Friday, April 9, 2010

Gold, Driven By Falling Greenback, Rises In Morning And Drifts In Afternoon

The story of the day for gold has been the falling greenback. After an attempt to get above 81.5, which was blocked as of 9:25 right at that level, the U.S. Dollar Index fell below 81. That drop put extra wind in gold's sails. After a downward test pushed gold down to below $1,152, the metal reversed course and sailed up to well above $1,160. Unless a real spill is awaiting it this afternoon, gold is on track for another daily gain today.

Regular trading started out indecisively, with gold muddling around the $1,156 level. Sinking slowly between 9:00 and 9:30 PM ET, that slump reversed for a time but accelerated as gold was pushed down to $1,150.10 as of just before 10:00. That slump, perhaps a shorters' test of the water, reversed and turned into a rally with legs as the greenback slumped. The metal rose above $1,160 by 11:15, and was still rising as morning turned into afternoon. As of 11:59 AM ET, the spot price was $1,162.50 for a gain of $11.30 on the day. The Kitco Gold Index split the gain into $5.00 for predominant buying and $6.30 for a weakening greenback.

The U.S. Dollar Index, after slightly rallying between the opening of regular trading and 9:25, took a tumble when the Euro was boosted by speculation that the Grecian government may receive aid as early as this weekend. By 10:10, the Index was just above 81. A partial recovery led to a further downturn, which saw the Index drop below the 81 level before recovering again. As of 11:59 AM ET, it was at 81.04.

The above needs little comment. As afternoon trading gets rolling, a surprise plummet isn't likely waiting in the wings - so gold has a good chance at a seventh straight gain today. The metal might pull back, though.


Update: So far, it has. After peaking at $1,165.90 as of just before 11:45, gold sunk back to the $1,162 level by noon ET. Pulling up a bit, the metal drifted around $1,163 before continuing to drop. $1,162 was breached on the downside by 12:50. Drifting down further, the metal halted its decline at a little above $1,160. As of 1:51 PM ET, the spot price was $1,160.90 for a gain of $9.70 on the day. The Kitco Gold Index divided the gain up into $2.95 for predominant buying and $6.75 for weakening of the greenback.

Little has happened to the U.S. Dollar Index since noon. After pulling up to the 80.05 level, it crawled along in a trading range between that level and 81. As of 1:53 PM, it was 81.01.

As the end of the week approaches, the excitement is fading from the gold market. It's very likely, though, that today's action will end with a gain in both raw terms and ex-dollar terms. The rest of the session is likely to be unexciting, but the day's seems to have used up its ration of excitement already.


Update 2: The downdrift did continue for some time, but it reversed. Gold managed to bank a seventh straight session of gains. This calendar week was one with no down days. Both are records of at least a year's standing.

$1,160 was briefly tested on the downside between 2:05 and 2:15 PM ET, but it held. The metal spent the next hour dragging along that level until it began inching up at 3:30. Reaching $1,162, the price pulled back a little before inching up again near the end of the session. A final drop left the spot price at $1,161.40 for a gain of $10.20 on the day. The Kitco Gold Index (KGX) separated the gain into +1.60 for predominant buying and +$8.60 for a weakening greenback. The KGX itself made another record closing high today.

This week was an unusually good one for the metal. From last Friday's close of $1,126.40, gold gained an even $35.00 an ounce or a less even 3.11%. This gain piggybacked on last week's rise of $19.70 or 1.78%.

As far as the greenback is concerned, the U.S. Dollar Index did try to rally after that narrow trading range was broken just after 2:00, but the rally fizzled at 3:00 and was replaced by a decline that took the Index down below 81.0. From 3:30 PM to the end of the session, the Index drifted downwards after that decline had climaxed with a large drop. At the end of the week, it was at 80.89.

Its daily chart, from Stockcharts.com, shows that the supposed flag pattern in its recent action didn't turn out to be a bullish continuation patten after all:



There have been relief rallies, but today's drop can justly be called a relief decline. Now that the pressure's being relieved on the Euro, because of a hoped-for resolution to the Grecian part of the Eurocrisis, the Index is close to plumbing the bottom of its recent holding pattern. As with gold, the Index's MACD lines had it right. Their turn to a bearish configuration near the end of last month did harbinge a tough time for the Index itself, even if it hasn't given off any real bearish signal in its own movements. A sealed deal for the Grecian government would likely provide the downward push. If the rumoured weekend rescue deal turns into fact, the Index won't see 81 on Monday.

That being said, the recent low of about 80.75 has not been broken. Nor has the important support level of 80.5. If there proves to be no deal, then the Index might rally as the speculative wind at its head eases.

Turning to gold, its own chart shows quite the run, with a top today that made for a new 2010 high, both interday and closing:



There's lots good to say about the chart, particularly from the top and the bottom. The RSI line at the top shows the indicator at its highest level this year. The price of gold has advanced and retreated several times this year, but it never got close to the oversold level of 70 that it used to reach ack in '09. It hasn't gotten there yet, but it's close. Seeing the RSI move above 70 before this advance pulls back would be an important milestone, as doing so is consistent with a bull trend.

On the bottom, the MACD lines have moved up to a higher level than they were as of January 11th, the day with the second-highest interday high. I know I've been second-guessing this rally for most of its duration - once again, I admit to being surprised - but a decline on Monday would actually mean less harm for the nascent uptrend than it would if, say, one had taken place yesterday. To put it into perspective, a fall of $20/oz would leave gold at the top of the now-broken $1,060-$1,140 trading range. A monster plummet like the one on February 4th, which would be sure to exhaust any latent bearishness in the metal as Feb. 4th's did, would still leave gold well above $1,110. If gold lost $40 over a grinding several sessions, as it did after its 5-up-day rally at the end of February and beginning of March, then it would still be left at just below its March 16th-19th stalled high. Any one of these outcomes would leave gold in a high enough position to confirm a genuine short-term uptrend. The metal's gone too high for any downtrend as bad as any prior one this year to erase its gains completely.

And, as of now, there's less reason for gold to do so. Even matching 2010's worst downturns would require a real blindsiding from a market-shaking announcement. Come the downturn, its bottom would be easy for a real advisor to interpret.

I concede that gold may continue to advance on Monday, which would make the above sketch-out even more inclined towards "new uptrend." For the end of this week, I'll content myself by noting, again, that the rally's got to end sometime. In retrospect, the drop below $1,100 on March 24th was a huge fake-out.

The metal's ensuing rally, when combined with the Commitment of Traders tabling of positions as of last Tuesday, lead to a sight not often seen on the commodity markets: the non-commercial longs, the proverbial sheep, growing more numerous at the right time to do so. From March 30th to April 6th, as gold's COT graph shows, non-commercial longs increased by 32,428 contracts or by 15.5%. The period measured by the COT report ended when gold itself ended at below $1,135.

Commerical longs decreased by 8,802 contracts, or by 6.50%. Commerical shorts increased by 28,413 contracts or by 5.94%. Non-commercial shorts increased by 2,748 contracts or by 7.61%. These three groups are traditionally held to be cannier than the non-commerical long cohort, and yet they were the ones caught flat-footed by the rest of the week's action. An unusual configuration to festoon an unusually bullish week. Pit tradition is there for a reason, which inclines me to - well, I'm sure you know by now. I add, though, that the normally more credulous crew being on the right side of the turn is added evidence of a change into a genuine uptrend. Given the run itself, where it's at now, the lancing of the ceiling that's been there since year's beginning, that COT is one of several pointing to the same conclusion. In the short term, at least, the gold bull is back.

On Tuesday, the day of this week's COT for the U.S. Dollar Index, total open interest shrunk by 10,217 contracts or by a large 17.6%. Commerical longs hardly changed, but non-commercial longs shrunk by 10,766 contracts or an even larger 23.4%. Interestingly, non-commercial shorts shrunk by an even greater percentage: 53.1%, more than half. Commercial shorts shrunk by 12.5%. The Index rallied subsequently until today, when it ended below Tuesday's closing figure. The overall picture from this week's COT is uncertainty mixed with caution. A lot of contracts got out of Dodge from March 3oth to April 6th.

I can't add much to the above as this week turns into the next. All I can say, to those who have some gold or gold-related positions, that I hope you weren't scared out two weeks ago and have held on to enjoy the fruits of this run. If you had the courage to go in when gold was below $1,100, I salute you. And, whatever your portfolio and decisions, I'd like to wish you all the best this weekend and thank you for stopping by.

Prieur du Plessis Sees Higher U.S. Inflation Ahead

He uses several graphs to make his point, most of which focus on the unadjusted and GDP-adjusted Purchasing Managers' Index for prices. Based upon past performance, he concludes that the current rise in the PMI for prices suggests that the recent dip in the CPI is a temporary phenomenon. Not only the gold market but also the T-bond market is indicating that inflation may come back. He also notes that the recent rise in oil should give an added bump to the (non-core) CPI too.


He made some good points. I would like to add one of my own, relating to Fed responsiveness: although no-one at the Fed has come out and said it, the current easing was in part prompted to deter a possible second phase of the residential real-estate crisis. I'm referring to the option-ARM resets, which are scheduled to peak next year. The Fed's quantitative-easing program, although it had a Treasury component, focused mainly on getting mortgage rates down so as to ease the reset/refi burden as well as encourage demand for housing. As long as that refinancing overhang is there, the Fed is likely to be non-responsive to any pickup of inflation. It has so far.

