Friday, February 26, 2010

Gold Takes Bad Economic News In Stride

It wasn't all bad: fourth-quarter GDP was revised upwards, from 5.7% to 5.9%. However, the two items released at 10 AM ET more than made up for it - particularly since they pertain, if only indirectly, to first-quarter GDP.

The two disappointments were a consumer-sentiment drop from 74.4 in January to 73.6 in February, which gibed with the recently-released disappointment in the consumer-confidence area, and a 7.2% fall in January home sales as compared with December. Like the consumer-confidence number, the January sales figure was far worse then expected.

Once again, the U.S. Dollar Index didn't act as might be expected, as some gun-jumpers found out to their cost. A rally just before the GDP news turned into a dip shortly afterwards. From 8:45 to 9:45, the Index traced out a ragged but narrowing trading range centered at around 80.67. A dip at that time turned into an news-related rally that pushed the Index all the way up to 80.74, between 10:05 and 10:10. That rally fizzled, though, and turned into a real decline that didn't stop until just before 11:05 at 80.23. A mild upturn ushered in a short period of bobbing around, which veered downwards later. As of 11:46 AM, the Index was at 80.17.

Gold, of course, benefitted from the fall in the greenback. A rally undertook a little after the GDP-revision news partially was erased by 9:05, but that pullback stopped at the $1,110 level. Until 10:00, gold meandered around $1,111.50; at that time, it dropped as the greenback rose on the bad news. After getting down to $1,106.10, the metal reversed course as did the greenback. A strong and swift upturn added $13 to the price in the space of forty minutes. After it climaxed at 10:45, gold pulled back and came to rest around the $1,115 level. As of 11:47 AM ET, the spot price was $1,116.00 for a gain of $9.40 on the day. The Kitco Gold Index attributed $7.80 of the gain to a weakening U.S. dollar and $1.60 to predominant buying.

It's been a morning of reversals, ones that brought some trepidation to the greenback market. Gold bulls have reason to be jubilant, but volatility is still volatility - and that ole $1,125 barrier has yet to be met today. It might in the afternoon.

Update: As (my) luck would have it, the decline in the U.S. Dollar Index bottomed at about the time of the original post. 80.115 was reached between 11:40 and 11:45 AM ET, and that low marked the beginning of a relief rally that took the Index up to 80.48 between 12:15 and 12:20 PM. Afterwards, the Index entered into a fairly narrow trading range centered around 80.445. There was a slight upside-down saucer aspect to the range, which presaged a mild decline. Still, the lack of volatility in the last 70 minutes is notable for an otherwise-volatile day. As of 1:39 PM ET, the Index was at 80.385.

At the same time, gold took a dive that brought it back down to the level at which it meandered between 9:15 and 10:00. After making a quick double bottom at $1,111.50, as of 12:15 and 12:20, the metal climbed back up to $1,114 but fell back again to just above $1,112. After muddling around that that level from 12:37 to 1:07, gold took off again; it put on a quick six dollars an ounce between 1:07 and 1:32. As of 1:39 PM ET, the spot price was $1,117.70 for a gain of $11.10. The Kitco Gold Index divvied up the gain into $4.80 for greenback weakening and $6.30 for predominant buying.

$1,125 is still a ways away, but the intermittent spurt-ups in gold may turn into something more durable. Or, things may calm down as the trading week (and month) comes to an end. A mid-afternoon decline is unlikely.

Update 2: There was one, formally, but it was merely a pullback that stopped above the $1,115 level. There was no decline to the $1,100 level, nor even to a loss on the day. Instead, it was a sedate end to a sometimes exciting day.

$1,125 remained a ways away. The rally as of the last update ended at about the time I posted it[more "luck" on my part] and even $1,120 remained out of reach. Gold bobbed at around the $1,118 level from 1:30 to 2:00 PM ET, and then sunk down to about $1,115.50 in the next half hour. Starting at 2:45, it inched up, paused, and then settled in to a trading range with $1,116 as the floor and $1,117.50 as the ceiling. A final vault-up slightly above that range left spot gold at $1,117.90 for a gain of $11.30 on the day. The Kitco Gold Index allocated $5.10 of the gain as due to the weakening U.S. dollar and $6.20 as due to predominant buying.

For the week, there was a gain but a very thin one. Spot gold closed at $1,117.10 on February 19th, making for an eighty-cent rise between then and today's. The percentage gain was miniscule: up 0.0716%.

After some "excitement" earlier today, things were quiet for the U.S. Dollar Index. The slide that began at 1:10 ended at 1:30; after that, the Index remained in a trading range, bordered by 80.35 and 80.4, until 4:15. That range was tested on the downside between 1:50 and 2:25, and more briefly later, but it held until broken on the downside by a drop that carried the Index down to 80.3. After that bottom, made around 4:30, it recovered a little to close at 80.35 at the end of weekly trading. For the week, the Index lost 17 basis points.

Unfortunately, the usual offering for the U.S. Dollar Index has not been updated at the end of market closing. So, I'll turn directly to gold:

From the perspective of the six-month daily chart, today's rally looks little more than the re-establishment of a trading range that was broken on the downside earlier this week. $1,125-$1,130 continues to be both critical and out of reach. Given that re-establishment, I have to admit to having little to add to recent days' commentary. The near-term sanguinity, if not outright bullishness, is still there.

A substitute chart of the U.S. Dollar Index, of the March 2010 futures contract from TFC Commodity Charts, shows a breakdown of the recent bullish run, which topped out at a lower level than last week's:

This chart shows deteriorating MACD and RSI indicators in the face of a dip to a support level. Near-term indications don't say much that's favorable for the greenback, although 80 is the level to watch.

It may be of interest to know that the Commitment of Traders report shows that there is not a record high in longs for the Index; that honor was reserved for the week ended February 2nd. The non-commercial dollar longs [Euro short] record for the dollar-Euro contract was broken again for the week ending February 23rd, according to its own Commitment of Traders report. You can take a look at the daily chart for the March contract and draw your own conclusion.

Moving to the media, this Bloomberg report webbed by Business Week attributes the gain to bets on the eventuality of a Greek default. As the initial panic subisides, gold is regaining its safe-haven status.
“You’ve got to look to play gold on the long side,” said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. “Fiat currencies continue to lose credibility. Even if Greece gets rescued, there will be another country in line with their hands out. People are flocking to gold to shield themselves from the volatility in the currency markets.”

As the weekend arrives, I'd like to thank you for stopping by and I hope you enjoy yours. Despite today's action, the gold market and the U.S. Dollar Index both seem to be hesitating - particularly the latter. The pullback at the beginning of this past week has not diminished non-commerical enthusiasm for shorting the Euro one bit; if anything, it seems to have encouraged the shorts. Perhaps I shouldn't harp so much on the greenback, given that this is a gold blog, but a real drop in the Index would be the catalyst to push gold higher.

A postscript: It turns out that I had overestimated the skepticism of gold-watchers regarding the China-buying rumor for the IMF gold being sold. The sample selected by Kitco News, gold bulls all, said they wouldn't be surprised if it had been true (or is coming true.)

Home Sales, Consumer Sentiment Both Down

The consumer-sentiment data for February was released, and it gibes with the recently-released consumer-confidence number. Sentiment dropped to 73.6 from January's 74.4.

In addition, January home sales fell 7.2%.

The greenback and U.S. Treasury securities liked the news on receipt, but the fomer gave up its gains yet again. Gold fell down to just above $1,107 before recovering somewhat to the $1,110 level. After the dust settled, both markets seem to have taken the news in stride.

The Gold Meme Is Spreading...

The lastest person to pick up on it, although skeptically, is President and Chief Investment Officer at Pacifica Partners - Capital Management, A.J. Sull. Sull says that the goldbug argument claiming that recent high deficits and quantitative easing will guarantee high inflation has its merits, but seems too early and doesn't factor in the obvious (and needed) benefit of a low inflation rate: relatively low interest payments on most developed nations' sovereign debts. [Even Greece is benefitting; recent rates have been 'shockingly high' at about 6 1/2%. Twenty years ago, 6 1/2% on U.S. Treasury bonds would have been seen as near-miraculous.]
...[I]t could be that the inflation fears are a little ahead of themselves at this time. The global economy is still quite weak as unemployment reaches a 26 year high, banks are still reluctant to lend and consumers around the world seem to be gripped by fear once again. Recent consumer confidence data from the US shows this clearly as it dropped to a ten month low – leaving many on Wall Street scrambling for possible explanations.

At this point in time, it seems that the Fed and other central banks are doing what they have to do. As some [goldbugs] call for gold to reach levels of $2000 per ounce or more – it would be best to step back and take an inventory of the facts. This is not to dismiss the arguments of the gold bulls. They are not altogether invalid. But for the kind of inflation to take hold that would result in an upwards explosion of gold prices from current levels, the Federal Reserve and other central banks would have to throw in the towel and abandon the fruits of the hard won victory against inflation almost thirty years ago. At this point, it would seem that a policy error is a more likely reason for inflation getting out of control rather than outright indifference.

It may seem twisted of me to note this, but the budgetary benefits to keeping inflation low shine two different lights on some of the goldbugs' favorite arguments. On the one hand, it dampens the case for '70s-style inflating which took advantage of negative real interest rates. That benefit ended as the '80s opened, and governments paid for it over the next 10+ years. The "bond vigilantes" remembered, many painfully, the climax plummet of the bond market which ended in '81. Given what 10% long rates can do to government budgets, not to mention 10% short rates, there is a lot of reluctance to push inflation up to the near-double-digit range even if a net inflation premium can be scooped. Although foreigners are easy to beggar from a domestic-voter standpoint, they don't pay taxes like domestic bondholders do. Particularly, foreign governments don't. The fisc could tolerate double-digit interest rates 'way back when for reason other than the much lower size of the overall funded debt back then. A large majority of the bondholders had to fork over part of their inflation-boosted interest payments back to the government in the form of income taxes. Back in the late '70s, this was known as "taxflation" and it did add to governmental gains from inflation.

