Friday, April 1, 2011

Gold Mostly Recovers From Nasty Payrolls Spill, Helped By Sinking Greenback And Rising Oil

The release of the March nonfarm payrolls report, showing above-expected growth of 216,000 jobs and a 0.1% dip of the unemployment rate to 8.8%, caused what can only be described as panic selling. Before its release, gold was meandering around $1,435. Right aftert its release, the metal tumbled to $1,422. The selling continued in two more waves, which cumulated with a climctic bottom of $1,411.80 at 10:00. Then, the metal reversed course and climbed up to $1,425. By the end of the day, almost all the loss from yesterday's close was shaken off.

The U.S. Dollar Index shot up on the news, but it too reintroduced itself to levels where it had been beforehand. The post-run slide of the greenback helped gold recover. So did a climb in the price of oil which recovered from a skid down to about $106.35. By the end of week's trading, WTI crude had climbed to well above $108. As for gold, it ended the week with a miniscule loss of $1.30 or 0.0909%.

As noted above, the morning part of regular trading was dominated by the panic selling engendered by the better-than-expected payrolls report amd the aftermath of the panic. Despite claims that the gold market is suffused with optimism, this panic sell had the stamp of a wall of worry. By noon, the metal had recovered to above $1,425.

The afternoon part was fairly laid back. Although gold backtracked below $1,425 before the pit session ended, it climbed back. It then drifted at just below $1,430 when the pit session ended and the last electronic-trading hitch of the week began. As of the end of the week, the spot price was $1,428.90 for a drop of only $2.90 on the day. The Kitco Gold Index attributed -$6.05 for predominant selling and +$3.15 for a weakening greenback.

Gold's six-month chart, from, shows its panic drop bottoming at slightly higher than its last two interday slides:

It also shows gold diminishing the loss into a fairly minor one. I have to admit to being too optimistic in yesterday evening's wrapup; the payrolls report came as a surprise to me too. There was a lot of damage done, but the extent of the repair is noteworthy too. The underlying psychology is consistent with a trading range: when gold approaches the highs of the range, traders get nervous and wonder if the price is too high. That uncertainty turns into a selling cascade when a piece of bad news hits the Net. That's what we saw from 8:30 to 10:00. But, there are also bargain hunters who come in after the panic selling is done. We saw that later in the morning, to a greater extent than the normal relief rally provides. Again, $1,410 held up as a floor; the metal at its low didn't even reach it. In essence, gold was knocked for a loop but shook the blow off.

The U.S. Dollar Index made for a rough mirror image to the metal today, with excited buying turning into disgusted selling. Already rallying from 76.1 to 76.2 when its regular trading began, it shot up to above 76.4 when the payroll report was released and later crested above 76.6. Its second run-up provided the final knock-down to gold. Following a puse, it then sold off and tumbled down below 76.0 by noon. More slowly sliding in early afternoon, it settled into a range between 75.8 and 75.9 where it stayed for the rest of the afternoon. At the end of the week, it closed at 75.82.

Its own six-month chart, also from, shows its jump-up turning into a decline:

If that excited buying is factored out, then the Index's slow slide continued today. That buying was in part panic buying by short sellers quickly exiting their positions on the good news. Some may have been stopped or margin-called out: such are the risks of trading these contracts. The same panic factor influenced gold's decline too. Both markets have already discounted trouble in the U.S. economy, as evident by the sharp reactions when those expectations were confounded this morning. The stagflation trade is on, although quietly.

Again, gold validated the take that $1,410-$1,415 is a bargain range. Someone who put in a cautionary or cyncial stink bid last night between $1,412 and $1,415 did well today. Even someone who lowballed at $1,420 ended up with a day's profit. This resilence normally can't be counted on, but it suggests a reservoir of bullishness that was only dented but not split by the jobs report. At the end of the week, gold actually passed a kind of stress test that could have led to a lot of damage in a different market.

In closing, I'd like to thank you for stopping by and seeing what I've got here. Have a great weekend, and enjoy the sunshine if you've got it.

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