Friday, April 16, 2010

Came The Wipeout...

It always seems to happen when least expected. After a neutral start to the regular trading day, the price of gold plummeted. At the bottom of this morning's waterfall decline, it was below $1,135. This time, a two-stage rout dropped the metal down to the depths it reached late this morning. The likely trigger was a rally in the greenback, as similar rallies have also catalyzed similar declines - even if the U.S. dollar hasn't ascended all that much.

The first stage of the plummet started at 8:40 AM ET, shortly after news about U.S. housing starts gave a lift to the U.S. Dollar Index. Continuing until about 9:10, and taking about eight dollars off the gold price, it double-bottomed and ended for about an hour where gold hovered around $1,148. A relief rally, starting at 10:00, took the metal all the way back up to $1,155 before the more serious part of the rout began at 10:35. Lasting until 11:15, it sliced off more than twenty dollars off the price until it abated at $1,133.30. A respite in the middle was merely a pause that reinforced. As of 11:46 AM ET, the spot price was $1,138.90 for a loss of $19.90 on the day. The Kitco Gold Index split the decline into -$15.40 for predominant selling and -$4.50 for a strengthening greenback.

The rally by the U.S. Dollar Index wasn't that great in magnitude, but it was solid despite a pullback in mid-morning. Between 8:30 and 9:20, the Index rallied well above 80.7 to reach 80.835. After hesitating, it turned downwards, reaching below 80.6 by 10:20. Another, stronger rally then began that carried it up to just below 80.9 before being replaced by a mild pullback. As of 11:47 AM, it was at 80.77

In the recent excitement, the risk of such a decline was all-but forgotten; this morning's plummet was a brutal reminder that the turf's still treacherous. If this one follows the script set by the last one, the day's declining will be over. Although the losses today will still be large, it's quite likely that gold will close above $1,135. $1,140 is doable.

Update: Not as of yet, anyway. There proved to be one more decline left in the gold market, which kicked in at 11:45 AM ET. After recovering to about $1,142 by that time, gold plummeted about twelve dollars an ounce in the next fifteen minutes; that drop made for a low of $1,129.30 right after noon. A slight recovery rally took the price up to around $1,132, where it hovered until 12:45. A futher slight rise took the price up to $1,135. As of 1:39 PM ET, the spot price was $1,135.20 for a loss of $23.60 on the day. The Kitco Gold Index attributed -$17.60 to predominant selling and -$6.00 to strength in the greenback.

The U.S. Dollar Index hasn't shown much strength since a rally peaked around 11:55 at 80.95, but it has shown some. Since that peak, it pulled back a little to the 80.8 level. Dipping to 80.75 shortly after 1:00, it recovered to 80.8 and above afterwards. As of 1:40 PM, it was at 80.86.

It's been a day of carnage for gold, but the usual interday patterns suggest that the carnage period has ended. A close between $1,135-$1,140 is still doable.

Update 2: Gold didn't do all that much for the rest of the day. The closing price was within the above range.

After inching along at $1,135 between 1:45 and 2:10 PM ET, the price rose to about $1,138. Those two values established a trading range that the metal stayed in for the rest of the afternoon, except for a slight blip-down between 3:05 and 3:10. At the end of the trading week, gold closed at $1,136.80 for a loss of $22.00 on the day. The Kitco Gold Index divided the loss into -$16.40 for predominant selling and -$5.60 for a strenghtening greenback. For the week, the metal lost $24.60, or 2.12%.

Until nearly the end of the session, the U.S. Dollar Index mostly slumped. After reaching 80.875 at 1:45, the Index pulled back to below 80.77 by 2:30. A partial retracement of the loss didn't stick, and the Index driftd back down again to the 80.75 level. A spurt-up just before the end of the regular session left it at 80.795 as of 5:00 PM.

Its daily chart, from, shows the Index poking up above the recently-established trading range, but not by much:

Although rising above 80.75, it never reached 81 even at its interday high. The MACD lines are still in a bearish configuration, and the RSI is only in the middle of its range. Although the action was fairly strong today, this rise looks more like a relief rally than the beginning of a new run. As of now, the direction is still indeterminate.