A lot has changed since bell bottoms were last fashionable. Tax-deferred retirement savings plans were little heard of in the 1970s, and shielded little when compared with today. Treasury bonds held in a tax-deferred plan avoid the tax part of taxflation until the deferral ends. So do sovereign-held Tresurry securities, if memory serves me correctly. The withholding tax is imposed on private holders but not governments. There's also the newfound existence of inflation-protected government bonds, which will be more sought after more should inflation accelerate. In addition, marginal tax rate are lower now; that lowers the gain from taxflation too.

These points back up the claim that developed-economy governments today have a lot less to gain from inflation than they did back in the '70s, even if real rates are negative again. Also, we know what the long-term costs of inflating are thanks to the '80s experience. That experiecne was lacking in the '70s. For all these reasons, the decision to deliberately inflate is far more problematic now than then.

On the other hand...the same constraint on ramping up the inflation machine - interest payments crowding out everything else on the government budget when rates rise - makes the hyperinflation scenario less implausible. A burst of inflation, whether deliberate or accidental, could snowball into real hyperinflation in order to meet crushing deficits engendered by rate jumps. The margin of safety in government debt is lesser than it has ever been.

However, it's likely that any hyperinflation-inducing response will be only one part of a policy cocktail. There's a greater chance of retirement-savings-plan funds being commandeered during a debt crisis than of hyperinflation bursting forth.

Not to mention other nasty measures...

Marketwatch Article Builds Hope On Short Term Gold-Dollar Concurrency

Maya Saefong's latest Marketwatch column pursues the recent positive correlation between the greenback and gold, and gets several comments whose thrust is that it's good news for the metal. If the positive correlation holds when both are rising, as is the case now, then fiat currencies are becoming more distrusted. The dollar benefits from crisis mode, as we've seen, but gold also benefitting points to discounting of future weakness in the greenback.

Some of her sources became enthusiastic over the possibility of a sustained positive correlation, as it would mean that the greeenback is the least-worst currency in a time of general debasement. Others were more cautious. All of them were bullish on gold, even the expert at the end who expressed skepticism about the positivity:
Ned Schmidt, editor of the Value View Gold Report, wasn't quite so optimistic. "In a world where U.S. dollars are becoming relatively rare, little reason exists for the value of the dollar to fall against other currencies," he said, emphasizing that he doesn't see any decoupling between the dollar and gold.

"No inflation in the U.S. and lack of money supply growth means no inflation will arise," so the dollar will not crash and gold "will have one more rally before hitting lows in the coming summer," he said....

"Lack of money supply growth in the U.S. will force the Federal Reserve to take action by fall," Schmidt said. "That will send gold to new highs."

I don't want to spoil the party, which is on parade in the column itself, but it seems like a lot of gold fever is being generated from a relatively small sighting. So far, the positive correlation is short-term. It can be entirely explained by panic buying of the U.S. dollar and safe-haven buying of gold in consequence of the Eurocrisis. Once that crisis faced, the correlation is likely to go negative again.

In the magic year 1979, gold and the greenback were postively correlated over a period of months - not days. This last year, there have been times when short-term positive correlation had faded in and out. The global-debasement theme won't be validated until there's a sustained bull rally in both. The dollar has co-operated in the rally department, but gold hasn't (at least as yet.)

Gold Drifts Upwards Before London Trading

Evening trading began with a slump down to the $1,105 level, at which gold bounced off until 7 PM when a slight rise ensued. That rise was built upon until the price reached close to $1,109 at about 8:45 PM ET. Then, a pullback took it to $1,107. Before night turned into morning, an attempt was made to rise above $1,110; it stopped just before midnight just below that level. $1,110 was bested just after 2 AM, when a drifting following the first attempt turned into another rally. The second rally got gold up to $1,115.20 before it ran out of gas just before 5 AM. A more sustained downtrend got rolling, which pulled the price down below $1,110 again. As of 7:49 AM ET, spot gold was at $1,107.00 for a gain of $0.40 since the end of yesterday's trading. The Kitco Gold Index had 80 cents added to the price due to U.S. dollar weakness and 40 cents subtracted due to predominant selling.

The U.S. Dollar Index spent most of the overnight session declining, albeit slowly. From 5:30 PM to 8:05, a gentle rally took the Index up from the 80.72 level to 80.85. Then, a drop launched a downdraft that took it down to 80.55 by 8:50. The Index drifted for a time, before slumping again up to just before midnight. Another range ensued, drifting just above the 80.5 level, until it puled up from 1:25 to 3:30 AM in a gentle two-stage rise that ended above 80.75. The next two-and-a-half hours saw a downdrift that took the Index down to 80.4 by 5:55. Another upwave commenced at that time, which made the morning's action something of a trading range. As of 8:03 AM, it was at 80.65.

A Bloomberg report, webbed by Business Week, attributes last night's rise to demand stirred up by the Grecian crisis. [Now that the panic button isn't being pressed, gold is benefitting. The crisis certainly explains the otherwise-odd short-term positive correlation between the U.S. dollar and gold.] An expert ascribes the rise to increasing distrust of both major currencies:
“The euro zone scenario is still lingering in the market,” said Bernard Sin, head of currency and metals trading at gold refiner MKS Finance SA in Geneva. “People don’t trust the dollar, they don’t trust the euro, so the only way to go is to look at other alternatives such as gold. It’s a safe haven.”
Evidently, there are some people who still link sovereign-debt crises to future inflation, even if the Euro mechanism is designed to prevent that. Mentioned near the end of the article is a rise in the Indian import duty for gold: from 20 rupees per gram, it's going up to 30. "That may cut domestic demand and fuel a gain in gold prices, according to Rajesh Exports Ltd. Chairman Rajesh Mehta."

A Reuters report goes into a rumor that was scotched overnight: a claim that the People's Bank of China would buy the remaining 191 tons of gold being sold by the IMF. The writer of the story that claimed so "later told Reuters she did not have official sources for her story." The first quoted expert says that gold's movement have largely been in line with the greenback:
"Gold has moved higher but only what you'd expect with movements in euro-dollar. I don't believe it makes sense for China to make such a big public purchase of the remaining gold," said David Barclay, commodity strategist at Standard Chartered in Hong Kong.
Interestingly, the other experts comenting on the rumor seemed skeptical too.

A brief report from Marketwatch has a quote from that points to physical-demand support for the price:
"The metal is likely to continue to track the euro and broad risk sentiment in the coming sessions; however, dips are expected to draw further strong support from both jewelry and investment players and should provide a floor," said analysts at TheBullionDeskcom.
The rest of the report mentions upcoming U.S. economic data, gauging the extent of the recovery, that may influence the price.

The first revision of the fourth-quarter U.S. GDP number was announced, and it was bumped up a bit: 5.9% annualized instead of the initial 5.7%. The raising came from upped figures for inventory and other investment, and a downwardly-revised price deflator. Personal-consumption expenditure was revised downwards. Again, the U.S. Dollar Index reacted refractorily to the data's release. Initially jumping up seven basis point within two minutes, and building upon a five-basis-point rise that gun-jumped the announcement, it pulled back to below the level it was at as of 8:28. As of 8:51 AM ET, it had bounced back slightly to reach 80.66.

Gold took the opportunity to rise above $1,110 again. As of 8:53 AM ET, it was at $1,111.80 for a gain of $5.20. The Kitco Gold Index partitioned the gain into +$1.45 due to U.S dollar weakening and +$3.75 due to predominant buying. After drifting when regular trading opened, and dipping right after 8:30, the metal took off in an almost-unimpeded advance from 8:33 to 8:53.

Despite the lack of any appreciable rally as of yet, gold's been doing quite well given the greenback headwind. I'm sure the latest rise will be attributed to the return of the now oft-cited "risk appetite."

Thursday, February 25, 2010

After Another Downward Test, Gold Rallies Then Fluctuates

Perhaps the decline early last morning was technical. A two-stage push-down of gold got the metal below $1,090 as of 9:10, and at a daily low of $1,087.70 right after 9:30 AM ET. However, unlike the one more than twenty-four hours ago, those two didn't last. When it became apparent that the drops provided no catalyst to a new decline, the gold price took off.

If those two drops were part of a short seller's maneuver, then someone's fingers got burned.

The indecisiveness exhibited at the start of regular trading was broken by a rise that took gold up to just below $1,096. That gain tunred out to be a blip, heralding the first drop. After it, the gold price recovered to where it was at the start of regular trading: the $1,092 level. Following the second drop, the metal rallied almost ten dollars an ounce, reaching the $1,098 level by 10:00. The price then fluctuated in a rather wide range, slowly sloping downwards, as the price went down to $1,094, back up to just above $1,097, and then to $1,093 as of about 10:45. Then, the gold price took off again: by 11:15, it had made a new daily high at $1,103.90. $1,100 failed to hold, though, and gold took another dive down to about where it opened. As of 11:51 AM, spot gold was at $1,096.00 for a loss of $1.20. The Kitco Gold Index allocated the loss to -$4.30 due to U.S. dollar strengthening and +$3.10 due to predominant buying.

