Friday, March 5, 2010

Gold Makes A Comeback, Which Fizzles

Thanks largely to predominant buying, as measured by the Kitco Gold Index, gold climbed up above $1,140 in late-morning trading. The fading of the U.S. Dollar recovery had something to do with it as well, but the partial decoupling to the benefit of gold is still in place. One likely cause fopr gold's rally is the trouble over the Grecian austerity package, which isn't going over very well, and related speculation about how much the EU will have to (indirectly) chip in to keep the IMF away.

The announcement of the better-than-expected employment data, with the possible exception of the U6 unemployment rate, kicked up the greenback; that led to a swift decline in gold from $1,134 to $1,128. Speedy it was, but the reversal of the drop was rapid too. That reversal heralded an uneven rally that took the metal all the way up to $1,140 by 10:30 AM. A peak just above that level led to a pullback to $1,138, but it proved to be a pause that prefaced gold going all the way up to $1,141.90 as of 11:15 AM ET. Another pullback followed. As of 11:46, the spot price was $1,137.70 for a gain of $5.20 on the day. Kitco's Gold Index divided the gain up into $4.70 for predominant buying and only $0.50 for a weakening greenback.

The U.S. Dollar Index has weakened since its jump above 80.87 shortly after the unemployment and nonfarm-payroll data were released. Since a partial recovery peaking at 80.775 at 9:15, the Index has sunk in a three-stage decline that took it all the way down to 80.4 by 11:24. Since then, it's recovered to above the 80.5 level before slipping back a little. As of 11:49 AM ET, the Index was at 80.49.

Again, gold has shown resilence in the face of a U.S. dollar headwind, and rally power when the headwind has turned into a tailwind. It remains an open question whether or not gold can make a new daily high come the afternoon.

Update: In the early afternoon, the U.S. Dollar Index has continued to climb up, although unevenly, until reversing starting at 12:30 PM ET. It made for a hump on the daily chart. The Index is quite capable of rising above 80.6, but so far it's less capable at staying up there durably. Still, the upward volatility in the greenback makes for an intimidating sight to anyone daring to short it.

Gold spiking to $1,141.90 proved to be the frontispiece to a decline that took the metal down to below $1,134. The greenback itself proved to be the trigger, but part of the decline was a draining of ex-dollar net demand. Since the dollar pullback, gold has rallied only a few dollars an ounce; the greenback's recovey has drained that pull-up. I have to admit that the air pocket that was deflated earlier today surprised me.

As of 1:40 PM ET, the U.S. Dollar Index was at 80.53, after a partial pullback from the hump, and spot gold was at $1,133.50 for a gain of $1.00. The Kitco Gold Index apportioned this much-smaller gain into $0.20 due to U.S. dollar weakness and $0.80 to predominant buying. The latter category has shrunk considerably since mid-morning.

So far, it's been a disappointing afternoon. The rest of the session, if it's like other Friday afternoons, will likely be quiet. A lot depends upon the greenback.

Update 2: The markets did quiet down as the week ended. Although gold went into another decline, the metal still eked out a gain on the day. A rise in the greenback late in the regular session provided the impetus to the drop.

A more than four-dollar drop took the metal down to below $1,132 by 1:45 PM ET. A relief rally afterwards failed to gain steam, and gold entered a much slower decline which brought it down to about the same price just after 4:00. A dawdle for a half an hour preceded a two dollar an ounce rise, which put the metal just below its closing value as of 4:45. By the close of the week's trading, spot gold was at $1,134.40 for a gain of $1.90 on the day. In contradistinction to this morning, almost none of the end gain was attributed to predominant buying by the Kitco Gold Index. All but 15 cents was attributed to weakness in the U.S. dollar at the time of the close.

At the end of last week, spot gold was at $1,117.90. This week's close of $1,134.90 meant a gain of $17.00, or 1.52%, on the week.

As the session went to its end, the U.S. Dollar Index fell. The hump mentioned above was pulled up from, but only in the form of a smaller hump; the Index went back to 80.5. Soon afterwards, the 80.5 level was broken through on the downside and 80.43 became the center of a new tradig range, bordered by 80.42 and 80.44. The latter was broken through on the upside as of about 3:50, which led to a two-stage rise that took the Index up to 80.476 by 4:12 PM. But, the Index couldn't close above 80.5; by the end of regular trading, it was at 80.47.

The action in recent days on the daily Index chart looks something like the pattern in late December-early January, with the spurt at the beginning and Wednesday's spill beign the chief exception:

The recovery from that spill made the action since February 22 more resemble that between December 23rd and the first week of January. In terms of market internals, there are two other differences between then and now: the Index was much lower then, and the amount of bullishness for the greenback is greater now. As of last Tuesday, the speculative-long component of the Committment of Traders report for the U.S. Dollar Index contract continued to shrink, even though it's at unusually high levels. The COT for the Euro contract, as of the day before the spill, did not reach another record high in the speculative-short category. That category was up only slightly, though. It'll likely have shrunk more in next week's report due to the Wednesday washout. Interestingly, the non-commercial short category expanded a fait bit.

Moving back to the U.S. Dollar Index, the COT levels for speculative longs tended to peak in the middle of a bull run for the last two spec-long peaks. That category's been shrinking for the last five weeks.

My own hunches, or biases, suggest that the Index is going sideways or down. 80.5 is showing the same porousness but solidity that 81 used to show. Part of this feeling of mine is the result of the bullishness that's currently afloat. That bullishness could pan out next week, but it seems a little thick right now.

The daily chart of gold, from like the one above, shows today's gain as somewhat piddling given the decline yesterday:

The short-term trend is still up, but the exhaustion seen today makes the blip-up part of the exhaustion after the five up-day sessions last and this week. The graph for this week's Committment of Traders, as of last Tuesday like the ones linked to above, shows an expansion of the speculative-long category. Interestingly, the commercial-long category also expanded; so did the speculative-short category, although from a very small base.

Despite the melting of today's ex-dollar gains, gold is still showing strength in that area. The question is, how long that strength will continue. Gold might well make another stab downwards in the near term due to exhaustion of that demand, but that dip is likely to be ephemeral.

A Reuters report explains gold's rise today as due to "currency worries." Traders are getting interested in ex-dollar strength of the metal:
* Broad commodities gains led by oil, trading at about $82 a barrel, spur gold buying.
* Gold's rise despite a firm dollar suggests that inverse relationship between the greenback and bullion could weaken - Tom Hartmann at Altavest.
* Underlying support seen as SPDR Gold Trust posted inflow for second consecutive day earlier this week.
There's no enthusiasm evident, but there is optimism. This week has been a good one for gold. A bullish chart pattern was completed, and the resultant rally went up to its next resistance level. It's true that gold hasn't been able to build on Wednesday's gain, but that could be chalked up to consolidation. Despite my attack of nerves, I can say that gold's still in uptrend territory. The next week will show if the bullishness continues, and how much if so.

Gold Strength In Face Of Greenback Rise Makes Analyst Bullish

That strength in the face of the greenback headwind has convinced Sol Palha that gold is in a new bull phase. He is, however, expecting a further rise in the dollar. The nub of his case is presented in the Conclusion to his Seeking Alpha article:

The dollar has exhibited unusual strength; it simply refuses to correct, refusing to trade below 80 for any decent period of time. A close above 81 on a monthly basis will be the strongest signal that it could potentially trade to and past 90 before topping out. In the short term time frames, the Dollar is overbought and normally one would expect a pullback from current prices to roughly the 78 ranges.

Gold, on the other hand is also picking up strength; this is clearly illustrated by its refusal to match the dollar by putting in a new 9 month low, and instead it has gone on to put in a higher low.

On the longer time frames though, Gold has still flashed several very strong negative divergence signals that need to be neutralized; two of these negative divergences were mentioned above. [They were higher lows for the greenback and non-confirmation of new gold highs by gold-stock indices.] Thus, the potential for Gold to correct/consolidate for several more months remains high, until of course, the above signals are neutralized or a new buy signal is issued on the weekly timelines.

Right now, Gold is holding up remarkably well In the face of a stronger dollar. If this pattern continues, then the next break out is going to be very explosive in nature; the dollar is not expected to mount a long-term rally.

Just beforehand, he lists seven fundamental reasons why gold should go up. One of them has to do with a preference of the U.S. government for a lower dollar. The seventh deserves some thought: "Eventually the Fed is going to have to raise rates to continue attracting the huge amounts of money it needs to function. Overseas investors are going to start demanding higher rates. Higher rates will kill this fragile economy. Precious metals thrive in a high interest rate environment...."

Provided that real rates are low, preferably negative.

Contrarian Analysis Leads Advisor To Recommend Gold Again

The advisor is Dr. Steve Sjuggerud, and he bases his call on gold's rising trend meeting momentum-investor skepticism. Here's the nub of his case:
Back in December, the "sentiment surveys" showed investors were at highs for the year. Now that has changed... Two weeks ago, public opinion hit its lowest level since last April (when gold was at its lows for 2009, below $900. Now THAT was a time to buy). That's what we want to see.

Investors have also fled gold stocks since December... For example, the Rydex Precious Metals Fund saw its assets fall by more than half from December to today (from over $350 million to $177 million now). Traders like to use Rydex funds to chase trends. They were bullish on gold stocks in December. Now they've given up on gold stocks. That's what we want to see.
This, in the teeth of record highs in terms of Euros and pounds.