Gold, on the other hand, showed definite determinateness today:

As slamdowns go, there have been worse ones but today's was pretty bad. The $1,140 level was broken, and the metal's now back in the same territory that was marked as its range until the recent upswing. That being said, the day's plummet isn't terrible in context. Based upon recent chart action, there's a possibility of a continuation early next week before the current downtrand is finally exhausted. Such a continuation, unless especially severe, would likely push gold down to the $1,120 level. Because the beginning-of-the-month rally began at slightly above $1,100, a drop to $1,120 would still be a good sign.

Of course, there's also the chance that today's plummet was the end of the downward reaction. It might have been severe enough to drain the skittishness out of the gold market and encourage bargain hunters to come back in. Not immediately, as some would likely wait and hope for another price drop, but soon.

This week's Commitment of Traders graph for gold, with information current as of late Tuesday, shows an interesting phenomenon. Both non-commercial and commercial longs expanded: the former by 20,297 contracts or 8.38% and the latter by 8,799 contracts or 6.95%. Total open interest expanded by 31,883 contracts or 7.46%. Not only did commercial shorts expand, by 27,377 contracts or 7.37%, but also non-commercial shorts: by 3,001 contracts, or 7.72%. Tuesday's close for the spot price was $1,151.10: gold was down some from Friday's close, but not by that much. At the time, it was thought that the downturn was likely over. The shorts that held on got their reward today, but not until today.

Moving back to the U.S. Dollar Index, its own CoT graph shows a continued shrinkage of open interest: from April 6th's 47,956 contracts, last Tuesday's was 44,676 for a drop of 3,280 contracts or 6.84%. Non-commercial longs shrunk by 2,069 contracts or 5.87%. Commercial longs shrunk by 823 contracts or 12.0%. Commercial shorts shrunk by 3,609 contracts or 9.00%. The only reportable category that expanded was non-commercial shorts: it grew by 409 contracts or 8.03%. As of the close of Tuesday, the Index was a litle below 80.5 and had one more day's worth of drop in it. What longs that remained would have had the edge when Wednesday was over.

The afternoon Reuters report ascribed today's plummet to the SEC serving civil-fraud charges against Goldman, Sachs. They doing so drained risk appetite from the markets in general. Amongst other points, these were made:
* Investor risk appetite turns sharply lower after the SEC charged Goldman Sachs Group Inc (GS.N) with structuring and marketing a debt product tied to subprime mortgages.

* Major hedge fund Paulson & Co, which has been bullish on gold, was involved in SEC's complaint against Goldman.

* Gold futures ended the week about 2 percent lower. * Goldman news hit equities and commodities markets alike, but gold failed to receive safe-haven demand.

* Currencies uncertainties also weigh after China's President Hu Jintao said the country has always acted on the principle of gradually moving toward managed floating exchange rate system.
The third point deserves a look-over. Goldman's legal troubles may have been the specific catalyst, but the scare did not benefit gold; in fact, the opposite. There had been an air pocket developing in gold which was popped today. If Goldman was the real reason, that's better news than it looks now. Market-wide plummets due to specific disasters tend to be reversed unless they come in a context of general overvaluation. There's an argument to be made that gold is in overbought territory, but it doesn't seem to be all that overvalued right now. Bargain hunting still kicks in at levels at or near today's close.

Although today was distressing, there is some chance that the damage has been done and gold won't be put through another wringer. This hope is dependent upon an absence of another bearish driver, like the U.S. Dollar Index going up further. If Goldman is the cause, though, then it's likely that gold will fare fairly well this week. If not, then some more decline may be in store for the metal. Whatever next week holds, gold isn't likely to fall that much further unless a new bearish factor emerges.

Again, thanks for reading. May your weekend be restful, recreational and tranquil.

