Sunday, August 8, 2010

Notice of Closure

I'm sorry to say it, but I'm closing up this blog. The reason why is I've got a large chore ahead of me - learning computer programming - and I won't be able to spare the time for both.

There's a second reason, although it doesn't relate to the time constraints. What I'm writing now has gone far beyond the title and purpose of this blog. Rather than the detached fellow waiting for the gold bubble to build and crest, I've become a regular gold-watcher - although one with less depth than others. This reason pertains to why I won't re-open this blog once I'm through; there doesn't seem to be any point going back to a theme I've long gone past. Should I get back in, it would be in a different format.

It's been a real learning experience, and the experience has included me facing my limits as a forecaster. Over the life of this blog, I've seen the excitement of the Indian central bank gold purchase climax with the record high on December 2nd, seen gold correct in December, watched as a rally turned into a sucker rally in January, faced the doldrums of February, and saw a largely frozen gold market in March turn into a recovery in April. There were also the new record highs made in June, after the gold market fall out of bed in mid-late May, and the doldrums of last month that have recently reversed. None of these actions are consistent with a gold bubble made and popped, and none of them are consistent with building the big bubble I've been expecting.

The gold bull market is still intact, if the more than 30% loss in 2008 is counted as a correction rather than as an outright bear market. If '08's turmoil is counted as a bear, then gold is in its second bull market that's lasted for almost two years. Either way, there's little to no sign of the long-term upward movement ending soon.

I still think gold will be entering a parabolic rise that'll last at least a year and be the talk of the Street, but not soon. Gold will have to wait for a wake-up in inflation for that event to take place. This catalyst, I expected to kick in by now.

Should gold go parabolic, and reach $2,000-$3,000 or more, I have this advice to pass along. It'll hurt some, because bubbles are an incredibly easy time to make money by the pony up and re-up, but there's a trick that's often suggested with penny stocks that's useful: sell until your cost basis is negative, and then gamble with house money. That way, when the bubble burst, the worst that'll happen is you'll emerge sad but intact. Any money that comes from bubble-playing would be a bonus.

Another point: right now, gold is thriving in large part because short-term real interest rates are negative. Should real rates go above 3% in the midst of an all-out bubble, it'll look like the Treasury market is discounting future higher inflation. That take was almost gospel in the goldbug world back in 1981. Should real rates ascend to that level in the fever of a parabolic third-stage bull, it'll be easy to point to them as "proof" that more serious inflation - or hyperinflation - is coming. There will be forecasts of much higher gold prices that include one or two of these rationales, and they'll be widely believed and disseminated. Historically, real interest rates above 3% herald the end of the long-term bull and the beginning of a long-term bear. Should they come in the fever of a parabolic rise, the signal will not only be widely ignored but also will be hard to believe.

There are those who won't want to cash out. For those, reducing the cost basis to negative once rates hit that level would be prudent.

If gold is destined to relive a fifteen-year bull cycle, the blow-off won't be climaxing until 2015 or so. The cycle may be shortened because of the sovereign debt crisis, so the blow-off might happen in 2012 or 2013. It'll be recognizable by its rise, and by the innate plausibility of said rise near the end. That end, I have to point out, will be unpredictable. Many will try; all will be early.

With that off my chest, I'd like to thank everyone who's stopped in and read what I've got - and I'd like to wish everyone who's in the gold market the best of luck. Given my habits, I'll likely be back later but under a different format. We might meet up again sometime next year.


Again, thanks.


- Daniel M. Ryan,
danielmryan[shift-2]primus.ca.


Update: As the post just above this one noted, I'm back at it at another blog. One feature I've added is goldbug fiction.

Friday, August 6, 2010

Gold Tops $1,210, Slides Back To $1,205

Thanks to an encouraging (for the gold market) employment report that showed private-sector payrolls growth well below expectations, gold shot up to $1,208 by 9 AM ET and briefly touched $1,210. There was a pullback, but it wasn't that great in extent; the drop ended at $1,206. Then, gold continued to rise but in a laboured fashion. Poking above $1,210 twice before the laboured rally ended, when the metal touched $1,212.20, it fell back to a little above $1,206. A third attempt at $1,210 resulted in another poke-above that failed to hold. As of 11:56 AM, the spot price was $1,207.10 for a gain of $12.20 on the day. The Kitco Gold Index split the gain into +$5.35 for predominant buying and +$6.85 for a weakening greenback.

What got gold gaining, got the U.S. Dollar Index tumbling. From around 80.85, the Index descended to below 80.1 before the decline halted as of 10:07. From there, it recovered with a slow and rolling advance that still left it well below 80.5. As of 11:58, it was at 80.35.

Needless to say, $1,200 has been smashed. The reaction to what was really a mixed report - the unemployment rate of 9.5% was slightly below expectations - shows pent-up demand for the metal that was waiting for a catalyst. Gold may fall back later, as has often been the case after recent morning leaps, but a close above $1,200 seems assured.


Update: Gold did break through $1,206 on the downside, making for an afternoon post-leap pullback. After doing so, the metal stayed between $1,204 and that price until a little before the end of the pit session. As of the end, or 1:30 PM ET, the spot price was $1,203.40 for a gain of $8.10 on the day. The Kitco Gold Index divided the gain into +$2.15 for predominant buying and +$6.35 for greenback weakness.

The U.S. Dollar Index kept climbing in early afternoon, but slowly. Before pulling back, it barely climbed above 80.4. As of 1:30, the Index was at 80.34.

Despite the letdown gold is still well above $1,200 - and it's still likely to close above that number, making for another third-time-lucky test.


Update 2: Gold did close above $1,200; in fact, it closed above $1,205. The dip below that level at the end of the pit session continued for a short time afterwards, but then reversed with gold climbing back up to $1,206 by 2 PM ET. The rest of the electronic-trading hitch was quiet, with the metal fluctuating a little above $1,205 except for a brief reversed dip. As of the close, the spot price was $1,205.70 for a gain of $10.80 on the day. The Kitco Gold Index apportioned the overall gain into +$4.90 for the predominant-buying category and +$5.90 for the weakening-greenback one.

This week saw a reversal of the declines that previous weeks ended up displaying. Last Friday's close was at $1,181.40, so this week saw a substantial gain of $24.30 or 2.06%. The close for this week was also well above that of two weeks ago.

The U.S. Dollar Index, after managing to get up to 80.425 at 1:15, stayed between that level and 80.295 for the rest of the session except for the last five minutes. A jump above the high didn't stick, though, and the Index closed the week at 80.39.

Its daily chart, from Stockcharts.com, shows the recent attempt at basing thwarted:



Again, what I thought would be the beginning of a short-term turnaround wasn't. The Index managed to stay above the 80 support level, but its reaction to this morning's jobs report shows bearish sentiment has not been exhausted. The Index's RSI level, found at the top of its chart, is still in oversold territory.

It's gone so low, a pattern is beginning to show up - one that does not bode well for it. The Index is very close to touching the same level it was at on April 14th and 15th, before the Eurocrisis-fueled rally got rolling. All but a smidgen of the rise subsequent to those mid-April days, right up to above 88.5, has now been erased. The Index started a late March rise, which took it up to above 82.25, at a little above 79. The descent to 80 comes close to making a head of a months-long head and shoulders reversal. There isn't really a neckline, but more of a neck zone between 79 and 80. The Index only has to fall a little further before entering that zone - and it may.

All it would take to complete that pattern would be a future rise to well below 88 and a fall below 79. Since the pattern's been long in developing, it would take some time to see whether it will go to completion.

Turning to gold, its own daily chart shows its breakthrough above $1,200:



The crossover of gold's MACD lines, found at the bottom of its chart, had the say. Two days after switching to a bullish configuration, the metal has advanced beyond an important resistance level after two days of trying. The third time was the charm.

The metal's RSI level is comfortably above the 50 neutral level, a zone at which it's not been at since the end of June when it was around $1,240. The inverse head and shoulders bottom I was expecting didn't come to pass because gold continued rallying above what would have been the neckline of it. Technically, gold is looking pretty good.

Certainly, it looks better than it did as of last Tuesday's close. Then was the cut-off for this week's Commitment of Traders data, as graphed here. At that time, though, gold had finished the fifth day of its six-day rally; so, the technicals looked fairly good then. As of that time, total open interest had shrunk for the fifth week in a row. All reportable categories shrunk, including the well-watched commercial shorts category. The category that shrunk the most in percentage terms was commercial longs, which decreased by 7.00%. The least, non-commercial longs by 2.43%. Interestingly, long was the place to be for the rest of the week; the latter category, as a category, showed the least disconnect from what transpired later in the week.

As for the U.S. Dollar Index's own CoT data, graphed here, its total open interest remained low but managed to barely break the recent losing streak. Commercial longs nearly doubled from their recent sliver. The only other category to increase was non-commercial shorts, by 28.9%. The other two categories declined. Given the Index's brief rebound the following day was more than checked by two subsequent down days, the non-commercial shorts had it.

