Monday, May 9, 2011

Gold Adds To Morning Gains, Closes With Strong Gain

Gold climbed above $1,500 last night with the help of a falling greenback. Despite the U.S. Dollar Index driving forwards to a higher height in mid-morning, gold stayed above $1,500. That was because the greenback's strength was a product of Euro weakness after Standard and Poor's cut Grecian sovereign debt two notches fromn BB- to B. The resultant uncertainty benefitted not only the U.S. dollar but also gold. When the currency came down after mid-morning, gold got enough power to climb up and close above a level which had defeated it for almost all of the day. As a result of uncertanty buying from the downgrade as well as bargain hunting, the metal gained well over fifteen dollars since Friday's close.

Again, the start of regular trading proved to be misleading. Just before the 8:30 announcement of the downgrade: that was the only time that gold fell below $1,500 today. Sinking from the $1,505 it had reached at 8 AM ET, the metal troughed at $1,497.90 before getting a boost from the downgrade news. Having regained $1,500, it scrambled upwards despite having the rising greenback as a headwind. Conversely, though, the greenback's later slide didn't help gold that much. In the first half of regular trading, its scrambled resulted in three successively higher peaks. The highest, reached at 12:15 PM, was at $1,511.

Then, the metal sunk until the close of the pit session at 1:30 PM. Bottoming at $1,503, it got enough energy to climb another ten dollars before taking a rest near the end. It penetrated $1,510 hesitantly, falling back a couple of times, but it managed to muster the energy to pull away after 3 PM. At the end, the spot price was $1,513.10 for a gain of $17.70 since Friday's close. The Kitco Gold Index split the gain into +$11.40 for predominant buying and +$6.30 for a weakening greenback.

Gold's six-month chart, from, shows Friday's rebound being added to today:

Unfortunately, at least so far, the snapback is only a rebound. Gold's Moving Average Convergence-Divergence (MACD) indicator, found at the bottom of its chart, is still in a bearish configuration. Although that indicator does tend to lag, and the bearish cross was caused by last week's unusually large plummet, it still serves as a warning that Friday and today's gains may only be an extended relief rally. The metal's going to have to show more strength to make its present rally real. Should it make $1,550 before this rally is exhausted, its climb will have shown more strength than a mere rebound rally.

As for the U.S. Dollar Index, it bolted upwards on the news of the Standard and Poor's downgrade. Lingering around 74.6 before the news came out, it quickly jumped up to 74.8 on its way to 75.0. Bumped back, it then mustered enough strength to touch 75.15 before running out of energy at 11:10. Falling back more slowly, but longer, it managed to give up almost all of its gains by 4:30 PM: that time saw it enter a range between 74.6 and 74.65. As of 5:15, it was moving sideways at 74.61.

Its own six-month chart, also from, shows its morning leap turning into a slight loss:

In one sense, a pullback was inevitable because of the speed the Index has risen. Its own MACD indicator made a bullish cross last Friday and is still in a bullish configuration, suggesting that its countertrend rally has some strength left. Its Relative Strength Index (RSI), found at the top of its chart, is slightly above the 50 neutral level. For an asset in a downtrend, the rule is for it to turn down when its RSI hits 50. Although the Grecian government bond downgrade bent the rule a little, it still operated to produce a small decline. Given the Euro's recent trouble, though that rule may be further bent.

Although gold is still in treacherous relief-rally territory, its gains last Friday and today have been strong. Its strength may suffice to induce bargain hunters to edge back in; they may once they see the ground is safe. Bargain hunting may provide enough upward pressure to keep the metal from falling back during the coming overnight session.

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