Friday, May 20, 2011

Gold Defies Greenback, Rockets Up For Nearly Twenty-Dollar Gain

The U.S. Dollar Index made a nice gain today, enough to reverse the last three days of declines. Given how well the greenback did, one would expect gold to be swacked. There were times when it was, but the metal managed to defy the rising greenback to rocket above $1,500 and even $1,510 before noon ET. Staying above the latter level for the entire afternoon, the metal closed with nearly a twenty-dollar gain on the day.

One report ascribed gold's rocket-up to safe-haven buying, prompted by weakness in U.S. equities and some trouble spots in the Eurozone. That safe-haven buying would have benefitted both it and the greenback, as was the case when the Eurocrisis sprung to the surface. Evidence of continued strong mainland Chinese demand also helped: in the first quarter of this year, mainland China eclipsed India to become the #1 consumer nation of gold.

There's another explanation. This morning before regular trading started, Dennis Gartman said gold's performance looked encouraging and he was adding to his gold positions. If the "Soros effect" can bobble the market, then it's not all that unreasonable to conclude that the Gartman effect aided gold. Silver did not participate in a similar rally; it closed about where it opened today. WTI crude oil did shoot up in late morning alongside gold, but that run was only a recovery rally that erased an earlier plummet caused by the greenback rally. It closed just below $100, less than a dollar above its average late last night. Only gold had a rally that added to a prior small gain, despite threats to that gain along the way.

The metal's gain on the week was slightly lower than its gain for today: $18.30, or 1.22%. Had gold closed where it opened, the weekly gain would have been miniscule.

This morning, gold was especially volatile. Starting in the high 1490s when regular trading began, it climbed to $1,503 by 9:00 but slipped down when the greenback shook off a decline and rallied strongly from 75.3 to 75.75. The pressure the greenback put on the metal was such that gold sunk to $1,490 by 10:00. That bottom took place in the middle of the U.S. dollar's rally: it was at 10:00 that gold started to defy the greenback.

Initially advancing slowly, to $1,495, the metal's performance in the greenback headwind got enough attention to prepare it for a spectacular run once the U.S. dollar faltered and gave up its mid-morning gains. From 10:45 to 11:30, gold zipped up to $1,515 despite the greenback's fall being only partially complete. As a result, the rest of the currency's tumble didn't affect gold. Nor did a later rise back up to above 75.6. From 11 AM to the end of the the trading week, gold was "above it all" as it stayed in a $1,510-$1,515 range that hardly was tested on either side. The greenback's volatility in those hours didn't matter to the metal.

As of the last close of the week, the spot price was $1,513.50 for a gain of $19.70 on the day. The Kitco Gold Index attributed an unusually large +$30.60 to predominant buying and -$10.90 to a strengthening greenback.

Gold's six-month chart, from, shows the indecisiveness of recent days being broken today:

In so doing, it made the earlier symmetrical triangle chart formation a dead letter. According to chartist lore, the symmetrical triangle is supposed to signal a continuation of the prior move. In gold's case, that would have been another rout. The sign that the symmetrical triangle wasn't all it was cracked up to be came with the Soros tumble last Tuesday, which reversed itself instead of triggering more drops. Now, gold's action is consistent with a regular trading range, between about $1,480 and $1,520.

As for the U.S. Dollar Index, it had a wild ride too; its volatility was largely upwards. At the start of regular trading, it was struggling around 75.37. After sinking a little, while jumping and sliding, it got its legs going at 9:20 AM. Accelerating and then decelerating, it topped at 75.77 before sliding and losing all the ground it has made in that morning run. Bottoming at 75.3 around 1:45, more than two hours after gold entered its above-it-all range, the Index got its energy back and headed for the same height it had touched in late morning. At its 4:20 PM top, it skidded after touching 75.735 but not enough for it to cede 75.6. At the end of the week, it closed at 76.64.

Its own six-month chart, also from, shows it racking up a nice gain today:

As noted above, today's jump was enough to reverse its last three days of losses. The Index is approaching the same level that confounded it early this week - namely, 76.0. It's not there yet, but it's within a good day's run from that level. Should it fail to climb above 76.0, it'll likely settle into a trading range.

Although the first four days of the week netted out to a wash, today's run made for a great end to a good week. Gold confounded the chartists by moving into a trading range, establishing a consolidation pattern. It broke above $1,500 easily today. Given the range-like character of its recent trading, $1,520 is going to be a tough level to rise above. There's also the chance of a letdown drop when the week starts. Still, gold ending the week above $1,510 shows there's still pockets of demand that just need the right trigger to be activated. The risk of a continuation of the early-May rout is now low.

In closing, I'd like to thank you for stopping by and seeing what I've got to write. Have a great weekend: enjoy the glow while it lasts.

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