Gold: The Ignored Bull Market

In a Moneyweb blog post, the opinions of Prieur du Plessis regarding gold are excerpted. In a nutshell, du Plessis believes that gold has been in a hidden bull market because more attention has been focused on equities rallying. Over the first decade of this century, gold has handily outperformed MCSI World Index stocks even when dividends are factored in.
Du Plessis goes on to draw attention to gold’s recent price action (see accompanying graph). “While we did see gold pull back to below the $1 100 level in December last year when the dollar initially started to rally, and has been toying with this level since the beginning of the year, it has now succeeded in surpassing the $1 100 once again in the face of continued dollar strength,” he points out.

Du Plessis is of the opinion that this is very significant and could be a sign that gold is preparing to break out to the upside. “Despite the continued global economic expansion, investors are concerned about the mediumterm outlook,” says du Plessis. “What effect will China’s efforts to cool down their economy have on the global economy, especially in the light of the debt problems in the eurozone? Added to this is the enormous US budget deficit, reckless money printing resulting in looming inflation and a fiat currency of which the world is becoming more and more sceptical.”
He also adds that gold as portfolio insurance has no special season; a position can be entered into anytime.


Once again, gold's present status as an alternative investment is confirmed. The bull market has been long, but it's also been out of view of most. As of now, though, the gold-as-portfolio-insurance theme is spreading through the financial mainstream. More people are introducing themselves to gold. And, as many have noted, there's no incipient gold mania. I note, though, that the shift towards seeing investment demand as effectively permanent is planting the seeds for one. Although it'll take a good showering of inflation for the mania to grow, said fever is moving to the germination stage.

List Of Commodities That Have Outperformed Gold This Year

As webbed by the San Francisco Chronicle, the Business Insider has produced a list of commodities that have outperformed gold so far this year. From aluminum to steel, there are eleven listed in the order of their year-to-date performance. One of them is silver.


The list is impressive, but there are two "er-uh" responses. First of all, commodities that have zoomed up must be somewhat oversold. Secondly, gold made an all-time high at the beginning of last December. Those hot commodities that have shot up this year did so from a much lower base, relative to their previous all-time highs, than gold has.

As Gold Keeps Going Up...

...predictions of new all-time highs are beginning to surface again. One from Byron Wein calls for $1,500 gold sometime this year. Another, from Macquarie Capital Management, points to the fact that the doves are in charge at the Fed; rates won't be going up anytime soon. In fact, the real T-bill rate is negative.
Macquarie Capital Markets’ research team put out a note on this topic yesterday, alerting clients to the fact that “Near zero short rates suggest real short rates will remain negative, which has historically been very bullish for gold (bullion historically has risen at a rate of >20%/yr when real T-bill rates are negative).” The Canadian-based investment bank reiterated their bullish position on the gold price and the shares of gold mining producers, highlighting the dramatic shift in sentiment that has occurred over the past few months. Noting that “bullish sentiment towards the dollar hit its highest level since 1997,” Macquarie called for the euro to strengthen and the gold price to move higher in concert with a lower U.S. dollar.

That last point, about bullish sentiment on the U.S. dollar making for a good contrarian call, has been timely. The U.S. Dollar Index hasn't been able to stay above 81.5 today.

Indian Wholesale Gold Demand Picks Up

According to a Reuters India report, a strong rupee brught some demand back.
"People are buying today... gold prices (in rupee terms) is maintaining the same range due to a firm rupee," said a dealer with a private bullion dealing bank....

"I priced in 100 kg mostly for local use in the range of $1,154-1,155 an ounce," said a dealer with a state-run bank in Mumbai.
The rest of the article hints that the wedding season is also behind some stockists stocking up.

Gold Still Has Momentum

The head of the European Central Bank, Claude Trichet, dismissed rumours that the Grecian government will default on its debt. That government needed the words, as the spread between Greek 10-year sovereign debt and Germany's widened to 4.4 percent; the former touched 7.5% yesterday. Through it all, gold keeps rising.

In the European timeframe, too. There was hardly any movement last night, as the metal stayed just above $1,150 except for a slight dip below that level between 8:00 and 9:00 PM ET. Another run upwards didn't start until just after midnight. Once started, the rise was relatively smooth until it stopped at about $1,157. The early-morning high of $1,159.30 was reached at about 6:30 AM. Since then, gold's tailed off a bit. As of 7:57 AM, the spot price was at $1,156.70 for a gain of $5.50 on the day. The Kitco Gold Index divided the gain into +$3.80 due to predominant buying and +$1.70 due to greenback weakness.

The U.S. Dollar Index showed a little strength last night, but that strength ebbed this morning. After going almost nowhere when evening trading began, the Index took a spill at 7:25 PM, from which it recovered by 8:50. Then followed a slight rise, which took it above the 81.5 level. Peaking at 81.58 as of 1:25, it dropped down below 81.2 by 4:20. Since then, the Index has been recovering in a rolling rise that's still left it well below 81.5. As of 8:06 AM, it was at 81.40.

A Wall Street Journal report attributes gold's early-morning rise to technical factors and a recovery in the Euro against the greenback.
The euro's strength has removed one of this week's drags on gold, leaving the metal free to push higher on the strong upward momentum it has built in its two-week rally, traders said....

Analysts said the resurgence of worries over Greece's debt problems this week have prompted investors to buy gold as a safe haven against currency volatility... A London-based trader said gold's steady climb has yet to trigger any heavy selling, suggesting investment demand for gold is stronger than expected, and some market players are still looking for higher prices before shorting.
The same trader called the rally "'encouraging,'" although there's the possibility that it may be encouraging to shorters. As I've said before, and will likely say again: the tighter the stop, the weaker the hand.

The morning Reuters report not only mentions the Eurocrisis as a driver for safe-haven demand but also an unusually high inflow into the SPDR Gold Shares Trust. Making another 2010 record, and a new record period, the ETF's holdings jumped almost 10 tonnes to 1,140.433 tonnes. Yesterday's inflow was the highest one-day rise since last September.
"The market is overall little bit disappointed with all the problems with Greece," said Afshin Nabavi, head of trading at MKS Finance in Geneva. "A lot of people are turning to commodities as a safe haven.

"We've got a lot of potential still to come in gold," he added. With the metal's break of resistance at $1,155 an ounce, he said, "the path to $1,200 will be open."
Also mentioned was a jump in the holdings of the much smaller Julius Baer Gold Fund, which rose 2.4%. Indian demand is also picking up.

The same main cause also headlines the morning Bloomberg report, which also mentions the SPDR Gold Trust inflow.
“Investment demand in gold is still strong as seen by the surge in the SPDR holdings and this is supporting the gold uptrend,” said Shenzhen-based Wang Xiaoli, an analyst at Citic Futures Co. “Currency movements will continue to dictate fund flows into gold.”
Noted in the piece are two new records gold set: record high prices in Euros and in Swiss francs. James Moore of thebulliondesk.com is also quoted as saying that the rise above $1,134 is "'encouraging,'" but a "'short period of consolidation would be beneficial.'" The metal also set a new record in pound terms, as explained in this Telegraph article.

With regular trading open, gold slumped a bit to the $1,155 level as prompted by a recovering (if struggling) greenback. As of 8:45 AM, the spot price of the metal was at $1,155.60 for a lessened gain of $4.40 on the day. The Kitco Gold Index split the gain into +$3.90 for predominant buying and +$0.50 for weakening in the greenback. The U.S. Dollar Index continued to recover in a staggered uptrend, although it peaked for the moment above 81.475. As of 8:48, it was at 81.44.

If gold simply holds its own today, it'll have made its seventh straight gain. In itself, that performance may be a record; yesterday's six-session gain was the longest string of them in a year. Borrowed time gold may be living on, but for now the tab is easy to draw on. It may continue to be throughout the last session of the week.

Thursday, April 8, 2010

Gold Gains Yet Again, This Time Bolstered By U.S. Dollar Fall

After starting off regular trading below $1,145, gold made it to above $1,150 but remained stuck near that level. In the same timeframe, the U.S. Dollar Index has slumped back below the 81.5 level.

In one hour, from 8:00 to 9:00 AM ET, the metal rose almost eight dollars an ounce to $1,152. Since then, it's been bobbing around in a ragged trading range centered at $1,150. A second run, starting as of 10:10, took the metal up to $1,154.00 by 10:45, but the rise was uneven and petered out. Since then, $1,150 has served as a floor but the price has not been able to rally much above it. As of 11:46 AM ET, spot gold was at $1,152.50 for a gain of $4.50 on the day. The Kitco Gold Index split the gain into $3.00 for predominant buying and $1.50 for weakening in the greenback.

The U.S. Dollar Index, after an attempted recovery that led to a double top, went for a slump starting at 9:35. Rallying until 8:20, it descended and then ascended in a saucer-shaped pattern that got the Index above 81.75 around 9:30. Since then, it slid down in a fairly even decline that brought it below 81.5 by 11:00. Bounciong off that level, it recovered to 81.55 before turning back down somewhat. As of 11:48 AM, it was at 81.505.

Gold was sitting on a gain as morning trading was ending, but that gain may erode over the rest of the regular session. Afternoon trading will show.


Update: Early afternoon trading was dampened, but no decline set in. $1,150 still held.

