Thursday, April 21, 2011

Gold Muddles Through Day To Close With Slight Gain

As a shortened week winds up, the thin trading today did not translate into much volatility either upwards or downwards. Contemporaneous with a mild recovery in the greenback, the early part of the pit session went badly for the metal - but, $1,500 held as a support level. Gold's session low, reached just before 9 AM ET, saw it stay above that round number. Thanks to gains made in the overnight session, not taken away during regular trading, the metal managed to end the day with a modest gain.

After slumping from almost $1,507 at 8:00 to $1,500 an hour later, the metal's next trend was upwards. That climb, though, was punctuated with several backwards steps. Peaking around 1 PM, it double-topped at $1,508. It was at that point that a renewed climb by the greenback caught up with it, and WTI crude oil stopped rising. Then sliding to $1,504, it resumed its climb with fewer back-ups that were lesser in extent. Its relatively smooth climb, however, peaked at the same level at 3:30.

From then on, gold slid again to about the same level it ended up as of 1:30. By the time it settled down, at 4:30, the day was too late for it to mount the same recovery strength. Instead, it floundered around before regular trading wrapped up for the week. As of the close, the spot price was $1,504.70 for a gain of $2.70 on the day. The Kitco Gold Index attributed -$2.25 to predominant selling and +$4.95 to a weakening greenback.

Gold's six-month chart, from, shows today's gain as part of a string of seven in a row:

That stretch is a little misleading, because the fifth matches up to a day when the spot price clocked in a small loss, but that string of gains is still long enough to be worrisome. Seven days in a row is fairly rare, and I don't recall seeing eight days in a row. That stretch, plus gold being even more overbought, suggests next week's resumption won't be a pleasant one. Gold's Relative Strength Index, found at the top of its chart, is well above the 70 overbought level. It's hard to argue with its uptrend, and I'm not. What I'm pointing to is a risk of a pullback, which some would see as a buying opportunity. Gold's seasonality is still in its tailwind days: there's not much need to worry about a serious fall until next month.

As for the U.S. Dollar Index, it managed to reverse a lot of its earlier losses as the Euro slammed through the US$1.45 level that previously blocked that alternate currency's rise. Before regular trading started, the Index made a thirty-one month low of 73.275. It sunk well below the level it bottomed at back in the beginning of December of '09, which was a smidgen above 74.0. The next bottom to take out goes back to mid-July of 2008, when it reversed itself a little above 71.0. The next low to take out is in April of three years ago, which saw the Index around 71.75. Beyond that level lies depths that the Index has not reached since at least 1995 - and probably much earlier.

As for its performance today, it bounced back from that low to reach 73.9 by the time regular trading got rolling. An early-session climb got it as high at 74.1 before it lost its strength and slid down to 73.9 again. After inching back up to 74.0, it took out that level at 1:50 and ascended to a little above 74.15. Again losing strength, it slipped down to 74.1 and stayed there as regular traign wound to a close. As of 5:30, it was rambling along at exactly 74.10.

Its own six-month chart, also from, shows its third loss day in a row:

The sharp recovery that took place betwen 5 and 8 AM turned what would have been a third steep drop into a relatively mild one. Despite the three decline days, the Index is not in a fully oversold position. It's close, though, and it might have been oversold when it bounced back up at 5:00 to 8:00. Its further gains today suggest its earlier drops went too far. It might recover a little next week.

Gold has put in a creditable performance this week, surmounting $1,500 fairly smoothly. Due to there being a lack of profit-taking, there's more rooting for the metal to keep rising now. In fact, there's enough to make a contrarian edgy. Still, any disappointment next week will be only a pullback in a larger uptrend. Any such pullback will be a useful gauge to see how large the now-obscured wall of worry (or nerves) still is.

Since tomorrow is a holdiday weekend, I'd like to wish you a restful one. Again, thanks for stopping by. I'll be blogging here tomorrow, mainly to report on the overnight shift, but there'll be less than usual due to the North American markets being shut down. Best for the holidays.

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