The immediate reason for the skepticism is the newfound strength in the U.S. dollar. More and more greenback bulls are surfacing, and bullish analysts are more quotable. Combine that bullishness with a few gold burns in December, mid-January and early February, and the skepticism isn't all that surprising.

I may be getting overly repetitive with this point, but the fate of gold does hinge upon where the greenback goes. If the U.S. dolar stays in bull mode, there won't be a repeat of April '09's action. Instead, it'll be an upwards - and likely tough - slog.

Media Skepticism Meets The Gold Market Again

Not for gold buying, but for gold selling. A Boston Globe investigative report on several cash-for-gold companies using some pre-appraised earrings went like this:
First, an independent gold coin dealer - Miles Coggan, a rare coin and precious metals specialist who co-owns JJ Teaparty in Downtown Crossing - was asked to estimate the actual value of the gold in the earrings. His finding: $14.65 a pair.

The Globe then sent a pair of earrings to each of two mail-in cash-for-gold companies, and awaited a check for their value. The third pair was taken to a jewelry shop and, later, to a mall kiosk that buys jewelry.

So what did the earrings fetch on the gold buying market? Between $3 and $7.
Cash4Gold offered the lowest amount, but a spokesperson defended the company by saying the price was low in the case of the earrings because of mailing costs. That company's name is not unknown to the Better Business Bureau's complaints department.

It's a bit of a change for the MSM-gold beat - and the campaign's not inconsistent with advice to not sell your gold at all.

GoldCore Forecasts Rise To New Record Highs

The basis behind that forecast, summarized in a Bloomberg article webbed by Business Week, is contingent upon gold rising above the January high of $1,160 and staying there. The basis for the forecast is gold strengthening despite U.S. dollar strength, indicating underlying demand is rising:
Gold’s rebound from a three-month low the past month “could signify the end of the recent correction, especially as it has coincided with a period of strength for the dollar versus the euro and sterling,” said Mark O’Byrne, executive director of GoldCore in Dublin. “There definitely appears to be a trend for higher gold prices forming.”

In other words, he sees a little more than bargain-hunting behind the support and uptrend. He doesn't mention inflation, but the inflation bogey would (in this economic clime) give an upward kick to the gold market.

Latest Example Of Gold Being Mainstreamed

is in USA Today, courtesy of a column by John Waggoner. He recommends holding 5% of an investment portfolio in gold. Although gold mutual funds are mentioned in passing, he recommends either physical gold or a physical-gold ETF. Waggoner does't see inflation on the horizon, and doesn't expect any this year, but he believes that an inflationary spiral will kick in once unemployment is lower. His case for a small portion of gold as an insurance hedge goes like this:
Gold prices are closely tied to the value of the U.S. dollar on the currency exchanges, however. When the dollar falls, gold tends to rise, and vice-versa. The dollar has fallen 46% vs. the euro since 1999.

The dollar has been gaining strength since December but only because other currencies look so awful. Investors have been dumping euros because they're worried about a default on Greek government bonds. They're buying dollars, if only because the U.S. seems more stable in comparison.

Keeping 5% or so of your portfolio in gold isn't a bad idea as a hedge against financial catastrophe. "It's the ultimate downside protection for events we can't forecast," says Rachel Benepe, co-manager of First Eagle Gold fund.

What's significant about this article is that he's a personal-finance columnist, not a goldbug or commodities commentator - and he says that gold as an insurance hedge is a good idea, to a mainstream audience. It's a far cry from the kind of excitement last seen at the climax of the 1970s gold bubble, but it's a small step towards that point.

We're becoming primed for a outright bubble; one of the antecedents is a large ramp-up in public awareness about the metal. Of course, the catalyst - a rip-roaring bull market that feeds off unexpectedly high inflation - is still lacking.

Bank Of Japan Considers More Easing

Even though the Japanese economy seems to be recovering, the Bank of Japan is considering more easing measures to fight deflation. Further purchases of Japanese government bonds seem unlikely, though; the most likely tool to be used is pushing down interest rates.
When asked about the Nikkei report [speculating on more easing] at a regular press conference Friday, Japan Finance Minister Naoto Kan said he hasn't received any messages from the central bank regarding its reported plans.

"I haven't heard such a message directly from the BOJ. But both the government and the bank share the stance that each has to make its own efforts to beat deflation," Kan said, according to Dow Jones Newswires.

Japan has been in mild-deflation, or stable-price, mode for so long that an appearance of inflation would be the surprise of the new century. I note, largely parenthetically, that an acclimatization to no inflation does lead, eventually, to the central bank overdoing it. Government officials are people too, and they do make the same mistakes their fellow humans in the private sector are wont to make.

Now That Austerity Measures Are Passed, Trouble Brews In Greece

The Grecian Parliement has passed the austerity package, easing the pressure on Greek government bonds, but the passage has led to demonstrations and other troubles.
Striking Greek workers shut down transport and tried to storm parliament as lawmakers passed 4.8 billion euros ($6.5 billion) in budget cuts, including wage reductions, needed to trim the region’s biggest budget deficit....

Tram, rail, subway and bus services shut in Athens and other cities as employees rallied against cuts to bonuses and holiday payments. A walk out by air-traffic controllers forced the cancellation of all 58 flights to and from Athens International Airport between midday and 4 p.m. and the rescheduling of another 135, according to a spokeswoman....
Unsurprisingly, Finance Minister George Papaconstantinou has called for the EU to pony up also.

The article cited above said that a solid majority of Grecian voters oppose two measures in the bill: a rise in the value-added tax and cuts in vacation or bonus pay for government employees. A solid majority also expects more trouble in the coming year.

Indian Gold Buying Still Quiescent After Spurt

According to the Economic Times, physical gold trading quieted down after a spurt of buying related to export-covering and domestic sales:
"We had some export covering yesterday and some domestic deals as well at $1,129-1,133 (an ounce), but today, I am not hearing anything from them," said a dealer with a state-run bank in Mumbai.
The new price point for buying has shifted upwards, to $1,110-$1,115; this shift is a reflection of the rupee's strength.
"People are still away from new indents and could come in at around $1,115 and if the rupee stays at the same level," said the state-run bank dealer. "They are looking at $1,110 to buy for weddings," said a private bullion dealing bank dealer.
The prices given make for a rough indication of bargain-hunting support, but gold is now well above that level.

Gold Drifts Overnight

Last night's trading in gold was slightly on the bull side, but not by much. An initial dip right after the start of evening trading was followed by a recovery to just above yesterday's closing price, but another dip carried the price down to below $1,131 as of 7 PM ET. From there, gold drifted slightly upwards until a small rise at 9 PM carried the price above $1,132.50. An announcement from the PRC government - specifically, from Premier Wen Jiabao - threatening further clampdown measures on China's overheated property market didn't move gold at all. Although People's Bank of China tightening was suggested as one of the possibilities, perhaps the emphasis on tax measures made gold traders inert to it. Or, perhaps, gold traders are used to think of government pronouncements as hot air until measures are actually implemented.

The upward drift continued as night turned into morning; by 1 AM ET, gold was bumping against the $1,135 level. A downturn over the next forty-five minutes brought the price down to $1,131.40, but an uptrend commenced that did manage to break through $1,135. After touching $1,137.40 at 5 AM, gold again drifted downwards - but only to $1,133.50. That gentle downdrift was followed by a gentle updrift that ended just before 8 AM. As of 8:03, spot gold was at $1,133.50 for a gain of $1.00 on the day. The Kitco Gold Index allocated +$1.40 for predominant buying and a 40-cent drop due to strengthening of the greenback.

The U.S. Dollar Index didn't do all that much in last night's trading. After staying in a trading range centered around 80.55, the Index dropped to well below 80.5 at about 9 PM. After climbing slightly upwards from there, the Index vaulted upwards to above 80.62 between 1 and 1:45 AM. A turnback led to another rally attempt, which spiked at 80.63 just before 3 AM. A quick three-stage downtrend took it down to 80.453 by 5 AM. Since then, the Index recovered to well above the 80.55 level. As of 8:14 AM ET, it was at 80.57.

A Wall Street Journal article says that the gold market is shifting attention from Euroland to the U.S. as the Grecian crisis fades from immediate awareness. Not for the same reason, but for U.S. economic numbers that will give direction to the U.S. dollar. Dollar bulls are beginning to be quoted in the gold reports, like this one:
"Investor sentiment in the gold market appears to have changed relative to the beginning of the year with renewed net buying in gold futures and ETF," said Anne-Laure Tremblay, an analyst at BNP Paribas.

"On balance for the year however, we see gold progressively eroding from current levels as we expect the dollar to firm significantly relative to the euro and other currencies," she said.
The article also mentions that holdings for the SPDR Gold Trust (GLD) remained unchanged yesterday.

Euroland was the focus of a Bloomberg article webbed by Business Week, with James Moore noting that gold may benefit from the continuing Grecian crisis as the implications sink in.
“Issues over Greek and European Union member debt continue to draw investment demand,” James Moore, an analyst at in London, said in a report. Precious metals will likely “consolidate” recent gains as traders await today’s monthly U.S. employment figures, he said.
The report also summarized a Euroland drive for contingent rescue measures to help out Greece, in order to keep the IMF out of the picture. Given the German demand of not a centieuro in cash, it's likely to be a loan guarantee or other form of indirect support.