After plateauing at just above the 81.1 level, at which a multiple top was made, the U.S. Dollar Index slid down in a two-stage drop that ended at just above 80.9 as of 9:54. After veering in on a trading range, the Index took anothe dip that was ended by a brief rally between 10:29 and 10:42; it topped at just above 80.98. A further decline followed, bottoming at a little below 80.81 as of 10:51. Then, the decline reversed as the Index ascended to 81.087. Although failing to make a new morning high on that run, the rally was fairly solid. It was in the middle, when the rally accelerated, that gold got knocked down to the sub-$1,094 level. As the Index pulled back, gold pulled up.

However, the Index's pullback was the prelude to a further rally; 81.1 was bested at 11:49. As of 11:53, it was slightly lower at 81.0841.

So far, it has been a choppy day; again, $1,100 was broken through but only temporarily. Gold, however, has shown a bit of strength. The afternoon will reveal if the strength holds.

Update: So far, the strength has not only held but also's increased. After that downturn which ended just before the time of the original post, gold not only got above $1,100 but also surmounted $1,105. It can be said that gold is back.

Only some of the gain has come ex-greenback. The U.S. Dollar Index has been on a weakening trend ever since making a double to at 81.115 as of about noon. The first part of the double top was made around 9:30. The Index spent the next hour descending to the 80.815 level before stablizing out at about 80.85 before dropping again. As of 1:51 PM ET, it was at 80.69.

Gold went on a $14/oz ride, in three stages, after bottoming below the $1,094 level just after 11:30 AM. The day's high of $1,110.50 was made just before 1 PM. A slump just after the top shaved less than five dollars an ounce off the price; it ended at 1:20 PM. Since then, gold was been bobbing at about the $1,107 level before moving up again. As of 2:02 PM ET, the spot price was $1,108.70 for a gain of $10.80 on the day. The Kitco Gold Index has gold gaining $1.10 due to slight weakening of the U.S. dollar; $10.30 worth of rise is attributed to predominant buying. The latter category has been positive all the way through the day, but it grew considerably since the last update.

Evidently, a technical sell has led to a technical rebound. The remainder of the day will show if it sticks.

Update 2: Not much else happened, which was significant in and of itself. Gold kept its gains; $1,100 held.

The metal spent some time bumping against the $1,108 level, but fell back in a somewhat leisurely decline between 2:00 PM ET and 2:40. That fall took the price down to $1,104, where it lingered around until 3:30. The next fifteen minutes saw a rise that reached $1,108, but any attempt to surpass that level was frustrated. Instead, the metal pulled back to just below the $1,106 level before blipping up for a final time just after 5:00. After a partial pullback from that blip, spot gold closed at $1,106.60 for a gain of $9.40 on the day. The Kitco Gold Index divided the gain into $0.70 for a weakening U.S. dollar and $8.70 for predominant buying.

In the interim, the U.S. Dollar Index didn't do all that well. After marking time for a half-hour, the Index took a spill from 1:40 to 2:05, moving from the 80.9 level to the 80.7 level. Then followed a relief rally for the next hour, which crested around 80.80. The next hour saw it descend back down to where it was at 2:00, stopping slightly above the 80.65 level at 3:55. The Index subequently crawled up to enter a rather narrow trading range centered around 80.73.

The six-month chart, from, shows again that 81 was penetrated but not sustainably risen above:

Despite the 81 level being temporarily bested, despite the interday high being the second-best in the last nine months, the Index still closed down on the day for the second day in a row. Although there hasn't been a bearish phase like there was after the first run, a phase that manifested itself between December 22nd and January 14th, the continuation of the rise has been labored. Of note is the fact that the MACD lines on the bottom have crossed on the negative side, albeit barely.

It would be dangerous to conclude that the Index is due for a serious pullback, despite the popularity of the long-dollar side amongst non-commerical players in the dollar-Euro contract. Precedents from the Index's '08-early '09 run suggest a spurt-up is likely, even if any such spurt-ups have been batted down as of now. One bearish note is an RSI divergence noticable at the top of the chart: the Index peaked higher last Friday than it did on the 8th, but the RSI index at the top peaked at well above oversold levels on the 8th. This time, it peaked as a noticeably lower level. Also, the peak of the Index was before the peak of the RSI line this time 'round. Going by this indicator alone would yield the hunch that the Index is in for a pullback; the labored nature of the last phase of the rise hints at a rolling top.

The trouble is, there's no likely fundamental reason for why a real decline should ensue right now. Euroland is still besotten by the Grecian debt crisis, and it would take quite the Eurobooster to predict a sustained rise in the Euro going forward. The economic recovery is still spotty in the States, and the Fed-driven event that everyone's waiting for will be bullish for the greenback; it almost certainly won't be bearish. A pullback is possible for market-internal reasons, but I don't see it going that far.

Turning back to gold, the daily chart (also from shows a decline that had gotten rolling but has stopped:

The overall MACD-lines pattern doesn't show that great a performance over the last two-and-a-half months, as the peaks in that timeframe have been around the zero line. Back when gold was roaring, as indicated on the left part of the graph, the peaks were well into positive territory. However, in the nearer term, a positive divergence can be pointed to: the last time gold was at the $1,125 level, both MACD lines were at lower absolute values than they were at as of last week's peak. I know I'm sticking my neck out somewhat, but I suggest the level to watch for is $1,125-30. The People's Bank of China is scheduled to make any announcement in a couple of weeks, and they announcing another 0.5% hike in the reserve ratio is unlikely to faze the gold market all that much. It is possible that a larger hike will be announced, which would likely put a serious dent in the market. I don't know of any scheduled market-threatening news in the near future other than that event window.

Granted that my hunch is informed by technical factors, not by fundamental factors, but I think an upside move is more likely in the coming days than a downside move. I may be overly encouraged by today's recovery to above the $1,100 level, but it was encouraging. The next days will show if it's sustainable or an interruption.

Hard Assets Investor Sees Glimmers Of Hope

Although he doesn't hold out any unconditional hope, Brad Ziglar of Hard Assets Investor does say:
Watching gold prices rally from a $1,045 low notched in early February, you can sense the accumulation. Overall open interest has been built up by 20,000 contracts following the price breakdown, though there was some liquidation selling Monday.
The proffered catalyst for a run above $1,127 is none other than the stock market. The last chart in his Seeking Alpha article shows the 30-day rolling correlation between the S&P 500 and gold at a historic high of +81%. "In our unconventional atmosphere, gold bulls ought now to hope for some good stock news. Go figure."

GATA / Ted Butler Crowd Gain Influence

Love 'em or hate 'em, embrace 'em or avoid 'em, the people who claim that gold and silver prices have been artificially suppressed on the COMEX have secured themselves some influence. That's according to a Financial Times report that says complaints that have previously been ignored will now get a hearing.
When the US commodities regulator sought public input last year on a plan to damp oil speculation, most of the hundreds of missives it received were not about energy, but silver and gold.

One letter read: "I know your time is precious so I will make my request short and sweet. Please limit concentrated short positions in the silver futures market. This will allow the little guy a fighting chance against powerful market manipulators."

The barrage was the latest salvo from a group of small silver and gold investors who claim that a cabal of banks is conspiring to keep precious metals too cheap.

Now the silver and gold bugs have got the regulator's ear. The Commodity Futures Trading Commission this week announced it would host a public meeting in late March to discuss speculation limits in US metal futures....
There's still skepticism about the manipulation claim, but proponents will now have their chance to have a say. Numbers still count.

Cash-For-Gold Company Allying With Charities

The cash-for-gold company Recycle Frog is holding an Ottawa-area charity drive, in which portions of the proceeds from gold sales will be donated to a local charity called the Christmas Exchange; it provides food to the poor. The portion that seller donates to the charity will be matched by Recycle Frog.

This drive might have been prompted by the goodness of the company executives' hearts, but the comments section on the CBC report on it still shows that these companies have acquired a somewhat tarnished reputation.

Indian Gold Imports Up Provisionally

As of this month, as compared to February of last year, according to a Reuters India report:
India's gold imports in February till date is provisionally at 30-35 tonnes, the head of Bombay Bullion Association (BBA), Suresh Hundia, said on Thursday.

India imported 7.9 tonnes of gold in February 2009, BBA data showed.

This month has seen lower prices than last month, but prices are still considerably higher than they were in February of '09. That figure is further evidence that Indian dealers and buyers are becoming acclimatized to four-digit gold prices.

However, the recent decline has lowered pricing points somewhat according to an Economic Times report:
India gold buying abated on Thursday as traders waited for dips after offtake picked-up late in the previous session, when prices briefly moved below $1,100 an ounce, dealers said.

"People are now waiting for $1,085 (an ounce), yesterday we did good business below $1,100," said a state-run bullion dealing bank dealer....
A weakened rupee helped contribute to the notch-down.

Gold-Stock Underperformance Relative To Gold Itself

A Bloomberg report reveals that the long-term underperformance of the gold stocks in the Standard & Poor’s/TSX Gold Index, one similar to the Amex Gold BUGS Index, widened to a record gap last month. The quoted expert, Paul Vaillancourt, says that the main reason is investors would rather buy physical gold now that it's convenient to do so:
"Investors are saying, ‘We would want to buy a gold company because of the exposure to the price of gold. Let’s just skip that and buy gold directly,’” said Paul Vaillancourt, director of portfolio strategy for Franklin Templeton Managed Investment Solutions in Calgary.

Direct investment in gold has become easier because of the proliferation of gold exchange-traded funds, said Vaillancourt, who helps oversee about $27 billion.

He himself is looking favorably on Canadian gold stocks as part of the late-stage cyclicals group, because he believes that the cost squeeze afflicting those companies [in large part induced by the credit crunch] is past.