A post-pit Reuters report says gold was up on safe-haven demand triggered by the disappointing nonfarm payrolls component of the jobs report. Amongst the points therein, these were included:
* Gold accelerated gains and Wall Street sank after government data showed U.S. private employers added fewer workers to their payrolls in July than expected.

* Recent weak economic data suggested interest rate will be low for a while, which is very good for the precious metals relative to other assets - Thomas Winmill, portfolio manager of Midas Fund MIDSX.O.

* The usual inverse relationship between gold and the dollar has shown signs of a resurgence, after the link loosened earlier this year as extreme risk aversion benefited both assets - analysts.
Gold definitely has had the better of the now-inverse corrlation lately. If things go well, the metal will stay above $1,200 next week and build a base at the new higher level. It's past the bargain-hunting zone, but new demand is beginning to show up. August is starting to shape up as the month when gold shakes off those summer doldrums.

In closing, thanks for stopping by and reading what I've posted here. May your weekend be unmuggy.

Nottingham Scientists Find Way to Use Gold As Antiseptic Agent

A team of scientists at Nottingham Trent University has found a way of binding gold nanoparticles to antibiotics. The gold lessens bacteria resistance to the antibiotics by weakening the cell walls of the creatures.
The tests so far have been extremely positive and indicate that the particles are highly potent at neutralising bacteria such as E Coli.

The findings of the tests have been published in the Journal of Materials Chemistry and detail how the team has been able to control the production of nanoparticles as part of a chemical reaction. The tests have proven that the particles are highly robust and effective in both acidic and alkaline environments alike.

The gold within the nanaoparticles creates holes in the cell walls of the bacteria which reduces their resistance to antibiotics. The ability to coat particles with antibiotics could lead to exciting and innovative new ways of looking at how we fight bacteria over the coming years....

Boffo for the boffins. They and gold will save lives.

"The Inflation Trader" Doesn't See Gold Bubble

Through a comparson of three ratios, gold versus oil, the S&P 500 and house prices, "The Inflation Trader" concludes gold is not in a bubble. Although the last ratio is somewhat high, the first two don't show much overvaluation.
All in all, I think there are no real signs that gold is in a bubble at the moment. With real yields around zero out to the 5-year point, gold (probably through an ETF like GLD) is a defensible investment.

One metric that shows gold is in a nascent bubble is the effect that investment demand has had on the metal, without which gold would be in the 800s. Still, even at these prices, there isn't any sign of an all-out bubble. I still believe there will be one, although not in the near future. A ramp-up in inflation would provide the catalyst, because the gold story has spread far and wide enough for an inflation ramp-up to provide a major impetus to piling into gold.

Louis James Sees Pre-Mania Phase For Gold

James, the Senior Editor, Casey’s International Speculator, says gold and the gold stocks are being held back by memories of 2008. Although gold initially rose when Bear, Sterns got into its trouble, the metal lost more than 30% from then 'til October. The gold stocks got slaughtered.

James suggests the gold stock now, particularly the exploration juniors, are being held back by a fear of another 2008. This time, though, he thinks gold will benefit more, and more quickly:
As the debt-glue holding everything together continues to lose its grip, the ride will only get rougher. As bad as 2008 was, if the Crisis Creature appears to be coming back when everyone on Main Street thought it was dead, the fear should be much worse – and that should drive gold way, way north. It’s possible the fear, coupled with the lack of any safer alternatives, could prevent gold from melting down at all, sending it instead straight through the roof into the clear blue Mania Phase sky....

Unfortunately, the stampede to safety that drives investors to gold is not likely to drive them immediately to junior exploration stocks. “The most volatile stocks on earth” is not what fearful people will be looking for – not until the panic sufficiently recedes and greed joins fear in equal measure in the marketplace…or in greater measure, come the Mania Phase.

If I’m right about fear being the driving force in the markets in 2010, whereas greed drove them in 2009, gold will have to deliver a serious wake-up call – perhaps holding over $1,500 – to really get the show on the road again for the gold stocks. If that happens while fear of a global economic slowdown continues to push oil prices lower, gold producers should be able to report extraordinary profit increases, even as other industries are tanking, and finally penetrate deeply into the awareness of broader pools of investors....

He thinks the producers will benefit sooner, and suggests holding off from buying any gold exploration stock unless it's a real bargain and has a deposit that's millions of ounces in size.


Trouble is, it's hard to find any real bargains using that criterion. From what I've seen, they're in "buy high, sell higher" territory.

Australian Fitness Club Rapped For "Gold Coin To Join"

The reason given for the Australian Competition and Consumer Commission launching a complaint about Fitness First's "Gold Coin To Join" campaign was the exclusion of an additional administration fee, but there may be cause to wonder if the campaign was frowned upon because Fitness First didn't quote a legal-tender price.


It's a straw in the wind, of a certain sort. Using gold as a medium of exchange, despite E-gold launching long before PayPal, never really took off. If it does, there may be similar hostility surfacing along with it.

John Paulson's Gold Fund In A Bit Of A Spot

Most of John Pauson's funds would up with gains in July, but his gold funds were a notable exception.
Paulson's gold-oriented fund, the New York-based fund firm's newest offering which launched this year, tumbled 5.93 percent in July, but is still up 5.7 percent [on] the year.

Paulson might get some bad press for that July result, but his gold fund has actually done better year-to-date than his flagship Advantage fund. Despite the hoopla that accompanied its launch, he didn't get much money subscribed to it apart from his own. Paulson himself put $250 million of his own funds in the project, which resonated with the comparisons to his bet against subprime mortgages in '07.

Gold Stays Steady In 1190s

There was some fluctuation in gold during the overnight session, but the overall direction was sideways; roughly, the metal centered around $1,195. Signs of a slowdown in Euroland emerged with U.K. factory output rising by a less-than-expected 0.3% and German industrial production unexpectedly falling by 0.6% in June. Gold initially fell last night, bottoning below $1,193 a little after 8:00 PM ET, but then rose. Peaking at $1,199.60 as of 4 AM, the metal slid down once again to bottom at $1,192.50 more than two hours later. Turning around, its subsequent rise was muted but enough to carry the metal above $1,194. As of 8:02 AM, the spot price was $1,195.00 for a gain of $0.10 on the day. The Kitco Gold Index attributed +$1.30 to predominant buying and -$1.20 to strengthening of the greenback.

The U.S. Dollar Index stayed mostly flat last night, but rose starting at 3:40 AM after a slight fall to 80.7. Reaching almost 80.95, the Index double-topped and then pulled back a bit. As of 8:08, it was at 80.87.

A Wall Street Journal article says gold has remained flat on low volume due to anticipation of an especially good or bad unemployment number.
"There is a lack of liquidity and everyone is just waiting to see how the data looks," a trader said. "A strong number either way could really move the market."

Expectations of more robust data, following some increasingly positive figures out of the U.S., have been reduced somewhat after Thursday's disappointing U.S. jobless claims data, SEB analyst Bjarne Schieldrop said.
Generally, the weaker the numbers the better for gold. Although not mentioned in the report, holdings of the SPDR Gold Shares Trust increased 0.92 tonnes yesterday to 1,282.75 tonnes.

The U.S. jobs number came out, and the unemployment rate shows a slightly better picture than was expected; the overall picture was mixed. July's rate of 9.5% was slightly better than expectations for 9.6%, but private nonfarm payrolls expanded by 71,000; expectations were gfor a gain of 100,000. The total number of jobs lost was 131,000. The gold market took off on the news. Starting at $1,196, the metal shot up above $1,200 to reach $1,208 before stalling. As of 9:02 AM the spot price was $1,207.40 for a gain of $12.50 on the day. The Kitco Gold Index split the gain into +$6.30 due to predominant buying and +$6.20 due to weakening of the greenback. The U.S. Dollar Index, as indicated, reacted badly to the news. From about 80.85, the Index fell all the way down to 80.35 before stalling. As of 9:05, it was at 80.38.

$1,200 has been tested, and gold has shot through. The gain's been strong enough to give a good chance for the metal closing above that level today.

Thursday, August 5, 2010

After Touching $1,200, Gold Slumps Back

Gold managed to touch $1,200 in the beginning of regular trading on the heels of a disappointing jobless-claims report, but its momentum faded at 8:50 AM ET. From then until just after 11:00, the metal rolled downwards to a new daily low of $1,189.20. A relief rally took it to $1,194 shortly afterwards, but the momentum of the last six days has been broken. As of 11:55 AM, the spot price was $1,194.20 for a loss of $1.40 on the day. The Kitco Gold Index attributed -$1.70 to predominant selling and +$0.30 to overall weakening in the greenback.

The U.S. Dollar Index, after being knocked down by the jobless-claims report, recovered in mid-morning. At the same time gold reached its low, the Index almost touched 81.0. Since 11:07, it's been hovering just below that level. As of 11:57, it was at 80.91.