A Reuters article has some handicapping of the non-farms payroll number that was released at 8:30, with the weather expected to be the main driver for an expected fall of about 50,000. The dollar easing against the Euro was the reason given for gold's firmness.

That easing ended when the actual number was released. The unemployment rate is still at 9.7%; non-farm payrolls dropped only 36,000. Marketwatch's consensus expected fall was for 80,000; the unemployment rate was expected to rise to 9.8%. The broader U6 number, however, increased to 16.8% from 16.5% last month.

The greenback market loved it. The announcement was good enough to push the U.S. Dollar Index up to 80.82 from 80.6. A quick pullback to 80.63 was reversed as the Index shot up to 80.885 by 8:37 before a backtrack settled in. After bobbing between $1,133 and $1,134, gold lost a quick six dollars an ounce on the news. Encouragingly, gold managed to recapture almost all of the loss between 8:37 and 8:45.

As of 8:52 AM, the Index was back to 80.69; gold was clocking in a gain on the day. The spot price was $1,333.00 for a rise of 50 cents. Kitco's Gold Index subtracted $2.50 from the price for U.S. dollar strength, leaving a full $3.00 gain due to predominant buying. It's only a matter of time before this phenomenon is referred to, in the greenback zone, as a stealth bull market.

Thursday, March 4, 2010

Came The Spill...

I expected a pullback in gold today, but not the tumble that it took. Regular trading started with a range being established just above $1,138, but the metal dropped to $1,133 between 9:10 and 9:15 AM ET. A relief rally didn't last, and gold was back at the $1,134 level just after 10 AM. Then, another drop started slowly but picked up momentum; by the time it ended, just before 10:45, gold had shot down to $1124.90. Another relief rally, pulling the metal back up to $1,132, was less ephemeral; a temporary floor was established at the $1,130 level, which dissolved around 11:50. As of 11:51 AM ET, spot gold was at $1,128.80 for a loss of $10.30 on the day. The Kitco Gold Index attributed only $1.70 to predominant selling, and a full $9.10 for U.S. dollar strength.

The greenback has come back, in a solid four-stage rally that started just after 8:30. By 10:33 AM, the U.S. Dollar Index was at 80.56, which resulted in an air pocket developing in gold that was deflated at about the same time. Subsequently, the Index drifted down to just above 80.4, after which it slowly rose until 11:31 AM. Then, it popped up to 80.585. Afterwards, it rose slowly above the 80.6 level. As of 11:53, the Index was at 80.63.

Today hasn't been all that good for gold, even if a large majority of its drop has been greenback-related. The afernoon will show whether or not things get worse.

Update: They haven't. The U.S. Dollar Index drifted downwards since the time of the original post until 1 PM, in a choppy slide that took it down to 80.52. Since that time, it's pulled up in a more defined and less raggedy rally. As of 1:44 PM ET, it's slightly above where it was as of the time of the original post: 80.645.

As the greenback sunk, gold rallied. From 11:45 AM to 1 PM, the metal added about six dollars an ounce to get back up to $1,134. Since then, it's dropped. As of 1:47 PM ET, the spot price was $1,131.80 for a loss of $7.80. Interestingly, the Kitco Gold Index has a 90-cent gain due to predominant buying as of that time, implying that the rise in the greenback more than explained the day's drops. The loss attributed to a strengthening U.S. dollar was $8.40.

The U.S. dollar's earlier rise caused a couple of spills, but so far there hasn't been any panic move out of gold. That bodes well for the metal, even if there are further declines today.

Update 2: The worst ended up passing late this morning as the gold market settled down. The rest of the afternoon saw the metal drift in a range around $1,132. There was a driftdown between 1:00 and 2:00 PM ET, which was partially reversed in the next hour. It resumed, although at a much slighter rate, until just before 5 PM when the metal jumped up to close at $1,132.50 for a loss of $7.10 on the day. This loss was the first in six trading days, and wasn't wholly unexpected. It could be pegged as a breather, despite the magnitude and (in late morning) the suddenness of the drop. The Kitco Gold Index had the metal down $7.40 due to U.S. dollar strength and up 30 cents due to predominant buying. Ex-dollar, gold did fine today.

The U.S. Dollar Index made for quite the comeback story. The strong morning rally, interrupted by a dip, climaxed just before noon. A second attempt, starting just before 1:30, dragged the Index up to 80.664 before it gave up its gains from that last attempt. The rest of the day, from about 3:30 PM to the end, saw the Index in a trading range bordered by 80.55 on the upside and 80.5 on the downside. So, the U.S. dollar wound up keeping most of its recovery gains.

The six-month daily chart, from, shows the extent of the recovery rally today:

I have to admit that the extent of it took me by surprise. Rather than a being a mere relief rally, this one almost took the Index up to the trading range it was at before yesterday's plummet. The high of the day was well within that zone, even if the most recent candlestick looks like the old 80.5 floor is now the ceiling. The RSI line at the top of the chart ended up bottoming at the point at where it would be expected to if the Index was still in a bull run. So, my remarks yesterday about the spill may have been premature, or wrong. The next few trading days' worth of action will tell. For now, I'll note that no technical indicator except for the MACD lines at the bottom say that the Index is headed for a downtrend, and that one is iffy in bull runs.

The greenback will have some influence on the gold price, expressed as it is in U.S. dollars. The daily chart of gold, also from, shows today's decline as a mere pullback:

The most recent day's action found support near what used to be the resistance level of $1,125. So, to all appearances, the near-term uptrend is still intact. The U.S. dollar's drop is what put gold over the top of that resistance line; a resumption of its uptrend would likely drive gold back down, making for another busted bullish chart pattern for the metal. (The first got busted on January 12th.) To my eyes, it looks like the U.S. Dollar Index's rally is largely spent, and gold continues to do well in other currencies. So, even if the greenback recovers, it's unlikely to be a disaster for gold.

A Bloomberg report, webbed by Business Week, ascribed the fall in gold to a large drop in the Euro; that drop was attributed to continued easy-money policy by the European Central Bank. [This explanation does gibe with the recent record-high price of gold in Euro terms.] An expert who's firmly bullish on the greenback is quoted:

“The dollar is only going to get stronger and stronger,” said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois. “Everybody is beginning to realize that the ECB is cooked because the Greek problem is not going to go away. Investors will go back to the dollar, and gold goes lower.”
An article from the Wall Street Journal Online points to domestic turmoil in Greece as a reason to believe the fiscal troubles for that country's government are not over. Good performance in Euro terms is noted, but technical-selling factors are also brought in:
[Broker and futures analyst Frank] Lesh said there might have been some selling to take profits on short-term positions when April gold was not able to extend above Wednesday's seven-week high of $1,145.80. "But they're ready to buy back in when the time is right, too," he added.

Others said some technical selling may have occurred on the slide through $1,131.50 to $1,130, which several observers had cited as chart support since the market broke above this earlier in the week.

Lesh put support for April gold around the session low, which was $1,125.90, then $1,119. He pegged resistance around $1,150, $1,153 and $1,158.
Also mentioned is a new trading trend: betting on risk appetite in several commodities, including gold and oil, with trades placed inverse to the dollar. Of course, those trades for gold are not always decisive.

All in all, there's less reason to be confident in gold than yesterday or the day before. Declines happen, though, and today's ended a good run for the metal. The techncial position is still bullish near-term, and there is ex-dollar buying power still creeping in. Higher prices means one of the main props is gone from the gold market, but bargain-hunting may again kick in if the decline continues. There's reason for gold bulls to worry, but not much reason for fear.

Przemyslaw Radomski Says Gold May Not Be Affected All That Much By U.S. Dollar Rise

It's cold comfort today, given how gold's fared so far, but Przemyslaw Radomski has seen a bullish "cup" formation in a chart of gold versus other currencies. (More specifically, the ratio chart of gold in terms of a dollar-bear ETF.) He also notes that the main U.S. dollar ETF is "[crawling] slowly higher despite lower volume, which is a bearish sign for the U.S. Dollar, and bullish for the precious metals."

His analysis may provide reassurance, or staying power, given the pullback in gold and resurgence of the greenback today.

Yamana's Results Disappoint

Yamana Gold is one of the components of the Amex Gold BUGS Index (the HUI), and it released its results last night: adjusted earnings were 14 cents per share for the fourth quarter of 2009 as compared with 47 cents in 4Q '08. 4Q '09 operating earnings were 23% above 4Q '08's.

Still, the market didn't take all that well to those results: Yamana was down more than 4% this morning before recovering slightly. The main reason, according to Forbes, is revenues were below expectations. Full-year earnings of 47 cents per share were one cent below expectations, which also had a downwards influence of the stock.

Pending Home Sales Drop Sharply In January

Despite expectations of a rise, pending home sales for January plummeted 7.6% according to the National Association of Realtors:
The National Association of Realtors says its seasonally adjusted index of sales agreements fell 7.6 percent from December to a January reading of 90.4. It was the lowest reading since last April.

Economists surveyed by Thomson Reuters had expected the index would rise to 97.6....
Bad weather was blamed for the result, but it was enough of a shocker to stop an early-morning rally in stocks in its tracks. Factory orders rose by a less than expected amount, but not by much. The housing data has been the mover, more than compensating for strong retail-sales results for February.

