Friday, March 26, 2010

Gold, After Early-Session Tumble, Makes It Above $1,100

Although the break above $1,100 is still short-term at this point, it points to the head-and-shoulders pattern (discussed recently on this blog) becoming a busted one. That's good news for the metal, as it's been more the case that bullish patterns of that sort have failed.

The regular session didn't start out all that well. After fluctuating around $1,098, the metal went for a tumble starting at 9 AM ET; by 9:15, it was at $1,093. A partial recovery prefaced another decline that took the price down to $1,090.40 as of just before 9:45.

Since then, there was a real rally. Although gold moved up unevenly, the upsurge was fairly swift. Right around 11:15, the metal broke above $1,100 on its way to above $1,105. As of 11:27 PM ET, spot gold was at $1,105.50 for a gain of $14.50 on the day. The Kitco Gold Index divided the gain into $7.20 for predominant buying and $7.30 for a weakening greenback.

The U.S. Dollar Index has sunk after a relief rally early in the session. A rally started as of 7:35 at 81.62, which got up to 81.96 as of 10:15. Since then, a quick drop pulled the Index down below 81.7 by 10:10. Afterwards, the Index was trading in an unevenly-bordered range that softened on the downside. As of 11:29 AM ET, it was at 81.64.

The sub-$1,100 demand that's been keeping gold from declining all that much is continuing to work, enough for it to be deemed a valid theme. Gold may not hold above $1,100 by the end of the week's session. If it does, then a real turnaround may be in the offing. The afternoon part of the session may see some more excitement, although the market is more likely to simply avoid any further disappointment. Whether the U.S. Dollar Index keeps slumping will have a big influence on the outcome.

Update: Gold made it above $1,105 in that same run, to $1,107.90 specifically, but pulled back to $1,100 before rallying again. $1,100 was actually touched twice while gold remained in a range with $1,102 as the top. Lasting from 12:35 to 1:15, it was broken on the upside by a more modest run. As of 1:37 PM ET, spot gold was at $1,104.20 for a gain of $13.20 on the day. The Kitco Gold Index divvied up the gain into $6.90 for predominant buying and $6.30 for greenback weakness.

The U.S. Dollar Index stayed in that ragged trading range, bordered by 81.6 on the downside and 81.71 on the upside, until it sluggishly rose above starting at 12:35. After a gentle and initially laboured run up to 81.8, it pulled back into the confines of the range. As of 1:39 PM, it was at 81.695.

There's likely to be quiet until the end of the session, which means that gold's chances for a weekly gain aren't that great. But, $1,100 is likely to survive as a renewed support level. The rest of the afternoon will speak to both.

Update 2: Gold didn't make a gain on the week, but it was much closer than I had thought. Instead of quieting down, the metal kept rising throughout the rest of the afternoon except for the last hour and twenty-five minutes. The $1,109.40 top of the day, reached precisely at 4 PM ET, would have put gold in the weekly-gain category had it held. It didn't, though; after spending forty-five minutes in a trading range centered at just above $1,108, gold slid down a little to close at $1,106.70. The gain for the day came in at $15.70; the Kitco Gold Index split it into $8.10 due to predominant buying and $7.60 due to weakening of the greenback.

That near-end decline made for a small loss of the week: $1.20, or 0.108%. Gold was almost within spitting distance of a second weekly gain, which would have been quite the achievement given how the metal fared over the course of this week.

The U.S. Dollar Index resumed its slump in the later-afternoon part of the session. After the peak at 1:10 PM, a two-stage rolling decline turned into a steadier one at 2:20. It continued until just before 4:05, when the Index reached 80.55. A relief rally during the rest of the session left it at 81.61 as of 5:30 PM.

Its daily chart, from, shows the extent of the drop from yesterday's excited levels:

Although unpredictable at the time, the RSI indicator's drift into almost-oversold territory did presage today's drop. So did the apparent resolution of the Grecian part of the Eurocrisis; bringing the IMF in proved not to be injurious to the Euro, despite what some forex traders had thought. That same indicator, found at the top of the chart, is now well below the oversold threshold. On the other hand, though, the MACD lines at the bottom are still in a solidly bullish zone. For the past four months, the Index has had a good run upwards whenever they've been. Unless some major bearish driver shows up, which it may thanks to the U.S.-PRC currency imbroglio, I would assume that today's drop is merely a secondary reaction in an uptrend.

The gold chart shows something similar to what took place early this month, although the shoe is now on the other side of the foot: a head-and-shoulder pattern was busted.

Unlike the inverse head and shoulders pattern that was drawn out between late January and early this month, the current one is a topping formation; its neckline was at $1,100. Gold did drop a fair bit below the neckline, and stayed there for a couple of sessions, but today's close put it above. Interestingly, the two head-and-shoulders overlap in time; the topping one started in mid-February.

It's part of techncial-analysis lore that a head-and-shoulders pattern is one of the most reliable in the stock market. Based upon recent experience, I have to say that they're not that reliable (except in the short term) for the gold market.

That point being made, the chart right now doesn't look all that impressive otherwise. There's still a short-term pattern of two lower highs and lower lows that have been made. Even with today's recovery, gold has a fair bit to go before that short-term bear trend can be considered erased. On the other hand, the sub-$1,100 bargain hunters have proven to be a real force in the market...even if they're going to be disappointed at week's start unless a real decline sets in Sunday night (ET).

This week's Commitment of Trader chart for the gold contract, current to last Tuesday, shows very slight shrinkages of both commercial and non-commercial longs. On the short side, non-commercials jumped by 18.5%. Given that gold was at the cusp of its decline that day, that jump showed a little prescience on the part of those shorters. Commercial shorts shrunk a little, as did total open interest.

The same wasn't the case for the U.S. Dollar Index CoT figures. Total open interest increased by 10.2% as non-commercial longs increased theirs by a slightly higher 10.8%. That showed some foresight, as Tuesday was the day before the Index rocketed up. Non-commerical shorts also increased, by 5.75%.

A Reuters report credited the weaker greenback and the EU-IMF rescue deal reached at the Eurosummit this morning as two main factors for gold's rise. It said that the gold market was expected to take its cue from the currency markets. Anong other points, these were therein:

* Gold supported by a stronger euro as the euro zone leaders won approval for an aid deal for Greece....

* Short-covering ahead of the weekend following April option expiration on Thursday triggered buying.

* Geopolitical tensions after a South Korean naval ship sunk in waters near a contested sea border with North Korea supports.
This week has made for a fairly wild ride, on both ends. The busting of the classical topping head-and-shoulders pattern was encouraging, but it also reinforces an overall trading-range characterization of gold's action over the course of this year. On the face of it, there's not the same hope that gold will continue to rise because the bargain-hunting support won't be there at higher levels. The best hope for gold right now is still a backtracking greenback.

Thanks for reading, and enjoy the respite of the weekend.

Recent ETF Drops Made Up For By Physical Demand, Particularly In India And China

Although reversing now, the SPDR Gold Trust ETF (GLD) has disbursed a fair bit of gold earlier in the year. On the other hand, demand for physical in two important gold-consuming nations - India and China - is thriving. Gold buying has become trendy in both countries.

The first page of a Commodity Online article, "Gold coins, bars glitter as Gold ETF demand wanes," elaborates upon that trendiness and the innovations sellers are coming up with to encourage more buying. On the second page, which notes that ETF demand has shrunk to the tune of 15 tons worth of outflows this year up to mid-March, it's also noted that the resilience of gold's price has to come from other demand as supply is too inflexible to be cut off quickly enough.
[T]here is some evidence that Jewellery demand is picking up. The Bombay Bullion Association puts Indian imports of gold in February at 35t, more than four times the level of February 2009. Industrial and electronic demand might be recovering faster than we expected. Dehedging in Q1 2010 is likely to be limited, now that Barrick have closed out their book, but it was also very slow in Q1 2009, so on a year-on-year basis this might be a positive factor.

Yet even if we take the most negative view on supply and the most positive on demand these views are still not able to account for the shortfall in ETF demand. Perhaps then there, is another major factor bringing the market into balance, even at these prices? Is there a central bank purchase we do not know about? Has investment moved from the easily visible exchange-traded products to less visible bars, or even to a classic under-the-mattress purchase of coins?”

Although the central-bank speculation seems a bit of a reach, the other questions are good ones. Bars and coins? Maybe...

A Short Picturesque Guide To Indian Gold Demand

The Globe and Mail's guide, entitled "In Gold We Trust," points out that the bulk of gold demand is still for jewelry.
According to the World Gold Council, which represents 27 major gold producers, 68% of the worldwide demand for bullion over the five years from 2004 to the end of 2008 was for use in jewellery, compared with just 19% for investment purposes and 14% for industrial uses. On a geographic basis, the council says that East Asia, the Indian subcontinent and the Middle East accounted for 70% of global demand in 2008.
That makes the jewelry market an important one for gold watchers, particularly the Indian market as India has been rated as the #1 nation for gold demand. Like with the Chinese, Indian have a tradition of keeping a lot of their wealth in gold - particularly, in jewelry form.