Newmont Mining 4Q Profit Easily Beats Estimates

Newmont Mining, a component of the Amex Gold BUGS Index (the HUI), reported its earnings for the fourth quarter of 2009. The EPS figure was $1.13, $1.14 excluding various items. According to the Reuters report on it, analysts were expecting 79 cents. The company cautioned that it was expecting costs to rise this year.

This makes for the third HUI component to present stronger-than-expected earnings for the last quarter. So far, the HUI doesn't seem to "get it."

Speaking of the HUI, Przemyslaw Radomski over at Minyanville has put togeether a correlation matrix which shows the HUI having a closer correlation with the general stock market than with gold itself in the last 10 trading days. He also shows an unexpected positive (if weak) correlation with the U.S. dollar in that same timeframe. Additionally, his matrix shows that the correlation between gold itself and the S&P 500 is also strong. Since he's bearish on the stock market, he counsels holding back from buying additional gold unless the correlation breaks down. At the end, he does recommend buying some if none is already owned.

At any rate, his work shows that lumping gold in with the risk-appetite trade has been justified.

Gold Still Drifting Despite Greenback Strength

Evening trading began with a slight dip, which was reversed within a half an hour. Instead, the gold price made a run at $1,100, besting it briefly just after 7 PM ET. That rise unsustained, gold drifted downwards to the $1,097 level until just before 10 PM. Then, it went for a two-stage tumble that carried the price below $1,090 by 11:30 PM. Despite that test, $1,090 held.

As yesterday turned into today (ET), the price drifted just above the $1,090 level. A small rally was cold-decked around 2:40 AM, driving the metal down to $1,088.10. Again, the $1,090 level held, establishing a trading range that kept gold in between $1,090 and $1,095. The range was next tested on the upside, at 7 AM, but it ended up holding again. As of 7:56 AM ET, spot gold was at $1,090.90 for a loss of $6.30 since yesterday's regular-trading close. The Kitco Gold Index partitioned the decline into $2.65 due to predominant selling and $3.65 due to strengthening of the greenback.

The U.S. Dollar Index started off sluggishly, with a slight rise turning into a drop that ended at 80.73 at 6:30 PM. That low proved to be the low of the day. An accelerating upturn pushed the Index up to 80.975 before topping out at around 8:20. A saucer-like movement followed, with downdrift turning into updrift as of 9:20. At that point, the Index was only slightly below 80.9. Another accelerating uptrend ensued, taking the Index up to 81.125 just before 11:30 - the time when gold got knocked down.

The next six hours saw the Index move dowwards, in a smooth-starting but slow decline that turned more ragged but faster as it matured. The Index got all the way down to 80.795 as of 5:20 AM. At that point, the decline reversed and the Index laboriously pulled back up to the 91 level. As of 8:10 AM ET, it was at 80.97.

A Wall Street Journal Online report ascribes the overall decline to a fall in the euro and a slump in U.S. stock futures. Expectations for the metal in the coming days don't seem to be very optimistic:
"[Bernanke's] assurances that interest rates would remain low imply ample liquidity will help put a floor under gold prices, we believe, and will keep the opportunity cost of owning gold low," said HSBC analyst James Steel.

However, a drop in the price of gold, in both U.S. dollar and euro terms, indicates underlying weakness for the metal and further short-term losses appear likely, he said....

Mr. Bernanke will also give his second day of testimony in the Senate later Thursday and a batch of data is due. Trade will therefore be "choppy," said James Moore of Gold is vulnerable to more losses, having failed to tackle key technical chart points last week around $1,127, Mr. Moore said.
A stronger dollar was given as the main cause by a Bloomberg report, webbed by Business Week. Weakness in the Euro was ascribed to fears that Greece's debt will be downgraded.
The “lower gold price is dictated by the weakness in the euro,” said Bayram Dincer, a commodity analyst at LGT Capital Management in Pfaeffikon, Switzerland. “Short term, higher risk aversion will not benefit gold, as this risk premium is already incorporated in the gold price.”
Another quoted expert is less than sanguine about the near-term future for gold:
“Investor money looking for safe assets should be the factor” driving gold lower, said Tetsuya Yoshii, vice president for derivative products with Mizuho Corporate Bank Ltd. in Tokyo. Bullion “might have a $20 to $40 correction on the downside,” he said
The rest of the story mentions another, perhaps related fear: commodites will come down as the global-recovery trade unwinds for having jumped the gun. The implications for stocks in that forecast aren't brought up. Also mentioned is SPDR Gold Trust (GLD)'s holdings, which were unchanged at 1106.99 tons yesterday.

A Reuters report, while concurring with the above two about dollar strength pushing down gold, also attributes technical factors to the drop. The $1,100 level, unsustained, meant confidence was lacking. The first quoted expert seems less gloomy than those above:
"The perception is we're back in a period of a little bit of limbo," said Darren Heathcote, head of trading at Investec Australia in Sydney.

"Now we need to get things started again. Either we are going to go downhill further or we are going to continue with a recovery. I think we are just waiting for some impetus to push us in one direction or the other," he added.
Near the end of the article, a managing director of the Market Strategy Institute in Tokyo, Koichiro Kamei, was quoted as opining that worries about the CFTC tightening position limits may be inducing funds to cut back on their own long positions, swamping demand from Asian physical-gold buyers in the short term.

The jobless claims number have been released, and it isn't a very good one: 496,000, well worse than expectations for a drop to 460,000. Durable good orders, however, were much better than expected for January: a 3% gain instead of the expected 1.4%. Airplane orders proved to be better than expected. Once the transporation data is stripped out, though, a decline of 0.6% is left.

Despite that news giving an added push to the U.S. Dollar Index, which had attained the 81 level just beforehand, gold has remained in the $1,090-$1,095 range. The push to the Index proved to be short-term: after tracking out a declining wedge between 8:32 and 8:43, which included that just-mentioned push, the Index broke through the floor of that wedge. As of 8:47 AM ET, it got below 81 but rallied above later.

Gold was directionless since the start of regular trading, but started to rally as the greenback pulled back. As of 8:48 AM ET, it was at exactly $1,095.00 for a drop of $2.20. At that time, the Kitco Index actually had a small boost from predominant buying.

So far, there have been no declines other than ones in markets that trade overnight.

Wednesday, February 24, 2010

Gold Shakes Off Most Of Early-Morning Drop, Then Sinks

Fed Chair Bernanke's testimony wound up packing a bit of a punch to the market, although the asset that was primarily affected was the U.S. dollar. He said that the Fed was going to stay the course regarding near-zero interest rates, as the U.S. economy isn't yet on a firm footing. There won't be any tightening until the economy is on solid ground.

The interday chart of the U.S. Dollar Index shows a real head-fake. Just before Bernanke's testimony began, the Index ratcheted up in a five-minute mini-parabolic rally that took it from 80.63 to 80.77. Then, when he started testifying, the upsurge reversed and turned into a waterfall decline. Within three minutes, the Index plummeted from 80.76 to a little below 80.5. It recovered to the 80.65-80.7 level, spent nineteen minutes in that trading range, and began plummeting anew. From 10:31 AM ET to 10:49, the Index shed more than thirty-two basis points to end up at 80.38. The decline extended for a little more time, and then reversed course as things calmed down. As of 11:52 AM ET, it was at 80.60.

I can't say if any of those newly-minted dollar bulls were crimped by the fake-out, but I can say that some testimony-jumpers were.

Gold returned to moving in contradistinction to the greenback. After regular trading opened, the price stumbled around the $1,094-5 level before advancing as of about 9:15. That advance proved to be prescient, even if it began as a relief rally. By 10:10, the metal was at $1,104.

The subsequent pullback brought gold down to $1,098 a little after 10:20. A subsequent rally took the price back up to the same $1,104, making for a double top. As the greenback regained its strength, gold fell back: as of 11:51 AM, the spot price was $1,098.70. The $4.80 drop on the day was allocated to a $9.00 loss due to predominant selling pressure and a $4.20 gain due to U.S. dollar weakening. The early-morning drop to $1,090 did take a chunk out of the recent rally. U.S. dollar weakness has compensated somewhat.

It seems that the recently-acquired confidence, if not complacency, regarding gold's staying power is gone. Gold may recover to above-$1,100 levels and stay there, but it's fairly far from a sure thing at this point. Longer-term bulls can take heart in the now-evident skittishness.

Update: After pulling back from above-$1,100 levels, gold stopped declining at about $1,107. From 11:30 AM ET to 12:50 PM, $1,107 served as a short-term floor as the price bobbed between that level and $1,100; the latter price became a new ceiling. At 12:50, however, the price spilled below the floor and sunk to $1,094. That floor held for the next half-hour, after which gold rebounded a bit. As of 1:31 PM ET, spot gold was at $1,097.20 for a loss of $6.30. The Kitco Gold Index apportioned -$8.15 for predominant selling and +$1.85 for weakening in the U.S. dollar.

The U.S. Dollar Index completely recovered from its post-Bernanke-testimony drop, making for a whipsaw of those who bought just before it and dumped their holdings during it. After hanging around the 80.6 level from 11:30 'til noon, the Index resumed climbing in a three-step rise that took it all the way to 80.80 before it stalled. As of 1:32 PM ET, it was at 80.74.

A sustainable rise above $1,100 is still elusive; that early-morning chunk has proven to be durable. Gold may recover during the rest of the afternoon, but it still doesn't look likely.

Update 2: As it turned out, gold didn't recover to the above-$1,100 level. On the other hand, it didn't fall further. The $14-or-so drop betwen 3:45 AM ET and 4:30 AM marked the low of the entire day, matched only by a test of the $1,090 level at about 6:30 AM.

