Wednesday, May 18, 2011

Gold Touches $1,500, Closes Slightly Below

There was some volatility in gold today, but it was mostly of the upward kind. The metal came close to $1,500 several times in the day, and tested that level once: just after 12:30, it made a day's high of $1,501.00. That test proved to be only a blip, but gold had little trouble staying in the mid-high 1490s in the afternoon and closed with almost a ten-dollar gain. WTI crude oil moving to almost $100 on bullish inventory data gave the metal a boost.

The minutes for the Fed meeting of April 27th-28th were released at 2 PM ET, and they showed a counter-clique in the Fed Open Market Committee that's worried about inflation and is wondering if easing should be unwound sooner rather than later. That dissention didn't show up in the vote, which was unanimous. As far as unwinding is concerned, the preferred course seems to be to start off with a Fed Funds hike and then sell assets so as to reduce the balance sheet.

Gold started off the morning somewhat in the doldrums, floundering around the $1,491 level. There wasn't a selloff at the start of the pit session like there was yesterday. As the center line tilted upwards as the 8 AM hour turned into the 9 AM hour, the second and final dip to $1,490 gave way to a nice run just after 9:30. Zipping up to $1,498 as the greenback started to founder, gold's run reflected some optimism coming back into the market. The metal would not go below $1,495 until just before the pit session ended.

The fall to $1,493 at that time merely meant a wider range with a lower bottom, at first. As the afternoon wore on, the top of the range would lower from $1,499 to $1,497. The release of the FOMC minutes, gold took in stride. It was near the end of a crest, and crest it did at that lower top. Although the range did lower in the afternoon, the metal did end regular trading at the top after spending the last half hour bumping against the ceiling. As of the close, the spot price was $1,496.90 for a gain of $9.90 on the day. The Kitco Gold Index attributed +$10.60 to predominant buying and -$0.70 to a strengthening greenback, which shows that today's rise featured other factors than the usual one. The greenback was a pusher in the qualitative sense, but enough demand came back to leave gold well up despite the currency's wash at the end of the day.

Gold's six-month chart, from, shows gold's gain wiping out its losses from the last two trading days:

Once again, gold showed resilience and even strength when its Relative Strength Index (found at the top of its chart) got below the 50 neutral level. That rule tends to hold when gold's in a longer-term uptrend, and shows that the metal hasn't changed from consolidation to correction. Today's gain was largely the reversal of yesterday's "Soros plunge," which did not have any lasting effect on gold. The news that George Soros had sold almost all of his gold ETFs sometime in the first quarter of this year threw the gold market into a panic, but that panic has been washed away. It didn't do any lasting damage to the metal. Gold isn't out of the risk zone, as yet anyway: a sustained break above $1,500 and a climb to $1,520 would establish that it's consolidating in a trading range instead of being at risk for a further short-term slide.

As for the U.S. Dollar Index, the start of regular trading saw the end of a climb that brought it up to almost 75.6. Double-topping at 75.585, it slid down between 9:45 and 11:00 to around 75.3. An initial climb-back turned into a skid to below 75.25 at 2:15, but the Index then got traction and climbed up to above 75.5 before sliding down to 75.4-75.45. As of 5:15, it was paused at 75.42.

Its own six-month chart, also from, shows a candlestick with a gain even though it sunk with respect to yesterday:

That chart artefact is due to the fact that the Index closed at a higher level than it opened. In spite of that intraday gain, it still continued to decline from the interday perspective. Despite that decline, though, the Index's Moving Average Convergence-Divergence lines (found at the bottom of its chart) are still solidly in a bullish configuration. They're a long way from a bearish cross. Those lines suggest that the greenback is in the process of making a short-term pullback that will result in a higher low. That's one of the reasons why gold isn't out of the woods as of yet: a rising U.S. dollar will not be good for the metal.

Still, gold did well today. More importantly, it completely shook off the Soros plunge. Had the metal been truly vulnerable, that plummet would have incurred some lasting damage - but it didn't, which means that the panic was only short-term and not the trigger of a sustained selloff. Gold still hasn't climbed above $1,500, but it's close. The upcoming overnight session may see a try for that level that's a little more than a blip. If lucky, gold will get and stay above that round figure.

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