In another story, Indian gold imports declined to 28.8 metric tons in February for a more than 15% drop as compared with January's figure. Although February saw some low prices, the four-figure level took somewhat of a toll.

Indian Gold Buyer Still Skittish

According to a report by the Economic Times, the resurgence in Asian physical demand hasn't penetrated into the Indian wholesale bullion market.
"Buying is very price sensitive this time..there is demand but people are very cautious," said a dealer at a private bank, which deals in bullion.
It remains to be seen if this reluctance will reverse; most likely, barring currency influence, it would if gold prices stay steady.

Gold Up Slightly After EU-IMF Deal Announced

The EU has agreed to a joint rescue effort for Greece with the IMF, which helped push the Euro up a little. Its gains were limited by forex traders not thinking much of the arrangement, even though the expected fall in the Euro didn't happen as a result.

After hovering around the $1,090 level when evening trading began, gold moved up to $1,094 starting at 10 PM ET. After holding just below $1,095, the metal broke above that level as of 1:30 AM and, after a blip followed by a smal decline, started hovering at the $1,097 level. The gain from the agreement announcement was muted, but there was one. Starting at 7:00, the metal made a run at $1,100; the price touched that level, but failed to surmount it. As of 7:57 AM ET, spot gold was at $1,098.60 for a gain of $7.60 on the day. The Kitco Gold Index split the gain into +$1.40 for predominant buying and +$6.20 for a weakening greenback.

Although the agreement had its influence, the U.S. Dollar Index had dropped almost continuously overnight. After reaching 82.20 as of 6:55 PM, the Index underwent its steepest decline of the overnight session; by 8:10 PM, it was slightly below 82. After a pause, the decline continued at a slower but steady rate. The above announcement of the EU-IMF rescue package deal didn't hasten the decline, but made it more uneven. As of 7:10 AM, the Index reached its nadir at just above 81.6. Since then, it's recovered a little. As of 8:80 AM ET, it was at 81.75.

A Reuters report, webbed by the Globe and Mail, credited the rise of the Euro for gold's own rise, along with increased risk appetite. The gains for the latter were muted because the deal provides no immediate aid; the Grecian government still has to borrow at still-high market rates:
“The EU agreement means that no money will be forthcoming immediately, but at least there will be a back stop should Greece have financing difficulties over coming weeks,” said Credit Agricole in a note....

“The fact Greece will have to borrow money only at market rates, ongoing worries about other EU countries' fiscal problems and ECB President Trichet putting somewhat of a dampener on sentiment by criticizing IMF involvement in the deal (have) kept the euro under pressure.”
Two other items were mentioned that tie in with gold's relative strength recently. The SPDR Gold Trust (GLD)'s holdings increased 4.568 tons yesterday, suggesting bargain-hunting buying, and Asian physical demand is thriving.

Despite gold's resilence, a survey of traders found that ten out of twenty believe that gold will drop next week. As reported by a Bloomberg article, webbed by Business Week,
Ten of 20 traders, investors and analysts surveyed by Bloomberg, or 50 percent, said bullion would fall next week. Six forecast higher prices and four were neutral.
One reason cited for a continued drop in the gold price was expected weakness in the Euro despite the deal.
“The underlying problems of heavily indebted euro zone economies are overshadowing everything at the moment and weighing heavily on the single currency,” Andrey Kryuchenkov, an analyst at VTB Capital in London, said in a report. “The euro will still suffer and could still drag gold a tad lower.”

The opening of regular trading saw a slump in gold, even though a slight run upwards to $1,099 was prompted by a lowering of fourth-quarter U.S. GDP growth from 5.9% to 5.6%. The expected number was 5.7%. That bump-up turned into a spike as gold fell back to $1,097. The U.S. Dollar Index was unaffected, continuing its recovery from overnight decline. As of 8:43 AM ET, spot gold was at $1,097.60 for a gain of $6.60 since yesterday's close. The Kitco Gold Index shaved the part of the gain attributed to greenback weakening to $5.10, but increased that part attributed to predominant buying to $1.50. The U.S. Dollar Index was at 81.80.

Again, the loss potential below $1,100 was muted overnight, although the gains due to U.S. dollar pullback have also been muted. It's possible that demand for gold will pick up now that this iteration of the Eurocrisis is being solved, but such demand isn't that evident yet. Today's session will show whether gold can hold its strength at these lower levels.

Thursday, March 25, 2010

Gold Slumps After Overnight Recovery

Regular trading opened with gold muddling about in a trading range between $1,093 and $1094.50. That range was broken through on the downside just after 9:30 AM ET, right around the time when gold slid down six-and-a-half dollars an ounce. That decline lasted for a full hour, and wasn't waterfall in nature, but it left its mark on the gold market nonetheless. The relief rally that started at 10:30 was stronger than recent ones; as of 11:05, gold touched $1,093. But, the price turned down again anyways. As of 11:49, spot gold was at $1,091.60 for a gain of $4.10 on the day. The Kitco Gold Index divvied the gain up into +1.50 for predominant buying and +2.60 for a weakening greenback.

The U.S. Dollar Index has pulled back somewhat after a rally that began right at 8 AM. That rally peaked above 81.9 as of 10:34; the decline pulled it back to just above 81.7 before the Index settled into a slightly rising trading range. As of 11:50 AM, the Index was at 81.81.

So far, things have not gone all that well for the gold market but the declines have been muted. The afternoon session will show is any others visit the metal.

Update: For the early afternoon, the gold market has been quiet fluctuation-wise. Since about 10:45 AM ET, the metal's been in a trading range between $1,090.50 and $1,093. Since 1:15, the price has been at the top of the range and sometimed edging above it - but the price fell back later and edged the lower end of the range. As of 1:40 PM ET, spot gold was at $1,092.40 for a gain of $2.90. The Kitco Gold Index attributed +$3.70 to predominant buying and -$0.80 for a strengthening U.S. dollar.

The U.S. Dollar Index strengthened as of 1:30 after spending the ealy afternoon in another slightly rising trading range - this one, broken into two stages. As of 1:43 PM ET, the Index was above 82 at 82.10.

To all appearances, the dull afternoon is likely to continue.

Update 2: It did continue. The decline noted above ended at 1:50 PM ET, when gold sunk below $1,088. Subsequently, it jumped up, rose more slowly until just before 3:00, and then spurted up to $1,095. Turning down, it then entered into a narrowing range with $1,090 floor that ended with a small but definite gain on the day. At the close, spot gold was at $1,091.00 for a rise of $3.50 since yesterday's closing value. The Kitco Gold Index ascribed a $6.20 gain for predominant buying and a $2.70 loss for strength in the greenback. The two values sum up to the day's gain.

The U.S. Dollar Index managed to stay above 92 for the rest of the afternoon. A modest rise between 2:10 and 3:00 ended with a fifteen-minute drop that took the Index down to 82.015. Another rise then commenced, which left the Index in a trading range between 82.125 and 82.22. As of 5:30, it was at 82.175.

Its daily chart, from, shows today's gain as built upon yesterday's and that of the day before:

There seems little that can stop the Index from climbing. For another day, a new high not seen since last May was made. The only wrinkle in the chart is the RSI line at the top: it's not quite at an oversold level, but it's very close. A successful fix to the Eurocrisis, one that'll likely bring in the IMF, would take the wind out the greenback's sails for the time being. There's no sign of a stop now, but the Index can't keep rising forever.

Greenback strength is one of the reasons why the rise in gold today was muted, as the chart of it shows:

Today's action looks something like a relief rally, even though it was a bit of an achievement given the greenback's own rally. The decline this month has shown lower highs and lower lows, but the extent of it has not been that bad. Bargain-hunting has evidently intervened. There may still be more drop coming, but appearances suggest right now that it'll be muted.

A Reuters article characterized today's session as "choppy," and made these points amongst others:
* Gold ended stronger with U.S. equity prices, but prices
were limited by declines in oil, which earlier helped boost the yellow metal, and a sharp drop in the euro - traders.

* April gold options expiration contributed to price volatility in gold futures - traders.
* "It's really been a back-and-forth movement. But, after Trichet made those comments, gold came under renewed pressure after the dollar rallied and the euro broke down." - David Meger, vice president and director of metals trading at Vision Financial Markets in Chicago.

* Gold was bought earlier in tandem with gains in U.S. share prices and oil prices - traders.