After ascending to almost $1,098 just before 1:30 PM, gold dipped and then made it above $1,098 for a brief time. A pullback to the $1,097 level preceded another try at the $1,098 level, which fizzled at 2 PM. The subsequent drop brought the metal down to $1,094, after which it slowly rose to regain $1,098 at about 4:45. As of the close of regular trading, spot gold was at $1,097.20 for a loss of $6.30 on the day. The Kitco Gold Index assigned a $7.70 drop to the predominant-selling category and $1.40 worth of gain to the weakening-U.S.-dollar category. Earlier in the day, the former category showed a loss of over 10 dollars. So, there was a minor recovery ex-greenback in the afternoon.

The U.S. Dollar Index, after a slump between 1:05 and 1:20, inched up for the next forty minutes and then rallied more strongly as it became more apparent that the 10 AM spill was indeed a whipsawing. By 2:45, the Index had gotten up to 80.88, higher than the high before the whipsaw plummet. That high, though, was the top of the session. After a dip into a range between 80.8 and 80.85, which lasted for another hour, the Index went into a two-step drop that carried it down to about 80.75 by 4:45 - the same time at which gold reached $1,098 without a subsequent fizzle. The Index then went into a tighter trading range centered around 80.77, at which it was as of 5:35 PM.

The six-month chart of gold, from like the next ones, shows that the gap that's been there since the 16th has finally been filled:

It did turn out to be a common gap. That said, the chart pattern doesn't look very encouraging. Had it not been for the fact that sub-$1,100 prices call forth buying by Indian gold dealers, indicating bargain levels, there wouldn't be all that much good to say about the metal from a look at the chart. Including that bargain-hunting potential gives a different picture even if it's interpretive: gold may be tracing a reverse head-and-shoulders pattern. Since the right shoulder hasn't been traced out, it's impossible as of now to determine whether a volume confirmation exists. But, this pit chart showes a lowered volume as compared to the decline early this far. So does the companion Globex chart. (Both are for the April COMEX gold contract.) Lower volume on the right shoulder as compared to the head is one of the confirmation signals of a reverse head-and-shoulders pattern.

I merely comment, though. One of the major doubt points for such a pattern to go to completion is the still-present strength in the U.S. Dollar Index:

Despite the confusion that accompanied the 10 o'clock hour, today's entire action in the U.S. dollar looks like a fairly sedate continuation of a recent post-spike uptrend with resistance at 81. The signs still point to a continuation of that trend, with the weekly chart looking good for dollar bulls too:

The recent rally doesn't look very impressive as compared with the spike-ups in '08 and '09, which makes for an interesting difference. From the perspective of the last six months, higher highs and higher lows have been established. But, from the three-year perspective, a higher high has not yet been established - and won't be until or unless the Index rises all the way to a little below 90. The picture will become clearer once the Fed Funds rate is finally hiked up and the markets assimilate it. Where the Index will be at that point, let alone after it, I don't know.

To get to less speculative matters, the weekly chart shows the 81 area as being an important resistance level, one that was supportive in December of '08.

An afternoon report webbed by the Wall Street Journal says that the effect of Bernanke's testimony was neutral for gold, and that today's decline was caused by uncertainty:
The overall tone for gold Wednesday was to the downside as market participants were awaiting details of International Monetary Fund gold sales, the latest on fiscally strapped Greece as well as a scheduled March meeting of the U.S. Commodity Futures Trading Commission to examine speculative trading in metals, says George Gero, vice president with RBC Capital Markets Global Futures.

"You have a lot of imponderables," Gero said.
Today did break the recent resilience in the gold market, as the early-morning drop was not recovered from. The difference between that one and the more news-driven ones should be noted: this one was not news-driven, but instead was prompted by technical selling. That's the one that stuck.

The way things look, the decline isn't over; however, the influence of bargain-hunting has yet to be felt. Gold may spend some time in the sub-$1,100 zone, but where it bottoms is going to be of importance. There's still the influence of Europe to be considered.

Gold As Portent For Commodity Complex

In "Gold, Commodities and Deflation," the "Calafia Beach Pundit" looks at the disparity between the performance of gold and other commodities and concludes that gold is forecasting an inflationary advance that will push other commodities up too. He notes that, over the longer term, gold has tended to lead a basket of commodities instead of tracking it.

He also says that the risk of deflation is virtually zero.

Bernake's Testimony Having Its Effect

...on the U.S. dollar primarily. His words have driven the U.S. Dollar Index down, at times hard. As of 10:47 AM ET, his comments about how the U.S. still needs record-low rates has pushed the Index to 80.38. His testimony proved to be quite the head-fake for dollar bulls.

Gold has taken the opportunity to shake off the early-morning decline. As of the same time, it's back above $1,100.

John Mangun Returns To Theme Of Gold As Money

His explanation of why gold makes for a good monetary unit is fairly common-sensical: there's been widespread demand for gold for thousands of years, and that underlying demand (when combined with those five attributes oft-mentioend in hard-money circles) makes gold a good choice for a monetary unit.

Also common-sensical is his explanation of why fiat currency has a lesser life:
[Assume] my business is washing cars. You sell chickens. I print my own “money.” Each one “Mangun money” is worth one car wash. I give you my money in return for two chickens. I redeem the money the following week by washing your car. But then I print thousands of “Mangun money” and buy goods all over town. Eventually, there is no way that I can wash all those cars and redeem all my money in a reasonable amount of time.

The next time I come to “buy” your chickens, you charge me two “Mangun money” because you know it will take me several months to get around to washing your car. My money is now devalued and the “price” of your chickens has gone up.

I have devalued the value of my money by printing too much of it.

Those who believe currency does not need to be asset backed would say, “So what?” It really does not matter if the chickens cost one or two “Mangun money” as long as we keep doing business with each other.

But if I keep printing more money, at some point, it will be very hard to
determine the “true value” of my currency. The people that I do business with will not be sure if they should charge me two, three or how many “Mangun money” for the goods they sell me. If the trend of my printing unlimited amounts of currency continues, you will lose confidence and eventually stop accepting my currency.
The entire piece makes for a good read.

"It's Best To Do As Soros Does..."

That's the message in Dominic Frisby's latest commentary, in which he says that the gold bull market is still intact. On one point, his thinking aligns with my own:

This bull market is almost ten years old now. The bubble is, shall we say, at least partially inflated. But it is nowhere near bursting point. We are far from the blow-off top that usually characterises the end of a bull market.
He then says that Soros may be thinking along the same line. [Actually, more than a few gold bulls are. The ones who'd rather not use the word "bubble" refer to the bubble stage as the third stage of the bull market.]

Commendably, he points out that it makes sense to badmouth an investment before going in to it; a lower price is better than higher. This points puts a bit of a different stamp on contrary-opinion indicators.

The long-term chart embedded in his commentary shows that the gold market in the last two-and-a-half months looks a lot like early 2008's:

Those who believe that charts have a prognosticiative power can take this comparison, add Greece's debt woes, and weave a pattern together. If Greece is Euroland's Bear Sterns...

Two Well-Timed Gloomy Forecasts From Technicians

The first is mentioned at the end of a Marketwatch report that mostly reads like a profile of three hedge-fund wunderkinds which have gone for gold. The first, of course, is George Soros. The second is, of course, John Paulson. The third is the less-mentioned David Einhorn of Greenlight Capital. He's lightened up a bit on his gold holdings, but he's still holding on. His pro-gold presentation at the Value Investors Conference is worth a read; it may have influenced Jean-Marie Eveillard:
"I have seen many people debate whether gold is a bet on inflation or deflation," he said. "As I see it, it is neither. Gold does well when monetary and fiscal policies are poor and does poorly when they appear sensible. Gold did very well during the Great Depression when FDR debased the currency. It did well again in the money printing 1970s, but collapsed in response to Paul Volcker's austerity. It ultimately made a bottom around 2001 when the excitement about our future budget surpluses peaked."

Einhorn added, "Prospectively, gold should do fine unless our leaders implement much greater fiscal and monetary restraint than appears likely. Of course, gold should do very well if there is a sovereign debt default or currency crisis."
To get back to the gloomy technical analyst mentioned at the end of the report, it's Tom McClellan. He uses the recent lackluster performance in GLD with respect to gold itself as his cue:
In a recent note to clients, [McClellan] pointed out that, when gold prices move upward but GLD ounces move downward, it's a sign that the gold rally isn't likely to continue. When GLD ounces move up along with gold prices, he emphasizes, that provides confirmation of the move.

Examining GLD assets can also be a means of gauging investor sentiment on a larger time scale, McClellan says. GLD, he writes, is now the easy way for the average investor to get invested into gold, without having to rent a safe deposit box.

"So when the assets grow or shrink too much on a larger time scale than this," McClellan notes, "that can be a sign of a sentiment extreme. For now, I see the tepid response in GLD ounces as a sign that gold's pop is in trouble."

Another bearish technician, mentioned in a brief Bloomberg write-up, is Axel Rudolph; he's with Commerzbank. He says that the "Gold Rebound Should ‘Soon Run Out of Puff’," and he's been proven to be right on that one. I note in passing that the recently-ended rally hasn't been universally believed.

Knocking On The Door That Opened Earlier

This report from the Economic Times, itself an Indian publication, speculates that the Indian central bank may buy some of the 191.3 tons of gold the IMF is trying to get rid of:
Reserve Bank of India, which has increased its gold holdings to diversify its reserves, looks set to be a buyer again when the International Monetary Fund begins selling 191.3 tonnes of the precious metal amid volatility in major currencies....

India is no stranger to gold. They are gearing up for growth and want to recalibrate their reserves," said Mark Pervan, senior commodities analyst at ANZ. "They can't lift their gold holdings from domestic output, unlike China. And they have shown an appetite to buy in the past."