The newly-restored inverse correlation between gold and the greenback has asserted itself to the detriment of the metal. There may be somewhat of a pickup in the afternoon, but it looks like gold's recent momentum will stay drained.


Update: The momentum did come back, enough to put gold into the gains column. The recovery rally that began a little after 11 AM ET continued through 12:45, when the metal managed to get a little above $1,197. $1,200 eluded it, though. After that peak, it sunk down to around $1,195 and hovered between there and $1,196 before pulling up. At the end of the pit session, or 1:30 PM, the spot price stood at $1,197.30 for a gain of $1.70 on the day. The Kitco Gold Index split the gain into +$0.35 for predominant buying and +$1.35 for greenback weakness.

The U.S. Dollar Index continued to hold below 81.0, and lost a little ground in early afternoon. It managed to stay above 80.85, but bumped against that lower level. As of 1:30, the Index was at 80.86.

As for gold, its recovery from its morning drop shows an overall stall between $1,200 and $1,190. $1,200 was not tested again after that post-jobs-claims rally. Although held back, the metal is still showing some price resilience. There's a good chance of a slight gain at the close.


Update 2: That chance wasn't met, even though the end-of-pit rally got gold up to $1,198 by 1:50 PM ET. For the rest of the afternoon, the metal slowly trended downwards or sideways with nary a relief rally. At the end of regular trading, the spot price was $1,194.90 for a slight loss of $0.70 on the day. The Kitco Gold Index assigned -$3.70's worth of change to the predominant-selling category and +$3.00's worth to the weakening-greenback one. Both categories sum up to the raw change on the day.

The U.S. Dollar Index ended up falling below 80.85, which helped catalyze gold's final rally in regular trading. The Index then trended downwards, but not by much; it ended up fluctuating around 80.75. During that time, gold followed its own path downwards. As of 5:30 PM, the Index was at 80.77.

Its daily chart, from Stockcharts.com, shows its holding pattern continuing:



Today's interday high was slightly higher than yesterday's, which itself was higher than that of two days ago. The daily lows of all three days were about the same. Still, the Index was down from opening to closing.

Its 200-day moving average, as shown by the red line in the lower middle of its chart, has continued to provide support. The Index's RSI level, found at the top, is still in oversold territory. There hasn't been any real springback as yet, but the Index may be preparing for a secondary run-up.

As for gold, its own daily chart shows its rally stalled:



This morning's test of $1,200 is evident from the chart, but so is the lower interday high as compared with yesterday's. The $1,200 barrier has proven to be fairly potent, especially since there's been no real sustained driver for gold except bargain hunting that melts away when the price approaches that barrier.

Perhaps there won't be any sustained rise unless there are signs of inflation in the developed economies kicking in. More immediately, the Fed undertaking a second quantitative-easing program would provide the necessary kicker. Gold may well stay stuck in the 1,190s for the nonce, and there's the possibility of it falling to the 1180s. In the latter zone, bargain hunting will come back.

A post-pit Reuters report, which preceded the electronic-trading-hitch slump, said gold rose for the seventh day in a row because of a weaker greenback and a leap in grain prices. Amongst the points therein, these were included:
* Weakening of the dollar beginning to work in favor of gold recently - James Steel at HSBC.

* Rising wheat prices after Russia said it would temporarily halt grain exports due to the country's worst drought on record sparked inflation worries - Steel said.

* On charts, a buy signal was triggered earlier this week when the MACD moved above the signal lines, according to the moving average convergence/divergence (MACD) analysis.
That crossover took place yesterday, and evidently made an impression.

In and of itself, the bump-up in wheat prices is a temporary spike but it may catalyze a big run in the commodity. Gold's reaction to it suggests players are on the lookout for inflation, putting the doubt to the recent deflation talk. The metal may be due for a rest tomorrow, but it's still in a fairly good position technically. A drop below $1,190 is unlikely.

Peter Cardillo Sees $1,500 Gold Next Year

In an inteview with Hard Asset Investor's Mike Norman, Cardillo says the deflation talk is not going to be borne out; instead, the U.S. is going to be visited by inflation.
Cardillo: I don’t think it’s going to lead to deflation. And, for the moment certainly, we don’t have an inflation problem, that’s for sure. But we will have an inflation problem. And we could have hyperinflation if we don’t get these budget deficits under control. And I suspect that we still have wiggle room here in the States. And of course, the austerity programs that have been enacted in Europe probably mean that inflation is going to be dead for a while.

Norman: But why are you so concerned about the budget deficit? We saw the deficit during World War II run up to 35 percent of GDP. That would be the equivalent of something like a $5 trillion deficit today. We saw the national debt, the public debt, run up to 120 percent of GDP. Now we’re about 90 percent. We’re really about 65 percent, if you just consider the debt owed to the public. What is the big concern when … and you said even hyperinflation … historically, and in context, the debt really isn't that high?

Cardillo: That’s right. That’s why I said we have wiggle room. Right now, we don’t have a high debt. The question is, do we continue to spend? And when I said “hyperinflation,” I’m not talking about hyperinflation appearing over the next six months or a year or possibly even two years. I’m talking about down the road if we don’t correct these budget deficits, these imbalances, and not only here in the States, but on a global scale. Because one of the problems that we have is that we have a debt global burden that’s continuing to hurt the markets.

And if you look at the price of gold, that’s telling you something. Right now, gold is out of favor. And I think the reason for that is because it has …

Norman: Well, I wouldn’t say it’s out of favor. It came down a little bit, but got up to, like, $1,250. It’s $1,150-1,160, something like that.

Cardillo: Right. When I say “out of favor,” I mean it’s lost a bit of its luster, in the sense that we’re not seeing headlines anymore, “Gold made a new record high.” No, that’s not happening. And I think the reason for that is simply because of the fact that, from a fundamental viewpoint, there’s been a slowdown in purchasing gold products from India, which is generally, traditionally speaking, a seasonal pattern in this time of the year. And, of course, we didn’t see China come in and buy any more gold from the IMF. And of course, the IMF is selling gold....

Perhaps surprisingly, the interview isn't full of softball questions. At the end, Cardillo gives his $1,500 target and then says he thinks gold will peak at that level. He doesn't explain why.

Peter Brimelow Says Recent Bearishness Proved To Be Contrary Indicator

In his latest Marketwatch column, Peter Brimelow credits what he calls the "radical gold bugs" with being right on gold's turnaround. Physical demand from Asia was what turned gold around. The more timing-oriented players turned skittish, if not outright bearish, at about that time.


He points to a certain irony with respect to gold exploration:
[O]nce gold gets to a level at which average gold deposits are viable, the discoverers of somewhat better ones make fortunes. So do patient prospectors amongst the junior gold names. It is a great time for what some deride as "rock hounds."

This is what happened during the circa-$300 plateau in gold that occurred 1993-96, when it was considered a healthy price.
So gold miners are partying like it's 1995, when gold was about a quarter of what it is now. That speaks to one serious bout of margin squeezes.

And yet, from what I've seen in the gold-exploration market, the stocks of junior explorers reporting very good drill results aren't getting much of a kick right now. There are exceptions, but not very many. Indifference seems to have settled into that nether region.

Indian Gold Buying Muted For Second Day In A Row

According to a report by the Economic Times, Indian gold buying remained subdued again because of higher prices in U.S. terms amplified by a weakening rupee.
"There is nothing much today, even yesterday was equally bad," said a dealer with a state-run bullion dealing bank in Mumbai....

"Buying could be seen below $1,190 (an ounce)," said another dealer with a private bank.
Despite the dullness, some upwards price acclimatization is taking place. The trigger point mentioned by the second source used to be $1,180.

Inevitable End To Protest Against New Mine

In Canada, anyways. Ken Masse was the only holdout against Osisko Mining's offer to buy his family home in Malarctic, Quebec. His and 204 other homes were sitting on top of the deposit, so he fighting an expropriation order and refusing to sell his home to Osisko would have held up the development of the mine. Masse said he was fighting to protect the environment from the mine and for property rights - an interesting combination.

Now, he lost in court. Instead of a large premium, he and his mother will only get court-assessed market value for the home. It'll be a lot less than what Osisko offered in the past.


The little guy fighting for his property rights against a corporation that had to resort to expropriation - this story would resonate in many parts of America. In Canada, though, expropration has a tradition all its own. The United States has only recently joined in.

Yamana Gold Boosts Dividend Too

Yamana is the latest company to jack up its dividend, with a 100% increase from four cents per share per year to eight cents. As with the Newmont and Barrick, higher earnings made it possible. Kinross, most likely because of a takeover commitment, didn't increase its own.


It looks like the gold companies are getting the message about why so much investment demand has been sucked from their shares to the gold ETFs: paper gold is a purer play, with none of the complications that come with investing in a mining company. Since the corresponding opportunities that leverage offers doesn't seem to be a big draw, a dividend (which a gold ETF cannot pay) can act as an additional inducement.

A dividend boost is also a way to advertise higher earnings.

