Tuesday, May 17, 2011

Gold Tumbles On Soros News, Rescued By Falling Greenback

This morning saw a lot of downward volatility afflicting gold, although its interday low from two weeks ago held. The morning sell-off was not triggered by another rise in the greenback: instead, it was set off by news that George Soros had dumped almost all his holdings in two gold ETFs. Jostled into losing confidence in the metal, traders sold off and made for a two-stage plummet that lasted for the entire morning part of regular trading. Indicating that the plummet was overdone, gold recovered most of its drop in the afternoon and ended regular trading with only a slight loss. The falling greenback helped rescue the metal. Most of gold's net loss from the plummet took away gains made in overnight trading.

Gold was in the low 1490s just before the pit session started. Starting to sell off when the session got rolling, the metal first descended to $1,490 before halting. The plummet itself started at 8:30 AM ET and lasted twenty minutes with a short-lived bounceback in between. After the selling cascade finished with the metal, gold was left licking its wounds at $1,478. Spending the next two hours stumbling around $1,480, it luunged up to $1,484 on a weakening greenback but a reversal brought the selling wave back. Gold bottomed at its daily low of $1,471.00.

The metal hit that bottom at 11:40. Then, encouraged by the greenback turning down, it forged up to $1,483 and spent some time rambling around $1,480 again. At 2:30 PM, an hour after the pit session ended and the electronic-trading hitch began, gold got the energy to ford up to the high 1480s for the first time since 8:45. The end of the afternoon hitch saw the metal still climbing. As of the close, at 5:15 PM, the spot price was $1,487.00 for a loss of $2.80 on the day. The Kitco Gold Index attributed -$7.40 to predominant buying and +$4.60 to a weakening greenback.

Gold's six-month chart, from Stockcharts.com, shows its recovery close well above today's interday low:

Formally, gold has broken out of the symmetrical triangle it formed, to the downside as the pattern predicts. However, it did not make a new interday low. The subsequent rally, although rooted in a falling greenback, suggested that the breakdown was motivated by panic. Gold still shows resilience when its Relative Strength Index (found at the top of its chart) gets below the 50 neutral level. Although today's plummet shows how rubbery the rule is now, it's still working. That rule is consistent with gold being in an overall uptrend despite its recent weakness. Until it makes a new interday low and follows through, it's still in a consolidation phase. Should the greenback keep sliding, if only due to exhaustion, gold will still have strength. If the U.S. dollar co-operates enough, the metal may even challenge $1,500 again.

Speaking of the U.S. Dollar Index, it ended down after triple-topping around 75.83. Starting off regular trading around 75.65, its first and second tops came when gold was plummeting. The third came as the metal was taking its climactic tumble and hitting its daily low. From then, starting at 11:45, the Index slid to 75.35 with nary a recovery scrabble. The bulk of its sinking done, it mounted a mid-afternoon recovery climb and then lost its footing again. Sliding again, it bottomed around that same 75.35. As of 5:15, it was exhaustedly pacing at 75.36.

Its own six-month chart, also from Stockcharts.com, shows it declining for the second day in a row:

Given its recent run, the two decline days don't look all that big. They indicate, however, a possible short-term pullback as the excitement over its resurgence fades. The fact that the Index jumped up because of Dominique Strauss-Kahn's arrest indicated a bit of froth in the market, which is fading. Should the Index correct, its intermediate-term uptrend won't be impugned unless it either makes a lower low or fails to make a higher high after recovering. As of now, neither of the two are likely. Still, the greenback losing wind will help gold in the shorter term.

As for the metal, its recovery today shows that it can still take a dent in setiment and roll with the blow. Granted that it should have had a nice gain today, given how the greenback went, but it's still got some bounce it it even when it's sent skittering. During more unfavourable times, plummets left it reeling near the bottoms. There's still some bargain hunting out there, and gold may be able to avoid making a lower low. If the greenback continues to fall, the metal may try for $1,500 again.

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