Saturday, April 3, 2010

Financial Sense Newshour Has Founder Of Northwest Territorial Mint

This week's Financial Sense Newshour podcast, in addition to having Donald Coxe in the first hour [.mp3 file], had founder of Northwest Territorial Mint Ross Hansen. He was questioned on the gold-bubble issue, and he said that there's two sides to it. On the one hand, gold has gone up to the point where it's squeezing traditional sources of demand like jewelry; investment demand is making up the balance. On the other hand, from his own personal experience, investment gold is being held by strong hands. He recommended shying away from short-term trading of the metal and accumulating for the long haul. The interview itself is at the beginning of the third hour [.mp3 file].

A point he made was important enough for me to highlight. People who believe that gold's in a all-out bubble point to buy-gold ads on conservative talk shows. Hanson made the point that a lot of those firms use a high-pressure sales tactic to get would-be buyers to trade up to semi-numismatic coins at big mark-ups. The salespeople claim that the federal government is going to confiscate gold in the near future, like it did in 1933. They also claim that, as in 1933, collectors' coins will be exempt. Thus, buying semi-numismatic bullion coins is safe but buying lower-margin bullion coins may not be.

Regarding the threat itself, Jim Puplava said that confiscation of gold coins in individual hands is unlikely because it's inefficient. The government would have a much easier time confiscating the holdings of the SPDR Gold Shares Trust: it's much easier to pick on one institution and a lot more gold could be gotten than through house searches. Hanson added that there's a lot more belief in owning gold nowadays, and any U.S. administration that tried it would find the job a lot harder now than in '33. Illegal drugs are far from being confiscated out of existence, and drugs are amenable to search techniques like sniffer-dog usage that gold isn't. He didn't suggest it outright, but the drug dealers have come up with a lot of sneaky ways to hide drug stashes that weren't around in 1933. Those tricks could be adapted by gold holders.

Returning to the high-pressure confiscation angle: the salespeople who do this may be cynical, just in it for the higher commission, or they may sincerely believe it. Whatever their beliefs, it's obvious to a non-believing outsider like myself that fear-inducing stores, if believed outright, create a hot button in the head. There are those in the world that believe hot buttons in others' heads are there for pressing. Some do so for monetary gain, some for political gain, some for more informal power-tripping, some because they just like to jerk certain others around.

My own approach in these matters is to shy away from anything that gets the blood boiling, or the pulse pounding, with respect to gold. I'll grant that this approach makes me passionless, and it means that I may be inappropriately skeptical on certain points, but I find that an approach of this sort makes my chain less easy to pull. Those who prefer a more engaged approach, I suggest, should take precautions to make sure their chain is out of reach of others' pull hands.

One way of doing so, which works for salespeople who call on you, is treating any ad or spiel as a kind of mini-show in its own right. Enjoying the show is a way of insulating oneself from the come-on while still grooving with the message. I've never tried this method, but one way to blow off a high-pressue salesperson is to consumer too much of his/her time with the message instead of listening to the pitch. Another is to treat (say) an incoming caller as someone who needs your advice on the matter, which you should give in copious detail. Of course, this is a counter-tactic: it may require cultivating a false innocence to make it work, which may not be for all people. Most everyone knows that there's only one reason why a salesperon calls.

I should add that this technique, if widely used, weeds out the sincere salesperson and leaves the cynic in place. A cynic finds it easier to cut off the reply, and/or subtly bait the would-be customer into getting "on message."

For ads instead of direct pitches, it's easier: just drink in the ad - maybe critique it if you like - but don't follow through. Or, displace any urge to follow through by taking it to, say, eBay unless the pitching firm offers a good enough value to go with them.

To return to the interview, Hanson also said that silver is better for crisis investing that gold. It's much less expensive per unit weight, and that differential make it easier to use silver as money.

This kind of reasoning actually explains why the gold standard came relatively late in the game. Back in the aulden days, the European world had two standards. The gold standard was for nobles, grandees, gentry and those of large means. The silver standard was for the ordinary commonfolk. In auden England, at the base level, the unit of account was actualy the silver shilling for some time; the U.K's clapped-together pre-decimal system was a product of that dual standard. It could be argued that the use of copper meant there were three standards: gold for the flush, silver for the multitude, and copper for the truly poor.

In the first hour, Coxe made a point worth passing on. He said that, if the People's Republic of China were impelled to upvaue their currency, they would become richer in terms of U.S. dollars. That would enable them to buy more commodities for the same amount of renminbi; it would increase mainland Chinese demand power for any commodity they wanted to buy. Gold, of course, is one of those commodities; the push in mainland China to own gold is still going strong. Not mentioned by him is the possibility of more commodity diversification as, in part, a tit-for-tat measure. The other part, of course, would be value protection; any upvaluation is likely to be a managed float over a lengthy period of time, making an early decision to buy more commodities a profitable one ceteris paribus.

Friday, April 2, 2010

Committment Of Traders Report For This Week

Despite the holiday, the Commitment of Traders reports were released this afternoon. This post takes the place of my normal discussion of them, in the regular end-of-week commentary on the the gold and U.S. Dollar Index markets. Both reports cover positions as of last Tuesday, March 31st. That was the day before the two-day rally in gold, and the end of a relief rally for the greenback.

The COT for gold, as graphed here, shows a real shrinkage overall. Total open interest declined, by 12,326 contracts or 3.00%, and the number of non-commercial longs shrunk by 11,598 contracts or 5.24%. The big decliner in the long category was non-reportable positions. Bucking the trend, commercial longs increased markedly: by 10,968 contracts, or 8.81%. Given how gold performed over the rest of the week, it looks like some on the non-commerical side was gotten the better of after Tuesday.

On the short side, the non-commercial category shrunk too, but not by that much: 1492 contracts, or 3.97%. This shrinkage does add to the impression that non-commercial shorts tend to be cannier than non-commerical longs. Commerical shorts shrunk by 5,164 contracts, or by a mere 1.48%. As with the long side, the big shrinkage in percentage terms was in non-reportable contracts.

For the U.S. Dollar Index, as graphed here, total open interest ballooned for the second week in a row. From March 23rd's 49,119 contracts, March 31's increased to 58,227 for an increase of 9,108 contracts or 18.5%. Interestingly, both commercial and non-commercial long positions expanded. The former went up by 913 contracts, or 16.4%, and the latter went up by 7,658 contracts or 20.0%. Both categories were hit subsequently by Wednesday's and Thursday's fall in the Index.

Also interestingly, the shorts in both commerical and non-commerical categories expanded. The former went up by 5,099 contracts, or 12.5%, and the latter went up by 4,692 contracts or a brow-raising 76.2%. In the U.S. Dollar Index market, the non-commercial shorts certainly picked up more than their share of the slack created by the expansion of longs in both categories.

The impression left for both is an old saw of the commodities market: the shorts tend to know what they're doing more than the longs. One quirk of the U.S. Dollar Index category is the commerical longs being caught out by downturns as well as the non-commericals.

Thursday, April 1, 2010

Gold Has Roaring Start To New Month

Although accentuated by thin trading today, due to the holiday weekend coming up, gold still put on a show this morning after it was cued by an encouraging first-time U.S. jobless claims number. Gold's rise right after its release was accentuated by a drop in the U.S. dollar index below 81; that fall helped the metal surmount the $1,125 level.

Regular trading actualy began with a slight decline, of about two dollars. It reversed after the jobless-claim number was released, and paused at the $1,116 level before taking off. From 8:40 AM ET to 8:50, gold put on eight dollars an ounce in a mirror image of a waterfall decline. After hitting $1,124, it hung around that level in an increasibly volatile spiral which was replaced by a jump above $1,126 around 10:30. After spiking up to $1,128.70, the metal pulled back a little before stabilizing. As of 11:34 AM ET, the spot price was at $1,126.90 for a gain of $13.30 on the day. The Kitco Gold Index split the overall gain into +$9.80 for predominant buying and +$3.50 for a weakening greenback.

The U.S. Dollar Index didn't fare all that well in the morning, even though the release of the jobless-claim number only pushed it back to the 80.0-80.1 range it had tried to rally out of. The 81 level wasn't breached until 9:54, and not sustainably breached until the middle of a three-minute drop at 10:40. Since that drop, the Index has continued declining. As of 11:35 AM, it was at 80.80.