Another run-up began as of 11:25 AM ET, which pulled gold up to a new daily high of $1,154.90. Like the last attenpt, this one turned into a spike as the price pulled back. Unlike the last downtrend, though, the pullback from this spike left gold at above $1,150. From just after noon, the metal was in a trading range, between $1,151 and $1,153, with hardly a test of the downside. As of 1:53 PM ET, the spot price was $1,152.00 for a gain of $4.00 on the day. The Kitco Gold Index attributed $3.30 to predominant buying and $0.70 to a weakening greenback.

After an attempted pullback that ended at 11:35, the U.S. Dollar Index slumped a little more but that drop ended at noon. Since then, the Index has been in a trading range with slightly rising centre as 81.5 was crawled above. As of 1:55 PM, it was at 81.55.

Gold has been responding well to any drops in the greenback so far. Unless the Index moves up substantially, there's a chance the metal will close above $1,150 this day. That chance was miseed yesterday, but today may bring it. The rest of the session will tell.


Update 2: This time, the close was above $1,150. Despite a slip-down near the end of the session, $1,150 held as a support level all afternoon. Continued, if slight, U.S. dollar weakness helped.

The overall trend for the rest of the afternoon was slightly down, though. The floor of the $1,151-$1,153 range held until just after 3:00 PM ET, despite a test of it between 2:20 and 2:30. After 3:00, gold slipped down to $1,150 and established a new range between that floor and $1,151. Tested on both the downside and the upside, the range temporarily was bent on the low side between 5:05 and 5:15. An end-of-session jump brought gold slightly above the top, leaving the metal at $1,151.20 as of the close. The gain on the day was $3.20; the Kitco Gold Index (KGX) divided that gain into +$1.85 due to a weakening greenback and +$1.35 due to predominant buying. The KGX itself closed at another record high. Today's value slightly bettered yesterday's, which is at the rightmost end of this one-year chart of both the KGX and gold itself:



The KGX, graphed by the blue line, shows the record high made yesterday. Gold itself, of course, is not close to making a record high in U.S. dollar terms.

Moving to the greenback, the U.S. Dollar Index drifted for the rest of the afternoon; the overall direction of the drift was slightly downwards. The Index never made it above 81.6 during the rest of the afternon session; it also didn't drop below 81.5 until 4:35 PM. Once down there, it fluctuated in a tight range with 81.5 the ceiling and 81.465 the floor. Although the former was broken through, the normal flexibility in Index resistance and support levels suggests that 81.5 still has potency as a short-term support level.

Its daily chart, from Stockcharts.com, shows a slight decline from a mostly higher level for today's session:


Although the close was lower than yesterday's, the Index did poke its nose up above a resistance level that had largely confounded it yesterday. 81.5 may be more resistance level than support level over the longer term, but the Index has benefitted from Greece-related Eurojitters as has gold.

Today's turndown isn't significant as yet, because the Index is in indeterminate territory. It's not yet clear whether the recent short-term rally is merely an extended relief rally, a short-term reaction to a longer-term downtrend, or whether it's in a real rally that'll take it up to levels reached on March 25th and 26th. Some technical analysts may see a flag in the drop during the last week of March. A flag is a continuation pattern, bullish if it droops downwards and the "flagpole" is an uptrend. Both are the case with the end-of-March drop.

So far, the Index has been co-operating with the flag interpretation even if the rally that began four sessions ago is laboured. However, this kind of pattern depends upon continued bullishness interrupted by an oversold state needing a temporary decline to set right. Recently, the Grecian mess has given the impetus upwards. It's been a continuing driver, but I can't say for how long. So, I have to leave the flag up in the air for now (sorry.)

Moving back to gold, its daily chart shows gold's rally has extended to six straight session gains:



This achievement is unprecedented over the last six months. Even in the halcyon days of last fall, gold never closed up on six sessions in a row. I couldn't even find a precedent over the last year. Of course, the magnitude of the rise has to be taken into account: it started at just above $1,100, making the total six-day gain less than 5% overall.

There's more reason for cheer in the chart action: yesterdays and today's gains made for a new milestone for this year's action. Gold closed above $1,140 only one day in a row previous to yesterday; that day was Jan. 11th. Today, gold closed above that level for the second day in a row. Since gold opened above $1,140 on Jan. 12th, the candlesticks' bodies for the 11th and 12th were both above $1,140. If gold opens above $1,140 tomorrow, it'll make for three days in a row - another 2010 record. As it is, the latter record was tied today.

That being said, the rally has run on for a long time and looks like it's running out of gas. I know it appeared to do so on Tuesday and didn't, but gold looks even more like it's running on borrowed time now. As I said yesterday, what'll count is not when the rally ends but where gold's left at when the next short-term decline ends. After a five-day streak back in late February and early March, the entire run was erased. This one may not be.

A Reuters article, although saying that gold ended flat instead of up, makes note of the $1,150 resistance level that's seen as inhibiting any further gains.

The fact that gold had a technical break-out on Wednesday while the dollar was also rallying "speaks volume" for the metal's strong underlying demand, said Adam Sarhan, chief executive officer at New York-based Sarhan Capital.

Sarhan said that it will be key for gold to close above $1,150 an ounce for the week, as the metal has risen toward the mark several times but had failed each time.

"If it does rise above $1,150, that means we can confirm the break-out. If it doesn't, we expect some sideways actions to continue."
Noted in the article is the fact that the metal made another record high in Euro terms; also discussed is the recent positive correlation between the greenback and gold as a result of the still-smolderning Eurocrisis.

Seeing gold close with another gain is heartening, 'tis true, but the trend has to turn sometime. I'd be surprised if gold posts another daily gain tomorrow. If not, then there's fodder for those trading-range believers who think that the top of the range is in fact $1,150.

Hedging As Happy Medium

The first question Scott Burns fielded in his latest column was about buying gold coins. His answer puts him in the skeptics' camp, but he nevertheless said that portfolio insurance is a valid use for the metal:
There are brief periods when gold is a good speculation, but it is never a good "investment."

Gold is never a good investment because an investment is something that produces an income return. A bond or CD produces interest payments. A stock produces rising earnings and dividends. A real estate investment produces rental income. Something is in motion and changing.

Gold is a reflex investment. You buy it because of things that are happening to something else, like money or global peace. You buy it betting that the world is in a rapidly moving handbasket.

Does that mean you should never own gold coins? No.

It only means you should limit it to an insurance position, not more than 5 percent or 10 percent of your financial assets.

It looks like the 5-10% portfolio-insurance theme is becoming something of a happy medium.

Gold As Portfolio Hedge Reaches Morningstar

In a Seeking Alpha article, in which it's said that Morningstar's analysts expect gold to remain range-bound through 2010, Paul Justice explains for the company why it's a good idea to put a small amount of one's portfolio into gold for hedging or insurance purposes. Instead of the usial 5-10% allocation, Justice recommends only 2% as part of a 5-10% invetment in commodities period. He favours a low-expense-ratio ETF like GLD for the purchase.

Four Factors Affecting Gold Prices

Although expressing some caution for the near term, Jeff Nichols has four influences on gold that should prove to be ultimately bullish: nervousness about the Euro due to the vagueness of the wording of the standby rescue package for the Grecian government; further expansion of the U.S. deficit, exacerbated by rising interest rates, which should force the Fed to resume monetizing; Asian demand rising, due not only to inflation worries but also tradition meeting newfound prosperity; and, an already-visible pickup in gold ETF demand continuing to grow. The Commodity Online article that has them explains each one.


It's the first factor that Nichols expresses short-term nervousness over. Another run in the Euro would push the greenback up to new highs, which could pull gold down to the $1,100 level again. In context, any such drop could be seen as a buying opportunity.

Good News For eBay Gold Buyers

Specifically, for those who worry about being cheated. An Austrian man who shelled out more than $23,000 for a 1kg gold bar never delivered has gotten his money back thanks to a court judgment that found eBay negligent.
In a landmark court ruling eBay will pay more than $23,000 in damages to a duped user who never received the gold bars bought on its auction site from a fraudulent seller.

The duped Austrian paid for one kilogram of gold from German company ML Agentur which had a local police record for fraud and has since gone bankrupt.

eBay advertised the company as a power seller and particularly trustworthy.

The court has ruled the online auction site had been aware of ML Agentur's record before the gold bar transaction and was therefore guilty of negligence.

Based upon a particularly bad experience, I recommend that anyone buying through eBay had better do so through PayPal or directly through a credit card. Even if you have enough documentation to prove your case in court, the hassle of going to court makes it a mug's game to reclaim unless the amount at stake is large relative to the hassle. Reclaiming the money through PayPal or the credit card is much more convenient. I have a bank-deposit receipt to another's account, for which I got nothing, to remind me of that.

(It wasn't for gold or silver, I should add. I've never had any problems with any gold or silver eBay seller; they've all kept their word, and one of them was particularly nice regarding a refund.)

Useful Thumbnail Summary Of Grecian Crisis

Dr. Stephen Leeb includes some advice at the end, centered around "Using Gold as a Hedge to the Greek Crisis," but the bulk of his writing is a recap of the Eurocrisis and where the Grecian government stands today. A recent uptick in 10-year rates to above 7% has meant investors have shied away from new Grecian sovereign debt, including in Asia.


Gold has, of course, benefitted along with the U.S. dollar as the crisis keeps devolving. The only recommendations Leeb gives is two gold stocks, but his advice can do for gold itself too.

