The market giveth, the market taketh away, and often the market faketh out. It was widely expected that the U.S. dollar would drop yesterday morning once the European Central Bank's Governing Council voted to hike the ECB's rate by 25 basis points to 1.25%. It didn't; instead, the greenback gained slightly on the euro. Until last night, that is. Sure enough, after lulling and disappointing, the Euro resumed climbing. It's not only the rate hike that's sinking the greenback but also the impending shutdown of the U.S. government (partial shutdown, really) because the debt limit has not been increased (yet.) For these reasons, the U.S. Dollar Index breached 75.0 and made a fifteen-month low. In sympathy, WTI crude oil closed at above $113. Gold thrived on that droppage, as well as on inflation- and fiscal-related fears, making another new record high today and closing with a double-digit gain. For the week, the metal gained an unusually high $46.10/oz, or 3.23%.
It wasn't all that smooth going when regular trading started up. Gold, after skipping up just before the pit session started, stalled and then slid back as profit-taking entered the picture. Bottoming at $1,466 at 9:45 AM ET, it quickly regained its footing and commenced a slippery climb that took it to $1,474 by 11:15. Slipping again, this time to $1,470, the metal entered into an up-and-down range between that level and $1,475.
The final slip took place between 2:30 and 3:10, when gold again traversed almost the entire range. With the end of the week approaching, the metal found the traction to climb again without any slipbacks. A final dive by the greenback helped gold keep its footing. Just before the session ended, the metal made another new record high of $1,476.40 and managed to end the week just below it. As of the close, the spot price was exactly $1,475.00 for a gain of $16.60 on the day. The Kitco Gold Index split the gain into +$2.60 for predominant buying and +$14.00 for a weakening greenback.
Gold's six-month chart, from Stockcharts.com, shows another clean breakout:
That breakout left gold within one excited trading day from $1,500. Its Relative Strength Index, found at the top of its chart, is now above the 70 overbought level. When that level's been reached, the metal does tend to take a spill that's induced by profit-taking and is temporary. It may be visited by such a pullback early this week, but that kind of a slip is likely to be little more than a fall out of bed.
The U.S. Dollar Index, as well-noted above, continued the tumble that started in overnight trading. Having broken below 75.5, it was trying to get above 75.2 when regular trading opened. Although unsuccessful, it managed to get a little above 75.2 before sliding to 75.05. It then got stuck in a ragged range between that level and 75.1, which lasted from mid-morning to an early-afternoon attempt to surmount the celing. Again successful for a time, but only to a small extent, the Index slipped but regained its footing just above 75.00. 75 did provide support for a time, but a sharp break at 3:50 sunk it below that support level. Continuing to slide, it ended the week at 74.85.
Its own six-month chart, also from Stockcharts.com, shows its breakdown to well below the level it bottomed at back in November of last year:
The Index is now lower than it's been since early December of 2009. Only a point separates it from levels it hadn't seen in almost three years. Once it reaches 74, it'll be at lows not seen since its takeoff in late July-August of 2008. Its Moving Average Convergence-Divergence lines, found at the bottom of its chart, made a bearish cross today. Again, the greenback is determined to keep sliding. With 75 broken, it seems only a matter of time before the Index checks out 74.0.
I have to admit to being flummoxed by the delayed reaction to the Eurorate hike, both for the greenback and gold. The former ended up waiting a day before slumping, and the latter waited the same to start rising again. Gold not pulling back to its breakout point speaks to the strength of its rally. $1,500 is the level to watch, and a lot of people will be watching it come next week.
In closing, I'd like to thank you for stopping by and seeing what I've got to pass along. Enjoy the newfound spring, even the cleanup part of it.