Inflation? It's Already Here

That's according to a commentary by Katy Delay at Seeking Alpha. She says that inflation is already showing up in the stock market, which seems to be in the early stages of another bubble, but it's not percolating down to the real economy as yet (let alone into ordinary people's pay packets.)
We are already engulfed in a sea of inflated purchasing media that is constantly roosting, taking off, and re-alighting in its search for new quick profits. Unfortunately, given the current labor market, it won't even be dipping a little toe in the ordinary person's paycheck on its way by, at least not anytime soon....

We've got the price stabilization, and we most certainly have got the bubbles blowing again. The excess "money" is now keeping Wall Street afloat--in fact higher than ever, bonuses and all, while stable prices buoy the record private sector profits we've been hearing about (which they're using to increase inventory, speculating on a price-rise opportunity), and while the Fed's funny-money sustains the whole U.S. residential real estate market....

She ends by saying that gold provides security in times like these.

James Turk Sees Short Squeeze In Near Future

He did call one in August 1999, and Turk expects one in the near future:
Conditions are ripe for another short squeeze, which was a key element of my forecast for this year. Several big banks and others owe physical metal, but there is not sufficient metal available at current prices for them to purchase to enable them to cover their short positions, which is the important point. Physical metal cannot be conjured up out of thin air like dollars, euros, pounds and the world’s other fiat currencies that are merely intangible bookkeeping concepts. When a bullion bank owes physical metal, it must repay real – i.e., tangible – physical metal or default.

There is a huge naked short position out there. Much metal is owed, but not enough metal can be bought at the current price to enable the shorts to repay their gold debts. In fact, a squeeze has already begun. It began last summer when Greenlight, a large U.S. hedge fund switched out of GLD – the large gold ETF – into physical metal, and I expect the squeeze to continue. A price surge in gold and silver will be the inevitable result.

Of course, for such a squeeze to develop, traditions have to shift a bit. North American investors, unlike (say) Indian buyers, tend to prefer the convenience of "paper gold" to the security of owning physical metal. Cost differentials have a lot to do with it: for example, gold is cheaper in Kitco's gold pool than it is for the comparable weight of physical metal. Turk, et al. may be successful in prompting one, though.

On the same subject, Jim Rickards expects the same thing. Before It's News has summarized the points he made in a recent interview with Eric King.

Word To The Wise...

A man in North Carolina got a 14-month sentence for trying to sell nonexistent gold bars.

As the price of gold increases, and excitement does too, so do those kind of crimes. Caveat emptor: a wary, or protected, buyer is a good buyer.

There's actually a case to be made for buying gold on a credit card. The credit-card companies are good at resolving cases of fraud by reversing charges and securing refunds.

A "Fun Fact" About Gold Recycling

Although it's not current enough to provide a gauge to the gold price going forward, it's still of interest. In the first quarter of last year, more gold was recycled than mined.

That fact came from the recent CFMS report.

Newfound Popularity Of Platinum And Palladium

Although gold benefitted in '09, the new hot precious metals are platinum and palladium. As explained in the Telegraph article, the two white metals are expected to benefit from inflation combined with recovery. The two have more industrial uses than gold, particularly in cars.

The story seems sound enough, but the excitement is enough to make a contrarian wary. Both platinum and palladium have had big run-ups lately, at a time when gold's been mostly stagnant; those run-ups combined with their newfound publicity suggest they may be overbought.

At any rate, platinum did scoop the thunder from gold earlier this year.

Indian Wholesale Gold Buyers Stiil Hold Off Due To High Prices

According to a report by the Economic Times, wholesale buyers are waiting for lower prices before resuming buying. (Evidently, they think their stocks are fine right now for the current wedding season.)
There are stray deals as prices are still hovering near $1,150 (an ounce) since last 24 hours," said a dealer with a bullion dealing state-run bank in Mumbai....

"Demand could come back if it breaks $1,150," said another dealer with a private bank. India's March gold imports jumped nearly six times from a year ago, a trade body head said, as pent-up demand and steady prices since January revived purchases by the world's largest consumer of the precious metal.

Currently, the wedding season is underway in the world's largest consumer of the yellow metal, with a gold-buying festival -- Akshaya Tritiya -- slated in May.