In a sense, today's action wasn't that surprising. Gold was due for a rebound anyway, and the U.S. Dollar Index's continued ascent can be chalked up to continued upward momentum. Support from bargain-hunting is still holding, and the risks of a plunge from these levels is diminishing. Tomorrow's trading may contain unpleasant surprises, but yesterday and today's action suggest they won't be devastating.

The Case For Gold ETFs

Forbes has evidently decided it's time for gold right now. One of three articles on the metal deals with the advantage of owning gold in ETF form, at least in the author's opinion. Asher Hawkins has provided a brief guide to the SPDR Gold Trust ETF and spells out why he considers it to be a better choice than buying physical bullion. He mentions in passing that John Williams of buys physical coins because he expects to barter with them once the crisis hits.

Frank Giustra's Case For Gold

Given Forbes' own inclinations, it may be surprising to see it webbing a bullish case for gold fram a man well ensconced in the goldbug circuit. This particular man, though, is Frank Giustra - a venture capitalist by trade and the founder of the company that became Goldcorp. His business record evidently led Forbes' editors to graciously make an exception in his case.

Giustra's own case hinges upon policy reflation, which is likely to result in a more serious case of inflation down the road given how bad the damage was. [One of the causes of the Fed permiting double-digit inflation in the late 1970s was the fragility of the U.S. economy after the 1973-75 gutting. High inflation was seen as an assumable cost to keep the economy from imploding outright. I note, somewhat puckishly, that there was a lot of excess capacity back then too.]

Veteran goldbugs will find many familiar themes in his case for gold as an investment, but there's one possibility he raises that not many out of the hard core have considered:
I predict that both the U.S. and Japan will eventually have to coerce their central banks into becoming buyers of last resort for their own sovereign debt, meaning they will have to print money. This will serve the dual purpose of keeping rates low to keep their fragile economies above water and maintaining their sovereign debt service at manageable levels.

That's a brass-tacks conclusion. Those who dismiss the threat of inflation on the grounds of Federal Reserve rectitude forget, understandably, that the Fed is ultimately a creature of Congress. I note as a point of reflection that not all of Ron Paul's co-sponsors for his audit-the-Fed bill have signed on because they're impressed with Dr. Paul's arguments or like the idea of Fed transparency.

Michael Pento Turns Gold-Skeptic Argument On Its Head

One of the two main talking points from gold skeptics is that gold pays no interest. If storage costs are included, gold has a slight negative carry unless the gold is tucked into a desk drawer or some such. Even if the storage carry is zero, there are still spreads and commission costs to deal with; those make the carry negative on an accrual basis. (In other words, if the commission and/or spread costs are applied to the investment over the holding period, rather than treated as clips on the purchase and sale themselves, you get a negative carry.) That same treatment adds an accrued cost-of-carry to any storage costs that have to be met with cash, or perhaps gold.

Pento, though, notes that the slight negative carry on gold can be worsted by negative real interest rates on Treasury securities:
Currently one-year Treasury notes yield 0.39%. The Consumer Price Index, by contrast, is rising at an annual rate of 2.1%. Adding the inflation and interest rate data together indicates that investors in sovereign U.S. debt will suffer a 1.71% negative yield--and that's before taxes!
From what I know of storage costs, spreads and commissions, the only kind of gold whose negative carry is that large would be small coins, or larger coins held for a short time. A large gold investment held on to for some time doesn't have that kind of carry.

I wish I could brush off that skeptics' talking point as just an expression of animosity to gold, but it has a lot of mainstream appeal. Were that not the case, there wouldn't be such an evident correlation between gold bull runs and negative real interest rates. When it comes to total demand, mainstream money always outweighs alternative money. When the mainstream goes for gold in a big way, prompted by the combination of negative real interest rates and rising inflation, gold does get ahead of itself in a big way.

One question to ponder: the tie between gold and inflation has been successfully debunked, 'tis true, but would it have been if there had not been any bubble in the late 1970s? The tie would have been much better, except for that time in the late '90s when the stock market was all the rage and gold was forgotten about.

Buying Coming Back In Indian Gold Market

Although it picked up in part due to seasonal pressures, lower prices did help get the volume up in the Indian bullion market. According to a report by the Economic Times:
"As prices fell to attractive levels, buying resumed...also there is not much time left before the wedding buying starts," said a dealer at a private bank, which deals in bullion.

This may be the beginning of an all-out buying revival if prices stay low. Inventories have to run out sometime...

Gold Recovers Overnight, But Still Below $1,100

The EU summit has begun, with no definite pledge to aid the Grecian government except for a continued relaxation of collateral rules by the EU central bank so as to keep Grecian sovereign debt as qualified collateral. German Chancellor Angela Merket welcomed the IMF to take a subsidiary role in any rescue package. There's already speculation that an IMF role will reflect badly upon the Euro, driving it down more.

Gold spent the bulk of the overnight session climbing, although $1,100 still remains well out of reach. Initially, the metal trundled along in the $1,085-$1,087.50 range until it pushed up to $1,090 a little after 9 PM ET. Failing to break through that level, it hung around the $1,087.50-$1,090 range until 3 AM, when it did get above the latter level. The subsequent rise was uneven, but it proceeded until it was stopped at $1,095 at 6:10 AM ET. A second attempt to break through got it to $1,097 just after 7:30, but $1,095 held. As of 8:05 AM ET, spot gold was at $1,093.40 for a gain of $5.90 on the day. The Kitco Gold Index attributed $4.00' worth of the gain to greenback weakness and $1.90's worth to predominant buying.

The U.S. Dollar Index spent most of last night falling, although the decline reached its lowest level of 81.725 as of 9:30 PM. A relief rally led to another decline, which bottomed at a higher level than 9:30's. A sharp rally beginning at 12:20 AM and ending at 1:25 drove the Index from 81.75 to 82.07, but that rally prefaced an uneven but definite decline that pulled the Index down to below 81.6 by 7:20 AM. Since then, it's rebounded slightly. As of 8:13 AM ET, the Index was at 81.69.

A Wall Street Journal article said that gold rebounded due to a relief bounce in the Euro, although the summit meeting is being watched closely by Euro bears for any sign of further weakness.
Traders said the market is bracing for currency volatility during the two-day European Union summit that began Thursday, with many expecting a further fall in the euro against the dollar to trigger a selloff in gold.

The metal looks more vulnerable following its break below technical support at $1,088 a troy ounce Wednesday, they said.

"It's still sell on rallies because the turnaround in the euro isn't finished," said Narayan Gopalakrishnan, a trader at Swiss trading house MKS Finance in Geneva. "Any rallies around $1,095 to $1,098 people are looking to sell [gold]."
Physical buying is picking up at these levels, though.

A Reuters article points to the same cause, but adds that continued strength in the greenback has limited gold's gains.
Gold, which hovered below the closely watched 50-day and 100-day moving averages, has failed to attract safe-haven buying this week despite fiscal worries about Greece, with losses in equities market putting additional pressure.
Jeweler demand did pick up, but not by much; there's an awareness that gold is technically weak now and could fall further.

Regular trading opened indecisively, with gold fluctuating between $1,093 and $1,094. A spike to $1,095 right at 8:30 failed to hold, and the metal descended back to its range. As of 8:44 AM ET, spot gold was at $1,093.70 for a gain of $6.20 on the day. The Kitco Gold Index apportioned the gain into +$2.70 for predominant buying and +$3.50 for a weakening greenback. The U.S. Dollar Index hasn't done much in the same timespan as the relief rally turned into a double top; as of 8:46 AM ET, it was at 81.70.

So far, things look fairly good for gold even if it can be chalked up to a relief rally. Today's trading will show if overnight gains were more than a dead-cat bounce.

Wednesday, March 24, 2010

Gold Pauses After Early-Morning Drop, Then Drops Further

The beginning of regular trading for the metal wasn't good. Although not subject to an all-out hammering, gold dropped eight dollars an ounce between 8:10 and 8:40. The decline was accelerated by a disappointing durable-goods report for February.

Since then, the metal fluctuated, initially upwards, after a relief rally pulled it from its $1,087.20 low to above $1,090. After spending some time in a trading range between $1,092 and $1,093, gold pulled back a little before drifting again. As of 11:40 AM ET, the spot price was $1,092.20 for a loss of $10.60 on the day. The Kitco Gold Index assigned $12.60 worth of decline to a strengthening greenback, but assigned an increase of $2.00 for predominant buying. The two sum up to the overall decline.

The U.S. Dollar Index has basically held its own since its early morning smash-through of the 81 support level. A peak of 81.815 around 8:30 was followed by a higher one, at 81.83, as of 9:45. The mild dip in between was followed by a deeper one, which took the Index down below 81.58 by 10:23. Since then, it's recovered to near peak level. As of 11:41 AM ET, it was at 81.74.

