Wednesday, April 20, 2011

Gold Loses Footing But Ends Above $1,500

Without the support lent by a falling U.S. dollar, which was largely flat today, gold managed to stay above $1,500 for most of the day. A dip in early afternoon to a day's low of $1,494.30 was recovered from with a climb that got the metal closing with a decent gain on the day. It was helped by WTI crude oil climbing to above $111 this morning, but the stabilization of the fuelstock in the afternoon led to gold's temporary slide.

The pit session began with a climb to $1,504, which was erased at 8:30 AM ET. The metal then sunk, albeit slowly and hesitantly, to $1,500. That level provided support then, as it would temporarily in the early afternoon. After bouncing off $1,500, it went on a climb that took it all the way up to a new record high of $1,507.10 at 11:45.

With oil pulling back at that time, gold did too. Again, $1,500 provided support but this time it was only temporary. As of 1:00, the metal fell through $1,500 on its way to below $1,495. Bottoming at 1:15, it then reversed and spent the next 2 3/4 hours in a hard-slog climb that took it back up to $1,502. Its strength exhausted, it fell back to $1,500 but climbed up again in the final stretch of regular trading. As of the close, the spot price was exactly $1,502.00 for a gain of $7.30 on the day. The Kitco Gold Index attributed -$6.75 to predominant selling and +$14.05 to a weakening greenback.

Gold's six-month chart, from Stockcharts.com, shows its gains once again continuing:



In the face of skepticism, including my own, the $1,500 level managed to hold today. The metal's Relative Strength Index (RSI), found at the top of its chart, shows it's still in the overbought zone. Gold may have some climb power left, but it would be reasonable to assume the metal will either get blocked at this level or take a temporary tumble. Either of the two, if not both, is what happened the last times its RSI had gotten in the overbought zone.

The U.S. Dollar Index, after tumbling in the morning part of the overnight session, took a rest today and stayed in a range between 74.315 and 74.48. It did break down below the bottom at 10:15, making for a new fifteen-month low of 74.265, but it got back into its range within fifteen minutes. Beginning regular trading around 74.36, it had hardly moved from that start at the end. As of 5:30, it was shuffling around at 74.345.

Its own six-month chart, also from Stockcharts.com, shows the reverse of quiet for the entire twenty-four hour stretch:



Today's drop, largely due to a snapback in the Euro to US$1.45, took the Index down to a new 15-month low. There's only about two points to go before it falls below its level thirty-one months ago. That said, the Index getting stuck in regular trading says that the wind is no longer at the Euro's back: it's having trouble climbing above the $1.45 level that used to frustrate it. The Index is back to near-oversold; lately, its drops have been diminished when its own Relative Strength Index has been just above 30. The overall trend is definitely down, but the odds don't favour the sharp drops continuing.

Despite its early afternoon fall, gold managed to hold its own after breaking through $1,500 at 2 AM. There was some profit-taking, but not enough to stifle it. Since the metal is overbought, it may not fare that well this comong overnight session - but it will if the Euro manages to bust through US$1.45 and stay above. Oil may lend a hand again as well.

6 comments:

  1. lol @ skepticism, I last called $1500 a possible area of resistance or a speedbump, in the next few weeks more companies are going to be releasing earnings... if they continue to report Billions with a capital B in profits, I expect more confidence in the dollar and the US economy, it will be fun to watch how Gold and oil reacts, even better if I make money while doing it : )

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  2. Yes, it'll be something to see. Gold right now is being driven up on expectations for stagflation, and hopes that a subpar recovery will keep the Fed dovish. When growth was stronger, back at the beginnning of the year, gold was held down by the "recovery trade." The code clause used to denote ditching gold for stocks was "an increase in risk appetite."

    Oil's a bit of a different story. Like silver, and unlike gold, it thrives best when inflation's high and the economy's strong. With oil, though, it's somewhat self-reversing. $4 gas bites even when times are good.

    Nothing wrong with making money while skeptical. It's called hedging :)

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  3. Sounds positive. I like your blog and am glad you have started writing it again. You're very astute and i like that.

    http://www.postgoldforcash.com

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  4. Thanks for your kind words, robin.

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  5. I like this commentary, it hammers home how important the UDS is to determining the gold price fix.It's worrying that the USD hit an all time low. Things are supposed to be getting better.

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  6. Thanks for the compliment. There's two of them every trading day, although the end-of-day wrapup contains more original content.

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