That import number did delight the gold market when released, but it looks like the bulk of that increase came when prices were lower and were due to it. Now that prices are higher, despite the wedding season being underway, imports are likely to sink for this month.

A Different Take On GFMS' Survey

From the perspective of Mineweb, the results of the GMS survey as presented by Executive Chairman Philip Klapwijk were "cautiously bullish." The point about investment demand outstripping jewelry demand was repeated, but the write-up said that one's own opinions about gold determine how one takes it. Klapwijk expects investment demand to level off but stay strong this year and next.
Jewellery demand is beginning to come back again, but apparently aided by a further big increase in Chinese demand in the first quarter. Scrap sales are continuing at a high level, while investment demand, although still strong, may be beginning to flatten out - although Klapwijk expects a good level to continue through 2010/2011.

GFMS saw mine production rise last year for the first time in three years - this had been mostly negative or flat for around seven or eight years - but is still unsure whether this represents a trend or if it is a blip in a continuing downgrading of output. While GFMS sees another small increase ahead this year, Klapwijk feels that this may not be continued at least for the next few years, but expects mine output to remain pretty flat overall.

While there are thus still some big unknowns going forward it comes down to a gut feel as to whether the price will rise or fall on a pure fundamentals base and Klapwijk and GFMS favour the cautious increase scenario with possible weakness over the northern summer months, perhaps exacerbated by a period of relative strength in the US dollar, followed by a run up later in the year with the possibility of reaching perhaps $1300 by December - but not with any real confidence. Average price for the year is seen as around $1170.

There are, Klapwijk asserted continuing economic problems facing the western economies, but these could impact either way on the gold price. Economic uncertainty, the continuance of low or negative interest rates as the economy stubbornly refuses to rise out of recession - both could be considered positive for gold, but if there is a double dip ahead, as some fear, then liquidity problems in the financial sector could lead to a gold sell-off - as happened in late 2008 - although again this would probably not be as severe as the potential sell-off in other stocks and commodities!...

The entire report goes through what Klapwijk has to say at the Denver Gold Group European gold forum in its entirety. If there's any take-away, I believe it should be the overall unanimity amongst gold forecasters for this year. They seem to have settled upon a year of little gains but no overall bearishness.

Gold Slips Down Overnight, Stabilizes

After spending some time churning between $1,158 and $1,160 as the overnight session began, gold slipped down to below $1,155 between 8:00 and 9:30 PM ET. Staying in the $1,154-$1,156 range until after midnight, the metal descended below the former level just after 2 AM and bottomed at $1,151.20 around 3:20. Pulling back up, the metal then rallied to above $1,156 before fluctuating a little above the $1,155 level. As of 7:56 AM ET, spot gold was at $1,156.20 for a drop of $2.40 on the day. The Kitco Gold Index attributed -$0.20 to predominant selling and -$2.20 to a strengthening greenback.

The U.S. Dollar Index did show a slight upwards bias early in the overnight session, but coalesced into a trading range later. By 8:40 PM, the Index has reached above 80.67 but then pulled back. Since that time, it didn't move below 80.5. It also didn't move above 80.7, except for about an hour's stretch between 2:25 and 3:20. Failing to break through, it settled back into the same 80.5-80.7 range. As of 8:03 AM, it was at 80.59.

A Reuters report ascribes gold's slump to renewed strength in the U.S. dollar, and the mildness of it to continued safe-haven buying. The Grecian mess was the cause of both.
“In European trade it has been the currencies, and in the U.S. more the speculative buying, expectations for safe haven demand and uncertainty over Greece that are driving gold,” said Peter Fertig, a consultant at Quantitative Commodity Research.

“It is when the U.S. market opens that gold is rising.” He said he expects data to show a rise in net long positions in U.S. gold futures this week.

“This is driving gold despite the sometimes weaker euro against the U.S. dollar,” he said. “The safe-haven buying and speculative expectation there will be such buying is leading to the rather stable and higher gold prices.”
Although not called attention to, the tendency for gold to rise in the regular session is a real change from earlier in the year. The article also mentions that holdings of the SPDR Gold Shares trust were unchanged yesterday; they're still at a record level.