Gold Drifts Around $1,195

There wasn't much action on the gold market overnight; the metal drifted around $1,195 for the entire session. Both the Bank of England and the European Central Bank left their respective rates unchanged, the former at 0.5% and the latter at 1%. Both announcements didn't change gold all that much, although the metal was creeping up earlier. As of 8:06 AM ET, though, the metal perked up to make the spot price reach $1,197.30 for a gain of $2.10 on the day. The Kitco Gold Index attributed -$0.80 to predominant selling and +$2.90 to weakening of the greenback.

The U.S. Dollar Index basically stayed where it was last night, hovering just below 81. A break above that level around 2:30 AM prefaced a peak above 81.1, which reversed at 3:25. The resultant slide took it down to 80.6 before a relief rally kicked in starting at 7:10. As of 8:13, the Index was at 80.79.

A Bloomberg report says gold stalled because of concern that the rally has engendered less physical buying.
“We are seeing resurgent interest from the investor community,” said Andrey Kryuchenkov, an analyst at VTB Capital in London. Still, “interest from Asian buyers is likely to ease in the very short term, as prices have significantly recovered from July’s lows.”...

“Gold may take a breather before continuing on its longer- term trend, underpinned by strong demand from India and China,” said Ong Yi Ling, an analyst with Phillip Futures Pte.
The article also mentions holdings of the SPDR Gold Shares Trust declined by 0.45 tonnes yesterday to 1,281.83 tonnes.

A Reuters report says gold was held up by fund buying and Asian consumer demand.
Much of gold's safe haven appeal for investors that derived from the euro zone debt crisis and pushed prices to record highs in late June has evaporated.

But James Moore, an analyst with thebulliondesk.com said renewed confidence in the global economy, helped by upbeat corporate earnings, has lifted the broader commodity complex as well as gold itself by association.

"While we have seen a bit of improvement in the European debt situation, I think investors are still very cautious and obviously, more and more people are looking to diversify their portfolios. So, even if they only add a fraction of gold, those numbers add up," Moore said.
The article also cites Edel Tully as noting the 30-day correlation between gold and the greenback has turned negative.

A Wall Street Journal report says gold is holding steady because of uncertainty over U.S. jobs data.
Better-than-expected jobs data Friday could rejuvenate investors' appetite for growth assets and dim demand for safe havens like gold.

"We have to wait for the payroll figures," said Narayan Gopalakrishnan, a trader at Swiss trading house MKS Finance in Geneva. "Overall it's range trading [until then]."

A return to the lows of July, however, is unlikely, analysts said. Physical demand from the jewelry sector has been solid, providing a floor for prices.

The weekly U.S. jobless-claims number was released at 8:30; it showed a rise in first-time claims to 479,000 when a fall to 453,000 was expected. Regular trading opened with a rise in gold, which continued when the figure was released. Despite the hype over the figure, gold didn't make $1,200 afterwards. As of 8:52 AM, the spot price was $1,199.60 for a gain of $4.00 on the day. The Kitco Gold Index assigned -$1.60's worth of change to predominant selling and +$5.60's worth to greenback weakness. The U.S. Dollar Index reacted to the release with a slump to below 80.55 before another relief rally set in. As of 8:55, it was at 80.63.

So far, gold is on track for a seventh daily gain albeit a slight one. $1,200 remains intractable, although the metal is still veering up against it. A more sustained test of that level may be in the offing today.

Wednesday, August 4, 2010

Gold Pokes Above $1,200, Then Chokes

After being barely fazed by the ADP data report showing stronger job growth than expected, gold entered into a staggered rally that took it up above $1,200. The actual break came at about 8:50 AM ET, but it stuck until a pullback more than an hour later. The peak of the rally made for a new daily high of $1,204.20. The metal sunk to below $1,200 again on the heels of an ISM report saying the U.S. service sector in July expanded slightly but more than was expected. Again, the good news proved to be bad news for gold; the resultant pullback was a little more than a momentary interruption. Another rally, starting at 10:20, peaked at less than the first one but well above $1,200; a later pullback, though, left gold a little lower than that level. As of 11:58, the spot price was $1,198.90 for a gain of $13.30 on the day. The Kitco Gold Index attributed +$18.30 to predominant buying and -$5.00 to a strenthening greenback.

The U.S. Dollar Index did strengthen in mid-morning due to that ISM report after drawing a little strength from the ADP one. It got started just before 10:00, but got on a roll afterwards; the rally didn't stop until the Index brushed against 81.1. 81 didn't hold, but the Index descended to a level not far below; as of 11:59, it was at 80.97.

The rally in the greenback did dampen gold's increase, as the metal's high of the day was made before the Index's run. Given the resistance met at $1,200, gold closing above that level isn't very likely. Still, the gain has been fairly impressive. There might be another test of $1,200 in the rest of the pit session.


Update: There was, but the test led to a downturn that took the metal below $1,195. Starting around 1:00 PM ET, it descended from right around $1,200 all the way down to $1,194. No news accompanied that breakdown, which seems to be the result of the earlier greenback rally. As of the end of the pit session, or 1:30 PM, the spot price was $1,193.70 for a gain of $8.10 on the day. The Kitco Gold Index assigned +$14.80's worth of change to predominant buying and -$6.70's worth to greenback strength.

The U.S. Dollar Index, after hovering around 80.95, managed to climb back above 81 just after 1:00. Although not making it to 81.1, it came close. As of 1:35, the Index was at 81.03.

The spill in the last half hour of the pit session put an end to any hope for gold closing above $1,200. Still, a gain of the day seems assured and there's still an outside change of the metal closing with a double-digit gain.


Update 2: That outside chance was made, thanks to a rebound near the end of the day, but just barely. The rebound that did so was the second in today's electronic-trading hitch. The first kicked in right after the pit session ended, pulling the metal up to $1,196-97; it snuck above that zone as the rise continued. Came 3:15 PM ET, and the rise turned into a decline that took gold down to $1,193 by 4:00. The second rise ended with a last-minute kicker that put the closing figure at $1,195.60, for a gain of exactly $10.00 on the day. The Kitco Gold Index attributed +$15.30 to the predominant-buying category and -$5.30 to the strengthening-greenback one. Those two categories sum up to the raw change on the day.

The U.S. Dollar Index, after hovering around 81.1, slid down for more than an hour after 2 PM. Getting below 80.9, it stayed around that level before regaining most of the loss; despite that rebound, it failed to make 81 again. As of 5:30, the Index was at 80.935.

Its daily chart, from Stockcharts.com, shows the first up day in six:



Unlike the previous up day, this one wasn't that insubstantial. Today's close was at the same level as yesterday's open, so today's action reversed yesterday's. The Index's RSI level, found on the top of its chart, is still in sub-30 oversold position but less so than yesterday. As it turned out, touching the 200-day moving average yesterday did act as a kind of support (at least for now.)

It's been quite the downward slide, so some kind of rebound was inevitable. The last upturn only lasted a day; the one before last, four. That earlier one, starting July 19th, was good for a point and a half between bottom and top. I can't say how long this one will last, only that the low RSI level indicates the Index is due.

As for gold, its own rise today made for the sixth gain day in a row:



Its poke above $1,200 shows in the top of today's candlestick. Gold's own RSI level is slightly above neutral, a level that's associated with short-term tops ever since the beginning of July. Even if the metal pulls back from here, its current run has been large enough in extent to make for a head in an inverse head and shoulders reversal. With a neckline around $1,205, the pattern indicates a durable rise into the 1200s if completed. So, even if gold sinks back into the 1180s, the technical position isn't that bad anymore.

Moreover, the MACD lines at the bottom of the chart have shifted to a bullish configuration for the first time since June. This switchover does not guarantee the rally will continue tomorrow, but it does indicate that gold's doldrums have come to an end.

A post-pit Wall Street Journal report says an increase in mainland Chinese demand, plus speculation that the Fed will undertake more quantitative easing, pushed gold up today.
Gold was supported Wednesday by speculation that the Federal Reserve may lower interest rates or buy bonds to try to boost the economy, said Tom Pawlicki, precious-metals analyst with MF Global in Chicago. Even symbolic action by the Fed could send a signal that officials believe the economy is at risk of deflation or a renewed slowdown, enhancing the appeal of gold as an alternative asset....

Futures also received continued support Wednesday from the news that China would take steps to expand its domestic gold market. The People's Bank of China Tuesday announced that the government would permit more banks to export and import gold. Analysts say the easing of restrictions shouldn't immediately lead to an increase in gold investment, but it represents an expansion that could make China a larger player in the international gold market.

"I think the Chinese news is a longer-term underlying theme," said Adam Klopfenstein, senior market strategist with Chicago-based Lind-Waldock. "If they're going to get more aggressive in letting people buy and sell more gold, it's a precursor to more moves from the central bank" in the gold market.

The metal may pull back (further) tomorrow, but the extent of the rise so far has put it in a good position for the coming month. Another gain might as well be a bonus.