Indian Wholesale Demand Evaporates

According to an Economic Times report, a combination of high gold prices in U.S. dollar terms and a weakening rupee kept wholesale buyers away in the Indian market.
"Today demand is negligible because the rates have gone up and even rupee is at 44.70, so the impact is double... there was buying until Tuesday...," said a dealer with a state-run bank in Mumbai.
The article notes that the rupe has recovered somewhat, so there may be a little action tomorrow.

Gold Slumps Slightly Overnight, Stays Steady

It's becoming eventful in the renminbi forward market. Thanks in part to U.S. forbearance with respect to branding the PRC a currency manipulator, it looks like the authorities in the latter country are going to be moving to a managed upvaluation. For whatever reason, the greenback benefitted from the move. Continued worries over Greece also helped the greenback, particularly against the euro. In central bank news, the Bank of England is sticking to its current easing mode. The 0.5% BoE rate and the current quantitiative-easing program are both remaining in place. Through it all, the gold market yawned.

There was a slight descent last night, as the metal reached $1,145 by 10 PM ET. That drop established the bottom of a trading range, one that was hardly broken in the overnight session. The range, between $1,145 and $1,148, was tested at about 12:45 AM and breached for about an hour starting at 3:45. The overnight low of $1,143.10 was made at 4:30. Once restored, the range held for the rest of the early-morning session until it was tested again just before 8:00. As of 8:03 AM ET, spot gold was at $1,145.10 for a drop of $3.40 on the day. The Kitco Gold Index split the loss into -$2.40 for a strengthening greenback and -$1.00 for predominant selling.

As broached above, the U.S. Dollar Index spent most of the overnight session on a gaining track. It went up for the first few hours of the session, reaching 81.75 as of 9:45 PM. Sliding back after double topping, the Index bottomed at just above 81.6 as of 11:25. After remaining largely directionless until 2:00, it rallied all the way up to 81.89 between 1:55 and 3:55. An attempt to push above 81.9 sputtered, and the Index slumped back to 81.65 as of 6:45. A double bottom was made at 7:05, after which it started rallying again. As of 8:13 AM, the Index was at 81.79.

This morning's Reuters report ascribed gold's relative steadiness to it being held back by U.S. dollar strength.
Buying driven by fears over the euro zone's fiscal issues has so far counteracted euro weakness, which would normally have been a powerful downward force on gold. However, persistent strength in the dollar is likely to weigh on prices in future, analysts said.
A Bloomberg report suggests that the loss in momentum overnight may be a prelude to gold falling, as a stronger greenback combines with an overbought position to make for a selling opportunity.
The “gold price down direction is set by a stronger dollar,” said Bayram Dincer, a commodity analyst at LGT Capital Management in Pfaeffikon, Switzerland. Any details of ECB plans to withdraw emergency stimulus measures may also affect bullion, he said.
Other analysts quoted see the current uptrend as still intact, as gold gains against all currencies. Also mentioned in the report is an increase in the SPDR Gold Shares Trust holdings, of 0.91 metric tons to 1,130.74. This holding makes for another 2010 record.

The weekly initial U.S. jobless claims report has been released: it showed an unexpectedly high number of 460,000 seasonally adjusted. Expectations were for an unchanged 442,000 instead of the 18,000 rise actually reported. Although gold was on a roll when regular trading began, the number seemed to add a push to it breaching the above-mentioned range on the upside. As of 8:41 AM ET, gold had shifted from a loss on the day to a gain: the spot price was $1,149.50, up $1.70 on the day. The U.S. dollar component of the Kitco Gold Index was still negative, in the amount of $1.70, but predominant buying was +$3.40.

The U.S. Dollar Index itself was unchanged as of the time of the release, although it had been slumping since regular trading began. A short-lived dip as of 8:35 was reversed more than five minutes later, and the Index drifted at the 81.75-81.76 level. As of 8:45, it had fallen back a little to 81.73.

A fall expected by the Bloomberg report's sources may be fended off today, but it's hard to argue that gold isn't due for one. So far, it hasn't appeared.

Wednesday, April 7, 2010

Gold Leaps Above $1,150, Fails To Stay There

A tip of the hat to Commerzbank's technical analysis department, which got it right back at the end of last month. Gold did reach $1,145, and more, today: for a moment, it almost touched $1,150. This, despite the greenback not falling all that much.

When regular trading opened, the metal was indecisive. That indecision changed into a solid rally just after 9:00 AM ET. Although laboured in the middle, it was bracketed by two solid runs that, all told, took the price up to $1,149.30 by 10:30. After that peak, gold fell back to $1,144 but stayed above that level for the next forty-five minutes; after which, it began to inch up again. As of 11:49 AM, the spot price was $1,146.60 for a gain of $12.30 on the day. The Kitco Gold Index attributed -$3.20 to a strengthening greenback and +$15.50 to predominant buying.

In contradistinction to that rallying, the U.S. Dollar Index drifted down but not by that much. Peaking as of 8:25 above 81.7, the Index slid down a little before an attempted return to the same level. That attempt fizzled as of 9:05, with the Index topping at only a little above 81.7, and it began to fall more sustainably. It didn't reach 81.5, though, and the next reaction starting at 10:30 pulled it up to the 81.65 level before a gentle slump resumed. As of 11:50, the Index was at 81.57 - still well above 81.5.

Especially in the teeth of a mostly stable U.S. dollar, gold's performance these last five trading days has been veritiably incredible. We're now at a point where a sustained drop in the greenback is not necessary for a sustained rise in gold. It may not last, but it's certainly enjoyable while it has. The afternoon's trading will show if the metal can add to its already substantial gains.


Update: It has, and in the process the metal surmounted $1,150. This morning's already substantial gains are turning into a minor buying frenzy. Ben Bernanke's recent cautious speech, in which he said that the U.S. economy's not out of the woods yet, helped add to the push. His focus upon the housing market and unemployment rate suggests that the near-zero interest rate policy isn't going to be ended soon.

After dawdling just above $1,146 until 11:50, gold vaulted up to $1,152 before establishing a trading range between $1,150 and that level. Staying inside until 12:45, the metal took another leap up that briefly put it at $1,154.40. That last rise blunted, gold established a less well-defined range centered around $1,152. As of 1:56 PM ET, the metal was at $1,152.50 for a gain of $18.00 on the day. The Kitco Gold Index assigned -$1.25 to the strengthening-greenback category and +$19.25 to the predominant-buying one. Added together, the two equal the daily gain.

Desite that overall strengthening, the U.S. Dollar Index has continued to weaken from its earlier daily high. After peaking at 81.65, the Index has made a rolling series of slightly lower lows that took it down to below 81.5. As of 1:58 PM, it was at 81.435.

Now that gold has continued its run to well above the $1,140 resistance level, the question almost begs itself: has gold finally surmounted the trading range that's kept it below $1,140? More immediately, will $1,150 hold? For the latter, despite gold's tear being a long one, there's a likelihood that it will. The rest of the afternoon's session will show if it does.


Update 2: $1,150 didn't hold, but it was close. Except for a brief interval, $1,148 did.

After continuing in that trading range, centered at $1,152, gold dropped to $1,150 at 2:20 PM ET and stayed around that level until just after 3:05. Another drop hit the price at that time; it carried gold down to $1,148 and briefly below. Recovering to that level, the metal established a trading range with an $1,150 ceiling that lasted for the rest of the session. As of the close, spot gold was at $1,148.00 for a gain of $13.70 on the day. The Kitco Gold Index (KGX) attributed -$3.60 to strength in the greenback and an unusually high +$17.30 for predominant buying. The KGX itself, which measures gold's performance ex-greenback, hit another record closing high today. Had it not been for continued U.S. dollar strength...

Speaking of the greenback, the U.S. Dollar Index put on a bit of a rally in later-afternoon trading. Its early-afternoon slide bottomed as of 2:55 with the Index touching 81.40. Subsequently, it rallied smartly and then more slowly, with the rally being stretched by a one-hour trading range centered around 81.57. The post-intermission advance took the Index up to 81.645 by 5:10: a level that was the best for the afternoon but below the morning's highs. As of 5:30 PM, it was at 81.61.

The daily chart, from Stockcharts.com, shows a continued recovery from the Index's recently depressed levels:



Not counting Monday, it's been the second day in a row that the Index has rallied. It's a somewhat tepid one, but there's been no crisis driver to push it into takeoff mode. I note that the recent bottom of the RSI line at the top of the chart was around 50, which is consistent with an asset that's still in a bull trend. The 81.5 resistance level was surmounted rather easily today.

The MACD lines at the bottom, however, are still in a bearish configuration. Barely, but they're there. They also show a large divergence: back on February 23rd, both of them were much higher than they were as of March 25th, when the Index itself was much lower. This kind of divergence, to technical analysts, says that the Index's rise is questionable. So far, the current short-term rally is acting well. A technician, though, would wait for a new 82+ high to wash away that MACD-divergence blot before declaring the uptrend intact. If the Index should fall below 81.5 tomorrow, the picture would become more ambiguous.

Today was another day where the Index rallied concurrently with gold. Unlike yesterday's, today's rally in the metal was a strong one. The daily chart for gold shows a possible important breakout from the $1,060-$1,140 range:



I say "possible" because gold surmounted the $1,140 level on January 11th but fell back below on the 12th. A lesser poke-up on the 14th also came to naught the next day. I admit to being skeptical of this entire rally, but that's because I've been keeping the U.S. Dollar Index in mind. Perhaps the recent fall below $1,100 put me in a defensive cast of mind.

