Gold Dragged Down By Slumps In Silver, Oil

Although the greenback did influence gold sinking today, silver's drop to below $42 and a mid-afternoon plummet in WTI crude oil from above $112 to to below $111 also dragged it down. Although less volatile today than on Friday, the metal's volatility was primarily downwards. It began regular trading with a restoration of its $1,540-$1,550 range that prevailed beforehand, but it ended up sliding down below $1,540 and booking a loss that was close to double digits.

Although quickly moving up to $1,545 when regular trading began, and hanging around that level until 9:30 AM ET, gold slumped below $1,540 and wavered between that level and $1,535. The release of a better-than-expected factory order number for March, which showed a gain of 3.0%, bit into the stagflation thesis and knocked gold down from $1,540 to $1,535 temporarily. After stumbling around more, it troughed below $1,534.

Then, it got a boost from a temporarily sinking greenback. Fording all the way up to $1,548, it lost its wind and slowly slid down to $1,540-$1,545. It got knocked down to below $1,530 between 1:15 and 2 PM by silver's slump and a partial recovery in the greenback. The fall in oil came a little later, and endorsed the prior fall of gold by keeing it there. After troughing at $1,526.30 around 3:00, the metal climbed up but couldn't ascend above $1,540. At the end of today's trading, the spot price was $1,537.10 for a loss of $8.50 on the day. The Kitco Gold Index split the loss into -$7.30 for predominant selling and -$1.20 for a strengthening greenback.

Gold's six-month chart, from Stockcharts.com, shows yesterday's plummet extending today:



As the metal's Relative Strength Index (RSI) shows, as found on the top of its chart, gold is no longer overbought. It's close, but its RSI is now below 70. The pullback is here: so far, it resembles the one before last, which lasted two days. This one may last longer, because the breakdown of silver's parabolic rise is clearly affecting gold. Also, recent data shows a piece being taken out of the stagflation thesis. There isn't enough optimism to resurrect the recovery trade, as both gold and the equity markets have tended to rise in tandem in recent weeks, but the recovery bettering itself does take away some of the demand for gold. The Fed is unlikely to tighten unless the unemployment situation betters, which is not on the horizon yet, so there's little immediate risk of recovery prompting tightening by the central bank. Instead, a better U.S. economy will prompt more profit-taking in the gold market.

The U.S. Dollar Index managed to end the day with a gain, but a slide in mid-morning took it from around the 73.10 level at the start of its pit session to 72.835. Bottoming at 11:30, it then climbed up until it reached the same level at which it started regular trading. The entire day was a wash. As of 5:15, the Index was loitering at 73.10.

Its own six-month chart, also from Stockcharts.com, shows a minor turnaround:



The action of the last few trading days shows a small U-shaped short-term bottom being made, but with little enthusiasm to the upside today. The Index's own RSI shows it's still oversold, and thus carries the potential to extend today's gain. Given its drift, the countertrend rally may not be that strong but others have been whipsawish in the past. If the greenback does mount a rally, gold will suffer.

Although dragged down by silver, gold has been dogged by less droppage than the grey metal has suffered. When you consider that gold has had a nice run-up itself in recent weeks, that's pretty good. Although still vulnerable to a more extended pullback, the metal's uptrend is still intact. There may be a hangover tumble next week due to Akshaya Tritiya being over, which will reduce Indian demand, but any such tumble won't damage gold all that much. It'll just be part of the late spring-early summer pullback which is part of gold's seasonality.