Deflation Talk As Contrary Indicator

The National Inflation Association, looking at the recent deflation talk, concludes it's a contrary-opinion signal to buy gold because two previous spates preceded strong rises in the price of the metal.
The largest spike this decade in articles about deflation came in May of 2003. At that time, the Dow Jones was 8,500, the price of gold was $350 per ounce, and the price of oil was $30 per barrel. The Dow Jones went on to rise for four years straight reaching a high in 2007 of 14,198 up 67%. Gold went on to rise for seven years straight reaching a high this year of $1,248 per ounce up 257%. Oil went on to rise for five years straight reaching a high in 2008 of $147 per barrel up 390%.

The second largest spike this decade in articles about deflation came in November of 2008. At that time, the Dow Jones was 8,000, the price of gold was $725 per ounce, and the price of oil was $50 per barrel. Since then, the Dow Jones has risen as high as 11,257 up 41%, gold has risen as high as $1,248 per ounce up 72%, and oil has risen as high as $88 per barrel up 76%.

NIA has come to the conclusion that the mainstream media talking about deflation is the most accurate contrarian indicator out there. The false threat of deflation in 2003 came at the beginning of the biggest rise in asset prices in U.S. history. The false threat of deflation in 2008 came almost exactly when stocks, precious metals, and commodities had reached their bottom. NIA believes that the threat of deflation today could mean that the biggest move to the upside for gold and silver in history is right around the corner.

One possible trigger for serious inflation would be the PRC selling some of its U.S. Treasuries. The most likely buyer would be the Federal Reserve, which would jack up the monetary base and likely lead to a ramp-up of the money supply. It could lead to serious inflation.

John Embry Says Gold On Verge Of Parabolic Rise

In a wide-ranging interview with Mineweb, Embry said that gold has some way to go and could hit $1,500-$2,000 in the next 18 months.
GEOFF CANDY: In your latest letter you talk about gold being on the cusp of a parabolic rise - is that for these reasons - where are we now or when are we likely to see that sort of rise coming through?

JOHN EMBRY: Once we get through this very dull summer period where gold is generally kind of soggy - particularly into early August anyway, they're going to start to see manifestations of this move probably by September if not earlier. I would expect the last few months of the year to be quite robust which in a seasonal sense is often the case, but this time I think it's going to be more robust than usual.

GEOFF CANDY: You mentioned earlier the moves by the Chinese, and there was an announcement out today that they're going to look to allow banks to hedge bullion positions in overseas markets and things like that. Also perhaps look at more actively increasing the number of Yuan denominated gold derivative products. What sort of impact is that likely to have?

JOHN EMBRY: Anything the Chinese do in the gold market, based on the fact that they're just holding an excess of US Dollars - they're going to have to be very careful on how they spend it, but they're going to be buying more and more gold as an alternative. They'll be buying other things as well as an alternative to US Dollars, so irrespective of what they say, just look at what they do. The fact is that what they're doing is going to add dramatically to gold demand in the upcoming period and I just don't think the physical supply is there to meet the kind of demand that is being marshalled - the investment demand all over the world and particularly this physical demand that's building in the Far East....
Embry also said that jewelery demand, which is elastic, is being compensated for by investment demand, which is inelastic.

Peter Munk Sides With Peak Gold

The peak-gold case is being bolstered by none other than Peter Munk, the chairman of Barrick. Essentially, the case is based on the Law of Diminishing Returns and the fact that gold explorers are running out of world. According to Munk, it shows in the recent popularity of mixed-metal deposits - particularly, copper-gold. Dr. Jeffrey Lewis explains:
Mining companies would greatly prefer to dig for a single metal at a time. One metal in one area, with an acceptable ratio of content to dirt, is preferable. For example, should a company be able to pull out 5 grams of gold per ton of dirt, the mine will be wildly profitable. This type of ratio is good enough to develop consistent profits, and the companies can keep digging until every last piece is brought to the surface.

The problem is, however, that those types of mines are gone, and mixed metal operations are the last stop for sustained growth. Mixed metal mines are less profitable, thanks to the difficulty in sorting, as well as accounting for the potential profit and loss due to operations.

While there is still plenty of gold and silver to be found, the simple fact that these mixed metal mines are even on the radar indicates that the days of rampant production are over, and mines are being forced to look for smaller and smaller deposits of multiple types of metals to remain consistent in their growth rates. All in all, the supply of gold and silver in the ground is becoming freakishly low....

Peak gold is still controversial, as the world hasn't been exhausted yet. There are decent, and some huge, properties being found in unexplored areas of already well-combed areas like the Timmins district in Ontario, British Columbia and Alaska.

Indian Gold Buying Forestalled By Higher Prices

According to a report by the Economic Times, gold buying retreated because prices have passed above the bargain zone.
"On Monday we saw good sales, but by yesterday evening it turned dull... but today only exporters are covering fearing that prices may move higher," said a dealer with a state-run bank in Mumbai, which deals in bullion.

"However, there are no domestic deals...," said the dealer....

"They would buy if prices come to $1,180 (an ounce)," said another dealer with a private bank.
Also adding to the weakening demand was a weakening rupee.

Hedging Now A Dirty Word

A Wall Street Journal article covering the annual Diggers & Dealers forum in Kalgoorlie, Australia points to the current unpopularity of hedging. The reason behind the shunning is angry shareholders, who saw some earning slip away due to hedging earlier in the decade.
"Hedging is a four-letter word around here," said Darren Klinck, vice-president for investor relations at Oceanagold Corporation (OGC.AU), an unhedged gold producer that estimates it will produce more than 270,000 ounces in the fiscal year that began July 1 from its mines in New Zealand.

Klinck, who was attending the annual Diggers & Dealers mining forum in Western Australia's gold-mining capital Kalgoorlie, said major shareholders would not support the company if it was hedged, as their typical investment objective is leveraged exposure to the gold price.

Virtually all the small and mid-size miners at Diggers & Dealers gave the same message.
Another participant quoted, Sean Russo, said the aversion to hedging has become irrational.


The article itself intimates that the current anti-hedging tilt could be a contrary indicator. For the record, Barrick bought back its hedge book on the same day of gold's 2009 peak.

Gold Breaks Above $1,190

There was little accompanying news in this cycle, but gold managed to break above the barrier that's stymied it for the last two days. The metal bumped up against $1,190 for a two-hour stretch starting just after 7 PM ET. The breakthrough came around 9:00, and the metal ascended to $1,193-4. Falling back to slightly below $1,190 by 2 AM, the metal reversed course and rose to the $1,195 level and later beyond. As of 7:59 AM, the spot price was $1,196.40 for a gain of $11.40 on the day. The Kitco Gold Index split the gain into +$10.50 for predominant buying and +$0.90 for weakening of the greenback.

The U.S. Dollar Index actually rallied through most of the overnight session, but shed its gains in early morning. Although jaggedly, with an interrupting spill that erased all of its gains, the Index managed to climb up all the way to almost 80.8 by 4:35. The reversal was also jagged, with a sharp drop followed by a sharp recovery that took the Index back to 80.75, but was enough to take it well below 80.55 before reversing too. As of 8:11, the Index was at 80.59.

A Reuters report said gold rose as a result of the PRC's liberalization of the mainland Chinese gold market and a current damping of the appetite for riskier assets, and was held back by lack of safe-haven demand.
"The initial impetus of safe-haven buying of gold has faded away," said Standard Chartered analyst Daniel Smith. "We are slowly moving to other drivers."

"Ultimately we are going to see more portfolio money coming into gold," he added. "We could see consolidation in the short term, but ultimately on a one to three month view we are going higher."...

The gold market also continued to take support from news that China had taken steps to liberalize its gold trade.

"The international gold market is now paying a lot more attention to China's gold demand, not just from an official reserve asset perspective, but also private demand," UBS analyst Edel Tully wrote in a note.

"Behind India, China is the second-largest physical consumer," she added. "Therefore any step to integrate, liberalize, and expand this market should, in time, foster a rising appetite for gold."
The article also mentions another bullish factor: rising speculation that the Fed will undertake another quantitative-easing program.

A Wall Street Journal article also pointed to the PRC liberalization.
"China became the focus of the gold market and the potential for increased demand from this region prompted gold to trade to a high of $1,194 a troy ounce in Asia overnight," said UBS analyst Edel Tully.
Also mentioned is the results of a UBS tally of twelve gold ETFs, which showed a rise for the first time since July 27th.

The ADP jobs data noted a gain of 42,000 in July for the sixth consecutive monthly gain. Although the number was well above expectations for +23,000, the gains still show no acceleration. The news bobbled the gold market temporarily, chipping its price to $1,195, but the metal recovered afterwards. As of 8:49 AM, the spot price was $1,197.60 for a gain of $12.00 on the day. The Kitco Gold Index attributed +$13.10 to predominant buying and -$1.10 to a strengthening greenback. Unlike gold, which was little affected overall, the U.S. Dollar Index got a boost from the news. Initially rallying to 80.66, it pulled back to 80.6 but rose further before pulling back to a higher level. As of 8:52, it was at 80.67.

