Now that the latest phase of the Eurocrisis in no longer new and disturbing, demand for the greenback is fading and demand for gold is increasing. As the U.S. Dollar Index broke below its 75 support level, gold forded up to a new three-week high. For a time this afternoon, it was less than forty dollars below its all-time record high; its high point of the day was just below the $1,540 resistance level. Although almost all of gold's gain today was due to the weakening U.S. dollar, the currency tumbled enough to make for a strong double-digit rise. Turning the recent differential on its head, silver hardly budged while gold was energized.
Today was one of those days when the start to the pit session accurately foreshadowed the entire day. Gold started rallying from $1,525 at 8 AM ET and continued upwards to $1,530 when the pit session started up. Then blocked, it spent some time shuffling between $1,528 and $1,530 before a renewed tumble in the greenback gave the metal the energy to shoot up to $1,535 by 9:45. Blocked again, it settled into a higher range until late morning when another greenback stumble got the metal up to its daily high of $1,539.50. It hit that peak a little after noon, and spent early afternoon in yet another range - this one, between $1,536 and $1,538.
Later, the metal slumped down to the low 1530s, but its descent ended a little after 3:00 when the greenback slumped again. For the last two hours of the session, the U.S. dollar's continuing drop left gold unaffected as it marked time around $1,536. As of the end of the week, the spot price was $1,536.50 for a gain of $17.10 on the day. The Kitco Gold Index split the gain into +$0.70 for predominant buying and +$16.40 for greenback weakening. For the week, the metal gained $22.80 or 1.51%.
Gold's six-month chart, from Stockcharts.com, shows yesterday's decline being smartly reversed:
To be frank, I thought the two-day decline would spill over into today. Since it didn't, yesterday's and the day before's slumps were too ephemeral to count as an outright short-term decline. Today's gain counts as a the second higher high since the plummet of four weeks ago. That said, gold's uptrend has been made a little stronger. What makes the $1,540 resistance level significant is that it marks the point where two-thirds of gold's $120 plummet is reversed. Should gold get and stay above that level, the current recovery is stronger than a mere relief rally. Although it's unlikely that gold will continue upwards to make a new record high that's well above the current $1,578.20, the metal has shown enough strength to have fallen into an intermediate-term consolidation pattern. That's much better than a correction.
As indicated above, the U.S. Dollar Index spent most of today tumbling. Close to 75.2 at 8 AM, it was hit hard by the advent of regular trading. Bottoming at 74.905, it snapped back up at 8:35 with the news that consumer spending for April increased only by 0.4%: the same as income. Peaking at 75.2, the Index then lost its energy and dawdled in a range before collapsing a second time. Its second bottom, made around noon, was lower than its first. Unlike the first recovery, it couldn't get above 75. Starting at 2:00, it slid down slowly at first but accelerated as it lost more footing. At the end of the week, it was close to its daily low at 74.77.
Its own six-month chart, also from Stockcharts.com, shows its recent uptrend definitely impugned:
The Index's higher high, from which it's been falling, has now been followed by a lower low. That scattering does not an uptrend make. In form, its recent fluctuations resemble two-thirds of a head-and-shoulders top. Should the Index make a lower high when it next turns upwards, the bell is tolling for its countertrend rise. As a side note, its Moving Average Convergence-Divergence lines (found at the top of its chart) are very close to making a bearish cross.
With the last full week of May over, gold is showing a fairly solid recovery. The beginning of May was the time to sell, but gold hasn't gone away as yet. Given that it's likely to either consolidate or fall further in the coming few months, due to unfavourable seasonality, this rally could be seen as a blooming second chance to get out. Its recovery strength, though, shows that it's angling more towards a summer consolidation than a summer correction.
In closing, I'd like to thank you for stopping by and reading what I've got here. Have a great weekend, and enjoy the heat.