Reserve Bank of India officials declined to comment on their gold plans but some said the bank considered gold to be a safe investment strategy. "We are closely looking at the gold market. We buy at market prices," an RBI official said.
I admit that I have a cynical streak, but to me this part of the report comes across as disguised lobbying.

The rest of it does mention the now-well-travelled turn-down by the People's Bank of China. As reported in the official publication China Daily, and noted in the above report, there's little chance that the PBoC will buy foreign gold intead of gold from domestic sources. The PRC being a mercantilist power, this decision is consistent with overall policy.

Gold Breaks Down Through $1,100

I have to admit to being surprised on the timing of the drop, which carried the metal's price down to $1,090 before the decline stopped. What was even more surprising, at least to me, was the fact that the U.S. dollar weakened too although slightly.

The metal drifted up somewhat last evening (ET), from the start of the night shift to just after 9 PM. After the top of about $1,108 was reached, the price spent the rest of the night drifting down until the $1,105 level was reached right around midnight. Then, the downdrift reversed itself before gold settled into a range centered around $1,106. That range ended around 2:30 AM ET with a drop to $1,100. A recovery ensued, which almost got gold back to $1,105 again, but that rally ended with about a $14 plummet taking place between 3:45 and 4.30 AM. When it was done, the metal's price was slightly below $1,090.

There wasn't any substantial recovery this time 'round, only a relief rally that established a newer trading range between $1,090 and $1,095. The metal spent the next 3 3/4 hours in that range, although bumping at the top of it recently: as of 8:07 ET, spot gold was at $1,095.30 for a drop of $8.20 from the close of yesterday's regular trading. The Kitco Gold Index attributed more than all of the decline to predominant selling pressure: -$10.40. Had that category been zero, gold would have gained $2.20 due to a weakening U.S. dollar.

After an abortive rally in the early evening, the U.S. Dollar Index did weaken. Between 7:30 and 9:15 the Index slid to 80.95 to below 80.75: that double-top I mentioned last night did presage a slump. The Index spent the next two hours in a tight range centered around 80.75. Then, it attempted a rally that proved to be only a molehill on the interday chart. Left at slightly below 80.75 as of 1:30 AM, the Index mounted a more substantial rally that nevertheless topped out at a lower level than did the one ending betwen 7:30 and 7:35. That rally lost almost all its gains between 2:55 and 3:40 AM, but that drop reversed in the subsequent half-hour. The next top, as of about 4:10 AM, was lower still: 80.95. The drop after that lower peak was more extensive, too: as of about 5:50 AM ET, the Index has been pushed down to 80.605. It then entered a choppy but narrowing range centered at the 80.73 level. As of 8:23 AM ET, the Index was at 80.765.

I admit that I see, by habit, a dance of two when it comes to movements in the gold price. My "muse," to put it one way, is the movement of gold in counterpoint to the U.S. Dollar Index. Early this morning was one of those days when my "tune" was off. It will be of interest for some readers to know that the $14/oz decline took place shortly after the opening of London trading. Those not inclined to blame the lads of London should recall that gold's done fairly well vis-à-vis the greenback as of late, which does create air pockets along the way.

This Reuters report uses bland language to describe the drop. "Technical selling" is paired with the now-familiar term "risk appetite" to explain it, as is shown in this quote from an expert:

Ole Hansen, senior manager at Saxo Bank, said the precious metal was reacting to a retreat in risk appetite, and to unfavorable technical factors.

"We are back below $1,100 an ounce. That's a technical level we managed to bounce from a couple of times last week, we are now through and we have to find support once again," he said. "The (next) level is around the $1,073 area."
The title of the report cites nervousness ahead of Bernanke's testimony, a sensible claim given the jitters the discount-rate hike threw into the market. The second expert quoted hints that the drop was due to gun-jumping with respect to the greenback:

"If, as we suspect, he maintains the clear stance to a loose monetary policy, the market will buy dollars on the hoped-for support this will give the economy," Credit Agricole CIB said in a note.

"If he signals that the exit strategy is picking up pace, either the prospect of higher yields will bolster the dollar, or a nervous market, post the consumer confidence figure, will worry about activity and swing toward the dollar.

"Hence, without a clear mood change it looks like heads I win and tails you lose as far as the dollar is concerned."
The U.S. dollar market itself doesn't seem to have picked up on this happy circumstance as yet. To the extent that this anticipation is the driver of the gold decline, which it may not be, a failure of the greenback to rally as expected may drive gold back up.

The morning report from the Wall Street Journal Online attributes the drop to a delayed reaction to yesterday's consumer-confidence disappointment and a to general drop in commodities. Quoted therein is an anonymous trader who admits to playing whack-a-stop:

"We just hit [sell] stops, mostly at $1,100," said a trader at Swiss trading house MKS Finance in Geneva. Gold should find some support around $1,090 an ounce, followed by next support at $1,070 an ounce, the trader said.
[Come to think of it, the old saw "the gnomes of Zurich" might be due for a retool.]

The overall tone in the article, when the commodity complex isn't mentioned, suggests that gold ex-greenback got ahead of itself and was due for a pullback.

As 9 AM rolled in, and with the start of regular trading, gold has declined but only a little. The above-mentioned trading range is still holding. As of 8:56 AM, spot gold was at $1,094.30 for a drop of $9.20. The Kitco Gold Index attributed $10.70 worth of drop to predominant selling. As far as the greenback is concerned, the U.S. dollar index firmed up but has not taken off. As of 8:58, it was at 80.765.

Tuesday, February 23, 2010

Consumer-Confidence Drop Pushes Down Gold

The release of the consumer-confidence number as of 10 AM ET could be seen as another test of the gold market's resilience. The January number was much lower than was December's, and well below the expectations for only a slight drop.

Gold was shoved down by the release of the data, but - significantly - not as much as it was by the IMF-sale announcement and the Fed discount-rate hike. Shortly before 10:00, gold was at about $1,110. The data-induced drop, which ended just after 10:35, took the price down to $1,099.40 - almost exactly $1,100.

When regular trading opened, gold was well above $1,113. The day began with a drop, which ended before 9:10 at $1,106.00. Subsequently, and before the data release, gold recovered partially and stayed stuck in a range between $1,108 and $1,110.

Gold moved up, albeit choppily, after bottoming at the $1,100 level. As of 11:49 AM ET, the metal was at $1,104.80 for a drop of $7.80 on the day. The bulk of that drop, $4.85, was attributed to predominant selling by the Kitco Gold Index.

The dog that didn't bark after the data release was the U.S. Dollar Index. A mild rally had already begun once regular trading began, which carried the Index from 80.6 to 80.79 as of about 9:40. That run represented the bulk of the gains so far. The dollar hardly moved when the data was released. A pullback did turn into a rally from 10:15 to 10:35, but it topped out at a level barely above 9:40's. Since then, the Index has been in a narrowing range centered around the 80.7 level. There was no serious move into the dollar as a result of the consumner-confidence number.

Consequently, the downdraft in gold wasn't that bad. The rest of the day will show whether the gold market can recover from this spill, as has been the case recently, but it can be said that the $1,100 floor is quite solid right now.

Update: Subsequent to that relief rally, gold made another try at $1,100 and briefly got a little below it. The peak, at almost $1,107, came before the time of the original post. The drop began in earnest as of noon ET, and ended after 12:40 PM with gold reaching $1,098.50. From then until 1:51, the metal's price recovered a little and wound its way into the $1,102 level. A slow recovery inched along since then. As of 2:04 PM ET, spot gold was at $1,103.80 for a loss of $9.20. The Kitco Gold Index put $4.20 of the drop into the strengthening-dollar category and $5.00 into the predominant-selling slot.

After trading in a range, the U.S. Dollar Index picked up right after noon in counterpoint with the gold drop. A quick jump followed by a more restrained rise pulled the Index up to almost 81 before it tailed off and settled into a range between 80.83 and 80.89. As of 2:07 PM, the Index was at 80.854. The greenback's rise could be explained as a delayed reaction to the consumer-confidence data, but a more likely explanation is the reaction to the disappointing day for the stock market and encouraging day for Treasury securities.

This time, gold hasn't recovered from the bad-news-induced drop-down. $1,100 has been holding, but only just. Given recent market conditions, the old short seller's game of whack-a-stop has probably been deemed too risky by people who have access to enough capital to swing it. I don't think that a large drop from the current price is likely. It is, however, a possibility.

Update 2: A possibility that never happened. That, and no further fundamentally bearish reason intruding, kept the $1,100 floor intact.

As of the the last update, gold was around the $1,104 level. Despite a slight dip followed by a rise, that level is where the price centered at until just after 3:40 PM. The fifteen-minute drop just afterwards took gold down only three dollars an ounce, making that drop the most sedate of the day. After bottoming at about 3:55 PM ET, the metal rose a little before drifting towards the close of regular trading at a little under $1,104. As of the close, spot gold was at $1,103.50 for a drop of $9.10 on the day. The Kitco Gold Index divided the loss into $5.00 due to strengthening of the U.S. dollar and $4.10 due to predominant selling.

The U.S. Dollar Index didn't do much for the rest of the afternoon, barring a rally that stuck longer than an aborted one which took place between 2:20 and 2:55 PM. After giving up all the gains made in that time, the Index rallied from 80.81 to 80.985 in the second stab of the day at the 91 level. That gain wasn't built on, making for a double top in the interday chart, and it ended just before 4 PM ET. Subsequently, the Index drifted down. As of 5:30 PM ET, it was at 90.91. 91 is still close, but still out of reach.