With gold well above $1,190, and even above $1,195, the level to watch for now is $1,200. The metal is unlikely to make it above that round number, but it's now close to a test. It may poke at $1,200 later today.

Tuesday, August 3, 2010

Gold Fluctuates In Mid-High 1180s In Morning, Tests $1,190

Regular trading opened with a drop that got the price down to $1,184, but bounced back shortly afterwards. The personal income and spending data for U.S. consumers had little effect on the price, which sunk to around $1,185 between 9:15 and 9:45 AM ET. Then, the metal rallied to a smidgen below $1,190. That rise didn't last, and gold sunk back down to the $1,185 level. U.S. factory orders data for June, which showed a drop of 1.2% for capital equipment, added to the downward pressure on equity markets as well as gold.

After bottoming around 10:40, the metal reversed course and rallied all the way up to a new daily high of $1,191.90. The pullback left the metal above $1,188, suggesting further strength. As of 11:54 AM, the spot price was $1,188.80 for a gain of $6.80 on the day. The Kitco Gold Index split the gain into +$3.00 for predominant buying and +$3.80 for greenback weakness.

The U.S. Dollar Index showed a bit of strength in early-mid morning, but couldn't get much above 80.8 before it turned down again. As of 11:57, it was stuck at 80.60.

Gold has tested $1,190 gain today, but so far has not seriously breached that level. It may do so this afternoon, but a continuation in the high 1180s looks more likely.


Update: After that break above $1,190, the metal did sink back into the high 1180s. At the nadir of the pullback, it was only a little above $1,185. It bounced back somewhat but stayed in the lower end of the upper 1180s. As of the end of the pit session, or 1:30, the spot price was $1,185.40 for a gain of $3.40 on the day. The Kitco Gold Index attributed -$0.40 to predominant selling and +$3.80 for greenback weakness.

The U.S. Dollar Index stayed largely where it was in early afternoon. A slight upwards bias didn't get it above 80.65. As of 1:30, it was 80.62.

So far, gold has stayed in the higher 1180s and shows no sign of advancing much from there. Although it may bend $1,185 to the downside, it will likely rack up a gain for the day.


Update 2: Gold did manage to close with a gain, and most of the volatility in the electronic-trading hitch was upwards before retracements. Gold got as high as $1,188 before falling back, and dipped as low as $1,185 after that peak. The subsequent recovery wasn't much in extent. As of the close, the spot price was $1,185.60 for a gain of $3.60 on the day. The Kitco Gold Index assigned -$0.80's worth of change to predominant selling and +$4.40's worth to a weakening greenback.

The U.S. Dollar Index's slight upwards bias faded in mid-afternoon, but the pullback wasn't that much in extent. Except for a brief period in late afternoon, the Index stayed above 80.55; after that brief period, it rebounded. As of 5:30, the Index was at 80.61.

Its daily chart, from Stockcharts.com, shows its latest decline continuing to a rather significant spot:



Significant to a technical analyst, anyway. The Index has touched its 200-day moving average, drawn in red in the middle of the graph. That average is way below the 50-day, drawn in blue, so the Index is still far away from a "death cross." Nevertheless, the distance is also testament to how far the deterioration has progressed. The Index's RSI level keeps getting deeper into oversold territory, with little effect on its declining as yet. Today's session marks the fifth down day in a row.

There's no indication that the current downtrend will reverse by any significant margin. The 200-day moving average is widely seen as a support level amongst techncial analysts, so some technical buying may be encouraged by today's descent - even if a plain chart reading shows a lot of risk in doing so. The Index can't fall forever, so eventually it'll reverse, but the last two short-term drops almost makes it look as if it could drop forever. As with yesterday's there's no sign of any upward reversal in the offing.

As for gold, its own daily chart shows the opposite streak:



Today's slight gain makes it the fifth up day in a row for the metal. Gold managed to get, and stay, above $1,180 today. That puts it back in the range it was in before July 27th's plummet.

Gold's own RSI value is close to the 50 neutral level at which that indicator has topped in the metal's summer doldrum stretch. Down below, at the bottom of its chart, gold's MACD lines are very close to a bullish crossover. Should gold hold above $1,180, it will be a good sign of some sort of recovery settling in.

A post-pit Reuters report says physical buying has helped gold's technical position improve.
Scott Meyers, senior analyst at New York-based Pioneer Futures Inc, said that gold's direction hinged on the stock
market's performance, as a possible equities sell-off could spark higher gold prices.

He said an improved technical picture should also lift prices, after the metal tried and fail last week to break below a rising trendline in place for two years.

"There was a three-day bottom formed at $1,160 last week, and the market held there well. From a short-term technical perspective, it is indicative of a market that does perform well and will possibly advance to another level" above $1,200 an ounce, Meyers said.

If so, then gold is on the track to a better autumn. It still has some headway before reaching $1,200, as seen in its recent difficulty with the $1,190 level, but the technical picture is brightening. Maybe tomorrow will be three-time-lucky for $1,190.

Futures Funds Shying Away From Going Long Gold

Brad Zigler of Hard Assets Investor reveals futures fund managers have been switching away from gold longs, and increasingly are going short.
At first, traders were content just to abandon the gold market. As of July 13, 118 funds held long futures positions while 24 were short. A week later, 107 long accounts remained. The short side only picked up one. This past week, though, when 17 funds liquidated their long positions, nine players switched sides to go short. There haven't been this many funds short since November 2008.

Granted, these aren't large short positions. Money managers are still net long — and, at better than 154.000 contract equivalents, by a sizable margin. But, less than 73 percent of them are long now, down from 87 percent just a month ago. The ratio hasn't been this low since April 2009.

Clearly, the speculative gold segment has been rejiggered over the past couple of weeks. The backdrop to this has been liquidation. The market's gotten notably smaller, shedding 7.7 percent of its open interest. The closeout has been universal, as commercially — the usual counterparties to fund managers' trades — have peeled away as well....
He ends with a question that, I'm sure, is going through many minds: is this the sign of a revival of an intermediate-term rise or something less? He says trading over the next couple of days will give guidance to that question.

U.S. Mint Bullion Coin Sales Down Slightly From Last Month

The July 2010 U.S. Mint sales figures for bullion coins are in, and for gold they show an overall drop from last month's elevated levels. Still, Eagle sales of 175,000 oz. are up 103% from July of '09.

This month, fractional Eagles were only 2.6% of all bullion sales; last month, they accounted for almost 30%. The spike-up is due to their late debut last month; a lot of the sales reflected pent-up demand for the fractionals. That demand now satisfied, the one-ounce Eagle is back in its usual predominant position. The Buffalo continues to sell well, but well below the figures for the one-ounce Eagle.

Janes Turk's Take On The BIS Gold Swap

James Turk suspects the hidden party behind the BIS gold was was Portugal, becuase the Portugese government recently announced that they will be posting collateral against derivative transactions in order to reduce funding costs and that same government has long been active in the gold market. The revelation that commercial banks were on the other side of the trade made him modify his theory:
Before it was announced that the BIS completed the swap with a commercial bank, the mainstream interpretation was that a troubled sovereign borrower or perhaps even the ECB itself needed liquidity, so they used gold to borrow currency. But given its two-sided nature, there was also another potential reason for the swap even if it received little attention – the BIS may be running out of physical metal for its interventions in the gold market. So it needed to get its hands on some physical metal. Consequently, it swapped currency for physical gold (or perhaps to deliver on calls it had sold and was exercised).

Then after the BIS announced that it had completed the swap with a commercial bank, many observers – including me – were perplexed. If it were a traditional swap, the commercial bank would have 380 tonnes of gold in its possession, which is a highly unlikely proposition. Commercial banks are not in the business of owning gold; they are in the lending business. Clearly, if any commercial bank had owned gold, which is highly unlikely I might add, the gold would have already been loaned out....

Now consider for a moment, what if that gold loan had been made by Portugal to Citibank or some other zombie bank? It wouldn’t look very good on Portugal’s balance sheet to be owed 380 tonnes of gold by a near-bankrupt institution. Given that Portugal is taking steps to “to reduce its funding costs” as the FT reports, it would be logical for it to get rid of that gold loan.

The best choice of course would be to demand repayment of the loan and put the 380 tonnes of gold back in its vault. That action though would drive the gold price sky-high, given the dearth of sellers of physical metal at current prices. Sky-high prices would blow-up the gold cartel and its efforts to continue capping the gold price as it operates its staged retreat, letting gold rise every year but not too much so as to not draw everyone’s attention to it and the resulting consequences of ever-depreciating fiat currencies. So enter the BIS.