It also took its toll on risk appetite. An already-existing rally in the U.S. Dollar Index was revived by the news, and gold fell to $1,126 by 10:45 before recovering somewhat.

Indian Buying Still Weak

Even with the strong rupee, there wasn't much gold buying in India as potential purchasers wait for dips:
"There were a few stray deals, when rupee was strong, but in all it is very dull today," said a dealer with a state-run bullion dealing bank....

"My order sheet is evenly spread-out, I have some below $1,130 (an ounce)," said another dealer with a private bank....

Given gold's action recently, they may get their opportunity.

Sprott Physical Trust Gets $400 Million

The IPO for Sprott Physical Trust got $400 million worth of subscriptions, near the amount that the Claymore Gold Bullion Trust (recently converted into an ETF) got. Further details are in the Globe and Mail's "Fund Watch" blog:
The appeal of the Sprott offering is a low management expense ratio (MER) of 0.45 per cent (compared to 0.65 per cent in the preliminary prospectus), while the gold is stored at the Royal Canadian Mint and unitholders can redeem units for the physical gold, said Peter Loach, executive vice-president of product development at Sprott....
So far, the Trust has lost the 50-cent discount it started off with when trading for it began; the American listing is currently at US$9.98; the Canadian listing is at C$10.04.

Gold Slumps A Little Overnight As Greenback Recovers

After closing at just below $1,140, gold eased down by about five dollars overnight; it was just above $1,135 right after 11 PM ET. A pause followed, with $1,135 serving as a floor until 2 AM when that level was tested. Although the metal got down to $1,132, the floor ended up holding as the price rebounded to $1,135 and began rising as of 3 AM. With another pause in the middle, the run took the metal up to $1,142.70 by about 7 AM. At that top, which overlapped the top of a more modest rally yesterday morning at about the same time, gold was almost exactly where it was twenty-four hours earlier. Such was the case after a mild pullback - and for the price relative to yesterday's close. As of 8:04 AM ET, spot gold was at $1,138.80 for a loss of $0.80 on the day. 30 cents of that loss was chalked up to predominant selling by the Kitco Gold Index, and 50 cents of it was put to U.S. dollar strengthening.

A stronger relief rally did kick in for the U.S. Dollar Index, starting late last night. After hanging around the 80 level, at which it was as of yesterday's close, the Index made a couple of false starts before a rally kicked in, at about 10 PM, that carried it up to 80.295 by 3 AM. A pullback in the next hour took it below 80.15, which was only partially erased before the Index took a spill as of about 5:30. By 7:00, it was back down below 80. That level, though, served as a floor. As of 8:12, the Index was at 80.055.

The recently-flowering optimism over gold was absent in a Wall Street Journal Online article that attributed last night's slump to a stronger U.S. dollar. A decline in risk appetite was cited as the consequence of the rising greenback.
"If efforts by the Greek government succeed in further reducing sovereign risk, the focus of the financial markets may begin to shift away from Greek sovereign risk issues," said HSBC analyst James Steel. He said it could improve "risk sentiment" and thus inspire a return to gold buying.
The other expert opinion came from the Royal Bank of Scotland, and it's full of caution:
[G]old still remains vulnerable to developments in the euro zone, and Royal Bank of Scotland analysts said they still forecast price weakness in the next two quarters.

Obstacles to higher gold prices include a slowdown in physical buying, further strength in the dollar, potential interest-rate increases—which will increase the opportunity cost of owning gold—and the psychological impact of the International Monetary Fund selling some or all of the remaining 191.3 tons of gold to the market, RBS analysts said.
A Reuters report attributed gold's steadiness early this morning to a pause in the U.S. dollar relief rally. The quiet that's evident in the WSJ article shows in this one too.
"The pullback in the euro/dollar today is taking a little wind out of gold's sails," said Societe Generale analyst David Wilson. "There is still nervousness over the euro area, particularly with strikes in Portugal over austerity plans."
Also mentioned in the report is the fact that the SPDR Gold Trust (GLD)'s holding have increased for the second day in a row yesterday, to 1,115.511 tons. The European Central Bank acted as expected, leaving its interest rate at 1%. The central bank's expected to announce some modest tightening measures in the coming days, to pull back some of the liquidity put into the European banking system after the '08 financial crisis. Its outlook for growth and inflation remined unchanged. The Bank of England didn't even hint at any withdrawal of liquidity programs as it left its rate at 0.5%. Governor Mervyn King expressed dounts about the solidity of the recovery.

This week's jobless-claims numbers have been released, and they came in almost as expected: 469,000. One of those news-related rallies hit the U.S. Dollar Index briefly at the time the number was released, which was mostly erased after two stabs at rallying. Still, a pre-news rally held; as of 8:54 AM, the Index was at 80.115. Gold slumped a little in counterpoint to the spurt-up in the Index; as of 8:55, it was at $1,138.60 for a drop of $1.40 since yesterday's close. The Kitco Gold Index, however, attributed a gain of 60 cents due to predominant buying ex-dollar. Two dollars' worth of fall was attributed to U.S. dollar strengthening.

Today's action isn't likely to come up with an overall gain for gold, simply due to the exhaustion factor. However, the metal's holding up well so far.

Wednesday, March 3, 2010

Gold Pushes Up, This Time Due To Greenback Weakness

There's a case to be made that gold, in part, anticipated a drop in the U.S. dollar yesterday. That drop is what we're seeing today, as resolution to the Eurocrisis becomes visible.

From a dip as of just before 9 AM ET, the U.S. Dollar Index settled into a trading range until 9:45. That range was bordered by 80.26 on the downside and 80.32 on the upside. After falling beneath it, and holding near the 80.25 level, the Index rose on the unexpectedly strong ISM report to just above 80.36. From there, after making a double top at 10:12, it was downhill.

Falling sometimes quickly, sometimes slowly, the Index breached the 80 level on the downside and slid all the way down to 79.8123 in late-morning trading. As of 11:56 AM ET, the Index was at 79.8464.

Gold reponded to the drop, but not by all that much. After regular trading opened, a rise to $1,142 turned into a two-stage drop to $1,136 that ended just after 9:30. A spike up to $1,140 was erased, leaving the metal at below $1,136 by 10:10. Then, the price slowly and hesitently climbed up until 10:30, at which it was at $1,137. Then, prompted by the fall in the greenback, gold shot up to $1,141 in less than ten minutes. A period of indecision between $1,139.50 and $1,141 was ended at 11:10 AM with another jump that took the metal up to $1,145.20. That jump eroded somewhat before rolling again as of just before noon. As of 12:02 PM ET, spot gold was at $1,144.20 for a gain of $7.70 on the day. The Kitco-Gold-index-attributed premium due to predominant buying has lessened to $0.70. The gain put to the falling greenback was $9.00.

Despite the continuation of the rise, gold has shown some softening today. Had it not been for the U.S. dollar dropping, today would not have been a good day for the metal. The ex-dollar slowdown isn't that unexpected, as the roll gold's been on had to end sometime.

This afternoon's trading will evidently be determined by the way the greenback goes. Should the 80 level remain breached, gold should put in a good showing.

Update: After that rise above $1,144, which peaked at $1,146.20, gold settled down. The peak turned into a spike, with price dropping to the $1,142.50 level and staying between there and $1,143 until just before 12:50 PM ET. A dip to $1,141 followed, which led to a little churning before the price pulled up to $1,144. That rise didn't last, as the metal pulled back down to about $1,142. As of 1:42 PM ET, spot gold was at $1,142.70 for a gain of $8.20. Kitco's Gold Index posted an $8.50 rise due to greenback weakness and a drop of $0.30 due to predominant selling.
The U.S. Dollar Index recovered a little from its morning drop, but failed to climb above 80. After 11:45 AM's bottom as 79.8123, a rolling trading range developed which took the Index up above 79.88 at its peak before the roll turned downwards. The roll turned into a slide by 12:30; the slide ended with a bottom being made at 12:36 that was slightly above 11:45's. The next eighteen minutes saw the closest thing the greenback had to a relief rally so far, with the Index rising to 79.921 as of 12:54. A pullback from there brought the Index down to a trading range between 79.86 and 79.905, where it was still was as of the time of this update. As of 1:56 PM, the Index hit 90.8990.

Gold has held on to the bulk of its gains, just as the U.S. Dollar index has kept the bulk of its losses, but the absence of any predominant buying ex-dollar indicates post-surge tiredness. The rest of the afternoon should be relatively quiet for gold, as has the first part, but the metal may be dragged down by a further relief rally in the greenback.

Update 2: There was a relief rally, but not much of one. Gold was dragged down, but only to the $1,140 level. At the end of the trading day, an important hole has been poked in the U.S. dollar run.

The downturn started just before 2:00 PM ET, and decelerated until gold ended up in a trading range. By 3:30, the metal was fluctuating between $1,139 and $1,140.50; it stayed in that range until the session ended. At that end, spot gold was at $1,139.60 for a gain of $5.10 on the day. The ex-dollar component of the Kitco Gold Index (KGX) continued to deteriorate: by the end of regular trading, it was down to -$1.90. The weakening-greenback component was at +$7.00.

Despite that deterioration, the KGX did close at a record yesterday, as this six-month chart of it clearly shows:

That closing coincided with record highs in both the pound and the euro.