The daily chart, from, shows the bull trend is still rolling:

Yesterday's indecisive trading ended up being a near-term floor in retrospect. Desite the RSI line at the top being in an elevated near-oversold level, the near-zero neutral reading of the MACD lines at the bottom did foreshadow a continuation of the uptrend. Although both lines are at an extremely high level for the last six months, they were higher in August, September and October of 2008.

Still, the greenback has encountered resistance at the 81 level after bursting through it last Friday. The top of the pre-burst trading range, though, is beginning to look like a floor. The Index's rally has slowed, undoubtedly, but its lack of pullback indicates some strength is left. Despite non-commercial longs reaching a new record high in the greenback/Euro contract, those longs are still on the good side of the trade. The greenback sheep aren't being sheared, as yet anyways.

Befor discussing gold itself, I'd like to digress for a moment with a six-month chart of the Kitco Gold Index (KGX):

The KGI, drawn using the blue line, looks pretty good. The channel it was in from mid-December to early this month has been solidly broken on the upside, and its most recent top coincided with a new record high for gold in Euro terms. Recently, however, the KGI has pulled back a little; the record high set in early December was not breached. The chart hints at an exchange of one channel for another, higher one.

Thanks to the strength in the greenback, the chart for gold itself looks less delightful:

As noted beforehand, the $1,100 floor did hold; that means gold is still in a trading range bordered by $1,100 and $1,125-30. Today's action put it at the lower end of the range. The RSI line is now just above 50, the level at which gold's early-February rally topped out. This one has seen a higher RSI level, but not by much. The greenback is still supplying those headwinds, and the recent spooking over the Fed discount-rate hike suggests that a real Fed Funds hike has not been discounted as yet.

Although gold did not recover from this morning's consumer-confidence-induced drop, unlike its recoveries from the last three bad news days, it has still held up so far. The most likely reason for the lack of recovery, other than the greenback's performance, is the consumer-confidence drop can't be interpreted as a non-event. The discount-rate hike and IMF open-market sales announcement were.

The afternoon Reuters report ascribes today's fall to a drop in risk appetite. Also cited is price pressure due to COMEX March options expiration. This quote suggests an expert is considering the possibility of a drop below the $1,100 floor: "Support seen in $1,098-1,094 area -- downward trend line connecting the record high, January and February peaks, as well as 20-day moving average - Rick Bensignor at Execution LLC." Granted that the $1,096 area isn't that far below $1,100, but it's still below.

Speaking of risk appetite, a recent speech given by Alan Greenspan might bring heart to Fleckenstein junkies and others who are cynical about Greenspan's track record. He said that the recovery is extremely unbalanced, and there are good reasons to fear it's not sustainable: 'With both housing starts and auto sales "dead in the water," he said he thought it would be difficult to make the case that the economy is poised for a strong rebound.' Those who see his calls as a contrary indicator would have to concede that the recovery may surprise us all on the upside.

Over the longer term, gold's holding up well despite the strength in the U.S. dollar. The Kitco Gold Index does show it. If the greenback rally reverses for some reason, this year would be a good one for gold. The underlying resiliency continues.

Coming Battle Between Investment And Jewelry Demand?

That's what's forecasted by this Globe and Mail article, as is competition between both driving gold prices up:
Jewellers and investors are both chasing a limited supply of bullion in a gold rush expected to drive prices up this year.

The contest comes as jewellery sales bounce back, particularly in such countries as India and China, and investors continue to buy gold as a safe haven.

And with only 3,000 to 3,500 tonnes of new gold entering the market each year, the competition could be stiff.

"If investment doesn't slow down then you're going to have quite a fight between jewellery demand and investment demand and obviously that will raise prices," said DundeeWealth chief economist Martin Murenbeeld.

"The more investors pick off the less there is available for jewellers."...
Of note near the end is this preference from the CEO of jewelry retailer Birks & Mayors, Tom Andruskevich: 'Mr. Andruskevich said he prefers gold at around $800 to $900 per ounce... When prices go higher, he said designs often become lighter or more "airy."'

That $800-$900 figure meshes well with recent bearish forecasts which assume that the predominance of investment demand is ephemeral. The gold-as-investment "story" counts as a New-Era narrative, one that claims that gold prices will be permanently elevated from traditional supply-and-demand considerations.

On the other hand, an old stick-in-the-mud could point to the $200-$300 premium above what gold should be - absent that investment demand - as a sign that gold is quite overvalued, and is already in an all-out bubble. The two sides of the bubble question amongst serious gold-watchers tend to coalease around those two sides.

They are reflective of nascent-bubble conditions. As I indicated in the article that started this blog, a bubble gains traction when an asset gets well above historical norms and stays there. Not returning to the old-time fundamentals makes for a fertile field in which a New-Era story can grow. Should it, it inevitably overgrows and turns into a New-Era delusion once the full mania stage arrives.

Gold has corrected, but it's fallen nowhere near to the level it would need to for that premium to be erased. It's incubating, but it is on the cusp of an all-out bubble. Surprisingly high U.S. (and/or global) inflation figures are the most likely factor to kick the bubble into full gear.

Hard Times For Gold Stocks

Skot Kortje, in the Globe and Mail's "StockTrends" feature, relays some disappointing facts for gold-stock investors: the S&P/TSX Global Gold Index has been the worst-performing subindex of the Toronto Stock Exchange's over the last three months. A pure technical analyst would recommend avoiding the gold stocks, especialy since:
The U.S. Dollar Index turned Stock Trends Bullish last week, a trend category assigned when the 13-week moving average moves above the 40-week moving average. This signal of dollar recovery was last made in September of 2008, just as the financial crisis started to shake global markets. Coinciding with the U.S. Dollar Index's Bullish Crossover at the time was a new bearish trend in gold - the iShares Comex Gold ETF turned Stock Trends Bearish just when investors might have been most inclined to abandon paper currency for a shiny chunk of mineral.

As is so often the case, there's a difference of opinion between technically-driven analysis and fundamentally-driven. However, a fundamental case for the U.S. dollar is made just above: the greenback is still the world's panic money. People are not panicking into gold, but tend to go into the metal when panic turns into reflectiveness over the long-term effects of the current stimuluses. I don't know how much inflation is baked into the cake, nor do I know if the recent calls for a higher rate of U.S. inflation will influence future policy. I don't know to what extent those calls are proactive or are co-operative with the inevitable. What I do know is, for the nonce, the greenback is the place to be when the financial world seems doomed.

We're still in a shaky recovery, uncharacteristically sluggigh if governmental stimulus is factored out, that's being primed by a lot more easing than is usually the case. U.S. M3 has been awful, and M2 has been nothing to write home about. The case for inflation hinges upon M1, and the old Friedmanite monetarism. That interpretation points to stagflation.

In Friedmans's old monetarist framework, which he popularized back in the 1970s, M1 was the money supply measure best used to forecast future price rises. M2 was the better predictor of economic growth. This framework fell apart in the 1980s, because even more rapid M1 growth did not translate into renewed double-digit inflation.

Speaking of the 198os, these two graphs (from the St. Louis Fed's FRED system) show an interesting parallel between money supply growth now and growth back in 1986-7. The graphs are of M1 and M2's percent change from a year ago:

There are differences apparent to the eye, most noticeably in the greater rapidity of the fall-off of both measures. Of course, the underlying conditions are different: we've emerged from a serious recession, while there was none in the mid-'80s. I note, though, that the rapidity of money-supply growth back then helped cause a blow-out rally in the U.S. stock market that climaxed with the crash of 1987. There seems to be no asset bubble that hasn't been popped as of now; gold hasn't been popped, but it never got into nascent-bubble territory until after the crisis wreaked its wrath. As far as I know, the only poppable bubblesque theme around is the currently-unravelling greenback carry trade. In normal circumstances, bubbles in U.S. Treasury securities aren't poppable by a slowdown in money-supply growth.

The case for reviving the 1970s framework is this: if there are no asset bubbles to absorb the money growth, or an inflation-absorbing foreign sink like widespread use of the greenback as an alternate currency in the rest of the world, then money-supply growth spills over into regular price inflation. In such an environment, Friedman speaks again.

Granted that reliance upon a 1970s framework may seem fustian, but the conventional Keynesian excess-capacity framework was at its most groovy in the 1960s. Friedman's replaced it when it bummed out in 1973-4.

After Spending Time In Range, Gold Jumps Then Stumbles

Gold spent most of yesterday in a trading range, bracketed by $1,115 on the upside and $1,110 on the downside. In evening trading, the range was poked at on the upside at just after 7 PM ET; that rally ended up being only a blip. The second test, starting at about 11 PM, proved to be more sustainable.

At that time, the metal crept up above $1,115 but didn't inch that far above. The pullback near midnight stopped at $1,115, indicating a successful breach of the upper end of the range. The next dip, between 1:30 AM and 2:15, took gold slightly below $1,115, but it reversed after that time and climbed all the way up to $1,121.90. The rally fizzled as of its top at about 3 AM, and the price entered a relatively smooth decline that took it all the way down to $1,104.30 by 6:45 AM - a drop of more than seventeen dollars an ounce. From that low, gold pulled up a bit to reach the $1,110 level again. As of 8:06 AM ET, spot gold was at $1,112.50 for a drop of only 10 cents on the day. That loss was divvied up by the Kitco Gold Index into a gain of 75 cents due to predominant buying and an 85 cent drop due to strengthening of the U.S. dollar.

The U.S. Dollar Index showed some of the same listlessness yesterday evening, but not for all of it. After an aborted rally that ended at 80.6 as of about 6:35 PM, the Index dropped before recovering to a lower level. That lower peak, made at 9:20 PM, was broken by a sharp drop less than ten minutes later that took the Index below 80.5. A further decline followed, that took it down to the 80.35 level just after midnight. The point where the Index fell below 80.4 was about the same time that gold inched through last night's range on the upside.

