As we warned on Friday, short covering and bargain hunters stepped in today and bid gold up. This is fairly predictable.
A bit less predictable has been the slide of the dollar, which is accounting for more than half of the gain in gold today. We figured gold would pick up maybe $5 or $6 from dollar weakness but that number is almost $13 (at 5PM EDT). That sets off some technical buying, which helps the regular-trading side of the equation. But, it's really almost all about dollar weakness today.
There are some explanations for the dollar decline.
As gold traders stepped in through the bargain door, so did currency traders, betting the other way of course, and shorting the dollar. The general sentiment was that things were moving too rapidly in their given directions. The dollar, though, really has nowhere to go but up. The fear (if not the reality) of a rise in U.S. interest rates fuels the assessment. The softness of the European economy, a problem that is now affecting Germany finally, will militate for bigger and better stimulus measures by the European Central Bank and that will boost the dollar. The Chinese doldrums have helped the dollar immensely, too.
Equities are in a pause today after the booming employment news of Friday. (It was that news that pushed precious metals down and the dollar up.) Two areas of concern for stocks are the small-cap issues and tech companies. Small caps are struggling to find the right, affordable financing they need and, while there is a fair amount of risk appetite out there in the marketplace, it's tightly focused on how much room is left in the big corporations' trading prices. Tech in general is in a resting stage.
We have upon us on Wednesday the opening of Q3 profit results, so some people are holding off placing their bets till the first bell weathers are heard and analyzed. Additionally on Wednesday, also curbing enthusiasm in even the mighty S&P is the release of minutes from the last FOMC meeting.
Hurry up and wait.
As always, wishing you good trading,