Turning to the spoiler of the raw gold price in recent months, the U.S. dollar was clearly hit today. The record shorts of the euro-dollar trade must be sweating, if not pulling out. The euro-dollar chart at this website shows a turn that looks like the beginning of a serious pull-up, although not likely a full-scale reversal.

Moving to the action in the U.S. Dollar Index for the rest of the afternoon, a relief rally did enter into the picture that pulled the Index up to 80. After fluctuating in a tight range from 1:00 to about 2:30, the Index pulled up to about 79.95. There it stayed around until a try at 80 between 3:43 and 4 PM; that try pushed the Index to 80.005. After a pullback, it tried again at 4:30 and got up to 80.02 by 4:47. A briefer pullback led to a spike that reached 80.0326 by 4:54. Then came a small downtrend that pulled the Index down to the 79.8 level, slightly below where it closed at as of 5:30: 79.99. Above 80 may yet be durably reached.

However, any such rally would be in the nature of another relief rally. This daily chart, from, makes plain what happened today:

The drop on the day was almost large enough to make for an outright gap. The RSI line at the top of the chart has deteriorated almost to the point at which it would turn up in a bull-market run. Back in '08 and '09, the indecisiveness in the chart before today would have been the prelude to a new rally. This time, it wasn't.

It's too early to say that this day marks the introduction to a trend reversal back to bearish, but the extent of the decline after today is going to say a lot.

The daily chart for gold contains a pattern that hasn't been seen since the days when the bull was sprinting: five consecuitve up days on the chart, as shown by the white candlesticks.

Although this run was more laboured than ones back in late '09, it was smoother than the aborted one back in early January. Of interest in the fact that the 50-day moving average, graphed in blue, is beginning to turn upwards. That turning and the fact that the gold price is confortably above it are seen by technicians as bullish.

Five days' worth of gain is impressive, but it's also unlikely. Had the U.S. dollar not helped out by dropping, it would have been four. There isn't much chance for six, as gold is likely to enter a consolidation period; also, the greenback relief rally is likely to extend tomorrow. However, the last five trading days have been more reminiscent of a bull market resumption than a bear-market rally. I don't expect this uptrend to go that far, as gold has a habit of spending a fair bit of time consolidating after making an impressive run like late '09's was. A durable economic recovery will rassle with appearing inflation by draining away some of the safe-haven demand that's already there. Also, there's no discernible resumption of investment in gold ETFs as yet, although physical-gold sales numbers are still rising. The driver for '09's rally isn't here now.

A Marketwatch report shows some optimism returning; it's entitled "Gold nears high of 2010 as dollar falls vs. euro." Quoted therein is Commerzbank analysts who have their eye on $1200 as a possibility:

"Alongside the currently robust jewelry demand from India and the high interest of speculative financial investors, ETF demand could also support the gold price in holding up against the firm U.S. dollar and in advancing toward the $1,200 an ounce mark," said analysts at Commerzbank.
Still, as analysts from pointed out later in the report, the metal has a bit of a slog ahead if that scenario pans out: resistance is at $1,146 and $1,162. The price bumped up against the former today and did pull back.

As I explained above, the odds say that tomorrow will not be a day for the optimists even if this rally proves to stick over the longer term. Still, the gold situation is much improved from that of a month ago.

Debunking Of Sprott Physical Gold Trust

In a Seeking Alpha article, Dave Nadig of "Index Universe" reveals these facts from the Sprott Physical Gold Trust's prospectus: it's not really an ETF but a closed-end fund. There's only a redemption privilege; there's no way to secure additional shares by bringing gold in. [This defect could be remedied by private-placement secondary offerings, but those are expensive and time-consuming.] The redemption option, only exercisable on the 15th of each month, takes about two weeks to process. One of the selling points of the trust, that its gains are taxable as security gains instead of collectibles gains, is obviated by the fact that the trust itself will be taxed at the collectibles rate if it redeems any gold.

Debunking is needed, but there's one point Nadig missed regarding the one-way redemption-only feature: the lack of arbitraging opportunity means that it's impossible to arbitrage a ceiling. Thus, the trust could sell at a hefty premium without new gold flowing in to erase it. A discount, on the other hand, can be lessened by redemption (inconvenient as the option is.) When parsed, this less-than-ETF feature looks like a plus rather than a minus...even if it means that the Trust's assets will shrink over time.

Reuters Report Shows Surprising Acceptance Of Austerity Measures By Greeks

Surprising to me, anyway. In a Reuters article which speculates that the recently-announced austerity package will be matched by non-cash EU aid, such as Euroland state-owned banks buying Greek government bonds or a loan guarantee for new Grecian government issues, it's reported that there's underlying support for the belt tightening:
Despite a series of one-day strikes by unions, public opinion polls show strong support for austerity in principle if the pain is distributed equitably. A poll last month showed 76 percent of Greeks thought there should be no strike action until the crisis had passed.
That support, though, may be contingent upon an expectation that "equitably" includes a bailout. One tactic the Greek government could use would be to threaten to go to the IMF, which would embarrass the EU.

Although not directly tied to this article, the overall clearing of the crisis has led to a drop in the U.S. Dollar Index. As of 11:09 AM ET, it was below 80. Gold has responded in kind: as of 11:12 AM, the metal was at $1,142.40.

Gold, After Record Set, Makes The Daily Mail

The inroads into the mainstream media continue for gold. Usually, the first mentions of gold are skeptical. Not in the case of this Daily Mail article, which is a compendium of expert advice on whether or not to buy gold. A majority of them think that gold is likely to go up from here, although not by all that much, and recommend either buying or holding. There are three "Avoids" in the eight forecasts therein.

It's unusual to see a regular media outlet simply asking a variety of experts about gold rather than getting a columnist to weigh in. The Daily Mail is sometimes looked down upon because of its tabloidesque content, but this column shows that any such disdain is sometimes unwarranted.

Not Just Indian Buyers Are Price-Conscious

Indian sellers are too, particularly sellers of scrap gold. A Business Standard article points out that "Scrap gold sales fall, but early recovery expected."
Scrap gold sales declined by 50 per cent during the first two months of the current calendar year, as investors held stocks back in anticipation of a price rebound....

Gold availability from domestic scrap recycling declined to 17 tonnes in the fourth quarter ending December 2009, from 18 tonnes, 23 tonnes and a staggering 64 tonnes in the third, second and first quarters of the same year, respectively. In the fourth quarter of calendar year 2008, gold availability from domestic refining was 20 tonnes, according to World Gold Council data.
The rest of the article forecasts an increase because prices are recovering.

The...Wine Standard?

A bank vault in Geneva, originally intended to house employees in the case of a nuclear attack, was converted to client storage for gold. Now, the same vault is used to store...rare wines.
Open to anyone at a cost of about 0.25 Swiss francs ($0.23) per bottle per month, the cellar has no temperature variations, smells, light or vibrations and keeps its humidity constant.

Confidentiality rules are strictly respected as only one client can enter the safe at a time. There are no names on boxes and only the client's individual code appears on each box.
Not only is there a storage vault, there's also a Wine Stock Exchange for buying and selling the stored wines.

Had it not been Switzerland, I'd be making remarks about tulips...

Service Sector Expands More Rapidly Than Expected

The ISM Services Index number for February has been released, and it's the highest it's been in more than two years. The expected number was 51.0; the real number was 53.0, making for a large jump from January's 50.5.

That number made for a pop in the U.S. Dollar Index, which rose from just above 80.21 to almost 80.36 in the space of five minutes. Since then, though, the Index has trended down after making a double top as of 10:11. In and of itself, good economic news doesn't seem to have had much of an effect on the greenback. Gold got knocked down more than four dollars an ounce, to about $1,135.50, but the first half of that decline started before the number was released.

Commerzback Calls For $1,150-62 Gold, If Market Co-Operates

On the strength of the breakout from the $1,125-30 range, a Commerzbank techncial analyst has called for gold to possibly go as high as $1,162. The call is based upon Fibonacci analysis, and is conditional upon a further run upwards:
“The fact that last week’s correctly anticipated fall only took the gold price to $1,088 before giving way to another leg up shows underlying strength,” Axel Rudolph, a technical strategist in London, said in the report. “This is why we will become short-term bullish if, and only if, the $1,135.50, 50 percent Fibonacci retracement is overcome.”

The gold bears haven't gone away, though. Two are quoted in an article webbed by Singapore's The Business Times, entitled "Blowing hot and cold over gold":
'My view is that the market was previously too optimistic, in spite of the weaker fundamentals this quarter, and the selling should resume in the weeks ahead,' said Nick Moore of Royal Bank of Scotland.

Mr Moore predicts that spot price could plunge to as low as US$900 an ounce in the next four months - below the 200-day moving average of around US$1,025, and 'as gold breaks through those support levels, it could trigger an unravelling of the market', he added....

'The role of investors remains key, and exchange trade funds flows and speculative interest in Comex gold has turned negative thus far in 2010,' Barclays analyst Suki Cooper wrote in a report.

'If the speed of redemptions gathers pace, prices could be at risk of a greater correction before physical demand cushions prices.'

Meanwhile, the upcoming cycle of rate hikes means that investors could find the precious metal a less attractive asset class, while the US dollar's strength indicates further pressure on gold.

The skepticism isn't widespread. These calls look like bearish analysts sticking to their guns.

Indian Gold Demand Still Weak, But...

