Monday, May 23, 2011

Gold Shakes Off Early Loss, Strong Greenback To Close With Small Gain

Gold closed with a mild gain, benefitting in a small way from safe-haven buying today. It was sparked by worries about the Euroland economies, and governments' debt therein. Also causing worries were the lackluster performances of Indian, mainland Chinese and American equities. The prime beneficiary of safe-haven buying has been the greenback, though: it closed with a strong gain, although weaker than at its morning peak. WTI crude oil was down slightly, closing around $97.50. Silver managed to climb barely above $35, suggesting that the gold-related safe-haven buying was prompted by inflationary fears. Those inflation fears were not enough to help oil.

Until 8 AM ET, gold was desultorily rambling around $1,510. At that time, the metal slipped down to $1,504 and regained its traction slowly. At 8:45, it broke the jinx and leapt up to $1,512 before sliding back and then ascending in a less ragged fashion until it hit $1,514 at 10:30. A pullback in the greenback aided its climb. Then slipping to $1,510, it bottomed there and then managed to jump back up to $1,514 again.

One more climb was in store for it in mid-afternoon, but the metal only gained a few dollars as a result. From 2 PM 'til the end of the session, it stayed in an intraday range between $1,516 and $1,518 as the greenback settled into a lower range of its own . As of the close, the spot price of gold was just above the middle of its range at $1,517.20; it gained $3.70 since Friday's close. The Kitco Gold Index attributed +$13.40 to predominant buying and -$9.70 to a strengthening greenback.

Gold's six-month chart, from, shows the metal moving up to near the top of its now-established short-term trading range:

Today's gain was much less than last Friday's, but gold did build on Friday's accomplishment instead of sliding back. The metal's moving near the $1,520 resistance level, which it unsuccessfully tried to penetrate on May 11th. Its Moving Average Convergence-Divergence lines, found at the bottom of its chart, are still in a bearish configuration but are getting closer to a bullish crossover. Although gold's performance has been salutary, significantly so given the greenback's strength, it's going to have some trouble sustainably crossing $1,520. Given the safe-haven buying that's arising, it may try.

As for the U.S. Dollar Index, it did slump back during regular trading but it managed to hold on to most of its gains from the overnight session. After topping at slightly above 76.35 just after regular trading began, it first hesitated then pulled back to 76.1. Trying to regain its upward climb in late morning, it topped out at a slightly lower level and then fell back to below 76.2. Slumping more in mid-afternoon, it bottomed well above 76.0; that support level wasn't even tested. In late afternoon, with gold not reacting, it inched up to a little below 76.15 and tested that level without resuming its climbing. As of 5:15 PM, it had slipped a little to reach 75.14.

Its own six-month chart, also from, shows its strong leap with respect to last Friday:

Like gold, the Index gained for the second trading day in a row. Unlike gold's, today's Index gain was stronger than last Friday's. Having backtracked to 75.0, the Index took the pause there as encouragement to climb to a height unseen since early April. Its upward trend is definitely intermediate-term. The Index's Relative Strength Index, found at the top of its chart, is approaching the 70 overbought level. Only a few weeks ago, it was outright oversold. The driver for the greenback is fear, particularly Eurozone-related fear, which has encouraged safe-haven buying. That climate of worry are what's enabling the Index to power upwards with gold gaining too.

As the week's first day ends, the metal is in a fairly strong position. Last week saw it busting of a symmetrical triangle, a chart pattern that is supposed to augur a continuation move. (In gold's case that would have been further plummeting.) Now, it's nearing a test of the $1,520 resistance level. If inflation-related fears keep building up, it could touch that level in the coming overnight session. My earlier fears of it testing $1,500 today proved to be groundless, indicating that it's become fairly good at shaking off snap declines. Only time will tell how much of the greenback safe-haven buying will either spill over to or be crowded out by gold. Perhaps they both will keep rising in the coming days, as they did when the Eurocrisis first erupted.

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