The chief difference between the rally over the last five trading sessions and the one from the beginning of this year is the earlier one was more laboured. There were two stops and starts along the way. This one has had five straight trading days of gains. There's another difference that pertains to the RSI line at the top: today's value is higher than the one for the Jan. 11th top, even though the value for gold itself is a little lower. That's a postive divergence, one shared by the MACD lines at the bottom.

Speaking of the MACDs, that indicator had it right for this rally. Their crossover to a bullish configuration at the beginning of this month did signal a real uptrend that developed a fair bit of steam.

The chart is certainly praiseworthy, but there's still a nagging question: has the rally gone too far, too fast? Gold may be good for a sixth day of gains, but the trend has to reach the oversold level sometime. What would be more indicative of gold's strength is its performance once the rally runs out of gas. There was a similar rally that spanned the end of February and the beginning of March, but gold pulled back almost all the way back down in early March. If a decline sets in that takes gold to down $1,125 or higher, then we'll be looking at an $1,140 resistance level that's on its way to being sustainably surmounted.

A better acid test would be a fundamental challenge, of the kind that had knocked down gold in the past. If, say, the People's Bank of China raises rates and drains liquidity from the mainland Chinese economy, gold shrugging it off would be a solid sign that the rally has been real. It's true that the metal has rallied in spite of relative U.S. Dollar Index strength, but previous rallies of that sort have opened up air pockets leading to plummets. A more solid ignore-the-bad-news test would be more reassuring. I don't want to fall into the stopped-clock track, but part of the frustration for gold players this year have been those recurring encouragements followed by letdowns.

The regular Reuters report for the end of the pit session ascribed today's gain to safe-haven demand provoked by the Greek govenment's woes. Amongst other points, these were made:
* Active trading by commodity funds led to increase in open interest in June contracts - George Gero at RBC.

* Gold on track to rise for a fifth straight session despite euro's drop on Tuesday. Gold in euro terms rallied to a record peak 858.98.

* The euro dropped against the dollar to its lowest in more than a week on renewed concerns about Greece.

* Rising U.S. interest rates signal economic recovery, bolstering gold's investment appeal - traders.
That last point may be whistling in the wind, but it does hint at the gold market taking a future Fed Funds rate in stride. If so, although it's a long shot right now, then confirmation of a new bull trend would be put into place. As of now, that last point can be pointed to as a harbinger of a sentiment change - one that may prove true but may not.

Moving to less hypothetical territory, gold might eke out a sixth gain in a row tomorrow. If so, then it's not likely to be a big one. To repeat, what gold does when it pulls back will be a more important indicator of whether or not the $1,060-$1,140 trading range becomes history.

Interview With Rob McEwen

Rob McEwan is the financier and CEO who took Goldcorp from being a closed-end fund to a major producer in its own right. Much of Goldcorp's share growth came in the 1990s, when gold itself was still falling. He has something to say about junior exploration stocks, for which he created an index. Much of what he said had to do with their potential, but he had some words that spoke to their volatility:
...Shareholders have to approach [these stocks] cautiously and they shouldn’t put all their money in one stock. An exploration company can promise you one thing. They can’t promise you a discovery, but they can promise they will spend all the money they have on exploration. Once they have a discovery, it has to be large enough to raise more capital, or to sell or joint venture with a larger company.... Anyone who goes into the market thinking it will go up forever should get out now. People have to be thinking about how to grow their capital and individual investors have to diversify their risk. Major producers’ share prices will increase with the price of gold, but they won’t deliver the dramatic growth of a junior with a discovery.
He had this to say about gold being in a bubble:
Absolutely not, I believe the gold price will climb significantly higher from the current level. Look back 20 years at the price of many asset classes and you will appreciate the enormous price inflation we have experienced. In 1985, in order to get on Forbes’ list of the 1000 richest people in America you needed to have $150 million. At that time, Warren Buffett was one of the 14 billionaires on the list. I saw that list a year ago and there were something like 990 billionaires and, basically, you needed to have $1 billion to be on the list. How was so much wealth created? It was financed by debt. A long period of low interest rates has encouraged very speculative investments financed by high levels of debt. Today we’re seeing the unwinding of financial asset inflation that has happened over the past 10 or 20 years. Areas that are susceptible to further declines are in real estate, so called collectible assets, derivatives, the debt market, and the dollar.

HRM: So, despite inflation, gold is not yet in a bubble in your view?

Rob McEwen: No. We’ve got a long way to go before that happens. If you think about the tech bubble, a few hundred companies became thousands. They all had stories and were looking to make a zillion dollars or be taken over for such an amount. Today, there are a lot of exploration companies [and] as gold goes up there will be more exploration companies and stories and more investor confusion about where to invest. One indicator is the attendance at the annual Prospectors and Developers Association show just held in March in Toronto. It was the largest ever.


Part of the entire interview discusses McEwan's latest venture, U.S. Gold.

Hidden Inflation, For Now

In a Seeking Alpha blog post, Daryl Montgomery discusses "inflation denial" and points to the gold and oil market as seeing through it.
The case for inflation is based on common sense and the laws of simple arithmetic. A country cannot create money at a rate that's faster than its economy is growing. If this occurs, the currency is devalued and it then will take more units of currency to purchase any given item (which is the same as saying prices go up). There is a time lag between these two events, however, sometimes many years, so people frequently don't connect them. Indeed, governments that engage in this behavior frequently go to great lengths to ensure the public doesn't make the connection and realize that inflation is caused by government actions. Invariably throughout history, speculators and foreigners are blamed for rising prices. Think about whether or not you've heard any talk about speculators lately. There will be a lot more of that in the future.

When it comes to inflation, governments not only try to act like magicians and dazzle you with one hand while picking your pocket with the other, but they also engage in strong and persistent denial of its existence....
He says further that government reports showing emerging inflation tend to be late, if not outright lagging.

When To Sell A Winning Stock

It's nice to have a pick that's gone up a lot, but market vagaries can take a real chunk out of the profit. The gain might even disappear. Hence, Brian Hunt's advice when sitting on a large gain: tighten your stops.


His advice to not fall in love with a stock is good, good advice for all seasons. There's another factor that ties in with his advice to tighten stops, though: the chance that you'll get out on a secondary reaction only to see the stock move much higher. I believe the best way to cope with this outcome is to be content with the profit garnered, even though they're hard to come by, and not smart over it.

Indian Wholesale Buyers Shy Away

According to a Reuters India report, Indian wholesale gold buyers have pulled back even as retail demand remains strong.
India's gold demand retreated on Wednesday afternoon after picking up in the previous several sessions as traders sought lower prices to stock for weddings and upcoming festivals, dealers said.

"Today buying is not much, yesterday interest was seen at $1,123-1,124 (an ounce)," said a dealer with a private bank in Mumbai, adding "there was good demand seen even last week."
The article notes that the bargain point has shifted upwards to $1,125.

Through Shifts In PRC Monetary Policy, Gold Stays Stable

The People's Bank of China has begun to make moves consistent with tightening. Despite the resistance shown to U.S. governmental pressure to get the PRC to upvalue the renminbi, the PBoC is planning to sell some three-year bonds; that move would drain money from the system. There's talk that interest rates will be hiked too. Forwards on the renimnbi have risen to an 11-week high on anticipation that a managed float will be put in place.

Through it all, gold hardly moved last night. It fluctuated around the $1,135 level all through the night, not moving much from that level until 12:30 AM ET. That move was upwards, but only by a few dollars an ounce despite a brief spike up to $1,139.60. After dawdling between $1136 and $1,138, the metal returned to the $1,135 level at 3:30. Spending an hour and a half just above $1,133, it returned once again to $1,135 after jumping up to $1,137. This time, the return was only for a brief time as the metal climbed again - although not by much. As of 7:56 AM ET, spot gold was at $1,136.00 for a gain of $1.70 on the day. The Kitco Gold Index attributed -$3.90 for strengthening of the greenback and +$5.60 for predominant buying.

The U.S. Dollar Index spent most of the overnight session rising. After an early-evening dip to 81.3, completed at 7:20 PM, the Index quickly rallied to just below 81.5. A sustained attempt to break above that level had to wait until 1:30 AM. Confounded for a time by a sell-off at 3:00, the Index didn't make another rush at 81.5 until 6:30. That attempt was more successful; it carried the Index up to 81.7 before a pullback. As of 8:07 AM ET, the value was 81.635.

A Wall Street Journal report said that gold's overall listlessness was explained by a balance between expectations for a weaker euro and a strong technical picture for the metal.
In euro terms, gold is trading near Tuesday's record high. Its strength suggests gold's rally over the past week isn't due to dollar weakness but investor demand for hard assets, said Commerzbank precious-metals trader Michael Kempinski.

Mr. Kempinski said demand for gold from funds or institutional investors has picked up, with one order of over 200,000 ounces going through the market Tuesday.
It added that further greenback strength remains the biggest risk to the current short-term rally.

The regular morning Reuters piece notes gold's strength in the face of a rising U.S. dollar, while also noting that the metal pulled back slightly from a record high in Euro terms. Indian demand is mentioned as being strong:
"Yesterday good demand from India for physical (gold) continued," said Afshin Nabavi, head of trading at MKS Finance.

"We are currently flirting with important resistance in dollar terms. Should we be able to take out the $1,145-1,150 area, we should be ready for a big move toward the $1,200 level."

