Thursday, May 26, 2011

Gold Ends With Sizable Loss, Falls With Greenback Rise And Then With Oil

Gold started regular trading with a slump, but picked up smartly when the revised number for U.S. first-quarter GDP hit the Net. Instead of being revised upwards, as many had expected, the number stayed at 1.8%. Any upward revisions were cancelled out by consumer spending being revised downwards to 2.2% growth annualized from 2.7%. Despite that morning push, though, the metal ended up slumping because the U.S. dollar jumped up, albeit discouting most of the rise in advance. When the greenback fell mostly back down, gold didn't benefit because crude oil slumped and gold was dragged down with it. More broadly, profit-taking dovetailed with diminished safe-haven demand to leave the metal sporting a loss on the day that was more than six dollars an ounce.

After being boosted by the GDP revision disappointment, the metal reached $1,526 at 9 AM ET as the greenback was pushed down by the news. Despite the fact that the currency didn't trough until almost an hour later, gold was blocked from rising any further as selling pressure came in. The metal actually tumbled before the greenback had finished jumping up from 75.35 to as high as 75.86. While the currency was making most of its run, gold snuck upwards in a rising channel below $1,520; as noted above, the metal discounted the rise before it was complete. When the U.S. dollar began slipping, the metal didn't react all that much to the upside at first. Evidently, the gold market had a more optimistic view of the greenback's performance than what actually transpired.

It wasn't until the greenback slump turned gentle at 75.6 that gold got enough energy to hoof up to $1,525. Then, it slipped and then slowly slid downwards for the rest of the afternoon. Not only profit-taking slipped it down but also a drop in WTI crude oil, which ended up at $100 from $100.75. Although the metal was supported at $1,520, the gentle pressure on it pushed it below that level near the end of the session. As of the close, the spot price of gold was $1,519.40 for a drop of $6.40 on the day. The Kitco Gold Index attributed -$13.60 to predominant selling and +$7.20 to a weakening of the greenback.

Gold's six-month chart, from, shows it declining for the second day in a row:

Despite that decline, gold's Moving Average Convergence-Divergence lines (found at the bottom of its chart) made a bullish cross today. It wasn't much of one, and that indicator tends to be a little late rather than early, but that cross shows that gold's weak uptrend is real. The metal bottoming at any price above $1,490 or so will make for a third higher low, which will further confirm that it's doing a little better than a straight consolidation. Despite the Eurocrisis-related safe haven demand coming in, that demand is iffy and not consistent. Gold won't be given a big boost by it unless another disaster erupts, like the Grecian government seriously threatening to default or unilaterally reschedule. The latter now sports the euphemism "reprofiling."

Turning to the U.S. Dollar Index: it was knocked down by the GDP news, slumping from the high 75.5s down to as low as 75.35. After a relief climb, it sunk again but double-bottomed. Then, it got its energy back and climbed above 75.85 by 11:00. Then sinking and topping at a slightly lower level, it turned south in early afternoon and slid into the 75.5s. For most of the afternoon, it was between 75.5 and 75.6 - about where it was before the GDP revision was released, making the regular trading session a wash for the currency. As of 5:15, it was recovering from a slump down to 75.505 to reach 75.54.

Its own six-month chart, also from, shows it declining for a third day in a row:

In so doing, it made its uptrend weaker and made my previous call for it to touch 76.5 before the end of the week unlikely. I have to say that I got too optimistic earlier this week. Although the Index sunk below 75.5 today, there was enough support at that level to push it above. The last short-term bottom was at 75.0. Should the Index keep declining and close at 75, its intermediate-term uptrend will become questionable.

Gold didn't make a fine show today, but declines come with the advances. Considering that its close today is almost exactly at a resistance level it would have been stopped at had it been merely consoldiating, today's decline can be taken as a sign that its short-term advance is weak but real. Since it's in decline mode, it may go farther - but it would have to bottom around $1,480 for its short-term uptrend to be impugned. The metal has a long way to go before sliding down that low; it likely won't. Tonight's overnight session may see more softening, but nothing alarming should take place.

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