It swaps currency for the gold loan at the commercial bank. In other words, the 380 tonnes of gold is now owed to Portugal by the BIS, improving considerably the quality of Portugal’s balance sheet. After all, who would you rather have owing gold to you? Some commercial bank like Citibank or the central banks’ own central bank, the BIS? Clearly, being owed gold by the BIS instead of a zombie bank would be one way for Portugal to “reduce its funding costs” by improving the quality of its balance sheet.
He ends by saying lack of transparency means we'll never know the real reason(s) behind the swap.

Indian Gold Demand Holding Up

According to a Reuters India report, gold demand from traders is still strong.
India gold traders continued to book deals on Tuesday afternoon as international prices stayed steady while the rupee strengthened making the dollar-quoted asset cheaper, dealers said.

Most of the deals are at $1,180 an ounce and sales are averaging 200 kgs daily in the past one week, said a dealer with a Mumbai-based state-run, bullion-dealing bank, whose imports rose by 90 percent on month to 3.8 tonnes in July....

"Prices below $1,180 are attractive for Indian buyers," said another dealer with a private bank in Mumbai.

That number is up slightly from the $1,175 of one to two weeks ago, likely because of a strengthening rupee.


Speaking of Indian demand, Edel Tully said in a note that physical demand has been fairly high.
"...the presence of very decent physical demand emits positive sentiment. Its persistence indicates that gold is trading more in line with its fundamentals," Edel Tully, precious metals strategist at UBS, a large supplier to India, said in the note.

UBS's five day moving average of sales to India was the highest since late Nov 2008, she added....
In fact, demand has risen to the point of making an upwards revision to the July import figures possible.

Gold-Company Takeovers Set Record

The acquisition trail has been hot this year, with several deals contributing to $32 billion' worth of takeovers this year. It's only early August, and the gross value of deals has already set a record.
“The reason why we may have seen a pickup in activity this year is because gold prices are around $1,200” an ounce, said Greg Fournier, Hong Kong-based head of Asia Pacific region metals and mining investment banking at Merrill Lynch. “If you have a view that the gold price is strong and is going to go higher then acquiring more reserves or producing properties today makes sense.”
Also a factor is gold majors wanting to increase their resource base in a time when new gold deposits (particularly big ones) are becoming harder to find.


It's only a matter of time before takeover interest will move to smaller deposits. Because of the general fascination with huge-potential properties, the development companies with smaller properties have been overlooked - even ones with good grades. Although less convenient and less easy to manage, someone who's adept at a portfolio approach could put together an agglomeration of smaller properties and wind up with a mid-tier or even a major by collecting those leftovers. Given their low profile, they're likely to be cheaper than a major elephant.

PRC Opens Up Gold Market Further

The mainland Chinese gold market is being opened up further to foreign trading companies, and more banks are being allowed to import and export gold. Overseas hedging restrictions are being dropped.

The reason why is booming gold sales.
Gold demand in China, the world’s largest producer, gained in the first half as government measures to cool the property market and falling equities spurred investment, the Shanghai Gold Exchange said July 7. Spot gold gained to a record in June as investors sought to protect their wealth amid concerns about the global economic recovery.

“China’s domestic production of gold, albeit the largest in the world, cannot satisfy its demand,” said Ellison Chu, managing director at the precious-metals desk at Standard Bank Asia Ltd. in Hong Kong. “By allowing more foreign participation and more Chinese commercial banks to import and export, China can better balance its demand and supply.”

It's interesting, given that PRC mercantilism typically favours producers. My own guess is a decision has been made to let gold be accumulated by the mainland Chinese people rather than through official forex reserves. The latter move might come later, but not without a substantial decline in prices. The PRC monetary authorities might have been waiting back in February to see if they could get a lower price than the Indian central bank: that price point makes sense as a competitiveness metric.

Gold Inches Up, Stays Below $1,190

After an initial dip to slightly below $1,180, gold picked up last night but kept below $1,185. The metal stayed between those two values except for blips until 6 AM ET. Although breaking through $1,185, the metal stalled in the high 1180s after touching $1,190.20. As of 7:58 AM ET, the spot price was $1,185.90 for a gain of $3.90 on the day. The Kitco Gold Index attributed -$0.20 to predominant selling and +$4.10 to weakening of the greenback.

As the Euro continues its run upwards, the U.S. Dollar Index is still under pressure. After hovering around 80.95 last night, it made a run up to 81 which reversed around 2:25 AM. Dropping farily rapidly, its decline leveled off for an hour and a half before continuing more slowly; by 6:10, it was below 80.5. After a slight recovery, the Index found itself above 80.6. As of 8:07, it was at 80.63.

A Reuters report ascribed gold's rise in thin trading to a weaker U.S. dollar, plus expectations of Indian jewelers stocking up for festival season.
"I would look at the upside for gold being capped," said Ong Yi Ling, an investment analyst at Phillip Futures in Singapore, who pegged key support at a three-month low of around $1,150.

"And hence, we might actually see gold edging down a little bit if the economic data come in better than anticipated, like the consumer spending and personal income figures."....

"The market is quiet today with light buying interest from investment. But we did see some buying from India as it builds up stocks for the festival," said a physical dealer in Singapore.
The article also notes holdings of the SPDR Gold Shares Trust remained unchanged yesterday.

A more recent Wall Street Journal report also pointed to the weaker greenback.
"It looks like gold is starting to receive support from a weaker dollar and is on its way to re-establish a more normal negative correlation with the [dollar]," SEB analyst Bjarne Schieldrop said....

"Gold has once again started decoupling from the U.S. dollar," said VTB Capital analyst Andrey Kryuchenkov. "Gold's rolling monthly correlation to the U.S. currency fell to around 68% from highs above 85% last month. So, given a further improvement in risk sentiment from here, the correlation is set to weaken even more with gold prices tracking firmer PGMs [platinum group metals]."
The article also cites Edel Tully disclosing that UBS gold sales in India yesterday were the second-highest for any day this year.

U.S. disposable-income and consumer-spending numbers for June came in, and the 0.2% rise in the former and 0.1% rise in the latter [flat after inflation's factored in] matched expectations. The only effect it had on gold was to push the metal down a couple of dollars, which were tacked back on shortly afterwards. As of 8:51 AM, the spot price was $1,186.80 for a gain of $4.80 on the day. The Kitco Gold Index split the gain into +$0.10 for predominant buying and +$4.70 for a weakening greenback. The U.S. Dollar Index slumped back to 80.49, with an earlier decline helped along by the income and spending data. As of 8:54, it had mostly recovered to make 80.58.

So far, gold hasn't moved much. The upside may indeed be capped, as Ong Yi Ling said, but the downside seems capped as well. Although it's too early to say an all-out recovery is in place for the metal, it's looking fairly good as compared to late last month. Gold today might test $1,190, as it did yesterday.

Monday, August 2, 2010

Gold Touches $1,190, Falls Back

Regular trading didn't start off with much excitement, but gold got rolling around 8:30 AM ET. In the next forty-five minutes, the metal rallied from $1,176 to more than $1,190. Pulling back to $1,186, the metal rallied again. The ISM manufacturing index number appeared in the middle fo the second rally, and gold seemed to take heart from its above-consensus level. Although dropping to 55.5%, it was still above expectations for 55.0%. Gold peaked at $1,191.60 twenty minutes after the ISM release. The metal then fell back to $1,184, and fell further after dawdling at that level. As of 11:52, the spot price was exactly $1,180.00 for a drop of $1.40 since Friday's close. The Kitco Gold Index attributed -$12.20 to predominant selling and +$10.80 to weakening of the greenback.

The U.S. Dollar Index declined through most of the regular morning session, breaking and staying below 81 in the process. The decline wasn't that fast, except for a fall around 9:45 AM, but it was fairly steady until about 11:30. As of 11:56, the Index was at 80.88.

A falling greenback had helped gold a fair bit, but that advantage was erased by the mid-late morning decline. Increase in risk appetite had something to do with the retreat, as the stock market pulled and stayed up. Gold might pull back to a gain in the afternoon, but such an outcome looks iffy at afternoon's threshold.


Update: After bottoming at $1,180, the metal did recover somewhat. The recovery kicked in around 12:30 PM ET, after more than a half an hour spent near $1,180. Stalling initially, the metal climbed up to a gain as it settled in around $1,184 before inching back. As of the end of the pit session, or 1:30, the spot price was $1,182.70 for a gain of $1.70 on the day. The Kitco Gold Index assigned -$8.30's worth of change to predominant selling and +$10.00's worth to greenback weakness.

The U.S. Dollar Index, after hitting bottom of 80.775 as of 11:35, slowly climbed up before trending sideways at just above 80.9. As of 1:30, it was at 80.92.

$1,190 looks out of sight now that the pit session is over. The metal may continue to hang on to a gain during the electronic-trading hitch, but it won't be much of one.


Update 2: It did clock in a gain, and not much of one. Except for a brief dip, the electronic-trading hitch saw the metal drift between $1,182 and $1,183.50; the close came right at the bottom of the zone. As of the end of regular trading, the spot price was right on $1,182.00 for a gain of $0.60 on the day. The Kitco Gold Index (KGX) attributed -$9.70 to the predominant-selling category and and +$10.30 to the weakening-greenback one. Both categories sum up to the raw change on the day.