Traders report Indian jewelers are stocking up as the wedding season begins in the world's largest gold consumer.
Also mentioned is the recent Euro slide prompted by Greece-related nervousness, and the surmise that economic trouble is helping gold overall due to concern over fiscal deficits.

Gold does seem to be drawing strength from fears about recovery, according to the regular Bloomberg report as webbed by Business Week.
“Because of all the uncertainty in the euro region, gold is still a good safe haven investment,” said Bernard Sin, head of currency and metals trading at MKS Finance SA, a bullion refiner in Geneva. “On any dip physical traders will come in.”
The release of the Fed minutes yesterday afternoon showed some FOMC members worried about increasing borrowing costs too soon as the recovery seems threatened by tight credit and high unemployment. The Eurozone's economy has stalled.

Regular trading's opening pulled gold back down to $1,135, but left the metal in a range between that level and $1,137. Overall, a sideways direction was established. As of 8:39 AM, spot gold was at $1,135.10 for a gain of $0.80 on the day. The Kitco Gold Index assigned -$4.40 to U.S. dollar strength and +$5.20 for predominant buying. The U.S. Dollar Index, after making another run above 81.7, pulled back a little again; as of 8:43, it was at 81.66.

Although gold's performance was not spectacular overnight, it didn't decline all that much in the face of bearish pressures. Today's action may result in a disappointment for the metal, but it would be a surprise given gold's recent action.

Tuesday, April 6, 2010

After Early-Morning Dip, Gold Roars Back

For a while, it looked like gold was not going to see $1,130 today. Due to a report quoting an unnamed Grecian government official denying that the IMF is being squeezed out of a standby rescue package, gold turned up and went on a real run. The now-squelched rumour claiming the IMF was being excluded helped drive gold down earlier in the day.

When regular trading opened, gold dawdled with an initial downward bias. By 9:00 AM ET, the metal was hanging around $1,128. Shortly afterwards, it took off and quickly ascended to $1,134. A pullback to $1,132 proved to be a pause prior to a renewed rally that took the metal up to $1,136 by 9:50. A further pullback to near $1,132 prefaced another run to a higher level; by 10:30, gold was above $1,136 and slowly ranging up to $1,138. As of 11:34 AM ET, the spot price was $1,137.80 for a gain of $7.00 on the day. The Kitco Gold Index assigned -$5.40 due to a strengthening greenback and an unusually large +$12.40 due to predominant buying.

The U.S. Dollar Index enjoyed a rally from 7:30 to 8:55, which petered out and turned into a gentle decline. From above 81.6 as of 9:00, the Index slid to slightly below 81.5 by 9:55. Since then, it was in a gently falling trading range whose floor was 87.475. Having poked it on the downside as of 11:35, the Index recovered to stay above the floor before managing another poke. As of 11:40, it was at 81.47.

It was a real turnaround for gold in late-morning trading, one that put the metal in sight of $1,140. There's a chance that the metal will see that level before the day is through.


Update: It didn't happen at this stage, but it was very close. After almost touching $1,140, gold pulled back a little.

The peak of this morning's rise was hit at just after 11:30 AM ET. At that point, spot gold reached $1,139.90. Subsequently, the metal pulled back and settled into a trading range between $1,136 and $1,138. Broken on the downside briefly, between 12:45 and 1:00, the metal returned to the range until falling below it again at 1:25. As of 1:47, spot gold was at $1,134.90 for a gain of $4.10 on the day. The Kitco Gold Index assigned -$5.90 to the weakening-greenback category and +$10.00 to the predominant-buying category.

The U.S. Dollar Index basically churned in the early-afternoon part of the session, in a trading range with 81.475 on the downside and 80.55 on the upside. The Index did descend below the floor for a twenty-five minute period ending at noon, and pierced it on the upside at 12:35, but in the main it held. As of 1:49 PM, the Index was at 80.513.

Perhaps the gold market has seen its peak of the day. Even if so, the metal will have had an unexpectedly good run on the first day of full trading since last Thursday.


Update 2: It didn't best its peak. The rest of the day saw an attempted recovery that fell short of new highs and a slump to a lower trading range.

The attempted pull upwards started just after 2:00 PM ET, when gold had come to rest after sinking to just above $1,134. Pushing the metal up to $1,138, the rally fizzled right after 2:15. Returning to $1,136, gold dawdled at that level from 2:30 to 3:45, at which it sunk another two dollars an ounce to reach $1,134 again. The rest of the session was spent between $1,134 and $1,135. At the close, spot gold was at $1,134.30 for a gain of $3.50 on the day. The Kitco Gold Index (KGX) attributed -$3.90 to strength in the greenback and +$7.40 for predominant buying. The KGX itself, which measures gold's performance ex-greenback, made another record closing high today.

The U.S. Dollar Index took a tumble in mid-afternoon, which broke the trading range mentioned above and brought the Index down below 81.4. From after 2:30 to the end of the session, it stayed between 81.32 and 81.38 as it cooled down. At the end of the trading day, it was at 81.36.

But its daily chart, from Stockcharts.com, shows that yesterday's recovery largely continued:



Even though it got exhausted in late afternoon, the squelched rumor about the Grecian government objecting to the IMF's presence was enough to keep the Index on the recovery track for just another day. 81.5 was risen above interday, even if the close was below that level. Seemingly, the Index is in for another pause.

However, the MACD lines are still in a bearish configuration. That makes three days in a row that they've been so. The strength of the current recovery rally has only taken the Index up to half the level covered by the three-day rally on March 23rd-25th. As of now, it looks like a holding pattern has set in. I should add that the 50-day moving average is still well above the 200-day one, and both are moving upwards. To a technician, both say that the bull run over the longer term is still intact. Over the shorter term, 80.5 is the level at which the Index would signal a downwards move; right now, it isn't even close to there. 81.5, though, has been hard to close over.

Turning to gold, its daily chart shows the continuance of the now-four-day bull run that took it up to the $1,140 level interday:



The level was only touched, while it was closed at on March 3rd. The first week in March saw a more serious and sustained attempt at scaling above $1,140. Although the multi-day run upwards may not be over, there isn't enough momentum to say that a serious attempt at $1,140 is on the verge of being made.

That being said, I have to remind everyone about the longer-term trading range that gold has been stuck in all year. Its top is that same $1,140, and the place gold is in right now is almost at the top of it. Unless a driver with some power propels gold upwards, this move is likely to peter out at a level not much higher from what it is at as of the end of today. Regarding technical positioning, gold's MACD lines continue to show a bullish configuration. There might be one more rally day tomorrow, but the metal does look exhausted at these levels. Thankfully, the strong support at $1,100 is still there; in fact, if gold does sink to that level again, it'll look like an even better bargain comparatively speaking.

A Reuters report, as webbed by Ninemsn.com, notes that gold hit a one-month high today and gold in Euro terms hit another record. The cause given was safe-haven buying.
Bullion's gains in the face of a stronger dollar indicate the inverse relationship between the metal and the U.S. currency will occasionally break down, if risk-averse investors pile into gold due to related to economic jitters, traders said.

"People are still worried about the euro and the Greece situation, and gold is partially getting support from the economic recovery as people are looking to get ahead of the inflationary trade," said Zachary Oxman, managing director of TrendMax Futures.
Also mentioned was the price of crude moving up, which added to the demand for gold as an inflation hedge.

I have to admit that today's extension of the current rally was surprising. To the extent to which I'm everyman, it suggests that more than a few people have been caught off-guard by the rally. It may continue tomorrow, although I have to reiterate that the trading range that's prevailed all this year suggests that the scope for further gains is limited. Someone has to be the wet blanket.

Peter DeGraaf's Suggestions For Beating Big Shorters At Their Own Game

He has two. First of all, buy physical; only buy a futures contract with the intent of taking delivery of the metal. Secondly, buy when a bear raid is over. The idea behind the first is to help put pressure on the big shorters by limiting the amount of gold available for loan; the second, to profit by buying low while helping limit the downside by adding demand when a bear raid takes place.

The idea is to help limit the profit potential, and increase the riskiness, of any such raids to the point where they're no longer worth undertaking.

Investopedia Profile Of Two Royalty-Override Companies

After reviewing the other alternatives for investing in gold, Aaron Levitt presents "The Secret Way To Play Gold" in the form of two royalty-override companies: one for gold, the other for silver. The former is Royal Gold, which is the biggest on the block now that it's taken over International Royalty. The latter is Silver Wheaton. Levitt concludes:
Even at its current prices, gold remains a valuable hedge against uncertainty. There are many ways to play the precious metal, including several popular ETFs. However, investors may want to look at the royalty override firms of Royal Gold and Silver Wheaton for play on the metal. Investors gain access to cash flows sponsored by the mining activity without many of the risks and costs associated with the actual mining.

Indian Wholesale Gold Demand Steady As Prices Eased

According to a Reuters India report, wholesale demand picked up as prices dipped.
"Demand is reasonable today, we did about 150 kgs since morning at around $1,127-1,128 levels, yesterday demand was equally good..." said a dealer with a state-run bank in Mumbai....

"They are buying at every dip, they are piling up stocks in anticipation of demand, (buying) interest may get revived at $1,105-1,110...," said another dealer with a state-run bullion dealing bank.
The rupee's strength was also cited as a cause for continued demand.

