-- Posted Thursday, 9 April 2009 | Digg This Article
| Source: GoldSeek.com
June Gold: Open= 882.6 High=887.8 Low=876.0 Last= 880.3 -5.6
The US dollar index managed to shake off overnight lows and move higher into the close on Thursday, ahead of the long Easter weekend. Most importantly, the chart pattern possibly is a small ascending triangle. To regain upside momentum, the US dollar needs to close above 86.50.
Until then, the dollar is under the influence of the massive loss back on March 18.
Gold bulls need to be careful about how aggressive they are in trying to bottom pick this latest leg down in gold. There is a lot of buying sentiment in the stock markets right now and expectations are so low for the earnings reports, that even Alcoa’s worse than expected earnings were not ‘so bad’ that the market rallied off better sales figures for the quarter. Some retail sales news was announced this morning, and it wasn’t pretty, but the market was caught up in the Wells Fargo announcement.
As Larry Kudlow likes to say, if a bank can’t make money borrowing near 0% and lending it at 5%, then they shouldn’t be in business. It should be no surprise that institutions dealing in traditional lending practices will be earning money in this environment.
If investors’ outlooks are so poor that earnings keep coming in better than expected, this will certainly help the dollar rally and put downside pressure on gold for now. Remember, a lot of gold buying took place from November to March, not solely because of inflation worries, but also out of fear that the global economic system would collapse. It was a classic flight to quality issue.
Some of that fear has subsided. A few institutions are forgoing TARP money, realizing the pain involved with the attached strings may not be worth the perceived gains. The idea of GM entering bankruptcy has been met with guarded optimism. Banks are earning money and are passing the government stress tests. Amidst the gloom, a few rays of sunshine are peaking through. Oh, the forecast does not call for sunshine tomorrow, but the ideas that tomorrow will bring worse news than today are becoming fewer. At least for now, there is a bit of cautious optimism and that is forcing gold lower.
Until that optimism gives way to deteriorating economic news and fears that the bottom is nowhere at hand, or that optimism turns into surging growth and inflation, then gold may just consolidate. If gold truly is a hedge against inflation, it means there must be measurable inflation. Without inflation, what is there to hedge against? For the moment, the gold market has hedged against fear of global turmoil and anticipation of inflationary pressure. PPI and CPI figures are released next week and will provide some short term direction for the market.
It should be expected to see prices rise slightly as most commodity markets have, at least for now, bottomed out in the past few months. Will it be enough to end the correction in gold? Commodity prices cannot fall to zero, so at some point consumer and producer prices will stop falling and may rebound, but that is not necessarily inflation.
The next downside target for gold is near $860, which would be a 50% pullback. A retracement to the 61.8 Fibonacci level would be to the $820 level. Resistance is found at $890, $895, and $914.
Markets are closed tomorrow for observance of Good Friday, so there will be no commentary.
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-- Posted Thursday, 9 April 2009 | Digg This Article | Source: GoldSeek.com