The source of gold's earlier decline was obviously U.S. dollar strength, but a certain dog has not barked as of yet despite ample opportunity to do so when regular trading began: there's been no waterfall plummet. There's still a risk of one in the early afternoon. If that period passes without, then the resilence of bargain-hunting demand will be confirmed.

Update: Driven down by a further advance in the greenback, gold slumped a little in the early afternoon - but only a little.

Except for two downward cracks at 11:20 and 11:50 AM ET, $1,091 served as a floor until just before 1:15. In that period, gold mostly traded sideways until a small run-up at 12:45 got the price up to $1,093. A second attempt as of 1:00 prefaced a decline that pulled gold down below $1,091 and even $1,090. A couple of relief rallies failed to raise the price for any lengthy time. As of 1:50 PM ET, spot gold was at $1,088.40 for a drop of $13.40 on the day. The Kitco Gold Index divided the gain into -$13.65 due to a strengthening greenback and -$0.80 due to predominant selling.

As the first of the two categories indicated, the U.S. Dollar Index did strengthen a little in the early afternoon. After recovering from its bowl-shaped drop, the Index first traded in a range between 81.7 and 81.83, and then climbed up to a new high of the day. That high of 81.91 was reached as of 1:19 PM. Since then the Index has drifted; as of 1:52 PM ET, it was at 81.86.

The early-afternoon session wasn't easy on gold, but there was no waterfall decline. That says something, as conditions similar to the one the gold market is facing today have prompted them. Sub-$1,100 support has not been solid, but it is resilient enough to be respected. Although conditions as of 1:50 don't suggest so, the rest of the afternoon may see somewhat of a recovery.

Update 2: There wasn't one, although the continued decline was mild. Essentially, it was over just after 2:00 PM ET.

The decline that halted at that time started at about 1:40, with gold above $1,090. When it was over, the metal was at $1,085.50. Subsequently, gold was in a trading range whose top was set by a relief rally; it was bordered by $1,088 on the upside and $1,084.50 on the downside. Although the metal slipped to $1,083.50 sometime within, that downward spike didn't last. Perhaps out of further relief, the metal vaulted up to near the top of the range at the end of the trading day. The closing value for spot gold was $1,087.50 for a loss of $15.30. The Kitco Gold Index actually credited $0.20 for predominant buying, and took off $15.50 for a strengthening greenback.

That strength continued in mid- and late afternoon. The U.S. Dollar Index, after some indecision up until 2:20, started climbing steadily in three waves before peaking at 82.02 as of 5:05. A small pullback was mostly reversed at the end of the regular trading day and the Index ended up at 81.99 as of 5:30 PM.

Its daily chart, from, shows a clean break-out from the 81 top of its former range:

Now there's a clean breakout. I have to admit to not seeing it come today because I expected any such vaulting to be more EU-driven. The Fitch downgrade of Portugal's bonds took me by surprise, but evidently not the Index market. Every difficulty in Euroland adds fuel to the dollar rally; lately, when there's been no bad news, rumours sometimes act as a substitute. The Index now needs little excuse from Euroland to rally. It's had quite a big one in the last five trading sessions: from 79.5 at the low to 82 at the high. Today, it raced up by more than a full point.

It's only a matter of time before the Index is overbought. The RSI indicator at the top of the graph is near the overbought range. On the other hand, the MACD lines on the bottom of the graph have clearly crossed over into what is a bullish pattern. The last two times it has done so, the Index has had a nice run upwards. Today's the first day of the crossover, and a level was reached that hasn't been seen since last May. The Index is above the highest levels reached in June and July, and has breached an important resistance point.

All of that bullishness does not bode that well for gold, even if it squeezes some ex-greenback benefit from the same crisis. Its daily chart, also from, shows a solid decline today:

It wasn't a sudden one, but the lack of suddeness was made up for in staying power. The head-and-shoulders pattern indicating a downturn is now completed; the price broke through the $1,100 neckline today. Those who've kept their powder dry seem to have made a good decision.

I wish I could be unabashedly optimistic about the no-waterfall aspect of this day, but there really are two ways it can be interpreted. First of all, it could be that support below $1,100 - particularly, below $1,090 - is resilient enough to keep gold from declining much further. But, it could also be that a waterfall decline is an equilibrating force. The decline is squeezed into a short (and sometimes unnerving) space of minutes, but then ends. Without one, declines are more stretched-out. If this take is the correct one, then gold still has some ways to go until it bottoms out; it'll just take longer.

The level at which gold's at now, although less important than $1,100, is still an important one. What counts in coming days is whether or not the current decline is arrested at these levels. If not, then we could see $1,060 or so (if not lower.) A continued bull run for the U.S. dollar index does dovetail with the second take.

The above two paragraphs are mere scenarioizing, however. Which scenario pans out will not be evident until the rest of the week's trading is done and booked. I note in passing that waterfall declines sometimes get ahead of themselves on the downside, which sometimes gives gold a net boost after one's over. Forgive the PSA, but leveraged futures trading is risky - even with tight stops. Those leave you exposed to being nickel-and-dimed to death, before commissions.

A Reuters report not only points to the connection between the rising greenback and falling gold, but also cites falling investor appetite for the metal. Amongst others, these points were made therein:
* Surging U.S. interest rates, driven by sharply higher U.S. Treasury yields, prompted selling - Bill O'Neill at LOGIC Advisors in New Jersey.

* U.S. currency extends gains after data showed new orders for durable goods rose for third straight month in February.

* Sentiment cautious as investors look forward to CFTC public hearing on futures and options in metals on Thursday.
This day did have a silver lining, in that the huge rally of the U.S. dollar might have prompted more selling than it did. As noted above, Kitco's Gold Index had gold ex-dollar at just about even for the day. There wasn't any panic over the rally, which could mean that the greenback surge-up was widely expected in the gold market. Tomorrow will pit bargain-hunting desire against further downward pressure if the greenback keeps rallying, which looks like it's going to happen. The former may prevail.

Advice From An Old Goldbug

That goldbug is Howard Ruff, whose first gold-related book How To Prosper During The Coming Bad Years was a huge best-seller in 1978 and '79. Although a relative latecomer to the gold bull market in the 1970s, as compared with (say) the late Harry Browne, he nevertheless earned his spurs in the '70s. He was also burned in the '80s when the gold bull market ended.

As of now, he sees the new '70s blooming in the gold market. That call, he makes clear in "Are gold and silver bad-news bulls?"

He's not one to deny that gold and silver tend to be contrarian investments, which tend to attract doom-and-gloomers. He manages to keep a sunny disposition, though, through a certain structuring:
A real optimist knows when to plant corn when everybody else is expecting a drought, and when not to. Although optimism and pessimism are states of mind, and have nothing to do with truth, they have a lot to do with guts—the ability to be comfortable looking north when everyone else is looking south. I may be wrong about a lot of things, but I try to be driven by realism and objective truth, not some socially approved state of mind.
He recommends buying junk silver, bullion silver coins and gold coins. Stocks, he recommends shying away from until a physical-metal core holding worth several thousand dollars is established first. He explicitly recommends abjuring the futures market, as gold is too volatile for the average investor to avoid being burned by a correction in that arena.

His old fans will recognize some familiar themes in his article.

Gold's Spread Into The Financial-Planning Arena Meets Resistance

Interest in gold is spreading beyond the usual confines; an Orlando Sentinel article provides further confirmation of this trend in the financial-planning field:
At least one-third of Kimberly Sterling's clients have sought her advice in the past year about investing in gold. The Orlando financial planner has successfully discouraged all but one of them from doing so.

That one investor insisted on having some gold in his portfolio, she said, despite her warnings. Eventually, she referred him to a gold-commodities exchange-traded fund that has done well during the metal's decade-long runup in price. But her firm, Resource Consulting Group, still wouldn't buy in; it would only make the referral.

"Our bottom line is this: Gold is a bubble now, and it is too late to get in," she said recently. "It is like someone who bought real estate in 2006, at the height of that bubble. You could get hurt really badly."
The article highlighting her shows that the gold-as-insurance trend has some ways to go. Also featured is another financial planner who's pro-gold, but advises no more than 10% of holdings to be put in the metal.

Regarding Ms. Sterling's call, I have only this to say: it would be far more plausible if she had successfully dissuaded no-one. That's more like what housing was like in 2005.

M&A Activity Heating Up

A Mineweb article discusses speculation heating up along with takeovers. Mentioned therein is a new trend in M&A that's in the process of changing the majors: huge deposits of copper-gold attracting takeover interest.
The increasing importance of copper deposits containing other metals such as gold is likely to continue developing as a theme, as underlined by 2009 annual results from Barrick, Newmont, and certain other gold stocks. This has put stocks such as Canada-listed Novagold back in the spotlight, not least for the recently increased reserves at Donlin Creek (Alaska, Barrick, 50%) to 33.6m ounces of gold on a 100% basis.