I have to admit to being surprised at the extent of the gold rally today, even if it's been amplified by pre-holiday thinness. Still a rally's a rally. The afternoon part of the session will show if it keeps.

Update: So far gold's gains are holding. After sliding down a little after its peak, spot gold's been hovering around the $1,126 level. The trading in the early afternoon session has been largely directionless: as of 1:55 PM ET, the metal was around $1,126.70 or so. [Note: Due to an outage at, I don't have the values for the Kitco Gold Index. I used this chart for the price itself. ]

The slump in the U.S. Dollar Index continued to about noon, when it bottomed around 80.7. Since then, it's been in a range between 80.7 itself and 80.8 with a slightly upwards bias. As of 1:54 PM, it was at 80.79.

It's quite likely that the drift will continue for the rest of the afternoon, as the holiday weekend is only several hours away. If so, then gold will close at around $1,125 and make this an unexpectedly good week.

Update 2: The metal did drift for the rest of the session, with a slight downward bias until near-end that left it at a little above the number I had picked out of my hat. At the end of this holiday week, it closed at $1,126.40. The Kitco Gold Index apportioned the day's gain into +$8.20 for predominant buying and +$4.60 for U.S. dollar weakness.

For the holiday-shortened week, gold put in a solid gain. From last Friday's spot price of $1,106.70, gold added $19.70 over the last four days - even if the last two were responsible for a little more than all of it. In percentage terms, the week's gain was 1.78%.

The final hours of the week were not kind to the U.S. Dollar Index. After fluctuating in a narrow region centered at 80.78 from 1:15 PM ET to 3:00, it slid down in a two-stage decline that took it to 80.665 by 5:00. Rebounding a bit, it ended the week at 80.72.

Its daily chart, from, shows that the wind has gone out of the Index's sails, except for a short-term bearish one:

Although thin pre-holiday trading likely added to the decline, there still was one. The Eurocrisis, or this iteration of it, is fading into memory and it shows on the chart. The safe-haven demand that pushed the greenback up is leaking out of the greenback market like air from a balloon. Today's decline took out the 81 support level, which had held up 'til yesterday. Today's close left the Index within sight of the more important 80.5 level. If that support is punctured, then we're looking at a bit of a different picture from the bullish one. I mention this thought only in passing, but there's a long-shot chance that the Index will go all the way down to 79.5. A close around that level would put the entire upturn into question.

Less hypothetically, the MACD lines at the bottom made a bearish cross today. As shown by the histogram that's underneath them, the black line is now below the red line. In recent times past, this crossover has led to a slow decline in the value of the Index.

It might be a one-day fake-out, though, Given that thin trading tends to accentuate volatility, I wouldn't put much stock in it unless it's confirmed next week when the volume will return to normal. The bulls might have ducked out a day early.

The same qualifier applies to gold and the bears. In price terms, as its own daily chart shows, today was a good day - particularly after yesterday:

It certainly shows that the head-and-shoulder topping formation completed early last week is now busted. So is the recent short-term downtrend: the two higher highs and higher lows have been followed by an advance that's taken gold up to the same level of the lower high. The advance may not be finished yet. If next week's trading puts gold up further, the high of March 16th-19th will have been followed by a higher high.

That would not necessarily be bullish, except in the short term, but it would definitely not indicate bearishness. Of course, there is the chance that today and yesterday's thin-volume advance will not be endorsed during next week's more regular-volume trading. In that case, today's return to the $1,125-$1,130 resistance zone will have to be treated as an aberration.

So would the bullish cross made by the MACD lines at the bottom of the gold chart. During this MACD bear phase, when the black line was below the red line, there was a one-day crossover that proved to be a fake-out. Today saw another crossover, but it may be another misleader. Although the techncial position of gold looks strong, it may be distorted by the pre-holiday effect.

That being said, seeing gold's action endorsed on Monday would be worth a thousand encouraging words.

Because the trading week ends today, there's no Commitment of Traders reports or graphs for this week yet. Although tomorrow is a statutory holiday, they may nevertheless be released then at 3:30. Or, they may be released Monday.

The regular day-end Reuters report credits a rally in crude and increased risk appetite for today's advance. Amongst other points, these were made:
* A combination of rising oil values and a rally on Wall
Street improved investor sentiment across all asset classes - traders.

* Gold in a broad upward channel; a break of $1,135-1,145 could see prices retest record high set in December - CitiFX.

* If stock market rallies, gold equities should outperform gold bullion - Rick Bensignor at Execution Noble LLC.

* Gold equities gauge Arca Gold BUGS index .HUI jumps more than 5 percent, surpassing the 1 percent gain in bullion
I note as an aside that the Citi forecast comes from its foreign-exchange department.

Despite my demurs, I can say that gold put down a good rally over the last two days. It sets up a good holiday mood. May you enjoy yours, and thanks for reading.

Przemyslaw Radomski Sees Gold's Action Now As Resembling August '09's

On the second page of a Minyanville article entitled "What it Means for Gold if the General Market Tops," whose first page deals with the S&P 500, Radomski notes a similar downtrend line and stochastic reading between now and August 2009:

Using the Gold Trust ETF (GLD), which is a proxy for the gold market, the current stochastic level of around 20 and the RSI around 70 are also similar to the August 2009 pattern. In the past we have also come back to re-test the previous low, which has just taken place, further confirming my bullish analysis.

I realize one might perceive the last six-week action as a bearish head-and-shoulders formation, but before opening short positions, please note that the August 2009 action was also similar to this pattern, and Gold managed to rally very strongly soon after that. Moreover -- based on yesterday's closing price -- the formation isn't completed, as prices failed to move decisively below the late-February bottom. What's even more interesting, the value of the GLD ETF managed to move decisively above that low, which serves as a strong bullish signal.

A more complete explanation, including a proprietary indicator, is in the second page of the article itself.

Some Demand Pick-up By Indian Wholesale Buyers

According to a Reuters India report, some wedding-season-related demand has hit the physical wholesale market.
"There was some demand from the retailers who want to stock up for the wedding season," said a wholesaler in Mumbai.

Maybe some stockists have decided that gold's not going to go below $1,100 anytime soon.

Another Mint's Gold Coin Sales Plummet

This time, it's the U.K.'s Royal Mint: its first-quarter gold coin output slipped 50%.
“People are not piling into gold in a way that they were in the past,” Dan Smith, an analyst at Standard Chartered Plc in London, said today by phone. “There’s been an improvement in risk appetite and people see less of a need to be in gold.”
The drop wasn't as bad as the Austrian Mint's, but it was still quite the drop.

Good News Bear

She really isn't, but Geena Davis presents the bear case for gold in times of global recovery: since gold is a disaster hedge, good economic news makes it languish.
The yellow metal can’t stand anything good. Because, uncertainty is gold’s biggest bet. It always rides the recession wave and making use of the confusion in the global economy during the past two years gold soared to levels beyond $1,200 per ounce. Yes, gold boom forecasters will always say the metal is set to cross $1,300 per ounce soon and even the prices may cross $1500 per ounce within a year. However, when reports came in that the global economy is on strong footing now, most of these soothsayers for gold have vanished from the news reports.

Now, you can just see a few hardcore gold backers saying that the gold prices are in a lull and will stage and solid comeback with the prices going beyond $1,200 per ounce.
She also says that quasi-industrial precious metals are coming into vogue because the demand for them is pushed up by recovery, while gold's isn't all that much. [At least, not at current price levels. Historically low prices are another matter.]

In fact, the nub of her case is that recovery makes other assets, stocks as well as quasi-industrial precious metals, more competitive; as a result, the demand for gold is drained.

Of course, her case depends upon the recovery proceeding without a ramp-up in inflation. That's what we've been seeing, so far.

Cautionary Tale About Gold Stocks

Had you decided that gold was going up in 2005, and bought into some well-known gold producers, then your portfolio would have underperformed the metal itself. That's the context to a Globe Investor Market Blog post by David Berman that outlines the market risk of investing in gold shares. Granted that 2005 marked a high in gold shares, but the high points are also the popular times for any investment.

The cautionary tale therein is about Gammon Gold, a hard-luck producer whose stock price has actually declined 9.5% since mid-2005.
Yes, even if you had made a prescient bet on gold at the start of the remarkable five-year bull market in the precious metal, you would have nothing to show for your wisdom but a big headache. Rising gold prices are one thing; how much a company has in the ground and the cost at which they can get it out of the ground is another.