...strength in the rupee is mollifying the recent rise in gold for Indian buyers. The Economic Times report which carries this informaiton quotes an unnamed dealer as saying:
"Thin trade is continuing even today as prices are on the higher side, last week we saw some good deals," said a dealer with a state-run bank in Mumbai.
Another dealer said that orders are coming in at $1,110 - presumably because of the stronger rupee. $1,100 used to be the buying point.

Indian gold import surge in January

That's according to a NDTV article entitled "Gold import soars 19-fold in January" A lower price was cited as the cost.

It also contains details on the new import duty, which is designed to boost domestic production:
The Budget reduced basic customs duty on gold ore and concentrates from 2 per cent ad valorem to a specific duty of Rs 140 per 10 grams with full exemption from special additional duty, to encourage domestic gold refining capacity.

This implies that importers have to pay a fixed Rs 140 per 10 grams on gold ore and concentrates irrespective of the price.

However, the move will not have much impact on the domestic market much as the country mainly imports gold in the form of bars and coins, analysts noted.

Gold Creeps Up After Yesterday's Gains

After yesterday's strong rally, gold paused in the overnight session. An attempt to rise, a little more than an hour after evening trading began, led to a double top at the $1,136 level that preceded a pullback down to about $1,133. From there, gold drifted down slightly until 11:15 PM ET, when it rose back up to $1,135. It stayed at just below that level until 4 AM. Then, a quick rally pushed the price up to $1,138; after some hesitation, the price fell down to $1,135 again before rising slightly to $1,136.50. A slight dip around 6:30 AM prefaced a ramp-up that took the metal up to $1,143.50. A pullback erased less than half the gain, and gold then crept upwards a little before pausing. As of 7:59 AM ET, the spot price was $1,138.60 for a gain of $4.10 on the day. The Kitco Gold Index divided the gain into $2.50 due to predominant buying and $1.30 due to greenback weakness.

The U.S. Dollar Index didn't fare all that well overnight. After marking time in the afternoon session, it fell down to below 80.3 in the evening. A slight recovery left it around the 80.3 level for the rest of the night (ET). The morning began with a dip down to 80.23 that turned into a rally that carried it all the way up to 80.553 as of 4 AM. That rally failed to hold, though, and the Index slid back down to 80.3 in a little more than an hour. Another rally took the Index only up to 80.4, at which it lingered until about 6:30 AM. The plummet that followed took it down to 80.191. Subsequently, the Index climbed back up to just below 80.4 in an advance that began raggedly but ended strongly as of 7:43 AM. The pullback that followed started slowly but gained momentum as it pulled the Index down to 80.3. As of 8:20 AM ET, the Index was at 80.31.

A Wall Street Journal article points to an expected step towards a resolution to the Eurocrisis and a weaker U.S. dollar as the reason behind the maintenance of gold's gains:
The euro appeared to have bottomed against the dollar for now and commodities overall are steady after rising late Tuesday and that is fueling more confidence in gold, traders said.

"Shorter-term players are reassured that the bottom in gold has been seen and are coming back into the market," said Mitsubishi analyst Tom Kendall. He added that Greek issues will remain important to gold-market psyche, and traders cautioned that if the euro weakens against the dollar then commodities, including gold, could struggle to hold onto recent gains.
The article also notes that holdings for the SPDR Gold Trust (GLD) increased yesterday to 1,111.56 tons.

That expected step, an announcement of an 4.8 billion euro austerity package by the Grecian government, was mentioned in a Reuters report that attributed the rise to a dropping greenback and currency-related fears in general.
"Gold is being used as a bit of an alternative to currencies," said Citigroup analyst David Thurtell. "It takes you out of dollar or euro exposure and puts you into a non-currency."

Gold is also benefiting from weakness in the dollar as it boosts gold's appeal as an alternative asset and makes dollar-priced commodities cheaper for holders of other currencies.
Also in the report is a caution related to the Euro's recent strength, which could reverse because of U.S. recovery.

The decline for the U.S. Dollar Index ended just after 8:30 and gave way to a trading range between 80.18 and 80.25. As of 8:53 AM ET, it was at 80.2364. After regular trading opened, gold rose a few dollars an ounce before pulling back partially. As of 8:56 AM, spot gold was at $1,139.90 for a gain of $5.40 on the day. Kitco's Gold Index attributed $3.90 of the rise to the declining U.S. dollar and $1.90 to predominant buying. The ADP jobs report, saying that 20,000 private-sector jobs were shed last month, had little effect.

Gold's rise has effectively stalled, for now, and won't likely continue unless the U.S. dollar co-operates by dropping more. Still, the metal's up at a time when a backtrack would be expected; at least, yesterday's rise has been shown to be durable.

Tuesday, March 2, 2010

Gold Breaks Above $1,130, Stays Up

When the U.S. Dollar Index rallied to above 81.25 early this morning, the gold market shrugged it off. That resilence proved to be the cue for a strong gold rally that has pushed the metal above the widely-watched $1,125-$1,130 resistance level. Not by much, but the zone has been surmounted.

When regular trading opened, the metal spent some time vaccilating before heading down somewhat. By 9:10 AM ET, the spot price was hovering at just below $1,121.

The subsequent rally began slowly, but it picked up as the morning went on; by 9:55, gold was above $1,128. A pullback to $1,124 proved to be preparation for a stronger rally that took the metal all the way up above $1,132. An upwards test just before 11 AM poked the metal up to $1,133.90 before the uptrend turned into a holding pattern between $1,130 and $1,132. As of just before 11:15, the rally resumed; it pushed gold up to $1,136.00 before pausing yet again. As of 11:52 AM ET, spot gold was at $1,134.10 for a solid gain of $16.10 on the day. The Kitco Gold Index had U.S. dollar strength actually subtracting 40 cents off the price, with a $16.50 gain being attributed to predominant buying.

Movement of the greenback seems irrelevant now, 'tis true, especially since it's been trendless this morning. After gliding up to almost 80.9 by 10:35 AM, subsequent to a dip from the 80.7 level to below 80.6 earlier this morning, the Index drifted downwards to 80.64 by 10:55 AM. A quick pull-up to 80.865 by 11:05 wasn't followed through upon, and the Index drifted downwards. As of 11:48 AM ET, it was at 80.72.

The decoupling of gold from the U.S. dollar early this morning proved to be the spark for a nice rally, capitalizing on the tinder had been laid in the last week. It may not continue this afternoon, but an important milestone was surmounted today.

Update: There was a pause, but the rally kept on rolling. Just after 12:10 PM ET, gold crested at above $1,135 and dropped in the next five minutes to $1,132. It hung around just above that level until a little before 1:00, at which point it rallied again. A touch of $1,138 led to a slight back-off to $1,136 and a later surmounting of the old daily high to $1,139.00 even. Since that point, at around 1:20, the metal has basically gone nowhere. As of 1:43 PM ET, spot gold's at $1,137.20 for a gain of $19.20 on the day. The Kitco Gold Index partitioned the gain into $15.50 due to predominant buying and $3.70 due to U.S. dollar weakness. The predominant-buying category has been relatively stable throughout the day.

The greenback is having an effect once again - because of its slumping. Since the time of the last update, the U.S. Dollar Index has fallen from its old perch around 80.7 to below 80.5. The decline actualy started a little after 10 AM, when the Index was close to 80.9. Despite a couple of pullbacks, it got down all the way to 80.42 before pulling up somewhat. That bottom was hit around 1:15 or so. Since then, the Index pulled up to almost 80.5 before falling again; the latest dip started at 1:40, and carried it down below 80.4. As of 1:55, the Index was at 80.3856.

Gold would have gone up anyways had the greenback stayed strong, but the weakness has added some push to the gain. The rest of afternoon trading will show if gold can hold on, or extend the day's gains some more.

Update 2: As it turned out, the 1:15 PM ET top was the high for the day. $1,130 held, though, making this day an important one. The irresolution and stuckedness of gold in recent days has resolved itself to the upside; the $1,125-30 zone has been durably broken above.

After 1:15, gold drifted downwards before coming to rest in a trading range bordered by $1,134 and $1,136. It stayed in that range from 2:15 to almost 3:25, at which point it broke through to the downside. Stopping at $1,132 as of just after 3:30, gold bobbed up and made a double bottom at that level. Subsequently, it climbed back to that same range just after 4:00 and drifted sideways for the rest of the session. As of the close of regular trading, spot gold was at $1,134.50 for a gain of $16.50 on the day. The gain was apportioned by the Kitco Gold Index (KGX) into $3.00 due to the U.S. dollar weakening and $13.50 due to predominant buying.

Speaking of the KGX, it made a record closing high today. The last high was just above 910 as of December 2nd; today's close was at 913.05. What this means is: had the U.S. dollar stayed where it was as of December 2nd, gold would be at a new record price. As it is, the metal's about ninety dollars below the record set on that December day. The gold market smells inflation a'comin', globally, and there's an argument (based on recent action in the face of disappointing news) that the metal would shake off even a Fed Funds rate hike. An inflationary psychology is slowly emerging, although it acts as little more than a buffer to drops.

