Tuesday, April 19, 2011

Gold Touches $1,500, But Ends With Slight Loss

It was only a spike, at 12:10 PM ET, but gold made it above $1,500 for a brief moment. Its new record high is $1,500.80. Unfortunately, the metal couldn't build on that jump; for almost the entire session, it remained in the 1490s, briefly breaking not only above but below. The movement of WTI crude oil was favourable for gold, as it managed to climb from $150.50 to above $108, and so was the greenback; it declined somewhat during regular trading. Canada has joined the ranks of developed countries with inflation worries with its own inflation-rate bump-up: March inflation was 3.3% from a year earlier, a real jump from February's 2.2%. Expectations were for 2.8%. The core rate rose to 1.7%. Despite all these favourable winds, though, gold largely languished today and ended with a small loss. The $1,500 block is exerting itself.

The pit session didn't start off that well, making for a somewhat accurate augur for the rest of the day. Dropping from $1,495 to below $1,492 by 9:00, the metal first hesitated and then jumped in a recovery rally that got it back up to $1,495. To little avail at the time, as it turned downwards and made a regular-trading low of $1,489 just after 10:00.

Although gold managed to crawl back up to the low 1490s, it languished there until 11:45 when a buying run pushed it up to its new record. Among the influences was oil's rise. That new record meeting with selling pressure, the metal descended into a raggedy range centred around $1,495 where it spent the rest of the day. As of the close, the spot price was $1,494.70 for a drop of $1.20 on the day. The Kitco Gold Index attributed -$10.20 to predominant selling and +$9.00 to weakening of the greenback.

Gold's six-month chart, from Stockcharts.com, shows a gain on the day (but not much of one) due to a timing difference:

As the top of its chart shows, gold's Relative Strength Index (RSI) is still above the 70 overbought level. The bottom wick of today's candlestick shows the extent to which the metal declined this morning. Given its overboughtedness and the amount of attention that $1,500 has received, that level is going to be a fairly formidable barrier to gold in the near term. Unless the inflation driver gets its power back, or unless another surprise greets the market like S&P's negative outlook for U.S. Treasuries, the metal will likely keep languishing or slide back. Although there are steady bids at the low end of the 1490s, there's little buying enthusiasm in the upper 1490s except for the fickle kind.

As for the U.S. Dollar Index, a lot of its fall in the last twenty-four hours took place during the overnight session. It did fall in regular trading, but only gently. After an early-morning rally that peaked at 75.30 as of 9:00, the Index slid to as low as 75.05 over the next hour and twenty minutes. From then, the overall trend was still down but it weaved and winded on its way. Except for a brief slip, the Index never got below 75.0. Steadying in later afternoon, it settled into a tight range between 75.04 and 75.09. As of 5:30, it was still moving sideways at 75.06.

Its own six-month chart, also from Stockcharts.com, shows today's decline wiping out most of yesterday's leap upwards:

Again, the relative-strength rule held up. Since the Index is in a downtrend, it's tended to pull back whenever its own RSI reaches the 50 neutral level. Yesterday, that indicator (found at the top of its chart) came close to 50; today, the Index slid. Again, its downtrend has been confirmed. It's been reluctant to fall when below 75.0, though, so any extension of its downtrend isn't likely to be swift.

Yesterday at this time, I said gold would make $1,500 within twenty-four hours. It proved to be a squeaker, but I was right. Now that the $1,500 has been touched, the metal should be in for some tough slogging as its recent gains have tired it out. The metal's uptrend is still intact, but a pullback wouldn't be that surprising right now. Given the mounting skepticism, a clean break through $1,500 would be. Still, today's action sets $1,490 as a bargain point. If overnight trading sees a slide, it shouldn't go much farther than the high 1480s.

No comments:

Post a Comment