Of course, Gammon stands out as a sore thumb; the senior producers haven't had its ill luck. Its record, though, does indicate the need for diversification.

Had Berman picked the Amex Gold BUGS Index (HUI), he would have gotten a similar underperformance. At the close on March 31, 2005, the HUI was at 201.86. As of yesterday's close, it was at 406.95: the five-year gain was 101.6%. The London PM fix for gold on Mar. 31/05 was $427.45; yesterday's was $1,115.50. The five-year gain for physical gold was 161.0% in the same timeframe.

Of course, the finanical crisis intruded - but events like that do happen from time to time over the long term. Sadly for the gold shares, they have underperformed the metal itself over the last five years.

Gold Breaks Above $1,115 Again

After doing so for a two-hour stretch yesterday, gold has made it above $1,115 this morning. The news that mainland China's Purchasing Managers' Index rose for the thirteenth straight month had little effect on the metal at the time of release.

In fact, gold spent the entire night in a trading range between $1,112.25 and $1,115. That range held up until just after 3:00 AM ET (despite a brief dip to $1,110.90 just after midnight) when it was broken through on the upside. That trading range gave way to a new one, between $1,115 and $1,117.75, with a spike up to $1,119.90 just before 5:30. As of 7:56 AM ET, spot gold was at $1,115.50 for a gain of $1.90 on the day. The Kitco Gold Index attributed +$3.00 to predominant buying and -$1.10 to strengthening of the greenback.

The U.S. Dollar Index went for a bit of a tumble between 7:00 and 8:30 PM,which climaxed at 80.8, but recovered from it to restore the 81 support level. An attempted rally between 1:55 and 3:00 took it slightly above 81.2, but that rally faded as well. Subsequently, the Index hovered around the 81 floor except for two jump-ups, the first a spike. As of 8:06 AM ET, it was at 81.14.

A Wall Street Journal article said that gold is rising in sympathy with platunum and other platinum-group metals (PGMs), but the rise has been muted.
Gold is attracting decent physical demand particularly from China, traders say, but investment demand remains muted. China's manufacturing activity grew for a 13th straight month in March and that boosted investor interest in industrial metals.
The same cause, plus a weakening dollar, were highlighted in a Bloomberg article webbed by Business Week. Also brought up was rising risk appetite in general.
“Equities are up and that indicates investors are buying more risky assets” including gold, said Peter Fertig, the owner of Quantitative Commodity Research Ltd. in Hainburg, Germany. Still, “the slight recovery in the euro may be a bit of profit taking,” and any dollar rebound may be negative for gold, he said.
In addition, the article mentions that holdings for the SPDR Gold Shares Trust (GLD) were unchanged yesterday.

On the other hand, a Reuters article attributed the rise to a jump in the commodities complex, particularly the PGMs like the WSJ article did. Noting that the greenback was almost unchanged, it quotes a metal analyst in support of the above contention:
"Commodities as a group are extremely strong at the moment," said RBS metals analyst Stephen Briggs. "We had lots of quarter-end massaging going on and that has set us up for probably more money coming into commodities at the begining of the second quarter," he said.
Also mentioned is the continuance of net physical demand in Asia but a relative dearth of investment demand, and the extent of the quarterly rise for the 1st quarter of this year: about 1%.

The jobless-claim report was released, which said that first-time claims fell by 6,000 last week to 439,000 seasonally adjusted. That number was slightly better than the expected 443,000. It had little effect on the greenback, but a big effect on gold. Despite dipping slightly right after regular trading opened, the metal turned upwards just before 8:30 and then paused at $1,116. Starting at 8:40, it leaped up well above $1,120 in a waterfall advance. As of 8:53 AM, the spot price was at $1,124.40 for a gain of $10.80 on the day. The Kitco Gold Index assigned +$10.95 to the predominant-buying category and -$0.15 to the strengthening-dollar category. The U.S. Dollar Index, on the other hand, merely sunk back to the sub-81.1 level; as of 8:55, it was at 81.08.

So far, this day's starting out like yesterday. Should gold hold at the level it's at just before 9 AM, it would make for a good holiday on the holiday weekend.

Wednesday, March 31, 2010

Gold Gets Above $1,115 But Falls Back

Yesterday's decline has become today's memory. Although $1,115 failed to hold throughout the morning, it was bested for about three hours. Prompted in part by disappointing U.S. jobs data, and a drop in the U.S. dollar, the metal erased yesterday's drop.

Gold came out of the gate strongly at 8:15 AM ET. A spike just after that time was erased by 8:37, but it proved to be prefatory to a more extended rise that started off slowly but accelerated. By 9:10, the price was well above $1,117. The ride became more rocky after that point, but gold made a higher peak at 9:30 that took it up to $1,119.40. Then, it stalled. $1,115 held until just before 11:00, but a stumble followed that was mostly recovered from. As of 11:40 AM ET, spot gold was at $1,114.80 for a gain of $11.50 on the day. The Kitco Gold Index divvied up the gain into +$5.35 for predominant buying and $6.15 for a weakening greenback.

The U.S. Dollar Index did weaken over the regular morning session, droping below 81, but it did recover to re-surmount that level at about the same time gold dropped below $1,115. After a drop following the disappointing ADP report at 8:15, a recovery rally set in that was more than erased by a further slide. 81 was broken on the downside briefly at 10:05, and for longer at 10:25. The 81 support level ended up holding, though, as the Index turned around and rallied up to 81.14 before pulling back. As of 11:42, it was at 81.04.

So far, it's been a good day for the metal. A likely explanation for yesterday's drop and today's gains is thin trading exaggerating volatility. If so, then further volatility might show up over the rest of the week. It might this afternoon.

Update: Things were quiet for gold in early-afternoon trading, even though there was a slight downward bias to the trading.

After bottoming below $1,113 as of 11:15 AM ET, gold rose slowly until it made a double top at $1,116. Afterwards, as of 12:45 PM, it went on a quicker slide that carried it down to a slightly lower level - $1,112.50 - which was gotten to as of 1:15. Subsequently, gold dawdled for a time until rising again. As of 1:51 PM ET, the spot price was at $1,114.10 for a gain of $10.80 on the day. The Kitco Gold Index attributed $3.70 to predominant buying and $7.10 to greenback weakness.

The U.S. Dollar Index has sunk a little, after its late-morning rally. Peaking as of 11:25, it went from 81.14 to 80.9 over the space of eighty minutes. A partial rebound put it in a tight trading range centered at around 80.97. As of 1:52, it was at 80.95.

Things have quieted down, and it's likely that the rest of the afternoon's trading will result in a similar muddle-through. March looks like it's going out like a lamb with respect to the gold market.

Update 2: It did, even though the lamb was fairly droopy. Gold drifted between $1,115 and $1,111.50, but the upturn and downturn were both mild.

The upturn peaked as of 2:15 PM ET at $1,115.50. From then 'til 3:20, the price drifted down to reach about $1,111.50. Afterwards, gold drifted along in a range that sloped slightly upwards; it went out like a lamb. As of the close, the spot price was $1,113.60 for a gain of $10.30 on the day. The Kitco Gold Index split the gain into +$4.60 for predominant buying and +$5.70 for a weakening greenback.

After drifting up above the 81 level, the U.S. Dollar Index also went out like a lamb. The above-mentioned trading range was broken on the upside as of 2:15. After the run-up, which ended as of 3:05, the Index settled into a higher trading range centered around 80.06. It ended the regular session, as of 5:30, at 81.05. So, resistance of 81 was tested but not broken.

The daily chart, from, makes yesterday's rally look like a relief rally:

From the perspective of the daily chart, today's decline doesn't look all that bad - especially when compared to Monday's. It's significant, though, because a big drop like Monday's is usually follwed by at least a relief rally. Had the bullish winds been blowing strong, the Index would have been picking itself up and making another run at 82. Instead, it's bumping against 81 again.

Today's action does not suggest an all-out trend reversal. The distance the Index has put above both moving averages makes it look like it's in need of a pause or consoliation phase. That's what the nearly month-long slide starting Feb. 22nd was; it prefaced another run up to multi-month highs.