The morning Bloomberg report, as webbed by Business Week, points to increases in scrap gold sales as a downward short-term driver for the metal.
Scrap gold sales increased this week after prices rose to a four-month high on April 12, said Bernard Sin, head of currency and metals trading at bullion refiner MKS Finance SA in Geneva. Gold has dropped 0.5 percent this week as the dollar rebounded against the euro, curbing demand from investors seeking an alternative investment.

“Looking at the weakness in the euro, a lot of people are looking for gold to dip before jumping in with buying,” Sin said by phone today. “Jewelry demand other than in China is also weaker.”
Also quoted in the report was another expert who said that safe-haven demand was likely to be muted because things aren't that bad right now; specifically, there's no inflation to speak of.

The U.S. March housing starts data were released; the overall figure was a stronger-than-expected 626,000. Expectations were for 610,000. February's was also revised upwards. The U.S. Dollar Index moved upwards on the news, but failed to break above 80.7. As of 8:45 AM, it was at 80.65 after reaching almost 80.69 as of 8:41. Gold, which has been hovering above $1,156 as regular trading opened, dropped more than three dollars an ounce before and after the news. As of 8:47, the decline was continuing; spot gold was at $1,153.00 for a drop of $5.80 on the day. The Kitco Gold Index split the loss into -$2.70 for predominant selling and -$3.10 for strengthening of the greenback.

The U.S. Dollar Index is still showing strength, suggesting that gold wil have a tough time in today's regular session. Renewed safe-haven demand may kick in, perhaps even some bargain hunting, but today's action looks like the preface to a down day for the metal. So far, anyway.

Thursday, April 15, 2010

After Initial Drop, Gold Climbs Up

The day started off with gold in a loss position, but that loss changed into a gain as early morning turned into late. Thanks to a mid-morning run, gold made it above $1,160 for a time.

The start of regular trading saw a drop that turned out to be a fake-out. After gently declining, gold dropped three dollars an ounce in a spike-down that ended at $1,149.60. Quickly reversing, the price got back up to the $1,152-3 level. After holding at $1,153 until 9:30 AM ET, the metal began a climb that was initially a slog but became more regular as the morning wore on. By 11:05, the price has reached $1,162.40. Pulling back to the $1,160 level, the metal then paused. As of 11:37 AM, spot gold was at $1,160.20 for a gain of $5.40 on the day. The Kitco Gold Index attributed +$9.80 to predominant buying and -$4.40 to a strengthening greenback.

After surging up in pre-regular session trading, the U.S. Dollar Index pulled back part of the way. After a spike-up at 8:30, the Index pulled back to the 80.55-80.6 level until 10:15, when it broke through on the downside. The resultant drop took it down below 80.4 before it reversed course starting at 11:15. As of 11:38, the re-rallying was continuing with the Index at 80.52.

Demand has come back for gold, although its gain was largely prompted by greenback softness that was mostly reversing. That pull-up will limit gold's gains in the afternoon, and may even push the metal back into a loss position in the afternoon.

Update: So far, that hasn't happened. Instead, gold was quite stable in the early-afternoon session. There were fluctuations, but they've been around the $1,160 level since 11:00. For the last two-and-a-half hours, the metal's been in a trading range bordered by $1,158 and $1,162. As of 1:51 PM ET, the spot price was $1,158.90 for a gain of $4.10 on the day. The Kitco Gold Index assigned +$8.80 to predominant buying and -$4.70 to greenback strength.

The U.S. Dollar Index has been fluctuating too, but not as directionlessly. After bottoming at 11:15 AM ET, it climbed all the way to 80.64 by noon. Subsequently, it fell back to the 80.5 level by 1:00 and then bobbed between 80.5 and 80.55. As of 1:51 PM, it was at 80.54.

Recently, the later-afternoon stretch has seen gold pull back; so, there's a chance of the gain evaporating before the close. It's not a certainly, though. The rest of the afternoon will reveal if the metal will stay in the plus column.