The KGX, ex-greenback, has gone through an all-out correction since it hit its high on June 7th. As this 6-month chart of it shows, the drop has been all the way from 1100 to a little more than 950 for a drop of about 13.5%:



Had it not been for the greenback's own drop, the current summer pullback would have been an all-out correction in US$ terms. Gold has dropped more than 14% from its record high in Euro terms.

The U.S. Dollar Index hardly moved during the rest of regular trading. The center line of a little more than 80.9 lowered a little as mid-afternoon turned into late. As of 5:30 PM, the Index was at 80.88.

Its daily chart, from Stockcharts.com, shows its continued drop as another support level was tested:



The Euro has broken well above $1.30 and its upwards run is continuing relatively unimpeded. That was the main impetus behind the testing of the 81 support level and close slightly below it. As is evident from the chart, my belief that the Index was basing around 82 proved to be wrong. From the high of almost two weeks ago, the Index has lost about two and a half points. That's about the same amount of loss as was made in the last short-term downturn, although this one took longer. The Index's RSI level, found at the top of its chart, is well below the oversold threshold of 30.

Again, the parallels between the last two months and May of '09 are fairly evident:



The earlier period is near the left of the graph. The intermediate-term decline taking place right now has been more stretched out, and the oscillations in both indicators on the top and bottom of the chart have been more volatile this time, but the same sharp drop is evident. Should the parallel continue, the Index will jump up a couple of points or so but soften afterwards.

As for gold, its own daily chart shows a fourth day of gains - but just barely:



Gold's own RSI has been fluctuating between the high 30s and the 50 neutral level, befitting a time when the metal has softened. Despite gold still being well below $1,200, and the risk of an outright decline for tomorrow, the metal has fared better in relative terms than it has in the last two post-tumble days. The doldrums for the metal may be coming to an end.

A post-pit Reuters report says gold's rally was dampened by reduced safe-haven demand due to the U.S. equities rally. Amongst the points made therein, these were included:
* Selling by short-term traders more than offset underlying
physical demand in earlier trade - Michael Daly at futures broker PFGBest.

* Lack of trading interest ahead of Friday's July nonfarm payroll data - Daly.

* Gold has traced out a new downward trendline on charts, and a new technical buy signal will be triggered if gold breaks out the upper part of the trend.
As its chart shows, it's close to breaking that downward channel but there's still a little way to go. There is some chance that the metal will decline tomorrow as the four-day rally looks like it's running out of steam. Gold is also less of a bargain that it was almost a week ago, which will tend to hamper physical buying. The metal is still holding up, though, and it might be basing. If tomorrow's action shows a rally, there's some reason to think the weak seasonality is coming to an end.

David Rosenberg Still A Gold Bull

As reported by The Pragmatic Capitalist, David Rosenberg is still bullish on gold; he believes the current doldrums represent a buying opportunity. Rosemberg bases his optimism on more skeletons emerging from the financial-system closet.
Watering down financial regulation bills in the U.S.A., kicking the can down the road via less-than-onerous Eurozone stress tests and reduced capital stringency as per Basel III does not alter the deleveraging game that much and the rounds of market instability that will come our way.

The investment demand for gold remains quite solid at a time when production growth is still anaemic – the World Gold Council just released data showing that investors bought 273.8 metric tons of gold via ETF’s in Q2, the second highest tally on record (and brings net investment in these finds to over 2,000 tons value at just under $82 billion).

That last point about increased gold investment demand has been dented a little by recent outflows, but not by much. Even after those outflows, GLD's current holdings are more than 165 tonnes greater than they were in mid-January.

Gold And Kondratieff Winter

The Kondratieff Wave is not to everyone's taste, and has been debunked from time to time, but a modified version of it gibes with both the debt crisis and the gold bull market. Ian Gordon of Longwave Analytics, the person who modified the Wave, points to Kondratieff Winter as consistent with deleveraging and resultant depression.
According to Gordon in the Gold Report interview "The indication of the season change from autumn to winter is the bull stock market peak. We say that peak was effectively reached in 2000, not 2007, because NASDAQ obtained the real speculative peak in the market in March 2000. When that peak is reached, as it was in September 1929, it signals the onset of winter and the deflation/depression stage of the cycle. That whole winter period is really where debt is expunged from the economy and that process is extremely difficult for creditors and debtors alike. The last depression, for instance, following the 1929 stock market peak, brought the entire U.S. banking system to its knees. In fact, between 1929 and 1933 about 10,000 banks failed. That kind of process is bullish for gold because people move to gold as money of last resort."

Gordon points to the performance of gold and the few gold stocks around at the time of the 1929 crash and the Depression of the ‘30s as a guide to the likely performance of gold stocks under this scenario. At the time Homestake Mining was perhaps the key North American gold stock and after initial falls as everything crashed (a phenomenon seen again 2008), Homestake then soared in value while nearly everything else remained depressed overall, despite occasional upturns. The gold price was fixed at the time - and then revalued - so one cannot plot the performance of bullion on that occasion, but Gordon is among the more bullish predictors of the gold price suggesting it will rise to $4,000 - or perhaps higher....

The forecast of gold going higher during deflation is dependent upon a crucial assumption: the Roosevelt Administration's devaluation of the U.S. dollar was not an outside intervention but an endorsement of what market forces would have done had gold's price not been fixed. Homestake is the "talk stock" for this scenario. The stock stayed largely flat in 1930 and began rising in 1931, as a chart on this Webpage shows. Its big run was delayed a year; it didn't start rolling again until late 1932. Earning actually jumped 63.3% in 1931 from 1930; 1930's earnings were higher than those of 1928.

Supporter of the endorsement theory have Homestake's 1931 performance to point to, although plummeting costs had a lot to do with its earnings increase.

Howard Katz Takes Alan Abelson To Task

Howard Katz claims last Monday's rout was caused by Alan Abelson saying unkind things about gold in his Barron's column of last week. Katz make this point that's worth remembering: contrasting two periods of American history and the fate of real wages in each.
First, consider 1866-1896. During this period the U.S. was on (or returning to) the gold standard, stocks were flat, the real wages of the average worker rose by 90% and foreigners poured into this country because the streets were (in a very real sense) paved with gold. Second, consider 1980-2010. During this period the U.S. issued trillions of paper dollars (yes, trillions). Stocks went to the moon. The real wages of the American worker fell (the only generation to be poorer than its fathers) and foreigners are denigrated as “illegals,” and used as an object of hate. In which period were Americans rich and in which are they poor?
With regard to gold as an investment, Katz says it's time to sit tight; he cites a well-known quote from Jesse Livermore to that end.


Regarding real wages: remember Henry Ford's famous five-dollar day? Back in the time when he offered it, 1914, five dollars meant a quarter of an ounce of gold. Back then, no income tax was paid on wages of that size. So, a worker in Ford's plant would have gotten a quarter of an ounce of gold tax-free for a day's hard work. At today's prices, that's more than $350 per day take-home. A six-day week meant 1.5 ounces of gold per week, or about $1,700 at today's prices.

$1,700 per week, take-home. At current tax rates, that would be around $3,000 per week gross. If no vacation time, $3,000 a week is $156,000 per year before taxes. For skilled labour, albeit with a six-day week and eight-hour day. Yes, the five dollars was for eight hours of work.

Sounds a lot more impressive than the nominal value, doesn't it?

Peter Munk Says Gold Price Will Rise For Years

Although disclaiming the label of "goldbug," Barrick founder Peter Munk says gold will keep rising over the next several years.
[E]conomic uncertainty and investor warniness about other asset classes -- particularly currencies -- would continue to support gold, which hit record highs in June.

"I expect the trend to continue because I think once people have lost confidence in their currency, once people have lost big money in equities and in bonds and traditional vehicles, their confidence in gold, especially having seen gold rise year in and year out for a decade, is reinforced," he told Reuters....

"A temporary setback is normal in all trading situations and is not going to change that," Munk said, but added later: "I am categorically not a gold bug."
He also said Barrick's strategy will be to grow margins and the dividend along with it as gold keeps going up.

India Gets First E-Selling Service For Gold

If you're a resident of India and want one or more 1 kg gold bar(s), you can now order online.
According to a press note, for the first time, a private organisation will participate in e-selling of imported gold bars and coins. The service started from August 2....

In the first phase, Shree Ganesh Jewellery House will sell imported London goods delivery bar with a minimum booking volume of 1 kg and 0.995 per cent purity.

London goods delivery bar is a bar of gold or silver which meets the good delivery rules for gold or silver bars published by the London Bullion Market Association.

Initially, although booking can be made from across India, the physical delivery of the gold will be across 19 districts of West Bengal....

Based upon the hopes for the program, it should increase demand for the metal in India.