That run was shorter than the previous one, and not as extensive, but the Index isn't at the point where it looks like it's going to reverse course. There's no chart pattern that suggests a reversal in the offing.

The MACD lines, although still in bullish configuration, are close to turning into the bearish configuration. Once there, as shown by the histogram that they run over on the bottom of the chart going negative, there may be a more sustained drop - but, if recent precedents are followed, it's likely to be mild. For now, it's in pause mode.

With respect to gold, its daily chart does show that gold went out of March like a lamb (and in like a lion):

Today's interday bottom was at the same level as yesterday's, but the top was higher. So, of course, was the close. Gold's own MACD lines are close to turning from a bearish configuration to a bullish one. The last time they crossed over in that way, both were considerably lower.

It's too early to say that the recent short-term declining phase is over, but it's not as clear-cut as it was. This time, gold made a bottom at a level considerably above the $1,060ish floor of the longer-term range it's been in. It's now closer to the $1,140 top. If a rally does develop from this level, that's a sign of hope even if not encouraging. A clean and sustained break-out above $1,140 would encourage.

A Bloomberg report, as webbed by Business Week, highlights the fact that (despite the recent slogs) gold still clocked in a quarterly gain for the sixth straight quarter - the first time that's happened since 1979. The greenback was fingered as the cause of the upturn:

The greenback slipped as much as 0.7 percent against a basket of the euro and five major currencies as U.S. companies eliminated more jobs than forecast in March....

“The dollar is pretty weak,” said Dan Faretta, a senior market strategist at LaSalle Futures Group in Chicago. “We’re looking for a rebound in the economy, but the jobs numbers aren’t getting any better. We’re going to see the dollar pull back and continue to fall. It’s going to be bullish for gold and commodities across the board.”
The rest of the article contains some other facts about this month, including the rise in both SPDR Gold Shares Trust holdings and Indian gold imports.

Today does look better than yesterday for gold, but I have to say that the metal isn't out of the trading-range woods. That being said, gold's had a good month and the quarterly gain shows that the long-term bull market is still in place. Tomorrow is the last trading day of the week, and it should be a quiet one even if there's more volatility...even if there's more upside volatility, which may not be sustained when the market gets up to speed next week.

Special Recap: On January 3rd, the day before this year's trading got rolling, I posted an "Attempt At A Forecast" for 2010. Excerpted are the last four paragraphs, with two explanatory insertions:
I don't think the gold price will sink like it did the [during the '08 credit crisis], because a new credit crunch is quite unlikely. However, there are similarities between the current pullback and the one in the spring of '06. Gold got ahead of itself back then, and took more than a year to surpass the '06 high of about $720. What got gold rolling to newer highs in '07 was the pick-up in inflation, but the early '06 market overdiscounted it - went too far, too fast for the time.

We're in a similar situation now. The emerging-economy central-bank purchases were too vaunted, and it was forgotten that those purchases only make sense when done prudently. $1,050-$1,100 was prudent in retrospect. Buying at $1,200 would not have been.

There's no real reason for gold to go down, as explained above, but there's no real reason for gold to go up right now. There would have to be a real inflation and/or [U.S. dollar] devaluation shock to get gold shooting up. I don't see either on the near-term horizon. If anything, the greenback's chart indicates a reversal of last year's plummet.

Thus, I'm predicting that gold will spend 2010 in a trading range, between $1,050 and $1,200. Any sustained move above $1,200 will be prefaced by a few tests of that level.
Although it's written self-consciously formally, it's not been that inaccurate so far - even though I didn't anticipate anything like the Eurocrisis. Gold has gone nowhere near $1,200 since I wrote it, although $1,160 was surmounted in early-mid January, but it did bottom at only slightly below $1,050 on February 5th. Interday: the close that day was above $1,050.

The year is only one-quarter over, of course, but the forecast hasn't been derailed despite some excitements and scares these last three months.

True Confession: Right after I wrote it, I was afraid that I had been too pessimistic. In early February, I was worried that I had been too optimistic.

U.S. Factory Orders Up; Little Effect On Gold

Factory orders for February came in at a 0.6% gain, slightly above an expectation of 0.5%, and January's gain was revised upwards from 1.7% to 2.5%. The number had little effect on gold, even though it could have been interpreted bearishly because of the Fed factor. Evidently, the gold market trusts in "extraordinary period."

Two Contrasting U.K.'er Forecasts For Gold

One bullish, one bearish. The bull is Dominic Frisby, who predicted $1,400 gold for this spring. He's backtracked somewhat, given gold's disappointing performance, but he's still a long-term bull.
I can't help but think that the credit-based, fiat monetary system under which we operate is going to end badly. Winston Churchill said, "All previous attempts to base money solely on intangibles such as credit or government edict or fiat have ended in inflationary panic and disaster."

Put simply, we have burdened ourselves with too much debt at almost every level of society, from government to corporate to individual. The simplest way out is some kind of currency devaluation.
As far as his forecast is concerned, it's based upon a seasonal factor: the expectation of a spring blow-off. He concedes that the spike he's waiting for may have come in November, which would mean that gold would stay steady for some time.

The bear is Gary Reynolds, who declares that he's shorting gold. A Euroskeptic of a sort, he thinks it would be better for the region if the Euro was abandoned; he does, however, note that there's too much political will behind the currency for its abolition to come in the foreseeable future. His bearish call on gold is based upon a deterioration of the Euro and a tepid recovery, which would keep inflation down.

One of the features of range-bound markets is that they call forth unusually wide differences of opinion. If the aim of the gold market is to fool as many people as possible, then gold will stay range-bound.

Commerzbank Bucks The Neutralist Trend

As webbed by Business Week, a Bloomberg article says that the Commerzbank technical-analysis department has forecasted that gold may rise to $1,135-$1,145 an ounce.
“We believe that another short-term leg up is on the cards,” Axel Rudolph, a technical strategist at Commerzbank in London, said today in a report. “Gold is heading back up to its $1,135/$1,145 resistance area... We remain medium-term neutral as long as the gold price stays below the 50 percent Fibonacci retracement level at $1,135, but above the $1,073.85 January low point,” Rudolph said.
It's a bit optimistic for the present, but gold did break above the $1,115 level.

Indian Wholesale Gold Buyers Still Staying Away

Wholesale buyers, according to the Economic Times, are staying away from the gold market at current prices because they're waiting for a drop:
"Everyone expects the prices to be lower close to 16,000 [rupee] levels [or about $1,100] before purchasing more...but that's seems unlikely the wedding season will be for next two months and demand will keep prices higher," said a dealer at a private bank, which deals in bullion.
Earlier in the article, it's suggested that stock levels are fine right now despite the beginning of the wedding season.

Gold Moves To Beat Of Own Drum

A piece by Juan Carlos Artigas of the World Gold Council has been webbed by Forbes; it shows gold having a low correlation with other asset classes, particularly the S&P 500 and T-bills. Interestingly, one of his finding is that the positive correlation of T-bonds to gold is higher than that for the S&P.

The point behind it is to show that gold is a worthwhile diversifier for more normal portfolios. Artigas also includes a brief sketch of the supply-demand configuration for the metal.

Gold Climbs Back Above $1,110

The gold market shrugged off yesterday's decline with a slow but steady rise that lasted for most of the overnight session. After an initial drop to below $1,102, the price turned around and began climbing until it reached $1,107 at about 11:30 PM ET. The price tailed off to below $1,106, reaching $1,104.90 briefly, but started rising again around 1:00 AM. Pausing at 4:00, it wavered between $1,108 and $1,110 until it made an upward break right around 7:30. Gold peaked at $1,112.60 and then pulled back a little. As of 8:01 AM ET, the spot price was exactly $1,110.00 for a gain of $6.90 on the day. Kitco's Gold Index apportioned the gain into +$2.80 for predominant buying and +$4.10 for a weakening greenback.

The U.S. Dollar Index has weakened, making yesterday's rally appear a relief rally. After drooping when the night part of the overnight session began, the Index rallied to almost 81.7 as of right after midnight. That rise reversed afterwards; the resultant drop was unsteady at times but solid enough to last the entire morning session. As of 8:09 AM, it was at 81.17.