New Wrinkle In Latest Installment Of Rescue-Package Drama

An unnamed official with the Grecian government has denied an earlier report saying that the Grecian government wants to squeeze the IMF out from a standby rescue package.
Reuters, citing a report by Market News International, said Greek officials were seeking to amend the plan to avoid triggering the IMF portion of the plan. The report said Greek Prime Minister George Papandreou feared the measures could trigger social and political unrest and that the premier wanted to alter the plan to bypass an IMF contribution.

Later, a report by Dow Jones Newswires, quoting an unnamed senior Greek official, said Greece wanted more clarity on how the plan would work but wasn't planning to demand a renegotiation of the agreement to exclude the IMF.

That denial may have had an influence on the greenback, and more so on gold. Although the U.S. Dollar Index has pulled back only slightly, gold has leapt up to the point where it's now in the plus column. At 9:50, the metal got as high as $1,136.60.

Gold Pulls Back Below $1,130

The pullback started yesterday evening, but it was added to by the news that the Grecian government wants to renegotiate the standby rescue package so as to cut out an IMF contribution. That, plus the news that big Grecian banks were losing deposits, helped pressure the Euro and add some strength to the U.S. dollar.

The metal stayed between $1,130 and $1,132 until 8 PM ET, when it fell to the $1,128 level. There it stayed until 3 AM, at which point it lost more than five dollars an ounce due to that above-mentioned pressure. Fluctuating between $1,124 and $1,126 after a recovery from its $1,122.20 low made around 5:00, gold managed to pull up to the $1,128 level around 8:00. As of 8:03, spot gold was at $1,128.20 for a loss of $2.60 on the day. More than all of that loss was attributed to greenback strengthening by the Kitco Gold Index; it subtracted $5.00 for that reason and added $2.40 for predominant buying.

Thanks to the lastest blip in the Eurocrisis, the U.S. Dollar Index added to yesterday's gains overnight - but not by that much. The bulk of the gains were made last night. After drifting downwards until 7:35 PM ET, the Index jumped up from the 81.05 level to above 81.35 by 9:40. From that time until 3:40, it spent its time in a widening trading range centered around 81.28; afterwards, it narrowed its range at a higher level. By 4:40, it was ranging between 81.35 and 81.45. As of 8:16 AM, it had broken above to reach 81.48.

A Reuters report attributed gold's drop to the continued recovery in the greenback, and the not-unexpected decision by the Australian central bank to keep tightening by raising rates further.
RBS Global Banking & Markets analyst Daniel Major said while he sees the $1,100 an ounce level providing strong near-term support, in the longer run, the metal may struggle to maintain such prices.

"Longer term, we think we will see further dollar strength, and we are going into a seasonally weaker period for jewelry demand, as well as a period that is likely to be less supportive from the investment sector," he said.

Further interest rate rises, after Australia's decision to lift rates overnight, may also raise the opportunity cost of holding gold, he added. "The risks are to the downside in terms of the gold price," he said.
Also mentioned as adding to the greenback's strength was an echo effect from yesterday's positive U.S. economic data.

The same cause was highlighted by a Bloomberg report, as webbed by Business Week:
The dollar gained against the euro for a third day amid concern European countries including Greece will struggle to raise funds to pay off maturing debt. Gold, which yesterday climbed to the highest intraday price since March 8, typically moves inversely to the U.S. currency.

Gold is “lower as a result of dollar strength,” James Moore, an analyst at TheBullionDesk.com in London, said in a report. Precious metals may consolidate after “profit taking” following holidays at the weekend, he said.
The article also notes that the metal has made another record high in Euro terms, hinting at one possible source for the predominant buying.

A Wall Street Journal report started off with the same cause, and added fears that the rescue package may fall apart.
[T]he weaker euro Tuesday is weighing on the precious metals. "In the short term, another run on the euro could send gold lower," said Jeffrey Nichols, senior economic advisor to Rosland Capital. "Europe's currency crisis is far from over. Credit default markets are again signaling rising anxiety, not only over Greek debt but also over the sovereign debt of Portugal, Spain and Italy."
Another analyst noted, though that physical demand in Asia remains robust.

As the U.S. Dollar Index's strength continues, gold fell back a little during the opening of regular trading - but not by that much. Starting above $1,128, it didn't get below $1,126 as the session started up; the market settled near the $1,127 level. As of 8:47 AM, the spot price was at $1,127.40 for a drop of $3.40 on the day. The Kitco Gold Index still has predominant buying pushing up the metal ex-greenback, in the amount of $3.00; the drop due to a strengthening greenback widened to -$6.40. After breaking through 81.45, the U.S. Dollar Index went on a bit of a run that took it up to slightly above 81.6. After a pullback, it went on another run that put it above 81.6 again; as of 8:52 AM, it was at 81.62.

So far, the day has smiled upon the greenback but not on gold. Still, the $1,125 level has held even if it doesn't look likely that $1,130 will be reached again today.

Monday, April 5, 2010

After Getting Up Head Of Steam, Gold Ascends

Regular trading began with a slump, which continued until just before 9 AM ET. Pulling gold down more than four dollars an ounce, and leaving it at $1,124, the decline reversed into a strong two-stage advance. After peaking above $1,129 at 9:15, the metal pulled back a few dollars an ounce before resuming the uptrend; by 9:50, it was above $1,131. Afterwards, though, the metal pulled back and entered a ragged-border trading range between $1,127 and $1,129. That range was broken slightly on the downside at 11:30 AM. The data on pending home sales, which showed an unexpectedly large leap-up for February, and a new three-year high for the ISM services index, which moved up to 55.4, helped put the damper on the rally for a time. As of 11:48 AM ET, spot gold had recovered to $1,130.00 for a gain of $3.60 since Thursday's trading ended. The Kitco Gold Index split the gain into $2.80 for predominant buying and $0.80 for a weakening greenback.

The U.S. Dollar Index reversed course, right at 10:00, as a result of that data. Falling from 81.26 to 80.91 in the two hours previous, the Index started to gain slowly at first but solidly. The rally accelerated as 10 turned into 11, putting it above 81.15 by 11:40. As of 11:50 AM, the Index had pulled back a little to 81.11.

Although gold could have done better, the resumption of regular trading has left it in a good position overall. As widely expected, the $1,125-30 level has been hard to surmount. Still, it's sporting a gain. Afternoon trading will show whether that gain can be extended a little more, or whether it will be replaced by another fall.


Update: As it happened, the former came true. After a pullback from the $1,130 level, followed by a continued dawdle a little below it, gold broke above that level and entered a steady rally. $1,130 was breached at 12:30 PM ET, and the pop-up was good for one-and-a-half dollars an ounce. In the next hour, gold climbed all the way up to $1,134.60 before pulling back a little. As of 1:41 PM, the spot price was at $1,132.60 for a gain of $6.20 since Thursday's close. The Kitco Gold Index split the gain into $5.10 for predominant buying and $1.10 for a weakening greenback.

The U.S. Dollar Index pulled back from its 11:30 high in a relatively steady downdrift that lasted until 1:00. From 81.175, it reached below 81 before rebounding. Since then, it's been in a trading range bordered by 81.05 on the upside and 81 on the downside; that was broken on the upside after 1:35. As of 1:42, it was at 81.09.

Despite the thinness in gold trading late last week, the price action has evidently impressed. The $1,125-$1,130 level has been surmounted; it's possible to look ahead to $1,145. Still, gold's been in an overall trading range; the current price is approching its top. Further gains will likely be limited for the rest of this afternoon.

Update 2: As it turned out, there weren't any further gains at all. Instead, gold slumped into a trading range that held from 1:50 PM ET to the end of the session. The metal closed at the lower end of it.

After peaking as of 1:20, and stabilizing for about fifteen minutes at $1,133, the metal dropped to $1,131 and stayed there for some time. Broadening, it carved out a trading range between $1,130 and $1,132. Unlike in recent days, it slumped near the end of the day. At the close, the spot price was $1,130.80 for a gain of $4.40 since Thursday's close. The Kitco Gold Index (KGX) divvied up the gain into +$3.10 due to predominant buying and +$1.30 due to a weakening greenback. The KGX itself, which measures gold's performance ex-greenback, closed at or just below a record high today.

The rest of the afternoon was a period of lassitude for the U.S. Dollar Index. Staying above 81, it nevertheless drooped after two other attempted runs above 81.15. The fist one topped as of 1:50; the second, at 3:45. In between, it descended and ascended in a saucer-like pattern. After making that double top, it reclined back below 81.1. Overall, the day's fluctuations were minor. As of 5:30 PM, the Index was at 81.085.

Its daily chart, from Stockcharts.com, shows the Index making a bit of a recovery from Thursday's depressed levels:



In so doing, today's narrow-ranging trading restored the 81 support level that was thrown for a loop last Thursday. However, the MACD lines at the bottom of the chart show a bearish configuration; the histogram they're drawn over also show it. There have been one-day fake-outs, but not any of two days in recent months. There is a chance that the restoration of 81 is the preface to a pause or to another run at 82, but the technical picture makes those scenarios a little doubtful. The area underneath the thin black line corresponding to today's trading looks like a gap waiting to be filled, and the MACD lines don't give much cause for optimism. They may be in the process of a two-day fakeout, but that's not the most plausible conclusion given recent action. A more likely interpretation is, today's reversal was a result of the greenback being oversold on Thursday. 81 may be breached again tomorrow: if such is the case, then the short-term downtrend will be confirmed.