From 12:25 AM ET to an hour later, the Index lumbered up in a small rally that took it up to 80.42 and brought gold to a little below the $1,115 level. That rally got exhausted, and turned into an accelerating-decelerating decline which climaxed with a thirteen basis point drop within five minutes in the 2:10-2:15 timeframe. The decline then decelerated, taking another hour to reach bottom at just below the 80.1 level. After getting stuck for the next half hour in a ragged range bordered by 80.09 and 80.16, the greenback entered into a rapid, steady climb that took it all the way up to 80.78 as of 7 AM: in three hours, the Index gained almost 70 basis points. A relatively minor pullback left the Index ranging between 80.6 and 80.7. As of 8:30 AM ET, it was at 80.61.

A Reuters report attributes gold's early morning slide to a fall in the Euro, but also notes the above-mentioned listlessness and attributes it to a wait for direction from the Federal Reserve through Ben Bernanke's testimony to Congress tomorrow and Thursday.
Dealers and analysts said any attempts at rallies were stalling as the market concentrated on future U.S. monetary policy after the Federal Reserve tightened its emergency lending rate last week.

"People are holding back until more data starts to come out and Bernanke's testimony. It's a bit of a pause," Mitsubishi analyst Tom Kendall said....

"The market as a whole understands that this is the beginning of a process that's going to emerge and will take several years to run to its conclusion in terms of tightening monetary policy again. But the issue is timing," Kendall added.
Near the end of the article, it's noted that the holdings for the SPDR Gold Shares Trust (GLD) rose by 0.305 tons to a total of 1,107.931 tons.

Over at the Wall Street Journal Online, the same range behavior was noted but the timeframe and span were wider.
Gold is drifting in a range between the lows and highs of the past week around $1,100 an ounce and $1,130 an ounce. Analysts said a breakout of the range will most likely be driven by a change in the euro's direction against the dollar, and that may not occur until the end of this week or next week.

"I think we're going [to range trade] this week," said Mitsubishi Corp. analyst Tom Kendall. Mr. Kendall said gold could trade to $1,140 an ounce if the euro strengthens, or fall back to $1,050 an ounce if it slides against the dollar.
Also quoted is a recent HSBC report, which said that a low-interest-rate environment and accomodative monetary policy helps keep gold prices from falling but didn't add much to the price.

Regular trading for gold opened up with a drop to $1,110, which reversed somewhat before continuing downwards again. The $1,110-$1,115 range discussed above is now broken. As of 8:57 AM ET, spot gold's at $1,109.70 for a loss of $2.90 since yesterday. The Kitco Gold Index attributed -$1.60 to the U.S. dollar strengthening and -$1.30 due to predominant selling. As for the greenback, it's still in the 80-6-80.7 range after testing on the upside: as of 8:58, it's at 80.66.

Although the U.S dollar's level is still one of the main drivers of the gold price, the latter seems less responsive to the former. Perhaps this is the more immediate reason behind the impression that the gold market's waiting for something to happen. That impression does gibe with the trading range that's formed over the last five trading sessions.

Monday, February 22, 2010

Gold Stumbles A Little Despite Convictionless U.S. Dollar

An initial dip at the start of regular trading was partially reversed, bringing the price of the metal back above $1,120, but only briefly. As of 9:40 AM ET, gold began a slide from about $1,120.50 down to $1,112 over the space of thirty minutes. A pause in the decline saw the metal uptrack to $1,114 until 10:45 AM. Then, it fell about four dollars an ounce and hovered at the $1,110 level before rebounding again. As of 11:44, spot gold was at $1,112.20 for a loss of $4.90. All but forty cents of the drop was attributed to predominant selling by the Kitco Gold Index.

The U.S. Dollar Index has risen, but not very sustainably. It rallied above the range established earlier this morning, peaking at 80.66 as of 10:10, but has not shown much conviction subsequently. A quick pullback brought the Index back to the 80.5-80.6 level; as of 11:45, the Index was at 80.58.

The late-morning rally in the greenback was real, though. This day, unlike the past few others, there has been no predominant buying to offset. It looks like the metal's going to either pull back or take a rest today.

Update: The gold price recovered a little, despite the dollar showing a little more strength, until around 1:15 PM ET. Prior to that time, gold ascended from its daily low of $1,108.20 as made almost exactly at 11:00 AM. Climbing more than six dollars an ounce over the next one-and-a-quarter hours, gold sunk back a little to $1,114 and stayed there until the aforementioned drop. The spill from $1,114 to $1,111 took ten minutes to complete; after it, gold hung around the lower level. As of 1:20 PM ET, the spot price was $1,110.60 for a drop of $6.50 on the day. The Kitco Gold Index divided the loss into $1.00 for greenback strengthening and $5.50 for predominant selling.

The U.S. Dollar Index ticked up a little, but its rallying power hasn't been much since the last update. The rise has basically been a slow and choppy drift upwards, taking the Index above the 80.6 level. As of 1:39 PM ET, it was at 80.61.

The gold rally noted above had little conviction. As of the time of this update, gold's in breather mode.

Update 2: And that's how it went for the rest of regular trading. After hitting $1,110, gold rallied about four dollars an ounce to reach $1,114 by 2:20 PM ET. It spent another eighty minutes there, interrupted by a slight blip upwards at 3:20 PM that lasted for about ten minutes until it reversed. A post-reversal drop at 3:40 PM brought the price down to $1,112, but that level ended up being a floor for the rest of the regular trading day. Between 3:45 and the close, gold was in a tight range between $1,112 and $1,114; it closed at $1,112.60 for a loss of $4.50. The Kitco Gold Index apportioned the decline into $4.40 due to predominant selling and a mere 10 cents due to strengthening of the U.S. dollar.

The greenback rally fizzled as of 1:45 PM. From then 'til 3:20 PM, the U.S. Dollar Index entered into a slow but mostly steady decline. The high of 80.63, reached in a triple top between 3:10 and 3:30, turned into a low of 80.475 reached between 3:20 and 3:25. That slight blip in gold, peaking at no more than $1,116, occurred at about this time. Subsequently, the Index rallied with a quick start followed by a more lumbering advance; this move ended as of 4:50 with a double top at 80.575. At that point, the rally ran out of steam and the Index pulled back a little before churning. As of 5:30 PM, it was at 80.545.

This chart, from, shows the overall directionlessness of the Index today:

Note the RSI line at the top of the chart is lower for yesterday's peak than it was for February 5th's, even though yesterday's value for the Index itself was considerably higher. Based upon the behaviour of the Index when it was rallying in '08 and early last year, this failure to confirm is likely to lead to either a churn or a pullback. It's counterintuitive, especially given the greenback's unusual and largely unanticipated strength, but it's not wholly implausible given the the Index has come a long way up in not that much time. It may have gotten ahead of itself.

The MACD lines at the bottom present an unusual occurrence. One line is normally above the other, as shown by the accompanying histogram that measures the difference between the black line's level and the red's. For the last five trading days, however, the difference between the two has been near-zero; the indicator has been neutral. Precedents from the '08-09 rally suggest the opposite of the RSI's indication: a continuation of the uptrend. Putting the two together indicates a pause followed by a further rally.

The gold chart shows listlessness too, but a spell that extends over the last five trading sessions:


Just to the left of the last five candlesticks is a gap. It looks very much like a common gap, which will be filled once gold descends to the $1,090-$1,095 level. [This chart shows the nearest-month futures contract.] A drop in gold would be consistent with a further rally in the greenback; a stop of the decline just below the bottom of the gap would be consistent with bargain buying at the sub-$1,100 level. $1,100 has provided solid support last week, but it may evaporate.

A Bloomberg report, webbed by Business Week, attributes gold's decline to worries about investment demand being impacted by the greenback's rise:
“The negative argument rests with poor investment flows and fundamentals,” said Tom Pawlicki, an MF Global Holdings Ltd. analyst in Chicago. “Investor appetite for gold as shown through ETFs has been lacking and doesn’t argue for new price highs.”
The report also notes that large speculative longs increased by 4 percent in the week ending February 16th.

In an item related to the main theme of the Bloomberg article, London-based Natixis Commodity Markets has forecasted a likely price of $950 for this year's average. Interestingly, the bearish forecast is contingent upon global recovery:
An average gold price of around $950/oz or even lower is possible this year if the global economic recovery gains pace, supporting conventional asset values and undermining assets like gold, which is seen as a store of value, London-based Natixis Commodity Markets said in a report on Monday.

“Although there remains huge uncertainty concerning the economic and financial markets, we feel the balance of probabilities favours an eventual resolution of economic imbalances, such that investor interest in gold and silver will gradually begin to unwind,” the firm said.
They expect the decline to continue into 2011, with a "probable" average of below $900 that year, at which point jewelry demand will kick in enough to support the price. I note that they consider last year's rise to be an aberration that will be drained before gold gets to normal. No bullish enthusiasm in that forecast!

From what I've seen, including an excerpt from the World Gold Council's fourth-quarter demand report, jewelry buyers are becoming acclimatized to four-digit prices for gold. Demand did weaken over 2009, but has partially pulled back from 2009's awful 1st quarter. That pullback indicates acclimatization. Reports from the Indian market suggest clearly that gold is now seen as a bargain when below $1,100.

Global recovery should stimulate jewellry demand, which will support the gold price in the absence of a large increase in supply. I don't see Natixis' forecast bearing out unless there's substantial disinvestment from gold.

The coming months will tell. Today's decline wasn't that bad, and it's kept gold in a trading range between $1,100 and $1,125. There's not much immediate cause for gloom, and there won't be unless the U.S. dollar goes on another tear upwards.