This morning's Wall Street Journal report notes that gold is moving up, but is also being outpaced by platinum and palladium. Trading is light pre-holiday weekend.
Gold is likely to stay in a range of $1,105 an ounce to $1,115 an ounce for now, but Afshin Nabavi, head of trading and physical sales at MKS Finance, said "we may have seen the lows for now," noting good physical buying from Asia.
A Reuters report, as webbed by the Globe and Mail, attributes gold's rise to the slumping greenback.
“Gold generally moves with the dollar,” said John Meyer, analyst at investment bank Fairfax. “The flow of funds into ETFs (exchange traded funds) could mean a strong end to the quarter for metals, that will lead new money into the market.”

The market is also watching Greece, which with its fiscal problems has dragged the euro down against the dollar in recent months.

That has weighed on gold, but uncertainty about finances in euro zone countries is a strong support.

“We view the upside risk as dominant today, supported by indications that Greece is starting to fail in raising money through bond issues,” SEB said in a note.
Another quoted analyst says that physical demand is helping keep gold from falling, but there's too much overhead resistance right now for it to rise appreciably.

A Reuters report not only mentions the firming euro, but also attributes the rise to some short covering.
"Overall, I don't think that gold is necessarily poised for another round higher," said David Moore, commodity strategist at Commonwealth Bank of Australia in Sydney.

"People are reluctant to take it higher from the general level in the absence of some further significant change in fundamentals or other views. Gold was supported a bit when concerns about Greece were at the most intense."

Gold had been supported by safe-haven buying related to Greece's debt problems but profit taking as well as frequent rebounds in the dollar have erased some of the gains.
In addition to gold failing to make new highs lately, worry about further tightening by the PRC government is holding gold back. Tomorrow is the release of the mainland China Purchasing Managers' Index.

The ADP data were released at 8:15, and they show an unexpected loss in private-sector jobs over March: 23,000, to be exact. The consensus forecast was for a gain of 40,000. That news had a further depressant effect on the greenback and helped gold. Regular trading began with a spike up to $1,115.50, which reversed by 8:30. A partial recovery followed. As of 8:49 AM ET, spot gold was at $1,112.90 for a gain of $9.60 on the day. The Kitco Gold Index divided the gain into $4.20 for predominant buying and $5.40 for a weakened greenback. The U.S. Dollar Index fell to below 81 on the news, but pulled back up into a trading range centered at 81.09. As of 8:51 AM, it was at 81.08.

Gold's been performing unexpectedly well today, as yesterday's decline has been reversed. If it holds up today, then market internals are better than I had thought. There's still that overhang at $1,115 to deal with, but the price has moved fairly close to it. Today might be a good day for the metal.

Tuesday, March 30, 2010

Gold Slumps; $1,110 Fails To Hold

The end of the Eurorelief rally has now come. As the U.S. Dollar Index shrugged off its recent slump, gold fell.

The regular trading session began with gold hovering around the $1,110 level. Starting at 8:30 AM ET, though, the metal dropped. At first slowly and interruptedly, the decline picked up steam starting at 9:30. Between that time and 10:50, gold lost almost nine dollars an ounce. The decline was more dragged out than a waterfall plummet, but it wasn't minor. As of 11:35 AM ET, a respite that started at the latter time was still in place: spot gold was at $1,104.00 for a loss of $5.00 on the day. The Kitco Gold Index split the decline into -$1.95 due to predominant selling and -$3.05 due to a strengthening of the greenback.

The main driver for gold's fall was the U.S. Dollar Index, which has been climbing fairly steadily since 9:07 AM. From 81.18, it rose higher than 81.56 by 11:25 AM. As of 11:36, it was stuck in a pullback at 81.50.

There's been a disappointing morning for the metal, but the three-day rally ended yesterday was looking like it was running out of steam. Once again, the $1,100 level has become the one to watch.

Update: There's actually been a recovery in gold since the 10:50 bottom. $1,100 wasn't even touched.

Between 11:00 AM ET and 12:20 PM, a ragged trading range developed that was centered around $1,103. After getting saggy in the end of that timeframe, gold popped up to the $1,105 level as of 12:35. That pop failed to take; after gold muddled in a trading range between $1,105 and $1,104, it slumped to the $1,103-4 range before poking up again. As of 1:47 PM, the spot price was $1,104.50 for a loss of $4.50 on the day. The Kitco Gold Index assigned -$1.30 to the predominant-selling category and $3.20 to the strengthening-greenback category.

After peaking as of 11:25, the U.S. Dollar index pulled back a little until 12:55 PM. From its top at 81.575, it slowly sunk down to the 81.42 level. Subsequently, it pulled up again to a little above the 81.5 level. Overall, the ascent and descent made a saucer shape on the chart. As of 1:49 PM ET, it was at 81.51.

Despite the recovery in the greenback, gold's not faring that badly subsequent to the decline. The rest of the afternoon may see a test of $1,100, but it doesn't look likely that it'll be breached in any serious way.

Update 2: It wasn't, although there was a late-afternoon drop that knocked it down to the $1,103 level. The pre-holiday-weekend quietness might be settling in, or it might be the usual late-afternoon doldrums.

Gold settled into a narrow trading range between $1,104 and $1,105 starting at 1:30 PM ET; it lasted until 3:30, when a slide took the price down to $1,103. From there 'til the close, a lower range was established between that same $1,103 and $1,104. The close found gold ending the session at the lower middle of the range: $1,103.30, for a loss of $5.70 on the day. The Kitco Gold Index attributed -$2.60 due to predominant selling and -$3.10 due to strengthening of the greenback.

The U.S. Dollar Index was also quiet for the rest of the afternoon; it remained near 81.5, although somewhat below it as the session wore on. A gentle rise, from 12:50 to to 2:10, turned into a gentler dip that ended at 2:55. Since then, the Index traded in a range centered at 81.45. As of 5:30, it was at 81.47.

The daily chart, as always from, shows that the plummet is indeed over:

The bottom of today's candlestick shows support held up at 81.0. The day's overall action shows a recovery for the greenback, which may continue tomorrow. Given the suddenness and extent of the decline over the last two trading days, some kind of rally wasn't too surprising. The important question is, how far will it go? Is today's action a mere relief rally, or is it the foundation for another try at 82?

The winds for the Index are bullish, but a serious run in the near future looks unlikely at this point - barring a resumption of the Eurocrisis. My own guessifier says that, whatever be brewing under the lid, the chances of an immediate resumption aren't great. If the Eurocrisis can be compared to the 2008 financial crisis, then the best match for Greece would be Bear, Sterns. That firm imploded on February. The second wave didn't hit until September.

More to the point, the authorities are now alerted. Accidents happen, but they tend to happen when the pot isn't watched. It's being watched now. The only source of complacency can come from those authorities nodding off beause the Eurocrisis was "solved." As the above analogy indicates, it'll likely take months before a more serious eruption. Shattered complacency takes time to rebuild.

That being said, there doesn't appear to be any other driver except for an overall bullish trend. Longer-term U.S. interest rates are going up, which does have a positive effect, but those kind of fundamentals take time to work their way through the market. My own guess is that the greenback will dawdle at this level; I can't think of any driver that would push it down far more.

Regarding gold, its decline today dovetails with the sputtering nature of yesterday's part of the recent rally:

Although the decline wasn't minor from a day-to-day perspective, it doesn't look all that lousy from the perspective of the daily chart. $1,100 keeps holding, as that price is well-anchored as a bargain point.

The rest of this week, despite the slowness expected to preface the upcoming four-day weekend, is going to be interesting. The current short-term downtrend will be called into question if the current drop ends above the level of the last one. Above $1,094 would do it. There's a chance that the current drop hasn't ended, so again $1,100 is the level to watch.

A Marketwatch report contrasts gold with copper: the latter made a 19-month high today, while gold languished. The reasons given were the stronger greenback, and lack of buyer interest right now:
"We don't think there's much momentum right now for gold going higher," said Walter de Wet, an analyst with Standard Chartered bank in London. "The dollar strength is dampening investor demand" and investors are booking profits as soon as prices approach the $1,011-$1,015 level, helping to keep gold rangebound, he added.

It may continue to be so for the rest of the week. We'll find out.

Getting The Theme Straight

In a long Minyanville article, James Kostohryz emphasizes the importance of having a consistent theme, or rationale, if investing in gold. Betting on inflation has, at best, a spotty justification; gold doesn't have that great a tie to inflation. Betting on a falling greenback is easier done with an inverse ETF nowadays. Betting on a concerted devaluation of all fiat currencies is fine, but it's a different bet than simply betting against the greenback.