As takeovers (and takeover battles) heat up, rumours are going to fly more easily and widely. A caution: the typical "inside tip" about an impending takeover is little more than an expression of the tale-spinner's hopes. Typically, they don't pan out. It's worthwhile to assume that any tip worth betting on is one acquired illegally, which really shouldn't be acted upon because of potential legal trouble.

For those who'd like to play anyways, takeovers are done for a reason. The typical standard, overall, is assets at a discount. This means that the unexciting process of fundamental analysis, combined with thinking like someone whose career will be at risk if a potential target proves not to be a bargain, is the way to spot any takeover target. Even then, it's something of a crapshoot - but a stock doesn't need a potential takeover bid to go up.

Gold Drive Down Again Overnight, This Time By U.S. Dollar Strength

The U.S. Dollar Index did break 81, in a big way, overnight. The trigger was a Fitch downgrade of Portugal's debt, driving the Euro below the $1.35 support level, and general Euroland-related woes. The downgrade seemed to come near the end of a run for the Index, suggesting that it had been discounted in advance.

The metal actually held up well last night until morning began. After an initial rally when evening trading began, which took it up to $1,105, gold settled in to a trading range between that level and $1,102. It didn't break down until after 1 AM ET, after which an uneven but long-lasting decline set in. The price hesitated around $1,100 between 2:00 and 3:20, but the metal broke through on the downside and continued to drop. The decline didn't end until just after 6:00, with the price reaching $1,093.00. Since then, gold entered a relief rally that kept it above $1,095, but not by much, until just before 8:00. As of 8:07 AM, spot gold was at $1,094.60 for a drop of $8.20 on the day. The Kitco Gold Index attributed -$10.60 due to a strengthening greenback and +2.40 due to predominant buying.

The Euro indeed broke through $1.35, not to mention below $1.34, and the U.S. Dollar Index has leapt up in consequence. The rise was steady throughout the night, with 81 being sustainably breached to the upside just before midnight. An earlier attempt just before 9:30 wasn't. The rally accelerated at 1:10, followed by a narrow trading range and a slight exhaustion drop, but the big leap took place between 4:35 and 5:05. As of 5:10, the Index was just below 81.5. Two further waves pushed it up to 81.67 by 7:50, after which it quieted down for a little while. As of 8:18 AM ET, the Index was at 81.61.

A Wall Street Journal article attributes gold's drop to the collapsing euro, as do the two following, but also mentions that gold's fall is being buffered by bargain-hunting and physical demand - for now.
"[Gold is] holding quite well despite the euro collapsing," said Michael Kempinski, a precious metals trader at Commerzbank in Luxembourg. Physical buying on gold's dips have given the metal some price support, but with the euro unable to stop its slide against the dollar, gold buyers may hold off in expectation of lower prices, he said.
Also mentioned is the perhaps surprising fact that the SPDR Gold Shares Trust's holdings increased yesterday.

Reuters' morning look also starts off with the greenback's rise, and says that outcome of this week's EU meeting is unlikely to deter Euro bears. It's increasingly rumoured, increasingly credibly, that the IMF will be involevd in any rescue effort.
"If we continue to have nervousness over Europe and the euro, then we are likely to see supported dollar values and therefore slightly weaker gold values," said David Wilson, an analyst at Societe Generale.
The SPDR Gold Trust's holdings increase had a number put to it: a 4.6 ton rise to a total of 1120.079 tons.

A Bloomberg report, as webbed by Business Week, structured the euro's fall as a rising greenback in the introduction, and echoed the point made in the WSJ piece about demand buffering the greenback leap:
“The weaker euro seems set to weigh further in the coming sessions,” James Moore, an analyst at in London, said in a report. Still, “the scale of buying around and below $1,100 an ounce suggests further pockets of investment diversification will continue to underpin prices.”
It also mentions that the above-noted rumour has been confirmed by a German Finance Ministry official speaking confidentially.

The durable-goods numbers for February showed an increase for the third straight month, although the 0.5% increase was lower than expected. One reason for the shortfall was an upward revision in January's increase. The gold market didn't take to the news very well; it amplified a fall that accompanied the start of regular trading. When 8:15 arrived, the metal began a downturn that took it from $1,095 to $1,088, with five dollars being lopped off between 8:30 and decline's end at 8:40. As of 8:55 AM, spot gold was at $1,090.50 for a drop of $12.30 on the day. The Kitco Gold Index attributed all of the decline to U.S. dollar strength. As for the U.S. Dollar Index, it was up since last read, at 81.74.

So far, the day looks like one of those punctuated by a punctured air pocket. The support given by bargain hunting is already being tested, and may be tested further later in the morning.

Tuesday, March 23, 2010

Gold Moves To Gain As $1,100 Surmounted

The disappointing housing-starts number served as a catalyst for gold, suggesting that fears of a Fed rate hike are still wearing on the metal - or that gold's been oversold recently and was looking for a justification to rebound. After remaining range-bound during the start of opening trading, gold rallied more than 11 dollars an ounce between just before 10:00 AM ET and 10:20. Topping out at $1,108, gold fell back afterwards and hung around the $1,105 level before falling further to $1,101.50 by 11:15 before rebounding. As of 11:23 AM ET, spot gold was at $1,103.90 for a gain of $0.90. The Kitco Gold Index attributed a $2.55 gain to predominant buying and a $1.65 loss to a strengthening greenback.

Although the U.S. Dollar Index is up on the day, it pulled back since its peak at 81 as of just before 8:00. Since then, it fell in an interrupted but definite decline that took the Index down to 80.575 by 10:52. Although the decline began before the housing-sales and inventory data were released, it did prompt the second leg after the Index rallied slightly for five minutes. Since that low, it recovered; it settled into a trading range between 80.67 and 80.73 since just before 11:00. As of 11:33, it was at 80.70.

Again, a drop - this time, a more serious one -below $1,100 has failed to hold. The floor may be breached again in afternoon trading, but the same resilence is likely to be there unless another waterfall decline intrudes. That's not likely this afternoon, which may see gold holding its gain.

Update: The slump ended at 11:15, and was replaced by an unusually strong relief rally that proved to be somewhat of a portent. By noon, the gold price settled into an extraordinarily narrow range at just above $1,104; for a brief time, it looked as if trading had stopped altogether. It was broken by a snap rally between 12:10 and 12:20 PM ET that took gold up to $1,108. Another slump followed, which carried the price down to $1,103. Subsequently, gold traded in a range with that same $1,103 as the floor and $1,104.50 as the ceiling before breaking down slightly due to a rise in the U.S. dollar. As of 1:49 PM ET, spot gold was even on the day at $1,102.60. The Kitco Gold Index added $3.20 to yesterday's closing price for predominant buying, and subtracted $3.20 for strength in the greenback. The sum of the two equals today's gain so far.

The U.S. Dollar Index slogged along since the original post, but it slogged upwards. The trading range mentioned above was intially broken on the downside shortly after noon, but was then broken again on the upside. Since then, starting from 12:50 PM, the Index has drifted in a narrower trading range between 80.72 and 80.79 before breakig through after 1:35. As of 1:51 PM ET, it was at 80.818.

Later afternoon sessions tend to be quiet. Gold is at little risk of a sustained subsequent downturn, and the chances of it recording day's gain are fairly good. It just might at the end of regular trading.

Update 2: As things turned out, gold did end with a gain on the day - but barely. The Euro held above $1.35, and that kept the U.S. Dollar Index from moving up much.

After settling in a trading range between 1:00 and 1:45 PM ET, gold moved down to a lower one between 1:45 and 3:10. That range, between $1,102 and $1,103.50, saw a slightly diminishing top but was broken through on the upside. After rallying to $1,106, the metal settled into yet another range until 5 PM. After an aborted attempt to get above $1,106 subsequently, it fell and ended up at $1,102.80 for a gain of $0.20 on the day. The Kitco Gold Index attributed $3.00' worth of decline to strengthening in the greenback and $3.20's worth to predominant buying.

Following a gentle rally between 1:40 and 3:00, which carried it from 80.75 to 80.92, the U.S. Dollar Index pulled back and then settled into a trading range of its own. Bordered by 80.775 on the downside and 80.84 on the upside, the Index remained there until 5:30 PM; it closed at 80.81.