A Fed Funds hike, though, is not in the cards as yet: the window to watch is the end of next week, about the time when the People's Bank of China would make an announcment of any policy change. Given that the mainland economy is still roaring, and property values are still skyrocketing, an announcement of another reserve increase and/or a rate hike is likely. How the gold market takes it will be a needed sampling of sentiment. The last one didn't have that much of an effect, but the reserve-ratio hike on January 12th derailed a recovery that had gold up above $1,150. Of course, the U.S. Dollar Index was much lower then.

Speaking of the greenback, the Index did little for the rest of the afternoon: it drifted around 80.5 with no discernible trend except sideways, although it did dip a little near the end of the day. At the end, it was at the 80.47 level.

The daily chart for the Index looks odd, with another record high failing to take hold:

Ragged it is, more ragged on the upside it becomes, but the Index is still in a trading range. The resistance at 81 is porous but solid: every time the greenback's mounted a rally that's carried the Index above 81, no matter how well above that level, the rally's evaporated. Eurocrisis-related hopes are not bearing fruit now; the safe-haven money is shifting towards gold. Although the overall techncial picture is still bullish, the headwinds make this rally a different breed from the last crisis-related ones in '08-'09. It's running out of steam. Although there's no reason to expect one, the "big disappointment" would come on the downside. Had the Index been a stock, I'd be wondering if it were in a short-term distribution phase, where a jump in demand calls forth a rush of new supply instead of moving the price up.

The chart for gold is not only a better one near-term but also has some features that rate calling special attention to. I've put two notes in the same color as the lines I drew on this chart, like the last from The scribbles pertain to two bullish technical signs: a positive divergence in the Relative Strength Index (RSI) and the completion of a reverse head-and-shoulders:

The first line, in aquamarine, shows that the RSI line on the top is slightly higher even though the price of gold itself is lower. That divergence is a sign of strengthening.

The second, in brown, is a pattern that I've been harping on in recent days. As of today, the neckline (the brown line) was broken, making the reversal pattern complete. A purist would say, "watch out for $1,150." I'm not one, but the RSI indicator and that head-and-shoulders formation do give an important clue to market internals and behavior. Today's rise looks sustainable, although I cannot rule out it becoming belaboured. When put together with the recent reaction to the Eurocrisis and the trouble for the pound, a sunny picture for the metal emerges.

A Reuters article, webbed by the New York Times, points to a milestone: record high prices in both the Euro and the pound.
Gold hit record highs in euro and sterling terms on Tuesday as the precious metal benefited from volatility in the currency markets, with spot gold prices extending earlier gains.

Investors are increasingly diverting fresh investment into gold as a hedge against currency market instability.
The current trouble dogging the U.K., and the pound, is the possibility of a minority government and hung Parliament in the face of a record fiscal deficit; that outcome would presumably block any needed austerity measures from getting through. An interesting difference between the U.K. and the U.S.: in the latter country, gridlocked government tends to restrain spending and ease deficits. Such was the case from 1995 to 2001.

A Marketwatch article says that the added allure of gold has had a kicker in the form of diminished allure for the greenback. The Euro is beginning to recover, as it looks like the Grecian government is taking the need for austerity seriously. That's the main reason behind the false bullish starts the greenback's been experiencing lately.

All in all, it's been a day where some recent question marks surrounding gold are fading, and new ones are besetting the U.S. dollar. I should be something of a wet blanket right now, but I don't have any good reason to. Sentiment for gold is improving, but there aren't any extremes; nor is there any excitement in the gold market I can perceive.

This day has had its milestones, with records being set not only in Euro and pound terms but also in the Kitco Gold Index. In U.S. dollar terms, although far from a new record, the metal has surmounted an important and closely-watched resistance level. For the nonce, anyway, gold is back.

Seeking Alpha Article Says Ride The Bubble

"Hard Assets Investor" has passed along the pithiest answer to the gold-bubble question: 'Of course, renewed strength in gold means a revival of The Big Question from last fall: Is gold in a bubble? This time, however, it seems the answer on everyone's lips is: "Who cares?"'

More and more, it seems that gold bulls are accepting the idea that gold is going in to a bubble; they're even liking the idea.

One blot on the shine, though: in the same article, "Hard Assets Investor" also notes that ETF goldings have not picked up recently. The investment demand needed to get gold rolling again hasn't materialized, as yet.

Techncial Analyst Turns Bullish After Busted Downtrend

Based upon the frustration of his expectation for a decline to $1,073.20 last week, techncial analyst Rick Ackerman has turned cautiously bullish on the metal. The recent uptrend after last week's bottom at $1,088.90 looks solid enough to not look like a fake-out.

Given how gold's performed yesterday and today, his timing is hard to fault...

Australian Gold Production Forecast To Increase 10% This Coming Year

Largely because of Newmont's planned production increase at its Boddington mine, gold production from Australia is expected to increase by 10% in the 12 months ending June 30, 2011.

It's only a forecast, but it's one worth noting. One of the reasons proffered by gold bulls for a contimuation of the bull market is diminishing supply. If that argument is upended, as it's beginning to be, then one reason for gold rising will have eroded. World gold production from mines, according to the World Gold Council, was up 6% in 2009. The "peak gold" case is looking a little vulnerable in the nearer term, as mines ramp up production to take advantage of high prices before high costs bite them once again. That vulnerability may only be apparent if tomorrow's production is being pushed forward to today's, but the resultant increase would still have a damping effect on the price.

Gold Bobbled By Hoenig Speech, Temporarily

Thomas Hoening, the Fed's resident hawk, gave a CNBC interview in which he repeated his hawkish stance. He "reiterated in a televised interview on the cable channel CNBC that the Federal Reserve should not guarantee zero-percent interest rates for an extended period."

That news wasn't so good for the U.S. stock market, but it had little effect on gold. After slumping from $1,129.50 down to $1,124, spot gold climbed back up again. $1,133.90 was reached just after 10:45 AM ET.

The gold market looks like it's focusing on global inflation, particularly the possibility that a Euroland bailout will be accompanied by ease from the European Central bank. The Australian central bank's most recent rate hike, to 4%, went unnoticed by the gold market. The People's Bank of China raising its rate would attract more attention, but the February reserve-rate hike has been shrugged off. The next scheduled announcement period for the PBoC is a little more than a week away.

It could be that the gold players have sized up Hoenig as a mere voice in the wilderness, which would make them more cyncial than stock players in the matter.

Technical Analyst Thinks Gold Stock ETF Has Some Fall Left In It

In a Stockhouse column, techncial analyst Jeff Clark picks through a chart of the Market Vectors Gold Miners ETF and concludes that it still has some fall in it. He recommends waiting until it gets below $40 before buying it, if the reader is so inclined. This chart, from his article, sketches out his reasoning:

He may be right, but the fundamentals coming in have been good. If his scenario plays out, it'll be a sign that gold stocks are in the bargain bin and may be there for some time. Value investors will have one interpretation, while momentum players will have another.

However, the most recent performance of the ETF suggests that his pullback scenario isn't in the offing. As of the time of this post, the ETF is above 45, making for a short-term series of higher highs and higher lows. Both value investors and momentum players may want to readjust their conclusions.

Gold Funds Recover In February

January wasn't the best of months for gold funds, as gold stocks came tumbling down. Last month, as it turned out, was better as the stocks recovered. A Globe And Mail report has the preliminary results for Canadian funds:
Precious metals equity funds gained an average of 6.1 per cent last month, according to preliminary figures released yesterday from Globe Investor. Canadian equity and natural resource equity funds, were up an average of 4.4 per cent and 4 per cent, respectively.
The category was #1 for the month.

Gold Pauses, Then Refreshes

Gold spent most of last night in a narrow trading range, bordered by $1,117 and $1,118. During most of that time, the price was bumping up against the latter level. However, when the break came just after 11 PM ET, it was to the downside; by midnight ET, the price was well below $1,116.

The drop led way to a wider trading range, with $1,116 serving as a porous floor. A break above the $1,118 level just before 3 AM prefaced some fluctuation between the $1,117 level and $1,120, but the rise didn't last; by 4 AM, gold was back in the range established at midnight.

That break, though, foreshadowed a more durable rally starting at 5:30. In about seventy-five minutes, the metal was well over $1,121.50. A second run at the $1,122 level crested at $1,123.50, but failed to hold until just before 8 AM. As of 8:07 AM ET, spot gold had vaulted up to $1,123.80 for a gain of $5.80 on the day. The Kitco Gold Index had all of that gain attributed to predominant buying.

On the greenback side, the source I normally use has drawn a blank for the entire evening and early-morning period, from 7 PM to 8 AM. An alternate source has the greenback entering in to a rally that lasted until just after 4 AM, topping out at 81.292. Since this rally was not reflected in the gold price moving down appreciably, I'd have to say that the rally is counter-intuitive. It faded into a quick decline that bottomed just before 8 AM at 80.638; an upwards pullback ensued. As of 8:18 AM ET, the Index was at 80.7476.

However, couterintuitive, the greenback rally was real. The paradox is resolved in this Wall Street Journal Online report:
Spot-gold prices are nearly unchanged Tuesday despite a stronger dollar, helped by recent interest in euro and sterling trading.

Euro zone debt concerns and worries about a possible minority government in the U.K. are driving investors to hard assets, supporting the precious metal in currencies other than the dollar.
Later in the report, Dennis Gartman is quoted as noting that gold is considerably stronger in terms of the Euro. The others quoted sound skeptical about the possibility of further appreciation, in U.S. dollar terms at least.