He embeds an interesting nugget. Using the gold price as compared with the average all-in costs of gold mining companies (he uses $800/oz), he concludes that gold's implicit forecast for long-term inflation is close to that of TIPS right now: about 2.1% for the former, as opposed to 2.4% for the latter.

The article itself, which is quite thoughtful if a bit cold-waterish, explains the methodology behind his conclusion in the midst of his counsel.

Instead Of An iPad: Alix Steel Reviews Gold Investments

Over at, Alix Steel uses the price of a top-line iPad plus a two-year AT&T unlimited-data contract to review what an investor can do with the $1,548.75 the package costs. First on her list is physical gold; it then turns to ETF alternatives, ETNs and (briefly) mining stocks - and ends with Apple stock.

Of course, gold has no intrinsic WiFi... (sorry.)

U.S. Residential Real-Estate Prices Still Soft, Consumer Confidence Up

The S&P Case-Shiller Index data have been released, and the figures show that housing prices went nowhere during February. Small declines in the raw figures ended up as small gains when seasonally adjusted.
S&P's David Blitzer called the report "mixed," noting, "The rebound in housing prices seen last fall is fading."

The release of this item seems to have put pressure on gold and wind on the greenback's back. Spot gold started sinking right around the time the data were released, and the U.S. Dollar Index rallied. Both trends were amplified somewhat right after 9:05 AM.

Later, the March reading for the Consumer Confidence Index was released. It rebounded from February's revised 46.4 to 52.5. The expected figure was for 51.0. This reading seems to have helped the U.S. dollar; it did not help gold.

Mark Hulbert Says Not Enough Pessimism For Sustainable Gold Rally

The level of pessimism amongst short-term gold timers has ramped up, according to Hulbert's Gold Newsletter Sentiment Index, but it isn't at high enough a level to match the time when gold has taken off. The Index reading is at a higher level than it was at the December '09 bottom, and well above those accompanying the March and June/July '09 bottoms. Hulbert seems to suggest that a sentiment reading below 0% makes for a good run. [Its current level is +18%.]
Contrarians would be more confident that gold could mount a sizeable rally if pessimism were to become as widespread as it did during the corrections of a year ago.

Monday's trading was a good illustration of how insufficient pessimism can thwart an otherwise powerful up-move. The dollar fell against other major currencies, which alone should have provided a big boost to gold's price. And then a trade group announced that it foresees Chinese demand for gold doubling over the next decade.

You might have otherwise expected these two developments to have translated into a sizeable increase in gold's price. Crude oil, for example, which is also very sensitive to movements in the dollar, rose nearly 3% during Monday's trading.

And, yet, gold bullion ended the day just one half of one percent higher.
He ends by noting that his Index is just a short-term tool; it says nothing about gold's long-term fate.

This kind of contrarian analysis, I should add, comes closest to regular common sense. Professional gold timers that are bearish are still interested in gold, but not at the current price. It's easy to conclude that they're bearish because they want to buy in at a lower price. This interpretation, I've found, takes the contrariness out of contrarian analysis.

Nero's Palace Roof Caves In (I couldn't resist)

I'm not someone who's inclined to anthropomorphize disasters, but I couldn't resist calling attention to this item: part of Nero's old palace has collapsed in Rome.
Part of the ceiling of ancient Roman emperor Nero's Golden Palace collapsed on Tuesday, rekindling fears that site is unsafe for the hordes of tourists who come to see it every year.

Nero's Golden Palace or Domus Aurea, which lies on a hill overlooking the Colosseum, was built in the first century A.D. and has been plagued with structural problems since it was opened to the public in 1999.

Workers were undertaking repairs when part of the roof collapsed, causing a section of the garden above it to fall into the palace over an area of some 100 sq metres, officials said. No injuries were reported....

A puckish reminder: one of the "I"s in PIIGS is none other than - well, you know. More to the point, the name of Nero certainly resonates in these times.

An Oft-Overlooked Source Of Physical Demand: The Middle East

Peter Cooper points out that, although attention is focused on Asian physical demand, Arabian physical demand was the one of the drivers for the 1970s gold bull market. Less attention is paid to this part of the world because of a greater tradition of financial privacy, which means that many sales are unrecorded.
In November 2008 ArabianMoney reported on a record $3.5 billion purchase of gold by Saudi Arabian investors. Many of these gold deals go unreported and are metal deals between individuals, often of very substantial size.

Rumors of gold hoards buried in the Arabian desert may not be so wide of the mark. But the scope for con-men to hone such stories into believable investment opportunities is legendary and due diligence is called for in any such transaction.

What certainly seems to have happened among the super-rich of Arabia is that gold has become very popular as a safe haven asset without third party risk. In the wake of global banking and investment crises and scandals the absence of a third party is particularly desirable.
He end with the possibility that gold is being accumulated in the Middle East once again.

There's no way to find out definitively, of course, but it does fill a gap between reported gold demand and what real demand is likely to be given the current longer-term trading range. Some may be put off by the Arabian denizens' concern over financial privacy, but some others may find it refreshing.

Demand For Gold Maple Leafs Explodes

The Royal Canadian Mint has released its annual report for 2008, which was delayed because of a missing-gold scandal that took months to resolve. Other than that incident, and another scandal where $3 million' worth of gold was sold to a scrap refiner at too deep a discount, the report showed amazing numbers.
The mint's downtown Ottawa operation sold 896,701 ounces of gold in coins, wafers and kilo bars in 2008, a 222 per cent increase from 278,616 ounces in 2007. Sales of silver coins soared, too, to 8.8 million ounces from 3.5 million the previous year.

Call me an apologist for the mint if you like, but common sense suggests that the missing-gold and scrap-sale scandals were caused by the workload exploding due to demand exploding. The same hurried carelessness shows up in financial instiututions when the stock market's hot.

Gold Inches Up To Above $1,110 Level

The U.K. has emerged from recession with a slightly better than expected GDP figure for the fourth quarter of 2009, although there's still some fear that the path to growth will be rocky. Monetary policy is likely to stay loose. The first day of trading for the Grecian government's new seven-year issue didn't go well for the bond: its yield rose to 6.078 percent from its priced 6.001. If it keeps falling, there'll be more refinancing difficulties down the road.

Through it all, gold didn't react much. The metal spent most of the night between $1,108 and $1,110, before breaking through on the upside a little after 11 PM ET. It wasn't much of an ascent, and $1,110 did not hold firm as a support level in the early morning. The price peaked at $1,114.30 as of 2:30 AM. Since then, the metal slid down to $1,107.90; that bottom was reached as of about 6:15. The metal subsequently rose above the $1,110 level but slipped back. As of 8:12 AM ET, spot gold was at $1,109.80 for a gain of $0.80 on the day. The Kitco Gold Index attributed -$0.50 to predominant selling and +$1.30 to a weakening greenback.

The U.S. Dollar Index spent last night drifting, mostly downwards. Starting at 1:35, the drift turned into a drop that took it down to 81.0 by 2:25. Since then, the Index rallied back before settling into a somewhat ragged trading range bordered by 81.125 on the downside and 81.2 on the upside. As of 8:18 AM, it was at 81.17.

The regular Wall Street Journal morning report attributed gold's slight gain to the aftereffects of the Euroland deal.
The precious metal complex rose in the past few sessions after the long-awaited Greek rescue deal was announced, causing the euro to strengthen from the 10-month low hit against the dollar last week and boosting commodity prices overall. Activity may now be generally quiet for the rest of the week with many markets closed Friday for the Easter weekend....

VTB Capital analyst Andrey Kryuchenkov said he expects the Greek deal euphoria to end in the near future because "underlying debt problems in Greece and other euro-zone countries have not disappeared all together."
Also mentioned is a probable focus on other data now that the Eurocrisis has calmed down.

A Reuters report notes the thinness of overnight trading, and the fact that there was almost no activity in the Asian physical markets. What little gain there was, was attributed to a recovering Euro.
"I think sentiment is really neutral. It's stuck in a range of $1,080 and $1,130," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.

"Gold is watching the dollar. Everybody is in a holiday mood. Nobody wants to commit too much ahead of the Easter weekend."
Also mentioned is a rise in the holdings of the SPDR Gold Shares trust (GLD): they increased by 5.176 tons yesterday.

