The previous three days haven't been anything to write home about, but gold's rallying today justified pegging Tuesday's tumble as merely another fall out of bed. Climbing for most of the day, the metal came close to racking up a twenty-dollar gain.
There had been earlier speculations that the then-looming shutdown would have pushed gold up, but a bipartisan budget deal managed to avoid a shutdown at least for the nonce. Although a shutdown is now averted, the removal of that uncertainty did not push down gold. Of more relevance is the stagflation theme, which the latest jobless-claims number gives credence to. Initial claims jumped to 412,000 despite expectations for a drop.
Of even more relevance to gold was the dropping of the U.S. Dollar Index to a new 15-month low. An earlier jump, based upon rumours that debt-stricken EU countries may have to undergo restructurings, faded away. The Euro continues to bump up against US$1.45 and may break it. WTI crude oil also shook off its skiddishness to rise well above $108 a barrel. Both of these assets, plus the renewed optimism generated by gold shaking off another one-day tumble, brought the metal - I kid you not - ten cents away from setting a new record high.
Again indulging in a feintly start that's been a feature of the pit session this week, gold started today's pit session with a slide. As of 8:30, when the jobless-claims and PPI news hit the Net, gold was below $1,455. The PPI for March was a wash, with the core rate of 0.3% being slightly above expectations but the raw rate of 0.7% being slightly below. But, the jobless-claims number provided a boost that got gold shucking off its drop and rambling in the high 1450s. In part driven down by the U.S. Dollar Index rising, it started to take off when the Index fell back.
The climb was fairly smooth, with only a mild pullback in between, in the two hours after takeoff time at 9:00. By 11:00, having reached $1,470, the metal stopped and marked time in the high 1460s. It didn't muster the strength to surmount $1,470 until 12:30, when it jumped up to $1,474. By that time, the greenback had finished its slump and was content to stay in a range.
Then, after slumping to $1,472, gold had enough climb power to inch up for the rest of the afternoon instead of falling into line with the greenback. Although the climb was slow, it was steady enough to get the metal back to $1,474. Aftter a few tests above, it managed a last-minute jump that got it a dime away from its then-current record of $1,477.00. As of the close, the spot price was $1,475.80 for a gain of $18.40 on the day. The Kitco Gold Index split the gain into +$12.90 for predominant buying and +$5.50 for a weakening of the greenback.
Gold's six-month chart, from Stockcharts.com, shows it breaking free from its recent pullback:
As today's candlestick shows, gold is almost exactly at the same level of its peak before last Tuesday's slide. There is a risk of a double top, but the metal has indeed put the Goldman tumble behind it. Yesterday's gain and today's followed the rule that says a post-plummet gain bodes well for gold. Its Relative Strength Index, found at the top of its chart, is high but well below the overbought level it hit just before its two-day slide. There is a chance of a double top, so the upturn needs a new sustainable high to confirm it.
The U.S. Dollar Index, as noted above, went for a slide in this morning's regular trading but it managed to get its footing back in the afternoon. The economic news released at 8:30 was enough to amplify a pullback from 75.1 into an outright slide, which continued in three stages throughout the morning. Stopping around noon at just below 74.7, a climactic slip at 12:35 got it as low as 74.625. Afterwards, the Index stayed in a range between 74.65 and 74.73. In mid-afternoon, it climbed a little but not enough to test the range on the upside. As of 5:30, it was still inching up at 74.70.
Its own six-month chart, also from Stockcharts.com, shows it making a new fifteen-month low:
Despite that new low, the Index's decline today wasn't that much. In order for it to slide beyond further droops, the Euro had to break above the US$1.45 level that's stymied the currency recently. The Index's own Relative Strength Index is very close to oversold, although not at the 30 level yet. Its near oversoldedness may explain why its delcine had been fairly modest. That said, the trend is still downwards.
Gold's double-digit rally was a lot stronger than a relief rally, but it brought relief in another sense. The uptrend having been dogged, it's now back on track. The traders and analysts who've stuck to their $1,500 forecasts may be vindicated soon. Although it's not likely that the metal will rise much tonight, and it may fall on the official confirmation of the 5.2-5.3% estimated mainland Chinese inflation rate, enough rally power may develop in early morning to make for a new record.
Last-Minute P.S.: After a slight slump when evening trading began, gold jumped to make a new record high of $1,479.90. The double-top risk is being whittled away.