Tuesday, May 31, 2011

Gold Has Dither Day, Closes With Mild Loss

After bumping up against $1,540 in overnight trading, gold settled back into the high 1530s but slipped below $1,535 in the morning. Losing its footing, the metal spent almost all of the afternoon in the low 1530s. Unlike silver, which managed to hold on to a decent gain, and unlike WTI crude oil, which made a run at $103 and closed with close to a 3% gain from its $100 starting point, gold ended the day with a loss. About half of that loss erased the trickle-trade gain yesterday, but the metal still ended up below last Friday's close.

Today was one of those days when the first half hour of regular trading foreshadowed the rest of the day. The first time gold fell below $1,535 today, other than a blip, was at 8:30 AM ET when it slid to $1,533. Picking itself up afterwards, it first bumped against $1,535 and then jumped up to $1,538. Then followed some climbing and sliding, which became more volatile until the metal touched $1,540 again in late morning.

Afeterwards, it tired out and slid back down to $1,533 in light trading. Having reached that level right after noon, it stayed in the low 1530s except for brief blips as it lumbered to the close. Trading became lighter and lighter as the end of the day approached. At the close, the spot price was $1,534.30 for a loss of $4.80 on the day. The Kitco Gold Index attributed -$11.90 to predominant selling and +$7.10 to a weakening of the greenback.

Gold's six-month chart, from Stockcharts.com, shows its small loss coming on the heels of last Friday's much larger gain:

Since Stockcharts.com doesn't include the data that came from the miniscule trading yesterday, today's decline follows on the heels of Friday's trading. Despite several tries, the metal has been unsuccessful at getting above the $1,540 resistance level. Even though the greenback has sunk quite a bit since its peak, its fall has been able to push gold only so high. When $1,540 approaches, there are too few buyers to fend off the sellers. Despite that block, gold's in a fairly good position as June approaches. Although May of last year was better - back then, the metal managed to recover almost all of an earlier plummet - this May has seen a decent recovery after the rout at the beginning of the month. Seasonally, there is a risk of further drops in the summer: gold's mid-year low last year was in mid-July. For the patient, there's likely to be a bargain during the dog days of summer. Until then, gold may disappoint despite its fine showing this month.

As for the U.S. Dollar Index, it stayed in a range it carved out just before regular trading started. The bottom of the range was 74.5. The top was extended slightly just before noon, when gold slid to the low 1530s, to 74.69. Since the earlier top was only slightly below that new high, the Index essentially stayed in its range for the entire day. As the afternoon wore on, it eased downwards to 74.6 and started fluctuating around that level. When 5:15 came, it was torpid at 74.595.

Its own six-month chart, also from Stockcharts.com, shows how much has been taken off its earlier countertrend climb:

As of now, the Index has retraced close to half of its earlier run-up. Its Moving Average Convergence-Divergence lines, found at the top of its chart, have made a bearish cross. Its Realtive Strength Index, found at the top of its chart, is now well below neutral. It has definitely made a technical breakdown, as seen by its descent to well below the old 75 support level. However, it might turn around yet although not to a high higher than its 76.5ish peak. It might haul up to the 75s again: today's candlestick makes for a gap relative to last Friday's, and those gaps tend to be filled. For a downward gap, that means a rebound.

Although headwind season is here, gold is still making out all right. It should have some troubles in the summer, but its long-term bull market is still intact. Should the seasonality hold, the metal will forge ahead to new highs in the fall. If next fall sees a run like last fall's, $1,600 will yield and $1,700 might. I really don't know how high gold will go, as easy money and global inflation are still very much with us. I can only warn: once the turning point comes, once the long-term bull turns into a bear, few people will see it at the time. Gold is not in a mania phase yet, contrary to my expectations, but it's getting there. I have little doubt that it will enter one before this bull market ends. Should gold go crazy, the best advice I have is to sell down to the point where you're playing with house money except for your core holdings. Get your cost basis to zero or below, in other words.

That advice pertains to some indefinite point in the future. For now, despite any seasonal headwinds, the long-term direction for gold is up.


You may have noticed that my postings have become more irregular recently. That's because I've had personal committments that are clashing with the time slot in which I write for this blog. Accordingly, but with regrets, I'm folding the tent up because I can't assure anymore that I'll be able to post in a timely manner.

There'll be one more post after this one explaining where I got my items from, which will be up by early tomorrow morning. It'll be for anyone who'd like to keep up for themselves. I really regret giving this blog up, but it's time for me to head to a different pasture - one with a more flexible schedule. Thanks so much for reading what I've posted; those thanks are given especially to any regulars. I got into blogging about gold because I thought I'd be blogging though a blooming mania, which has not come to pass. My underlying motive was to warn everyone when I thought the bubble was about to burst. Right now, there's no need to. Gold will continue to fluctuate, but there's no mania as of yet. I still might write such a piece when gold does go manic, but that could be years away.

Again, thank you and take care. May the gains rain softly on your portfolio.


  1. The spike in the price of gold is “undoubtedly” based on “fear from traders on concerns about the U.S.

  2. Still waiting for Daniel to come back and start posting again. Daniel was very early to call a Gold bubble, he should come back and take his creadit for calling it so long ago.

  3. I have been an avid reader of this blog, and i hope Daniel will come back to posting his valuable tips on gold.