Bloomberg's regular report, as webbed by Business Week, attributes the slight gain to the same cause but mentions an interesting fact: the above-mentioned increase in GLD's holdings has put its gold hoard at the highest level it's been this year. That, in a range-bound market.
“As we enter the second quarter of the year, downside pressure from weak seasonal demand should ease, although upward potential is also expected to be limited,” Stefan Graber, Singapore-based analyst with Credit Suisse Group, wrote in a note to clients. “Investors should expect price gains for gold in 2010 to be considerably smaller than in 2009.”

As regular trading opened, $1,110 was fallen through more definitely. After fluctuating around that level, a drop set in starting just before 8:30 that took the price down a couple of dollars an ounce. As of 8:53, the spot price was at $1,108.30 for a drop of $0.70 on the day. The Kitco Gold Index had +$0.45 for a weakening greenback and -$1.15 for predominant selling.

The U.S. Dollar Index, as indicated above, did rally since regular trading began. The above-mentioned trading range was broken through on the upside; by 8:42, the Index has reached 81.27. As of 8:54 AM, it was at 81.25.

Indications are that today's session will be quiet. The ebbing-Eurocrisis driver is fading, and there isn't much that looks likely to push gold higher (or lower.) The U.S. Dollar Index is still sinking overall, but not by that much now. Gold's session today may wind up tepid.

Monday, March 29, 2010

After Morning Run-Up, Gold Slides Down

Although a spurt at the beginning of regular trading failed to hold, gold stayed above $1,110 except for a short period between 10:00 PM ET and 10:45. That dip carried gold from just above $1,111 to $1,107, but it was reversed by a run from that level to above $1,114 between 10:05 and 11:15. Although the metal pulled back from that peak, it still held above $1,110 comfortably. As of 11:52 AM ET, the spot price was $1,112.10 for a gain of $5.50 on the day . The Kitco Gold Index split the gain into $1.70 for predominant buying and $3.80 for a weakening greenback.

The U.S. Dollar Index had a nice run early in the regular session, which topped out at 81.46 as of 9:15. That run provided a potential air pocket that, as it turned out, wasn't there. After descending into a ragged trading range centered around 81.38, the Index slumped again from 10:45 to 11:11. Bouncing off the 81.26 level, it climbed back up; as of 11:53 AM ET, it was at 81.34.

So far, gold's been acting fairly well. One of those mid-morning drops was shrugged off, which says that the market internals are pretty good right now. Gold looks likely to keep holding its own during the afternoon session.

Update: The price slid down a bit in early afternoon trading, with $1,110 not holding. After lingering around the $1,112 level, the slide continued at 12:15 PM ET. Reaching $1,109.50 just before 12:30, the metal settled into a trading range with descending tops and a floor of $1,109. The descending-top part ended between 1:00 and 1:30. As of 1:39, spot gold was at $1,109.10 for a gain of $ on the day. The Kitco Gold Index attributed -$0.70 to predominant selling and $3.10 to greenback weakness.

The U.S. Dollar Index had a bit of a run up between 11:20 AM and 12:45 PM, which brought it from below 81.3 to almost 81.5. Since then, it pulled back a little; as of 1:40, it was at 81.38. Overall, the Index hasn't moved all that much so far.

The conclusion in the original post may have been a little too optimistic. Gold has softened, and $1,110 may not be as solid as I had assumed earlier. The rest of the afternoon's trading may be less saggy, but it looks like $1,115 is out of reach for today's session.

Update 2: The decline did continue, but not for much longer. $1,115 proved to be out of reach, $1,110 wasn't solid, but gold didn't fall much further from that level. For a while in the late afternoon, the metal got above it.

The above-mentioned trading range was broken on the downside as of 1:38 PM ET initially and 2:00 for real. The resultant decline took gold down to $1,107.50. Making a double bottom, gold turned up at 2:30 and settled into a churn just below $1,109. By 4:00, the price had vaulted above $1,110; a range developed between that level and $1,111 for the next forty-five minutes. However, the price turned down and gold fell through that floor. As of the close, the spot price was $1,109.00 for a gain of $2.30 since last Friday's close. The Kitco Gold Index attributed -$2.60 for predominant selling and +$4.90 for a weakening greenback.

The pullback of the U.S. dollar index continued in the later afternoon, but the decline levelled off just before 4:00. By the time it was finished, the Index touched 81.35. The last hour-and-a-half of regular trading was spent adrift in a near-trading range that was slighly concave. As of 5:30, the Index was at 81.265.

Its daily chart, from, shows a surprising near-gap between today's action and Friday's:

It's been a bit of a come-down day for the Index, even if the overall chart readings are still solidly bullish. Last week's leap has been mostly reversed. That leap, though, was prompted by speculation about a messier resolution to the Eurocrisis than the one that was. It had been far more anticipatory (and cynical) than the drivers for earlier jumps. There's really not that much surprise in seeing the pullback because things are calming down in Euroland and the anticipations of an all-out crisis event like Grecian government inability to sell bonds never emerged. Instead, the latest issuance was successful.

This interpretation ties in with an overall framework of bullishness, though. It still looks like the Index got ahead of itself last week, but there's no indication that any serious reversal is coming. There really won't be unless it goes down below 80.5 in a sustainable way.

As for gold, its own chart shows an encouraging three-day rise that's gotten it above the important $1,100 level:

From one angle, gold's done well over the past three trading sessions. It looked a lot like the break below $1,100 last Tuesday would harbinge another serious decline; there were people expecting it to plummet down to $1,050. Instead, after a couple of days' muddle, the metal reversed course and climbed above $1,100. For a time when the U.S. Dollar Index had been vaulting upwards, gold put on a good show.

On the other hand, its present price is still well below the last peak made on March 17th. In the shorter term, there are still two higher highs and lower lows evident on the chart. Gold's MACD lines are still in a bear zone, as indicated by the histogram at the bottom of the chart. Gold may peak at this level, which would not be a very good technical sign for the metal.

The best hope right now, if gold turns down tomorrow or Wednesday, would be for the decline to come to a halt around $1,100. That bottom would further confirm that the $1,100 support level is real.

Moving back to today's action, a Reuters report credits today's gain to economic optimism causing a rise in the commodities complex in general. Amongst others, these points were therein:
* Gold buying backed by a stronger euro, boosted by last week's euro zone agreement on emergency fund for Greece.

* Better economic data boosts risk appetite, lifting gold and other industrial commodities across the board - traders

* Momentum dent after U.S. data showed PCE price index, a key inflation gauge, rose less than January.

* Boosted by commodities gains led by an oil rally, but volatility expected to rise in shortened trading week - RBC.
Volatility may indeed rise over the next three trading sessions; the softening this afternoon may continue tomorrow. However, gold's still directionless over the longer term - and demand below $1,100 has held up well. Tomorrow may see directionlessness in the shorter term too.

A Long-Term Warning From Peter Mycroft Psaras

He analyzed major gold companies from a free-cash-flow and free-cash-flow-to-invested-capital perspective, and concluded that the rates for those companies were lousy over the long term. Out of the twenty-eight gold companies he analyzed, only two had acceptable ratios in both: Freeport McMoran and Golden Star Resources. His advice is to stick with physical gold unless there is special reason (like a good market for the next few years) to believe that free cash flow for gold companies will increase considerably.

There may be reason, from a contrarian standpoint. The gold industry may be in last place by those metrics, but the last can be first if conditions are right. There's already signs that the seniors' cash flow is perking up in a big way, although it may be shunted into more capital expenditures.

Gold Won't Go On A Tear Without More Monetary Irresponsibility, Says Howard Simons

In an article entitled "Gold Needs More Irresponsibility," Howard Simons crunches some numbers and concludes that gold in U.S. dollar terms is tracking U.S. inflationary expectations but gold in Euro terms is exceeding inflation expectations in Euroland. He chalks up a run ahead of inflation expectations in 2004-8 to Indian demand prompted by the wealth effect, which explains why gold and interest rates were rising at the same time.

It's a well-written article, but the conclusion may not be liked by some goldbugs. He says that there isn't enough inflation baked in the cake to sustain a further rise in gold, long-term. More monetary irresponsibility is needed.