As far as gold is concerned, its chart shows a strong three-trading-day rally that's brought it to
a level slightly above where it was as of mid-month:



The head-and-shoulders topping pattern of recent weeks now obliterated, gold's now higher than it was during that mid-month period - which served as the right shoulder to that H&S. It's plainly busted, like others of its breed that had pointed to upturns. Gold's MACD lines are, qualitiatively, the mirror image of the U.S. Dollar Index's: for the second day in a row, the ones for the gold chart have been in a bullish configuration. As with the Index, gold's did have one-day fake-outs but no two-day'ers. Although the early-afternoon advance was beaten back, gold still closed above two recent resistance levels.

There remains, though, the one at $1,140. It's an important one, which has prevailed for all of this year. Gold was only able to get above it for two days, January 11th and 12th; a People's Bank of China tightening announcement knocked it right back below. As of now, gold is within sight of it - but there seems little chance for the metal sustainably surmounting it. The action these last three trading days has been pleasing, if not exciting, but the $1,060-$1,140 trading range still lives. Until proven otherwise, it would be prudent to assume that gold is gliding to the top of its range. That two-day MACD bullish configuration may end up being little more than a few-day quasi-fakeout.

A Marketwatch report attributed gold's rise to a positive reaction to the positive U.S. economic data released this morning, including the items mentioned at the top of this post; that positivity was derived from other commodities reacting well.
The positive news took some of gold's shine as a safe-haven commodity mid-session, but the precious metal was back on track for gains as other commodities rallied....

"We've seen consistent demand out of Asia," said Bill O'Neill, a principal with Logic Advisors in New Jersey. "We're on course" for the next resistance level around $1,200 an ounce, although trading is likely to be choppy, he added.
I myself think that O'Neill's being a little optimistic at this point, but he's right about gold being on a roll. The thin trading at the end of last week has now been endorsed on a more regular day; the gold market is fully open tomorrow. Should the rally continue, $1,140 will be even closer in sight. It may be reached.

Survey Of Gold Juniors Reveals Perk-Up But No Take-Off

Scott Wright has combed through his database of more than 400 junior exploration companies, as well as RBC Capital's 2009 round-up of gold-company financings, and has found that a large majority of the money was raised by junior and senior producers. There has been revivification of junior-exploration financings, but no waterfall of money. Many of the juniors are still playing it safe.

Regarding property locations: the largest geographical location was Canada, followed by the United States and Mexico. Juniors are sticking close to home. There's only a small minority in Australia, which Wright considers unusual, and a small minority in Africa and other areas.

Price-wise, the juniors have snapped back from their '08 guttings but there's no imminent mania developing.


His impresssions square with my own, from a more limited window. I have seen froth in the penny-stock market - I've watched one veritiable feeding frenzy lately - but the excitement is still selective. Blue sky still means dormancy; drill results are what matters. If a junor blotted the copybook earlier, it no longer enjoys trust from the market when it announces a new phase of drilling. There are pocket manias, but exploration-stock buyers are still choosy. Evidence of an overall growing mania is hard to find.

Review Of New Gold-Backed Credit Card

The new planned credit card secured by gold has attracted the notice of CreditCardGuide.com. In a review penned by Eva Norlyk Smith, Ph.D., she basically gives the card a thumbs-down. Despite the exoticness of using gold as a backing for money, it's still a secured credit card. There's a planned annual fee of between $50 and $100. There's also a storage fee for the gold coins deposited as backing for the card, whose credit limit is set at 75% of the value of the gold coins. She mentions that the credit limit could be raised if the value of the gold coins rise - resets are planned for every 6-12 months - but doesn't mention if the credit limit will be cut if the gold value falls. A transactions fee kicks in if the holder wants to buy new gold coins so as to bump up the limit. (There may be a deregistration/delivery fee assessed on people who want [some of] their coins back.) The interest rate is planned to be from 8 to 13 percent; the card ain't a disguised debit card.
So is the Gold Bullion Card a good idea? For most people, no. A regular credit card or a regular secured credit card, which the Gold Bullion Card essentially is, both offer better value. However, for those holding gold coins, the Gold Bullion card could offer some benefits. When strapped for cash, many gold owners often struggle with the decision of whether or not to sell off coins. Because market prices could continue to rise, they might lose out on a future, better deal by selling their gold. With the Gold Bullion, gold owners can enjoy access to funds drawn on the value of their gold, while still maintaining the investment. And of course, for those believing the country is about to go to hell in a hand basket, the thought of having that gold-backed card in their wallet in times of crisis, will be well worth the fees.
At the end, she mentions that several major bullion coins are to be accepted as backing.


Although it does make for a step towards gold as money, it looks to my eyes like a vanity card. Secured credit cards are normally offered to people with spotty or bad credit histories, and this one's fees look pretty high. A vanity holder is most likely to pay for the privilege of saying, "See? Gold IS Money!" and using that credit card as proof.

Indian Gold Buying Picks Up Due To Stronger Rupee, Wedding Season

Higher gold prices in U.S. dollars is no longer deterring Indian wholesale buyers, thanks to a stronger rupee and the middle of the wedding season, according to an Economic Times report. Some stockists were canny enough to buy around $1,110.
"Demand is good as the rupee has come down, even prices are on the lower side," said a dealer with a state-run, bullion-dealing bank in Mumbai.

"They are all domestic indents, I covered about 200 kgs at mostly $1,126 (an ounce) level, even for last week buying was good. We did about 300-350 kgs at about $1,110-1,111," said another dealer with a bullion-dealing private bank.
Wedding-season-related demand may continue if the rupee holds up - and may continue period if stockists' inventory has been depleted by too much retail demand meeting too much restocking holdback.

The GATA Crew Get Highlighted By Peter Brimelow

More specifically, their claim that the bullion banks manipulate the gold market downwards. Introducing the claim by way of recounting Matt Tabbai's latest exposé of Big Wall Street, Brimelow mentions a write-up in the Huffington Post that summarizing those claims:
Lewis reports the recent testimony before the Commodity Futures Trading Commission by Bill Murphy of the LeMetropoleCafé Web site. Murphy is what I call a radical gold bug, who believes not merely that gold is an inflation hedge but that the gold market has been manipulated in the interests of sustaining a financial bubble.

Additionally, however, Lewis makes an exceptionally blunt statement of the case that there's widespread deception in the institutional gold world, so that customers who think they own bullion actually own "unsecured gold loans ... at a negative interest rate." He predicts a scramble to take delivery of gold -- which would work like a bank run -- and massive dollar decline.

Fortuitously for the GATA circuit, the general public is well-primed to believe that big Wall Street firms could do such a thing. It might have gotten them their hearing.

Gold Up Slightly In After-Holiday Trading

With the long weekend over, and with oil up to more than 85 dollars a barrel, gold moved up slightly in overnight trading. Initially, there was a rally that put a quick five dollars an ounce on the price, lowered by a little sporadic trading in Hong Kong on Good Friday. Subsequently, the metal stalled in a raggedly-bordered trading range between $1,124 and $1,126. The range lasted until about 6 AM ET, when it was first poked above and then rallied above in a more durable way. As of 7:50 AM ET, spot gold was at $1,127.80 for a gain of $1.40 since Thursday's close. The Kitco Gold Index attributed +$2.50 to predominant buying and -$1.10 to a strengthening greenback.

The U.S. Dollar Index did manage a gain after recovering from an initial slide when trading resumed. Sliding slowly initially, the drop accelerated until the bottom of 80.96 was reached as of 9:45 PM. At that point, a rally got rolling that gained traction around midnight. 1:45 to 2:45 saw an acceleration of the upturn to its climax at 81.3. Subsequently, the Index pulled back a little before pulling up. As of 8:06 AM ET, it was at 81.23.

A Reuters article highlights palladium's advance to a two-year high. Gold's trading so far has been thin.
Dealers awaited the release of an ISM survey on the U.S. services sector for March later on Monday, and a policy meeting by the Reserve Bank of Australia on Tuesday, expected to raise rates by 25 basis points to 4.25 percent.

"We are likely to see a further strengthening of the dollar ahead," said Wong Eng Soon, an investment analyst at Phillip Futures in Singapore, referring to recent economic data such as non-farm payrolls that supported the dollar.

"All tightening measures, whether they come from Australia or China, have the effect of lower commodity prices. I am looking at the topside resistance at $1,140 and a very firm support at $1,110. Gold has more downside risk."
There's also a thinness in coverage this post-holiday Monday. A Commodities Online report attributes the earlier rise to hope for economic recovery:
Gold prices eased in thin Asian trade Monday, after advancing earlier on signs of global economic recovery, as markets reopened after Easter holidays.
The rest of the article which deals with gold contained the above-quoted item in the Reuters report about waiting for data.

As regular trading opened, gold slumped a little. Downward pressure resulted in the metal losing about three dollars an ounce between 8:15 and 8:40. As of 8:43 AM ET, the spot price was $1,125.80 for a drop of $0.60 since Friday's close. The Kitco Gold Index assigned -$0.80 to the predominant-selling category and +$0.20 to the weakening-greenback category. It took little more than fifty minutes for the two categories to flip-flop from positive to negative and vice-versa. The U.S. Dollar Index slumped a little after fluctuating: as of 8:50, it was at 81.14.

Today's trading in gold started off slow, but it will provide a gauge of the internal strength of last week's rally as volume returns to normal. Gold may stay where it is, even if it still has trouble getting and staying above $1,125-8. That would be good enough for the metal; it would show that last Wednesday and Thursday's rises, although on this volume, were legit.