Friday, April 29, 2011

Gold Shoots Up To Yet Another New Record On Momentum Buying

The lack of any significant pullback during the overnight session evidently reassured the gold market that the metal's current nosebleed levels don't contain any hidden pitfalls that would drive it down. Instead of today's regular session repeating yesterday's volatility in both directions, the only volatility exhibited in today's session was upwards. Gold's latest record high, made during the session, was about twenty-five dollars above the record made in the overnight session. Despite the metal being seriously overbought, it managed to put on nearly thirty dollars today on what was essentially momentum buying. The usual enabler, the greenback, hardly dipped at all in today's session. WTI crude oil did climb this afternoon, by about a dollar to close at $113.72, but that jump acted more as catalyst than driver. In the final analysis, gold got there on its own due to the aftereffects of the Fed's continued easing and earlier U.S. dollar drop. In a word, momentum.

For the week, the metal chalked up another gain - one stronger than usual for the period. Since Good Friday's truncated close, gold gained $58.00 or 3.85%. Normally, weekly gains are around one or two percent.

The session started off slowly, with gold meandering in the high 1530s in the early part of the pit session. The first hint of what was to come took place at 10:00, when gold managed to rise to $1,545. There were data on the U.S. economy released at that time, but the only item that showed bad news - a drop in the Chicago Purchasing Manager's Index for April - was expected and came down from an unusually high level last month. Stuck just below $1,545 until 11:00, the metal dipped downwards at that time and was again frustrated from climbing above. Breaking through at noon, it went up to $1,550 before being stopped again.

The big breakthrough above $1,550 came at 1:05. In two hours, gold climbed up to its new record of $1,570.60. Again blocked, the metal slipped to below $1560 before scrabbling back into a range in the low 1560s. Mustering enough power to break above $1,565 near the end, the spot price ended the week at $1,565.70 for a gain of $29.90 on the day. The Kitco Gold Index split the gain into +$28.70 for predominant buying and +$1.20 for a weakening greenback.

Gold's six-month chart, from, shows its rally continuing to power higher:

It also shows how overbought gold has become. Gold's Relative Strength Index (RSI), found at the top of its chart, is not only way above the overbought level of 70 but is also well above 80. More and more, this run-up resembles last fall's. Last week, silver went parabolic; it's now becoming gold's turn. Despite gold advancing to new record highs this week, silver barely beat its old high from last week. Seasonality is to gold's advantage now, but typically the seasonal tailwind ends next month. I have to admit that gold has continued to surprise me to the upside, and that I underestimated its strength after it broke through $1,500. Still, I have to be the apparently foolish party pooper and say that gold is even more vulnerable to a pullback. Interestingly, a serious drop now might pummel it down to $1,500 - the level at which I got nervous in the first place.

The U.S. Dollar Index did some more falling in the overnight session, but not that much during regular trading. Instead, it fluctuated in a wide range between 72.85 and 73.1. It did not make a new thirty-one month low during regular trading. Recovering from a dip below 72.85 when its own pit session started up, it zipped up to the top of its range but lost its ground at 10:05 after triple-topping at 73.09. Slipping to 72.95, it made another run for the top but peaked at a slightly lower level at noon. Then sliding, it got to the bottom of its range before regaining traction and climbing back up near the top of its range. At the end of the week, it settled at 73.03.

Its own six-month chart, also from, shows yesterday's slump continuing today but more gently:

The Index's own RSI, found at the top of its chart, remains firmly in the oversold zone. Again 73.0 provided spongy but effective support. Perhaps gold took off this afternoon because a rebound in the greenback was expected today but did not materialize. I have to say that the greenback is overdue for one.

Gold's performance today was unexpectedly strong, and its gain for the week was unexpectedly good. Yesterday, I broached the slight possibility of gold tipping over into an all-out mania. It's still too early to make that conclusion, tempting as it is to frustrated skeptics and bears, because gold's seasonality still favours climbs right now. As of now, it can only be said that gold is taking advantage of early-spring seasonality more strongly than it did last year. Amazingly, less than two weeks after breaking $1,500, it's within shouting distance of $1,600. Wiil it make that level before crumbling? Given its performance this week, that question's no longer rhetorical. I'll confine myself to repeating the now-staple warning about the metal being seriously overbought. I don't want to ruin the weekend.

Speaking of the weekend, I hope you enjoy whatever warmth you're granted. Again, thanks for dropping by; if you're long, congrats for holding on.

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