The point that Gartman made is echoed in a Reuters report, which presents the strength in the greenback as capping gold gains.
Sterling-denominated gold also rose above 750 pounds an ounce, near Monday's record high at 753.69 pounds an ounce, meanwhile, as the British currency was driven lower by fears that the next UK general election could result in a hung parliament.

"For gold, all the action is in non-U.S. dollar currencies," said Commerzbank in a note. "Given that the U.S. dollar has recently gained in strength, gold expressed in U.S. dollars is also holding up astonishingly well."
However, scrap sales in Asia are increasing and Indian buyers' interest has waned, so the strength may not continue. That underlying strength is noted earlier in the article:
"The dollar has tested recent highs against the euro... but that is not dragging gold down, so obviously there is an underlying strength in gold at these prices," said Saxo Bank senior manager Ole Hansen.

"With the uncertainties going on at the moment, apart from the currency relationship, there hasn't been any particular reason for selling it."
Also noted is the fact that the SPDR Gold Trust's holdings were unchanged yesterday. Given that fact and the waning of physical demand, as well as the calling-forth of physical supply, it's not surprising to see skepticism about the current try for $1,125-30 from traders.

The counter-intuitiveness of gold's performance given the U.S. dollar rally is seen in this Bloomberg report. Originally titled "Gold May Decline In London As Stronger Dollar Reduces Demand", it's now entitled "Gold May Gain in London as Alternative Investment to Currencies."

There is a lag effect evident from the Eurocrisis, which the article touches upon.
“The status of gold is very clear; it’s security against any financial turmoil in any country,” said Wallace Ng, Hong Kong-based executive director of commodity derivatives at Fortis Nederland. “People are worried about national debt of the European countries, that’s why they sell euro and sell sterling, but if they are worried about the situation, they shouldn’t sell gold.”
As regular trading got rolling, gold has been fluctuating in another narrow trading range - but one that's considerably higher than last night's. Although raggedly, the range is bordered by $1,123 and $1,125. As of 8:45 AM ET, spot gold was at $1,123.20 for a gain of $5.20 on the day. The Kitco Gold Index has $4.00 of the gain attributed to predominent buying and $1.20 to a weaening U.S. dollar. The greenback has weakened, as reflected in the U.S. Dollar Index slumping to 80.5667 as of 8:50 AM ET before recovering to 80.6245 as of 9:00. The Index had bumped along 80.7, which served as a floor, before breaking through it as of 8:37. In three minutes, 20 basis points were sliced off it.

All in all, things are looking up for the metal. There's still, though, the matter of the difficult-to-crack resistance level just above present levels...

Monday, March 1, 2010

After Spill, Gold Bobs In Trading Range

Regular trading opened with gold ending a more than 13-dollar decline in early morning action, primarily in the London market. Once 8:15 AM ET rolled around, though, the metal's price began to climb: it reached $1,116 just after 8:30 and, after a dip, kept climbing to well above $1,118. A short-term peak at $1,119 gave way to a drop as the U.S. Dollar Index rallied above 81; the decline ended at about $1,113.50 just before 10 AM. A stronger rally in the greenback, pushing it to a new nine-month high, ended a rally that took gold back up to $1,118. However, the metal ended the next decline only slightly lower than at what it was as of 10:00. Subsequent to that second drop, gold rallied; it reached $1,119 as the Index pulled back from its new high to a little below the 81 level. As of 11:45 AM ET, the metal's spot price was at $1,120.40 for a gain of $2.50 since Friday's trading ended. The Kitco Gold Index has gold shedding $8.35 due to U.S. dollar strength but gaining $10.85 due to predominant buying.

As noted above, the U.S. Dollar Index had two rallies this morning; the second was more powerful. A drift upwards from the time regular trading began turned into a solid rally that ended at 81.05 as of 9:59. The pullback lasted for nineteen minutes, pulling the Index down to 80.93, but 10:20 saw a powerful rally that shot the Index all the way up to 81.25 in the next twelve minutes. That top made for a new nine-month record. The index pulled back a little afterwards, and then drifted up slightly between 10:42 and 11:03, but the decline resumed after that time. It pulled the Index down to the 80.95 level before ending just after 11:30 AM. Since then, the Index drifted up again. As of 11:52 AM ET, it was at 80.99 after poking its nose up above 81.

Gold is being influenced by the U.S. dollar's gyrations, but the metal continues to show strength ex-dollar. How much resilience the metal has will be made evident in afternoon trading.

Update: The metal competed a recovery after the original post that took it up to slightly above $1,121 by 11:40 PM ET. A pullback to below $1,119 preceded a run up to a new regular-trading high above $1,121 just after 12:10 PM. The next decline left gold at a lower price, and the next recovery took it up to only $1,120. From there, a four-dollar decline had the metal at $1,116 as of 1:05 PM. The relief rally that followed made it only to $1,119, but the following pullback bottomed at a higher price of $1,117. As of 1:46 PM ET, spot gold was at $1,117.80 for a loss of $0.10. The Kitco Gold Index allocated the loss to a $6.30 drop due to U.S. dollar strength and a $6.20 gain due to predominant buying. Although the latter is still solidly in the plus category, it's lesser than it was this morning. Some of the ex-dollar gains of this morning could be chalked up to anticipatory buying on expected U.S. dollar weakening.

After getting up to slightly above 81 at 11:51, the U.S. Dollar Index drifted down intermittently. As of 1:41 PM, it was at 80.81.

Gold's still showing strength with regard to the U.S. dollar, but that strength has ebbed somewhat. The rest of the afternoon will show how much is left.

Update 2: As is often the case, the rest of the afternoon's trading in gold was subdued with little price change. The amount of gain attributed to predominant buying by Kitco's Gold Index did whittle down some more.

At the end of regular trading, spot gold was almost exactly where it was at the end of last Friday. The rally that began just after 1:00 PM ET continued until 2:20, at which point the metal had bested $1,120 again. That was the last time in the day that $1,120 was seen. After that gain, a slow two-step decline set in that took gold to $1,117 by 3:45. Afterwards, the metal lumbered up to $1,119 before pulling back just before regular trading ended. At the close, the spot price was at $1,118.00 for a gain of 10 cents since last Friday's finish. The Kitco Gold Index had gold gaining $5.50 due to predominant buying and losing $5.40 due to a strengthening U.S. dollar.

The greenback's strength was more evident this morning than this afternoon. A steady decline that started back at 11 AM didn't come to an end until 2:55 PM with a final spill that was reversed fifteen minutes later. At its daily nadir, reached between 2:55 and 3:00, the U.S. Dollar Index reached 80.635.

After the recovery rally, the Index spent the rest of the day in a trading range bordered by 80.7 and 80.75. Tested once on the upside, at 3:50 PM, and once on the downside, at 5:25 PM, the Index got back into the range within ten minutes. As of 5:35 PM ET, it was at 80.74.

The six-month daily chart makes this morning's shoot-up appear as just another spike that failed to overcome resistance at 91:

The trading range, perhaps the pause that's going to refresh, continued for another day. The MACD indicator, found at the bottom, continued in bearish territory with the black line below the red line. Despite that positioning, the Index has not fallen appreciably - a sign of its continued strength. Today's spike-up certainly shows the unpredictability of the Index, as well as its continued tie to the Eurocrisis; that spike-up early this morning was prompted by another call for Grecian austerity. It may seem odd that a call for fiscal restraint from the EU's most profligate government would drive the Euro down, but that's what we're seeing. Confidence in the Euro is being sapped; that's what the market knows.

Before diving into the chart itself, this report from Bloomberg (as webbed by Business Week) contains a review of the day's events driving the U.S. dollar and gold. It mentions the copper spike, due to the tragic earthquake in Chile, as providing some strength in gold. Strength in the U.S. dollar was attributed to the austerity call:
Greece must do more to cut its budget deficit, said Olli Rehn, the European Union’s monetary affairs commissioner, after meeting with Greek Finance Minister George Papaconstantinou. Concern about Greece’s debt situation fueled last month’s dollar rally. The U.S. currency climbed as much as 1.3 percent against the euro today. Gold often falls when the greenback gains.

That continued strength, once again, has only succeeded in holding gold back. This daily chart, also from, shows a remarkably narrow range within a larger multiday range:

Today's action bumped up against the toppy end of the larger range. The RSI, found at the top of the graph, is looking pretty good in the context of this last nearly-three-month stretch. Although it's not at the point where an upwards divergence with respect to January 11th's high exists, it's not that far away. The MACD lines at the bottom are still in the bull position, which has coexisted with a trading range. That coexistence isn't really great for gold, because it doesn't mirror the bearish range where a definite decline took place.

However, gold is benefitting from the Eurocrisis too. The gains ex-dollar show it; again, gold has made a record high in Euro terms. Again, the performance of the U.S. dollar is the main headwind, as shown by this six-month chart of the Kitco Gold Index (KGX):

The KGX, plotted on the blue line, is again close to a record. It shows that gold has had some benefit from the Eurocrisis despite the continued strength of the U.S. dollar.

That gain, though, is at best underground and at worst inferred. The question for the future is, how will gold behave when the Eurocrisis fades and the U.S. dollar no longer is pushed up by it? How much of gold's steadfastedness is crisis-related and how much of it is the stealthy discounting of future inflation? We'll see once a solution, patchworky as it will likely be, is put into place by the EU.