The daily chart, from, shows an uptick from yesterday but also shows a continuing stall at the 81 level:

The fall early last week proved to be a real whipsawing. Since then, the Index has gotten back up to near the top of its current range but still in it. The decline that began on Feb 20th and ended last Thursday was only a gentle one, longer than the Dec. 23rd - Jan. 15th one but about the same in extent. There's still a risk that the Euro will fall below $1.35 due to Eurocrisis pressures, as the Euro-forex market has reacted badly to any sign that EU aid will not be forthcoming to the Grecian government. There is a chance that the Index will shoot above its February 19th high of about 81.3 if it breaks above the trading range and stays up. It's something worth watching for on Thursday and Friday, when the EU meeting is being held to straighten things out.

Until then, there's no compelling reason to expect the Index to break out of its range. It might, just as it might fall back, but there's no more immediate driver that would impel it to do so. And, of course, if aid is forthcoming then the Euro will almost certainly rise and the Index will fall. A stall will put downward pressure on gold, and an aid package (however indirect or even symbolic) will ease the headwind felt by the metal from U.S. dollar performance.

Speaking of gold, its own daily chart shows the $1,100 holding yet again despite market action exerting some pressure on it:

There's far from a guarantee that it will continue to hold, of course, but $1,100 been tested twice in the last two days and has held up. There are two ways in which this resilience can be interpreted: although the technical picture for gold looks bad right now, with an all-but-complete head and shoulders pattern indicating a drop, underlying strength from bargain hunting is mitigating an all-out drop. $1,100 is the neckline of the pattern. The longer gold goes without sustainably breaking the neckline, the weaker the following drop will be because of continued buyer support. It may wind up being a busted head and shoulders if bargain hunters keep co-operating as they have so far.

The other interpretation is simpler, if more brutal for bulls: the current support at $1,100 is in fact an air pocket, which will be punctured soon. The resultant waterfall decline will make the head-and-shoulders pattern a reality as gold descends to $1,075 or worse.

Whatever the outcome will be, the Eurocrisis and its own outcome has a lot to do with it. It's a sure thing that the second scenario will come into play if the greenback is kicked up by a snag in the EU meeting, which starts in a couple of days. I can't handicap the effects of the Grecian government seeking an IMF bailout, but I suspect it would mollify things. That head-and-shoulder pattern ties in with real-world events unusually neatly, I have to say.

For both gold and greenback, there's little to do except wait. Those with powder may want to consider keeping it dry for the nonce.

A Bloomberg article, as webbed by Business Week, says that gold rose because of hope that the greenback will weaken soon; the housing data reported this morning had an influence.
“The dollar looks less attractive after the housing numbers,” said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. “You’ve got the bargain hunters out to buy gold after the recent slide.”...

Purchases of existing homes dropped 0.6 percent from January to a 5.02 million annual pace, the lowest rate in eight months, the National Association of Realtors said in Washington. The median price fell 1.8 percent from a year earlier.

“Loss of confidence in economic growth -- and economic policies -- is expected to rekindle investor demand for gold as the year wears on, especially if a double-dip recession develops,” Rhona O’Connell, the managing director of GFMS Analytics, said today in a report.
Another trader structured the current trading range between $1,140 and $1,060 as the result of indecision about the extent of Fed easing...whether or not it's overeasing. The question for the market is, will inflation start to arrive before a rate hike?

I can say that, historically, the rate hike tends to come first. But, it's also historically true that the Fed has a record of overeasing. Inflationary (and/or bubble) tendencies outrace the Fed once the recovery is set in and rates go up.

More immediately, gold's resilience might continue tomorrow - but there is that risk of an air pocket. Any waterfall drenching may come as a result of greenback-enhancing news from Euroland, but the most vicious ones (bar one, on February 4th) have been internally-driven. Tomorrow will show if the bargain-hunting at below $1,100 still holds up. Of course, Thursday and Friday have more potential for excitement...

Seeking Alpha Contributor Picks Up On Head-And-Shoulders Pattern

That contributor is "Gold Price Today," who includes a chart of recent gold prices in U.S. dollars. Noting a head-and-shoulders pattern that's near completion, the contributor forecasts a drop to $1,050/oz. That drop would put gold just below the bottom of its current trading range between $1,060 and $1,140, and the trigger for the decline would most likely be a further run-up in the greenback.

I've been discussing the same possibility myself recently, although my own commentary has been more tentative. Based upon recent action, the only way I can see $1,050 reached is through a waterfall decline.

The Problem Of When To Sell Gold

As excerpted/reprinted by FT Alphaville's blog, Dylan Grice's advice is to wait until an inflationary crisis impels governments to shift to a tighter monetary policy and fiscal restraint. That won't happen anytime soon.

Grice's perspective is that of a long-term holder of gold; it's not a trader's. I have one more point to add: at first, such resolve won't be believed. That was the case when Paul Volcker announced a shift to targeting the money supply in late 1979: at first, almost no-one believed that he'd have the resolve (and/or political strength) to follow through.

Clif Droke Discusses "Trading Range Madness"

He points out that a trading range is hardest on the emotions, which tend to swing from wildly bullish to despairingly bearish as it wears on.
The patience of investors begins to strain as volatility wanes and the opportunities for making money in a listless market dwindle. It’s at this point that a distinctive shift in investor sentiment can be noticed. My broker friends tell me that as a multi-week trading range wears on they begin to receive calls from impatient clients who at first inquire as to why the market isn’t moving higher. As the market continues to be held rangebound calls from investors become decidedly more emotional as impatience gives way to frustration. When the market’s directionless trend continues beyond 10 or 12 weeks, that frustration often gives way to outright anger or despair.
The rest of his article uses cycle analysis of the XAU gold-stock average, but his discussion of the toll a trading range can take is a useful guide to watching one's own emotions.

VM Group Asks Why Gold Is Strong Given Net Outflows In ETFs

In a Commodity Online article, which excerpts the gold portion of its Metals Monthly report for March 2010, VM Research asks why gold has been so resilient given ETF demand is so weak. By their lights, as based upon supply/demand analysis, gold should be significantly lower. There's been no supply squeeze, and the pickup in jewelry demand seems insufficient to cushion a really hard correction. They're left at a loss as to why.

One possible reason, not discussed because it's speculative, is that some of the outflows is physical bullion that's stored and kept.

Housing Starts Fall, Giving Cushion To Gold

Resales of already-built houses and condos in the U.S. fell 0.6% in February, seasonally adjusted. The 5.02 million sales figure is the lowest in eight months.
Sales of existing homes have fallen three consecutive months after rising steadily through the fall in response to a federal subsidy for first-time home buyers. The tax credit has been restored and expanded to repeat buyers, but there has been no increase in sales yet.
A real-estate economist expressed fears of a double-dip recession if housing sales don't pick up.

The news added a bit of a boost to gold, seeing as it indicates economic weakeness and possible extension of Fed easing. From $1,097 as of just before the number's release, gold moved up above $1,100. As of 10:13 AM ET, it was at $1,102.70 and sported a miniscule $0.10 gain on the day.

Commerzbank Calls For Drop To $1,074

For technical reasons, gold may fall to that level according to Commerzbank analyst Axel Rudolph:
“We expect to see further weakness this week, provided that last week’s $1,134 high point caps,” Axel Rudolph, a technical strategist at Commerzbank in London, said today in a report. “We remain medium-term neutral as long as the gold price stays below the three-month resistance line at $1,128.90 and the 50 percent Fibonacci level at $1,135.50, but above the $1,073.85 January low point.”
The reason given for their gloomy outlook is that gold failed to rise above the 50% retracement level between December 2nd's high and February's low.

Indian Bargain Hunting Not Evident Yet

But it may begin, according to a Reuters India article, because falling gold prices will encourage gold dealers to restock their inventories.
"Prices are below 16,600 levels (per 10 gm) now...I think there should be some buying now," said a dealer at a private bank, which deals in bullion.

Demand has been poor in the past few days as buying subsided on expectations of a fall in prices, and an unexpected rate hike by Indian central bank last week further hit sentiment.

Yesterday's Recovery Fizzles; Gold Back Below $1,100

The Euro is still being battered on account of fears that a rescue package for the Grecian government won't be put together this week. U.K. inflation came in at a less-than-expected figure of 3% for February. The surprise announcement of a mainland Chinese trade deficit last month has not only led to speculation about the U.S.-PRC spat over the renminbi's value, but also talk about the People's Bank of China raising rates like the Reserve Bank of India did last Friday. Philadelphia Fed Bank President Charles Plosser gave a speech yesterday that expressed his preference for simple rules such as inflation targeting and leaning against the economic-growth wind instead of using more diffuse measures like output or unemployment gaps. It could be interepreted as his unconfortableness with a too-easy monetary policy.

