Wednesday, May 25, 2011

Gold Ends With Miniscule Loss, Outpaced By Silver And Oil

Despite breaking above $1,530 on a weakened greenback, gold didn't hold onto its gains for today; it closed on the downside but almost even. With this action, it differed from two other commodities more linked to economic performance. WTI crude oil jumped two dollars in regular trading to close at a little above $101, while silver continued climbing strongly: it gained more than $1.25/oz. The rebounds in both are the result of an impression that commodities in general have been sold off too much, which gold did not participate in because it cratered far less at the beginning of this month. The safe-haven demand that exists for the metal is still tepid, while more industrial-related commodities are rebounding smartly.

Gold started off regular trading with a slump from the high 1520s to $1,523. After rebounding at 9 AM ET, it then fluctuated between $1,526 and $1,529. A weakening greenback induced the metal to run up to a daily peak of $1,533.50, which was reached at 11:45. From that peak, the metal was hit by a selling wave that pushed it back down to $1,523. A slight recovery in the greenback was only partially responsible for the tumble.

After that sell-off proved to be overdone, the metal entered into a range between $1,525 and $1,528. It was tested on the low side a few times, but it held up. By the end of the session, the metal had drifted to the low end of the range and long given up its gains from the morning. As of the close, the spot price of gold was $1,525.80 for a drop of $0.30 on the day. The Kitco Gold Index split the loss into -$0.15 for predominant selling and -$0.15 for a strengthening greenback.

Gold's six-month chart, from, shows that today was a wash:

Today's slight decline put an end to the last three trading days' gains. I thought that the metal's Moving Average Convergence-Divergence lines, found at the bottom of its chart, would make a bullish cross today. They didn't, although they was close. After its recent gains, given that its short-term uptrend is weak, today's pullback wasn't all that disappointing. Gold did break $1,530, but it failed to hold on. As a support level, $1,520 was not breached.

As for the U.S. Dollar Index, it managed to pull up to 76.15 early on in regular trading but sunk to below 75.75 between 10:25 and 11:50. After doing so, it recovered partially but had trouble geting up above 75.95. In later afternoon, it settled around 75.9 and drifted. As of 5:15, it was still drifting along at exactly 75.90.

Its own six-month chart, also from, shows its early-morning recovery cancelling out:

The Index's pullback in yesterday's and today's trading is little more than a dip in a still solid intermediate-term uptrend. Although it's weakened recently, and despite the fact that its long-term trend is downwards, the safe-haven demand for the greenback due to the Eurocrisis means there's a good chance the Index will pull higher. Unfortunately or no, the U.S. dollar is still getting the bulk of the safe-haven demand. It hasn't challenged 76.5 yet, but there's still a good chance it will by the end of the week.

Despite being outpaced by other commodities like silver and copper, gold is still doing well given the greenback's strength. If the script for this flare-up of the Eurocrisis follows the original from last year, safe-haven demand will go largely to the greenback at first. Only later did gold pick up the bulk of safe-haven buying. This current flare-up might not last that long, as a bailout mechanism is already in place: if so, then the greenback will likely sink. Gold's weak short-term uptrend may turn into another consolidation.

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