Carat$4,055 gold: Thursday's rally goes back out on a dollar bounce
Spot fell 1.19% to $4,054.68 an ounce on the last trading day of July as the dollar rebounded and traders booked the previous session's gains. Gold is still 20.57% higher on the year and about 1.4% higher on the month.
§1A day's work, returned.
Gold gave back a day's work on Friday. Spot traded at $4,054.68 an ounce, down 1.19%, after prints earlier in the session held above $4,086. Thursday had been the good day, with the metal cresting $4,100 in the relief that followed the Federal Reserve's decision to hold. Friday reversed most of it. On the year gold is still 20.57% higher, and July closes about 1.4% up on the month, which is a modest result for a month containing a Fed meeting and a war premium.
The cause was ordinary. The dollar rebounded from a six-week trough, and a stronger dollar makes bullion dearer for every buyer who does not earn in it. Traders who bought Thursday's rally sold Friday's open. Nothing in the macro picture changed between the two sessions, which is the point. The move was positioning, not information, and positioning unwinds faster than it builds.
§2Traders, not holders.
The spread inside a single day is worth more attention than the close. A market that prints $4,086 in the morning and $4,055 by the afternoon is a market where the marginal seller is a trader rather than a holder. Central banks, which took 289 tonnes in the second quarter, do not trade the tape at that frequency, and neither does a jeweller buying casting metal for autumn. The people who moved the price on Friday will not be the people who own it in October.
The move was positioning, not information, and positioning unwinds faster than it builds.
§3The bench arithmetic.
For the bench, the arithmetic is unchanged by a bad afternoon. At $4,054.68 an ounce, fine gold costs about $130 a gram before refining, alloy, loss or making charge, against roughly $107 a gram this time last year. A retailer quoting a January price list is short about a fifth of the metal cost, and the customer who is trading in old chain to fund a new piece is doing the same arithmetic from the other side of the counter.
A 1.19% Friday is noise, and it would be a mistake to write the week from it. What the month says is more useful. Gold spent July in a band, absorbed a hawkish hold, absorbed a dollar bounce, and finished higher anyway. The trade should stop planning for a return to $3,500 and
start pricing inventory, insurance and trade-in policy off a $4,000 handle, because a metal that will not break down on bad news is not a metal that is waiting to fall.
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