Wednesday, May 11, 2011

Gold Gets Hit By Surging Greenback, Slump In Oil

Today was one of those days when the start of regular trading did forecast gold's performance for the rest of the day. Unfortunately, the start of today's session was a bad one. Gold managed to make it above $1,525 around 5 AM ET, but lost its momentum as 8 AM approached. During the day, the metal was driven down by the greenback: the currency managed to climb to highs not seen in three weeks. Adding to gold's woes was a fall in WTI crude oil to below $99, which threw the jitters into other commodities too. Silver, above $39 before regular trading started, ended the day at just above $35. As for gold, it closed with a duble-digit loss on the day; $1,500 barely held.

Sliding just before and during the start of regular trading, gold settled into a range in the low 1510s before sliding down further at 9:15. Then stuck rambling around $1,510, it went for a further dive before carving out a range between $1,505 and $1,510. That range gave way just before noon, when crude broke below $100 and the U.S. Dollar Index broke above 75.0.

Getting hammered down to its day's low of $1,494.80, gold settled into another period of indecisiveness as it climbed and slipped around $1,500. As the greenback stopped climbing, a relief rally set in which carried the metal above $1,505 in mid-afternoon. Lacking the power to hold on, gold slipped down to just above $1,500 as regular trading came to an end. At the close, the spot price was $1,500.90 for a loss of $15.20 on the day. The Kitco Gold Index attributed +$0.70 to predominant buying and -$15.90 to a strengthening greenback.

Gold's six-month chart, from, shows yesterday's gain as a short-term peak preceding today's fall:

It also shows $1,500 holding even though that level was breached for a time today. Not often does the chart show the kind of smoothness that gold's has since last Friday: two days of strong gains ebbing into a tepid gain yesterday, followed by a substantial loss. As today's action makes plain, the hobbler of gold is the recovering greenback. The metal's Moving Average Convergence-Divergence lines, found at the bottom of its chart, are still solidly in a bearish configuration. The greenback's strength gives meaning to that configuration. Thankfully, gold is still well above its recent low, even though it has made a lower high. If it can hold above a $1,475 close, it may begin consolidating.

As noted above, the U.S. Dollar Index had another good day. It started climbing before regular trading began. Although it got stuck at 74.95 in mid-morning and pulled back, it mustered enough power to climb above that level and touch 75.35 at 12:35 PM. It continued climbing, but much more slowly; it tailed off at mid-afternoon. It then settled into a range between 75.25 and 75.35. As of 5:15, it was edging up to the top at 75.325.

Its own six-month chart, also from, shows a pattern emerging that's foreshadowing a real recovery:

That pattern is an inverse head-and-shoulders bottom.The Index has almost made it back up to the 75.5 it peaked at three weeks ago. The span between makes for the upside-down head of the formation. The left shoulder was carved out earlier, when it sunk to around 74.75. Should it turn down after failing to climb above 75.5, and only fall modestly, there's a real risk that it will turn back upwards and climb well above 75.5. [The "neckline" of the pattern, if it completes, would be that same 75.5.] Given the the Euro has the biggest weighing in the Index, that run-up would mean a bad spell for the other currency - one almost certainly provoked by more Eurozone fiscal woes. Unfortunately for gold, the falling greenback has been its driver recently. The only way gold could not be scathed by a rising greenback is if the Eurocrisis flares up again. So far, despite warning signs, it hasn't.

The U.S. dollar did take a piece out of gold, but the metal is showing a bit of hidden strength. The greenback is above where it peaked when gold had sunk below $1,470, but the metal is now at $1,500. Ex-greenback, gold's gained some. A lot of that gain is a muted response to the Grecian government's latest fiscal woes, which have boosted the U.S. dollar more explicitly. Bargain hunting is also helping a little. The picture I'm painting isn't clearly rosy, as gold was also at $1,500 when the Index was at the same height on April 18th, but it does show that the panic is gone. More dolefully, though, a strong greenback would be the hobbler that would make gold conform to the seasonal downturn it tends to experience this time of year. Whether Asian bargain hunting steps in this overnight session remains to be seen.

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