dollar Index, it tried to surmount the 75.1 level that it almost reached at the beginning of regular trading but it failed to. It didn't drop much, though, even when it was slipping. Instead, the Index followed a ragged downward slide in the morning with an uneven rise in the afternoon; both amounted to rambling in a trading range. Ending its morning slide at just below 75.9, it tried but failed to reach its early morning peak in late afternoon. It did managed to stay above 75.0, but not by much. As of 5:30, it was inching up at 75.04.
Its own six-month chart, also from Stockcharts.com, shows its gains today as little more than a relief rally:
The Index's own Relative Strength Index shows it bouncing off the oversold level it almost reached on Friday. Although today's candlestick is a fair bit above Friday's low, its slightness shows the relief-rally character of today's gains. It did manage to get above 75.0 again, but its trend is still downwards. There might be enough relief power to get up to 75.5, but that's only if the data on the U.S. economy co-operates this week.
Although gold faced a setback today, some of it was due to profit-taking engendered by last week's strong climb. Oil fared worse today. As for the ceasefire plan, it's hung on one crucual detail: whether or not Gadaffi is required to step down. The rebels insist he must, which could kill the proposal. Gold may continue to soften in overnight trading, but its test is coming up over the rest of the week with a slew of data on the U.S. economy. Should the recovery prove to be weakening, gold has a good chance of getting on track.