Przemyslaw Radomski Says Gold Likely To Go Up

In an article primarily devoted to the U.S. dollar, in which he (correctly) said that the currency was overextended on the upside, Radomski predicts that a fallback would be good for gold. On the second page, he notes that the correlation between gold and the U.S. Dollar Index is returning to negative. Hence, a pullback in the U.S. Dollar Index is likely to push gold up.

So far, he's been right on both counts. However, the greenback drop and gold gain he expected might have already come to fruition.

Indian Gold Imports For March Up From March Of Last Year

As of March 25th, imports were between 28 and 30 tons; that's markedly up from 4.8 tons for March of 2009.
Demand may stay strong, fueled by as many as one million marriages planned for April and May...supporting a 21 percent gain in global prices in the past year. Gold is bought during marriages as part of bridal trousseau or gifted in the form of jewelry by relatives. The wedding season in India runs from November to December and from late March through early May.

“Even a marginal increase in the global price won’t hurt demand as the rupee is gaining” shielding local buyers from variation in prices of gold denominated in dollars, Hundia said.

Gold Confounds Last Week's Pessimism

According to Peter Brimelow, sentiment for gold was awful last week.
On Wednesday, MarketVane's Bullish Consensus for gold broke below its 2010 low to 68%, a level not seen since January 2009. The Hulbert Gold Newsletter Sentiment Indicator [HGNSI] dropped to 18%, last seen during gold's low last month.
A head-and-shoulders pattern, discussed here last week, made technical analysts such as Martin Pring bearish. Now that the pattern's been busted, thanks to gold rising and staying above $1,100, gold ended up rallying from an oversold condition. It's been quite a "relief" rally (so to speak) since last Friday.

WGC Forecasts Chinese Gold Demand Doubling Within Decade

The World Gold Council has issued a report, excerpted here, which pegs gold as underowned by the People's Bank of China and the Chinese. Although Chinese gold holdings have increased at an average rate of 13% yearly over the last five years, the WGC has used a more conservative 7.2% annual benchmark rate for this year and the nine following. They did allow for the possibility that demand would grow more rapidly, though.

Of interest to peak-gold watchers, at least, is this prediction regarding Chinese supply:
The report also predicted that China's gold mines would not keep pace with demand and could even be exhausted within six years....

During the last decade, Chinese gold mining producers have stepped up production by 84pc, although its known reserves account for just 4pc of total known global gold reserves, the council said.

Assuming these figures are correct, it estimated that China could exhaust its known gold mining reserves in six years' time.

Of course, the PRC isn't the whole world. Predicting a supply-and-demand imbalance on the demand side is nice, but it could be compensated for by imbalances on the other side in the rest of the world. China's an important player, though, and such an imbalance in the PRC will help the gold price ceteris paribus.

Personal Spending, Income In Line With Expectations

Individual spending by U.S. consumers rose 0.3% last month; personal income rose less than 1%. Both results were in line with expectations.
"Today's data was clearly consistent with recent trends," said Scott Hoyt, senior director of consumer economics for Moody's Economy. "Spending isn't blowing us away because consumers are clearly suffering from a lack of income."

Both the gold and the U.S. Dollar Index were unimpressed. The results had little effect, either way.

Gold Gains Overnight, Helped By Weaker Greenback

The Grecian government is going to the bond market again; the news trimmed the Euro's gains against the greenback. The U.S. dollar still fell this morning, and that drop helped gold get back up above $1,110 in the same timeframe.

The first night session of the week began with a sizable jump, to above $1,113. That level failing at the time, the jump turned into a spike as the price descended to the $1,110 level. A further descent later in the night (ET) took the price down below $1,105 between 9:00 and 11:00 PM. After bottoming right in the middle of that timeslot, gold pulled up and then dawdled slightly above $1,105 until 2:00 AM. At that time, the metal started a rally that pulled it up above the $1,110 level. Since then, gold has been fluctuating just above $1,110. As of 7:54 AM ET, the spot price was at $1,110.60 for a gain of $3.50 since last Friday's close. The Kitco Gold Index attributed -$1.10 to predominant selling and +$4.60 due to weakening of the greenback.

The U.S. Dollar Index actually started the night session climbing. From 5:45 PM to 8:00, the Index went from 81.25 to 81.6. Subsequently, though, it gave up more than its gains in a slow but accelerating decline that took it down to 81.16 by 4:40 AM. That was slightly after the time that gold made its overnight peak. Since that time, the Index has rebounded into a ragged trading range centered on 81.28. As of 8:07 AM ET, it was at 81.31.

The strenghtening euro, overall, was the cause cited by a Wall Street Journal article, which notes that gold has made a one-week high. Gold isn't the only commodity rising, either. As far as last night's rise is concerned:
While gold lacks momentum it is well-positioned for a rise, said Standard Bank analyst Walter de Wet, who noted speculative longs in gold declined some last week.

Hedge funds in Asia were initially pushing the metal up in an attempt to hit stops in the market, [Commerzbank trader Michael] Kempinski said. Much will depend on the New York open, he said.
So, it seems that there are big boys on both sides of the trade, at least as of now. The ramp-up at the start of the night session was seemingly an attempted short squeeze.

The Euro's rebound was brought up by a Reuters article, which also mentioned "strong physical buying" as another driver.
"The market thinks this Greek problem has been solved. (Also) we saw excellent physical demand last week and it's still continuing this morning," said Afshin Nabavi, head of trading at MKS Finance.

"If we can get above the $1,115 area we should see further short covering."
Also covered is a World Gold Council report forecasting a doubling of Chinese physical demand over the course of this decade. In addition, a terrorist incident in Moscow seemed to add to the price. The SPDR Gold Trust (GLD)'s holdings were unchanged last Friday.

A Bloomberg article, as webbed by Business Week, ascribed gold's rise to a weaker U.S. dollar.
A weaker dollar “is giving a helping hand to gold,” said Afshin Nabavi, a senior vice president at bullion refiner MKS Finance SA in Geneva. “Demand for physical gold continues to be strong,” particularly from Asia, he said.
The Euro's rise was attributed to the carving of a standby rescue package for Greece and any other EU nation that has trouble borrowing. Also included is speculation that gold will stay above $1,100.

Regular trading opened with a jump-up, which turned into a spike as the U.S. Dollar Index began to rally after dipping earlier in the hour. As a result, gold shaved off more than half of a spike-up to above $1,114. As of 8:45 AM ET, the spot price was at $1,112.00 for a gain of $5.30 since Friday's close. The Kitco Gold Index assigned +$1.70 to the predominant-buying category and +$3.50 to the weakening-greenback category. The U.S. Dollar Index, after an initial drop to below 81.25 as of 8:25, managed to rally up to 81.38 by 8:47. As of the next minute, it has pulled back slightly to 81.37.

The optimism is clearly coming back to the gold market, now that $1,100 has been sustainably surmounted. As the bloom is currently off the greenback's rose, due to a near-term resolution of the Eurocrisis, the biggest down-driver to gold has abated. If the $1,115 level is reached, then it'll be an interesting day in the gold market.

However, the possibility of a relief rally for the greenback shouldn't be dismissed out of hand

Sunday, March 28, 2010

Financial Sense Newshour Touches On Gold Bubble

In the usual way, during an interview with John Doody about gold stocks in the third segment of the program [.mp3 file.] Doody said that, based upon his valuation models of proven and produced ounces, the major gold stocks were undervalued by more than 10%. Times when gold stocks are undervalued at that level tend to lead to 10%-or-more overvaluation the next year, but gold itself would have to co-operate to make that overvaluation a reality in 2011.

Doody had an affection for gold royalty stocks, in large part because of their dividend policies. He thought that Royal Gold and Silver Wheaton could be doubles by about 2012.

Regarding a gold bubble, the same talking point was unveiled: despite ads popping up from gold companies to buy gold, the general public isn't really in on the market. The gold shows haven't been that popular amongst the general public. Except for the big names continually unveiled by gold bulls, there's little to no institutional-investor interest in gold stocks. That's in part because the seniors pay little or no dividends, even though their cash flow is coming in strong.

There's little to say at this time about those points, as they're true. Myself, I believe that gold's in a nascent bubble, and will expand into an all-out bubble once a real driver kicks in.

The rest of the podcast largely deals with the new health-care reform legislation.