Friday, May 13, 2011

Gold Sinks On Rising Greenback; Ends Week Below $1,500

Gold drifted around $1,505 last night, and managed to climb well above $1,510 early this morning on a weakened greenback. Peaking at $1,517.80 just after 4 AM ET, the metal slumped to $1,510 four hours later. As regular trading started, a selloff made the metal stumble to $1,505. The news at 8:30 that the U.S. CPI rose 0.4% in April helped bump gold back up to $1,510. Although the CPI matched expectations, it still shows that raw inflation is still uncomfortably high. The core rate isn't, as yet anyways.

The metal got poleaxed late this morning due to a sustained surge in the greenback. A misquotation of European Central Bank president Jean-Claude Trichet, or a later clarification on his part, was responsible for a drop in the Euro. Reuters initially reported that he saw a "peak" in Euroland inflation,; he later said he saw a "hump." Speculating that the first word means a a shift to an easy stance by the ECB, the Euro sold off. That sell-off drove up the greenback and swacked gold. After its tumble, the metal didn't recover that much; at the end, it sported a double-digit loss. For the week, though, gold was virtually unchanged. It lost 20 cents from last Friday's close, for a miniscule drop of 0.0133%.

After recovering to $1,510, the metal slid back down to $1,505 only to jump back up again to $1,510 at 10:20. Unfortunately, it lost traction and slipped back to $1,505 by 11:00. After slowly slumping further, it tumbled: by 12:25, it had bottomed at $1,482.80. Around the same time, silver was driven down a dollar an ounce; beforehand, WTI crude oil lost $3 a barrel to trough at just above $97.

The former all-but recovered in the afternoon; the latter came close to getting back to $100. Alas, gold didn't join them. Although it managed to climb above $1,495 by 2:30 PM, it then slid back to $1,490 an hour later. Near the end of the session, it got some strength up and managed to climb back to above $1,495 again. $1,500 remained out of reach. As of the end of the week, the spot price was $1,495.20 for a drop of $11.70 on the day. The Kitco Gold Index split the loss into -$1.45 for predominant selling and -$10.25 for a strengthening greenback.

Gold's six-month chart, from, shows the metal's recent indecisiveness near the bottom of last week's rout:

As the chart shows, gold doesn't want to go down below last week's interday low. The last four interday peaks have been successively higher since last Thursday's bottom. Despite the fact that the greenback hit its highest level in five weeks today, a level that coincided with gold being around $1,460-70, the metal hasn't made a lower low. That could change if the greenback keeps shooting up, but for now gold's showing some resilience. Its Relative Strength Index, found at the top of its chart, is having a hard time going below the 50 neutral level. Gold's refusal to make a new lower low, although no guarantee, gives some cause for hope. If it can best this week's high, then its action will indicate a move into a consolidation phase. If it breaks below last week's low, we're looking at a correction.

As indicated above, the U.S. Dollar Index had a great day. Initially rising from below 75.1 to 75.2 just before and on the U.S. inflation data, it later slumped to below 75.0 but then recovered. It then climbed steadily all the way up to 75.955 from 9:20 to 12:25. Interestingly, gold didn't get poleaxed until near the end of the greenback's run. From that peak, the Index descended to a range between 75.7 and 75.8. Near the end of the session, it was crawling up to the top of that range. As of the end, it got hit by a last-minute selling bump to close at 75.72.

Its own six-month chart, also from, shows today's solid gain as well as its weakening in the wee hours of the morning:

Thanks to today's run, the Index already broke the neckline of its nascent inverse head-and-shoulders bottom. It doing so might have thrown the pattern out of whack, changing it into a more explicit climb-up. Since its bottom last week, it's hardly looked back as it touched a level not seen since early April. Its own RSI line, found at the top of its chart, shows the Index veering towards being overbought. The RSI is at its highest since late last November, when the Index was in fact overbought. Although it may have enough power to break above 76.0, I think it'll be taking a rest early next week.

Although gold's performance today wasn't inspiring, it could have done worse given the greenback's strenght. Despite peaking at a lower high this week, at a level consistent with a recovery rally in an intermediate-term downtrend, it has yet to follow through by making a lower low. If gold can hold $1,480 next week, it'll be setting itself up for a consolidation and avoiding an outright correction.

Before I go, I should explain why there have been no posts since yesterday morning. Blogger went buggy yesterday afternoon, and stayed that way until a little after noon today. During that timeframe, I couldn't sign in to post anything. Some of my earlier posts did get yanked during the bug chasing, although they're slowly being restored. There have been earlier interruptions and deletions, but none of this length and magnitude until yesterday. I'd like to thank you for being patient with me while I waited the downtime out.

And, of course, thanks for stopping by. Have a great weekend; enjoy the warmth for all it's worth.

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