Tuesday, May 24, 2011

Gold Ends Day With Decent Gain, In Part Because Of Sinking Greenback

This time, silver joined gold in rallying even though the greenback was largely stable during the day. The gray metal put on more than $1.50 in a strong rally, while gold's rally was more modest: both benefitted from a Goldman, Sachs upgrading of the commodity sector. WTI crude oil also gained, closing just below $100. Gold, despite its relatively lackluster gain, held its ground above the $1,520 resistance level and closed above $1,525.

The metal was sluggish at the start of regular trading, hovering just above $1,520 and testing it on the downside. Earlier, it forged above $1,520 on some weakness in the greenback; the currency fell below 76.0, and stayed slighly below that level today. Shortly before 9 AM ET, the metal shook off its doldrums and climbed up to $1,529.40 before falling back to $1,527-8. It slipped at 10:30, to below $1,523, and its recovery took it to a lower peak. The stage was thus set for a decline to $1,521, reached just before 1 PM.

Then, the metal trundled back up to the high 1520s after being blocked at $1,525. Slipping back to $1,524 in later afternoon, it managed a last-hour hoof-up that peaked at $1,527. Had it not been for a last-minute slip, gold would have been on the verge of a double-digit gain. Instead, the spot price closed at $1,526.10 for a gain of $8.90 on the day. The Kitco Gold Index split the gain into +$4.50 for predominant buying and +$4.40 for a weakening greenback.

Gold's six-month chart, from Stockcharts.com, shows it gaining for a third day in a row:

In so doing, it managed to poke up above the resistance level that stymied it yesterday. It's managing to shake off the near-correction that visited it at the beginning of this month, aided by new flare-ups of the Eurocrisis. Gold's Moving Average Convergence-Divergence lines, found at the bottom of its chart, are getting close to a bullish cross and look like they'll do so tomorrow. Gold's still too top-heavy to shake off those plummets of three weeks ago, but it's established a weak short-term uptrend with a slightly higher high and higher low. It's not exciting, but it is encouraging.

The U.S. Dollar Index did little in today's regular session. A slight downward drift from the start of the session to late morning, which bottomed well above 75.8, gave way to a climb that peaked at just above 76.0. Failing to sustainably climb above 76, it descended to 85.81 but climbed most of the way back in later afternoon. As of 5:15, it had slumped to reach 75.91.

Its own six-month chart, also from Stockcharts.com, shows today's decline erasing most of yesterday's advance:

Most, but not all. Although the Index was flummoxed today, its intermediate-term uptrend is still intact. Lately, it's been the beneficiary of Eurocrisis-related safe-haven buying to a greater extent than gold. Although not being able to reach 76.5, it may make another try for that level by the end of this week.

Gold breaking above $1,520 is a good sign, as it established a weak uptrend. Given its run in from late January to the end of April, and the excitement that accompanied its record-setting peak at $1,578.20, a weak uptrend is more than can be reasonably hoped for. Normally, the metal consolidates for as long as several months after such a run. Moreover, gold's summer seasonality isn't that good. Should the metal manage to get above $1,540, its short-term uptrend will be more than a relief rally - but, given its usual habit of resting after an intermediate-term run and its tendency to stumble down in the summer, it current record will likely hold for a fairly long time.

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