As heartening as the last item may be to gold bulls, the harder news items reflected a worse clime for the metal - particularly the continued drop in the Euro, which has sunk to about the same level it was at when the Eurocrisis erupted. After starting off the overnight session with a dip, gold recovered to the $1,105 level and stayed around there until early this morning (ET). A decline started at about 1:15 AM ET that was initially slow but steady. After a small recovery rally, which started at 4 AM after gold touched $1,102, the decline resumed. $1,100 was broken just before 7:00, and the drop continued through it. Bottoming at $1,093.60, the trend reversed at just before 8:00. As of 8:16 AM ET, spot gold was at $1,097.50 for a loss of $5.10 on the day. The Kitco Gold Index assigned -$0.10 to predominant selling and $5.00 to greenback strength.

After starting off the evening session in a trading range, the U.S. Dollar Index climbed somewhat before settling back into another range that was narrower and slightly higher than the first one. Starting at 1 AM, though, it began rising. From the 80.6 level, it reached the 80.85 level by 3:40. A two-hour pause was followed by another rally that took the Index up to just above 81 by 8:00. Since that time, it's pulled back a little; as of 8:28 AM ET, it was at 80.93.

The euro's fall was the cause featured in a Wall Street Journal article, which cited analysts saying that a sustained drop below $1.35 could trigger a drop to below $1,090 for the metal triggered by long liquidation.
Germany's stance of opposing an aid package for Greece is increasingly at odds with other EU members, raising uncertainty for the stability of the euro. Meanwhile, Greece's finance minister Tuesday said the country had no need of financial assistance but urged the EU to take measures that would ensure stability in the euro zone.
The same cause was highlighted in a Reuters article, which also mentions the $1.35 level as being crucial. An expert quoted also points out the risk of a further drop, and adds:
"As soon as gold gets to $1,095, there is really decent physical demand, especially out of Asia, supporting it. That is still in place, but that buying must be finite. If the dollar continues to strengthen, the bias must be for gold to go lower."
Also mentioned was the EU meeting on Thursday and Friday, which is expected to come up with some sort of indirect aid package for the Grecian government. If not, then the Euro might well fall below $1.35.

A more exact cause was fingered by a Bloomberg report, as webbed by Business Week:
The dollar climbed as much as 0.4 percent against the euro after European Central Bank President Jean-Claude Trichet spoke out against offering low-interest loans for which the Greek government has pressed. Gold typically moves inversely to the greenback....

Trichet’s demand for stringent terms and German Chancellor Angela Merkel’s push for sanctions against nations that breach deficit limits heightened chances that Greece will leave a March 25-26 summit empty-handed. Prime Minister George Papandreou has said he’ll turn to the International Monetary Fund for aid if necessary.
The experts quoted in this article are more bearish than the ones quoted or cited in the above two: one has predicted a possible drop to $1,030.

Regular trading began by stalling the above-mentioned rally. A period of fluctuation prefaced a drop, which brought spot gold down to $1,095.90 as of 8:49 AM. The day's loss of $6.70 was divided into -$2.50 for predominant selling and -$4.20 for a strengthening greenback by the Kitco Gold Index. The U.S. Dollar Index sunk a little further; as of 8:52, it was at 80.875.

Now that gold is below $1,100 again, the fear is back. Eurocrisis worries have spilled over explicitly into analyst commentary about the gold market. I note that the only way for gold to surprise would be to the upside. However, that's unlikely as of now.

Monday, March 22, 2010

Gold Drops Below $1,100 Despite Greenback Weakening, But Regains It

The rout continued. From 8:40 AM ET to 9:10, gold plummeted from about $1,105 to $1,095. After losing ten dollars an ounce, the metal crawled back up to $1,098 before falling to $1,091.50. A relief rally led to a double dip, and a slightly rising channel that pulled gold up from its lows but failed to reach $1,100. That channle turned into a trading range with a ceiling of $1,098. As of 11:35 AM ET, spot gold was at $1,095.60 for a loss of $12.30 since last Friday's closing price. The Kitco Gold Index attributed -$11.80 to predominant selling and -$0.50 for a strengthening greenback.

The U.S. Dollar Index did make it above 81.05 by 9 AM, but has sunk back until 11:10 except for a respite. Since the latter time, the Index has gove from below 80.7 to the 80.8 level. As of 11:41 AM ET, it was at 80.76.

Given how the gold chart will look, it's almost inevitable that there'll be more gold bears coming out of the woods. How much grist they'll have will be shown by the rest of the day's trading.

Update: The fallback of the U.S. Dollar Index managed to bring gold up again. For an hour, it was above $1,100.

The above-mentioned trading range was broken through on the upside right around 11:50 AM ET. Gold sailed up to $1,100 by noon, and spent a half an hour bobbing between that level and $1,098. Another uptrend pushed the metal above $1,100 and, by 1:00, to $1,103. A downward reaction pushed it below $1,100 again, but not by much. As of 1:45 PM ET, spot gold was at $1,099.60 for a drop of $8.30 since last Friday's close. The Kitco Gold Index assigned -$10.90 to predominant selling and +2.60 to a weakening greenback.

The rally in the U.S. Dollar Index from 11 AM to 11:45 turned out to be another relief rally; since then, the Index kept falling. By 12:35, it was below 80.55. Since then, it was fluctuating in a range bordered by that level and 80.625. As of 1:47 AM ET, the Index was at 80.56.

Although porous, the $1,100 support level is still exerting its influence. The rest of the afternoon will show whether it has been restored.

Update 2: It was, at least for today. The descent that began at 1 PM ET ended just before 2:15, at $1,097. Subsequently, gold advanced laboredly, sometimes inconsistently, but upwards still. $1,100 was breached on the upside as of just before 3:30. It stayed slightly above that level for an hour, but advanced a little afterwards. A dip just before the close was more than recovered from. As a result, spot gold closed at $1,102.60 with the loss since Friday's close pared to $5.30. The Kitco Gold Index lowered the loss attributed to predominant selling to $7.60; the gain due to a weakening greenback was upped a little to $2.30.

The U.S. Dollar Index went almost nowhere for the rest of the session. After a slight rally, which took it from 80.55 as of 1:55 PM to 80.67 as of 2:15, the Index slowly descended in a reasonably consistent, but gentle, slide. As of 5:30, it was at 80.58.

Its daily chart shows the backtrack from its one-day spike-up on Friday:

Despite the fear over the Eurocrisis and the consequent demand for the greenback, the U.S. Dollar Index didn't get to the high set on February 19th. The Index bounced off the 81 level today instead of closing above it. From a less short-term vantage point, it can be said that the Index has been in a trading range between 79.5 and 81 since February 4th.

Of course, today's pullback may have been preparation for a solider run at 81 that would best it. Doing so would entail breaking through, and staying above, a major resistance level. It's the same one that the Index failed to best in June of July of '09, which ended up prefacing its decline until December 2nd. It also marks about the half-way point between the three-year high set in March of '09 and the low set on that same December 2nd.

Currently, though, the Index's trading has been too directionless to see where it'll end up, except for a relatively safe guess that the trading range will continue. If it gets and stays above 81, there's a good chance at a new bull phase for it.

The daily chart for gold is beginning to look a bit worrisome, except to bears and those who are counting on bargain-hunting to keep the price above $1,100:

Evident from the chart is an almost-completed head and shoulders topping pattern. Given that gold's been in a longer-term trading range from mid-December on, it would be an odd one if it goes to completion: it's neither a toppy reversal nor a bear-market continuation pattern. Taking the overall range into consideration, it may be forecasting another descent to at or near the bottom. That means $1,060 or so.

There is that risk, one that dovetails with another run upwards for the U.S. dollar. $1,100 as a bargain point is no guarantee that the price won't fall below and stay; bargain hunters are okay with holding back from a price drop if they think there's a better bargain coming later. That strategy did not work the last time gold hit $1,100, on Friday before last, and it hasn't worked this day. However, if gold does sustainably fall below $1,100, it may work the next time 'round.

Apart from the U.S. dollar vaulting up, though, there's no real driver to push it down to February 4th-5th levels. Techncial selling may do so, but that kind of selling won't result in a longer-term lowering of the price. As with the dollar, the picture for gold looks uncertain right now. I just note the risk of a break below the $1,100 neckline that sticks, which would lead to one of those selling cascades again.

A Wall Street Journal article explains gold's lackluster performance today by earlier strength in the dollar, plus the aftereffects of the Indian central bank's decision to raise interest rates last Friday, followed by a wait-and-see attitude amongst would-be buyers:

Gold slid largely in response to early-day strength in the U.S. dollar, said Leonard Kaplan, president of Prospector Asset Management. Traders often buy gold as a hedge against dollar weakness but conversely sell when the dollar rises. Furthermore, a stronger dollar makes commodities more expensive in other currencies and thus can hurt demand.