Update 2: It did. There was a decline in the rest of the afternoon, but not much of one. The range held, even if the metal was in the lower half of it for most of the mid-late afternoon part of the session.

As of the close, the spot price was $1,158.80 for a gain of $4.00 on the day. The Kitco Gold Index attributed +$7.50 to predominant buying and -$3.50 to a strengthening greenback. The two values sum up to the day's change.

The U.S. Dollar Index spent the rest of the afternoon on a downward slide, which took place in three stages. The total extent of the drop wasn't much, though: as of 1:50 PM ET, the Index was just above 80.55. From 2:30 to 5:05, the 80.45 level wasn't breached on the downside. By 5:30, the Index was at 80.44. The overall thrust was downwards, but the extent of the drop wasn't much.

Its daily chart, from, shows a bit of a recovery from yesterday's level, but not much of one:

The candlestick corresponding to today's action is basically beside yesterday's, indicating a trading range. Again, the Index sunk to 80 during the day and, again, the high was at about 80.75. The short-term trading range it's been stuck in has now lasted four days.

Including a day when resumed fears about the Grecian government's debt load pushed down the Euro. That day was today: to be specific, early this morning. Despite that tailwind for the Index, it hasn't managed to capitalize all that much on the fears. Instead of a breakout from the current range, it moved to the upper end. It looks like an all-out Grecian credit event would be needed to give it a solid push upwards.

Certainly, nothing other than the Eurocrisis has recently. The recent data stream on the U.S. economy hasn't been hurting the greenback, but it hasn't been helping all that much. Had the Eurocrisis not erupted, the Index wouldn't have gotten up to the 82 level and might not have gotten above 80. Of course, had the crisis not erupted, gold would have not gone as low as it did initially - but also, it wouldn't have gotten as high as it had in terms of the Euro and the pound more recently.

Speaking of gold, its own daily chart shows a short-term pattern that's been not very evident this year: a downward reaction of only two days followed by two days of modest gains:

The reaction itself was quite limited in extent, too. From the $1,170 top, it got down as low as $1,150 but not much farther. Now, two days' worth of gains have pushed it up to $1,160. It almost seems to be too good to be true, given the metal's more substantial downward reactions this year.

This buoyancy is the result of a Eurocrisis-related breakout that forged up despite the U.S. dollar not falling. The recent troubles the greenback has been having have cushioned the pullback. In the absence of any other driver, most notably a ramp-up in inflation, a falling greenback is all that gold has going for it right now. The post-Eurocrisis buying trend may continue, on the anticipation or consummation of a bailout for the Grecian government, but that push isn't likely to be a strong and steady one right now. Another source of upward pressure would be an increase in investment demand, in anticipation of more inflation down the road. We are seeing a pick-up of that sort brewing. Again, though, this trend doesn't seem to be much of a momentum-adder. That's not bad news, as mometum taketh away as well as giveth, but it doesn't make for a solid run upwards.

In the absence of immediate drivers, my own hunches say that gold has some pullback left in it. The gains may continue, but I don't see them doing so for much longer a run. Gold is still on the overbought side of things; at the very least, it's far from being oversold. As I've said before, I'm expecting a pullback - not an outright decline back into early-year territory. Another factor to consider is that May has been a good month for gold, except for '09 and '08 when February took the cake. February last being what it was, the month didn't for this year. We seem to be going back to May as the good month; certainly, April has been so far. The trouble with that seasonality, though, is that the summer months have not been good for the metal. Once May is through, a summer stickiness is likely to keep the price from moving up until the autumn. Last year, the good times began in September. In '08, although the low was made in late October, it wasn't until November that things got rolling again for gold. On '07, the bull train got rolling in early September. September of '08 saw a good run too, which was kneecapped by the credit crisis. So, based upon recent seasonal patterns, any sustained run after May won't be starting until September. "Sell in May, go away,/Don't remember 'til September" might well kick in again this year.

That said, it's only mid-April and the gold market is holding up well. May might be a good month, although I hestiate at making a prediction for any May top.

