Tuesday, April 12, 2011

Gold Gets Hammered Along With Oil, Other Commodities

All was well until 9 AM ET. Then, a turndown in gold from as high as $1,468.40 turned into a tumble that climaxed at 10 AM ET. The tumble was part of a selling blast that encompassed several commodities, including oil; in fact oil's tumble seemed to initiate the rest. From above $110, WTI crude descended to a range between $105.50 and $106.50. Equities also fell. That general selling wave may have been triggered by a Goldman Sachs recommendation to get out of a previously recommended buy of a commodity basket. As for gold, the selling tumble seems to have been exaggerated profit-taking. Thanks to earlier gains, the metal managed to limit its daily loss to slightly below two figures.

Regular trading began quite differently. After a pullback that followed a climb in London trading, gold rallied to peak at the high 1460s on U.S. economic news that suggested stagflation. As an example, prices for U.S. imports leapt 2.7% in March - way above expectations for a 2.0% gain. Even excluding fuel, prices went up by 0.6% in March alone.

Gold reached its daily peak just before 9:00. Then sliding, its downward momentum increased until the selling blast climaxed at 10:00. Ten minutes later, the metal finally got a respite at $1,448. Although it climbed back to almost $1,454, its woes were not over. Just before 11:00, it slid again 'til it reached its daily low of $1,443.20.

This time, the relief rally was on solider footing. Although unevenly, gold managed a slight upward trajectory for the rest of the day even though $1,454 proved to be too formidable a barrier for it to retake. As of the close, the spot price was $1,453.70 for a drop of $9.50 on the day. The Kitco Gold Index attributed -$12.60 to predominant selling and +$2.60 to a weakening greenback.

Gold's six-month chart, from Stockcharts.com, shows today's pullback almost reaching the breakout point surmounted last week:

Although the metal was hit hard today, the body of today's candlestick isn't much greater than that of yesterday's. The two days encompass a pullback that bottomed at about the level at which gold was stymied before last week's breakout. That means gold's recent upturn is still valid. What to watch for tomorrow is if gold picks itself up and notches up a gain. If it does, then today's drop was little more than profit-taking that ballooned into panic selling.

Given the fate of commodities and equities, it would be reasonable to expect the U.S. Dollar Index to have benefitted from safe-haven buying. Actually, the Index didn't. Pummeled at 8:30 by the same news that gold liked, it bottomed at 74.69 at 8:50. It then rebounded, in a two-stage advance, but it couldn't get above 75.03. Around midnight, in contrast, it had been as high as 75.2. That late-morning peak failing, the Index slid down to 74.8 before inching up in a recovery climb that could not get above 74.9. As of 5:30, it was meandering at 74.885.

Its own six-month chart, also from Stockcharts.com, shows yesterday's advance being cancelled out today:

Instead of profiting from the selling blast, the Index was slightly affected by it. Its low today made for a new fifteen-month low, and it's still less than three points away from making a new thirty-one month low. Its overall decline wasn't that much, however, and it may be in for another respite.

Although today's tumble was disappointing, the metal managed to keep its upturn intact so far. What'll matter in overnight trading is whether or not its afternoon stabilization holds. If it manages to keep its footing, it'll keep the uptrend intact. A gain tomorrow would go far to convincing market participants that gold simply fell out of bed again.


  1. Yes it was a very bad day for commodities! I had a large option position on IOC (oil stock) that I got clobbered on. I'm doing damage control now.

  2. That's a real shame. These swacks just come out of the blue, don't they?