"Not only do you have the dollar rising, but you have Indian interest rates going up, which provides more competition," Kaplan said. India's central bank raised rates Friday, and this could mean some shift toward interest-rate assets rather than gold, he said.

"Not a lot, because they didn't raise it a lot," Kaplan said. "But still, any competition is competition."
Another trader is quoted as saying that bargain hunters seem to be waiting to get $1,085.

Today wasn't a great day for gold, even for bears, but the afternoon bounceback shows that there's still some hidden strength at the $1,100 level. It may fade over the course of this week, but it's still a well-anchored bargain point amongst gold buyers. The metal's decline may continue, but it's unlikely to be anything other than a short-term one. We'll see if it continues tomorrow.

Indian Wholesale Buyers Hold Off Again

Part of the reason why, according to a Reuters India report, is an expectation that prices will fall further. Another reason, though, has to do with a relatively small wedding season:
"Prices are coming down smoothly. Traders are waiting till next week before buying ... the marriage season this time around is not big so they can also use their old stock for business," said a dealer [from a] private bank, which deals in bullion.

Traders are expected to stock up for the upcoming wedding season in April.
The hold-off is also because of last Friday's rate hike by the Central Bank of India, which caught the market off-guard.

Gold Skeptic Expects Price To Fall

Most of his article is devoted to evaluating the case for gold shooting up and then debunking it, but David Schwartz also says there are reasons to expect gold to decline from here on in. In the short term, according to Schwartz, gold is reacting badly to the events of the day and has shown a pattern of lower highs and lower lows. His long-term case is prefaced by the Efficient Market Hypothesis in disguise:
Gold was once mainly accumulated by governments or individuals in times of crisis. But now it has become an investment like shares or corporate bonds. Gold prices spike up and down faster than in the past.

Most investment categories adjust to fresh information. Gold is no different. Today's price reflects fears about Greece, inflation, quantitative easing and other variables. But gold bulls believe they have insights not yet reflected in the price.

There are two conclusions an objective person can reach. Bulls are either more perceptive than investors in other asset classes, or their views are fanciful....
In other words, enthusiastic gold bulls think they're smarter than the market. From a long-term technical standpoint, gold is way above its long-term trendline - unsustainably above, avers Schwartz.

The core of his argument can be itself debunked in a theoretical (or perhaps abstruse) manner. All investors thinks they're smarter than the market. They wouldn't have invested otherwise, unless they invest solely for a stable income without hope of a capital gain. Everyone who makes an investment believes that the market has either undervalued it (bulls) or overvalued it (bears.) This is more particularly true for speculation, whose very rationale is to take advantage of market mispricing. That being said, the bull case for gold can't be impugned by saying that gold bulls think they're smarter than the market. It has to be shown that they're wrong - which Schwartz does attempt to do with a market technician's answer to relative-value analysis.

To be less theoretical, Schwartz is yet another skeptic who sees a large overvaluation gap between what gold is and what he thinks it should be. His point about gold's downtrend seems to have been obviated by recent events. Gold is staying stubbornly high, still. He may be right, but there's little sign of the gold market co-operating his way either.

Gold Drops Below $1,105

The big political story of the weekend was the ram-though of Obamacare (unless it's now PelosiCare), and the long-term implications are already being digested. In the short term, its passage had little effect on gold.

The metal spent some time below $1,105, but recovered to stay in the $1,105-$1,110 range until early this morning. For most of the overnight session, gold drifted. Starting at 5:45, though, the price broke through $1,105 and stayed below; a recovery rally only brought it back up to that level. Another dip at about 7:40 brought the price down further, to $1,101, before another relief rally set in, but the decline continued right down to $1,100 before rebounding a little. As of 7:56 AM ET, spot gold was at $1101.60 for a drop of $6.30 on the day. The Kitco Gold Index divided the loss into -$4.30 for predominant selling and -$2.00 for a strengthening greenback. Yes, the latter went up overnight.

To be more precise: the U.S. Dollar Index spent the night rising, in upward waves. Peaking at 80.96 as of 3:15 AM, it went for a tumble that took it down to 80.7 as of 5:00. That decline proved only to be an interruption of the upward trend, which resumed and pulled the Index almost to 80.95 by 8:00. As of 8:09, it was at 80.90.

Gold's declines were explained by the rising greenback in a Wall Street Journal article, which attributes the latter to continued fears that there won't be an EU aid package for the Grecian government. The early-December peak being anchored in gold buyers' minds, $1,100 seems a bargain:
Analysts said physical demand continues to underpin gold, as prices seem cheap relative to December's record high of $1,226.30 an ounce.

"We continue to see good physical interest at these levels," said Walter de Wet, a precious-metals analyst at Standard Bank in London.
Although gold will continue to be weighed down by U.S. dollar strength, physical demand should help provide a floor around the $1,087-$1,090 level according to two other analysts.

A Reuters article attributed gold's range-bound behavior to conflicting impulses: selling pressure from the above-mentioned greenback rally and buying power from safe-haven demand. Also mentioned is India's unexpected 25 basis point rate hike on Friday, which also added to selling pressure. But, the main event is still the Eurocrisis:
European leaders sent out conflicting signals at the weekend over aid to Greece, with Germany's Angela Merkel urging Athens to solve its debt problems alone and Italy's Silvio Berlusconi strongly backing EU support.

"There is still plenty of confusion about a bail-out for Greece," said Credit Agricole in a note. "Merkel dampened expectations of a bailout by stating that it was not even on the agenda for the summit."

"In contrast, EU President Barroso has pushed EU members to agree on an explicit stand-by aid agreement for Greece as soon as possible."

"All of this suggests more downside for EUR/USD,...
Oil is mentioned too, near the end of the article; crude's dropped to $80 per barrel. That drop may have weighed down gold too.

A Bloomberg article, as webbed by Business Week, attributes Friday's drop to greenback strength "after the Reserve Bank of India unexpectedly raised borrowing costs."
“Greek debt concerns continue to keep the euro in a weak mood,” James Moore, an analyst at in London, said in a report. The rate hike by India has also “dented risk appetite,” he said.
It also mentions that holding of the SPDR Gold Trust remained unchanged on Friday - despite the plummet that same day. Of course, there's no guarantee that today's won't change.

The opening of regular trading drained a relief rally that carried gold up to $1,105 by 8:15. As of 8:53 AM, spot gold was at $1,102.40 for a loss of $5.50. The Kitco Gold Index had $2.30' worth of loss pegged to predominant selling and $3.20' worth of loss to U.S. dollar strength. The U.S. Dollar Index has strengthened in the interim; as of 8:55 AM ET, it was at 81.01.

Gold's decline may be continuing, but $1,100 has not been breached. It's now at same level as Friday before last. The course of the day's trading will show how much decline is left in the gold market.

Sunday, March 21, 2010

Financial Sense Newshour Interview With Brent Cook

Although the Financial Sense Newshour podcast is still maintaining its focus on energy, there was an eye-opening interview in the third segment with Brent Cook of Exploration Insights about gold-exploration stocks. [.mp3 file; interview starts at 38:00.] Cook is convinced that juniors, as a whole, are overvalued right now. It's easy for most junior exploration companies to find money through private placements.

More particularly, companies with huge gold discoveries in Alaska and British Columbia have seen their share prices skyrocket to the point where they trade at near-done-deal levels. That's great for the shareholders who bought in early, but it leaves a certain headwind to deal with. Getting even a huge deposit into production is difficult, time-consuming and expensive...and the financing might not be forthcoming. The shares of those companies are too expensive to make a takeover by a major worthwhile. Consequently, they're going to be in a bit of a spot.

Regarding huge deposits, Cook said that the only ones likely to be found now are porphyry deposits with copper-gold. Any major wishing to replenish its reserves faces the dilemma of becoming a copper-gold company if it chooses to take over such a deposit, or if it finds one on its own.

One underappreciated area that the exploration market hasn't caught on to yet is Mexico, with some deposits in the million-ounce range that aren't considered exciting. Cook believes that there's a real opportunity for a company, one with a financial orientation, to take over and consolidate the exploration companies in the region and make a new major producer out of them. He mentioned a junior producer, Minefinders, in another context but left it open as to whether that company could be the consolidator.

As far as the senior producers are concerned, Cook said that their earnings came in strong and their multiples are reasonable.

From what I've seen of the little corner of the exploration-junior market I watch, the companies are beginning to have a tough slog. Perhaps that's because I naturally gravitate towards the out-of-favor; perhaps I'm seeing the early stages of what will turn into a slide in exploration juniors as a whole. As a class, they performed extraordinarily well last year. The valuation question, and the slim chance of one spectacular year turning into another, suggests the entire sector will have tough sledding over the course of this year.