This afternoon Reuters post-pit-session wrap-up categorizes gold as defying today's rise in the greenback. Continued safe-haven buying is named as the cause. Amongst other points, these were made therein:
* Until there is a firm resolution in Greece's debt problem, gold will benefit despite a dollar rise - Frank McGhee at Integrated Brokerage Services.

* IMF said it will hold talks with Athens about possible IMF assistance, fueling uncertainties.

* Gold sentiment dented as China's unexpected strong annual economic growth triggers monetary tightening concerns.
Despite some bad news mixed in with the good, gold still prevailed.

Tomorrow may be another story, but any decline doesn't look like it will be severe or even sustained. We might be seeing a trading range develop.

Przemyslaw Radomski Sees Pullback For Gold Seniors

In his latest Seeking Alpha piece, Radomski concludes that the HUI is overbought at these levels, but is in an uptrend that should resume once a correction sets in. He also believes that the U.S. Dollar Index has topped out, althogh he didn't rule out a relief rally over the next few days.

Prices For First Spouse 1/2 Oz Gold Coins Jacked Up

Those coins, of which there are five kinds so far, will now be sold for $754 instead of $729 for the proof versions. Uncirculateds now go for $741 instead of $716. A higher gold price is the cause.

Bull Market Encourages Revisiting Old Properties

Some were deemed subeconomic, others were mined and left fallow. Old properties and mines, though, are coming back into fashion in the gold-exploration world: the reason is higher prices. That's according to a report on the Northeastern Ontario Mines and Minerals Symposium webbed by the Sault Ste. Marie Star.
"Exploration activity is picking up on the strength of rising commodity prices," said Delio Tortosa, president of the Sault & District Prospectors Association, during a break Wednesday at the two-day Northeastern Ontario Mines and Minerals Symposium at the Delta Waterfront Hotel.

"Old properties once thought no longer feasible to work are being revisited and reassessed. . . . . Rising prices are changing the economics of deposits."

In the not-too-distant past, area mining was contained to narrow, high-grade, easily-accessible deposits and now developers are looking for larger, perhaps lower-grade sources, often overlooked in the past, that can provide long-term opportunity....

There was a company, Royal Oak, that specialized in reclaiming exhausted mines in the 1990s. Back then, its hook was better technology. The company went bankrupt in 1999, putting a damper on exploration projects of that sort for years. Now, though, reclaiming mines seems to be coming back into fashion. This time, a higher gold price is the driver.

Indian Wholesale Demand Still Dormant

According to today's Economic Times report, wholesale demand for gold is still slack because buyers are waiting for lower prices.
"Buyers simply won't want to get stuck with high cost inventory, demand is weak since prices moved to hover around $1,150 mark," said a dealer with a state-run bank in Mumbai, which deals in bullion.

Recovery In Greenback Leads To Gold Slip

The first-quarter report for PRC GDP came in with a higher-than-expected figure: 11.9% annualized. March inflation, year-on-year, was slightly lower than expected, 2.4% as compared with February's 2.7%. Wholesale prices increased 5.9%. It seems likely that PRC monetary officials will not see this data as reason to tighten, even if they indicate an economy that's overheating.

Also on the PRC beat, Rep. Rick Larsen said that it was better for that government to upvalue the yuan under their own initiative rather than being forced to by U.S. governmental action. Private talks should suffice. Larson also said that it would be in the PRC's best interest to rein in the economy by a managed upvaluation.

These items has little effect on gold - a lot less than a drop in the Euro, prompted by fears that the bailout package for the Grecian government will unravel. CDSs for Grecian government bonds widened to record levels, indicating that the bailout package is going to be tested soon. Its constitutionality may be tested soon, by a lawsuit engineered by a group of German professors.

This last event had its effect on gold. Although the metal climbed slightly in evening and night trading (ET), it got only as high as $1,158 in that timeframe. Early-morning trading saw an intermittently interrupted downtrend, which pushed the price down below $1,155 by 3:00 AM ET. The drop reached its low around 5:30, when gold was pushed down to $1,150.20 in a short-lived spike. Since then, the metal's been fluctauating between $1,152 and $1,154. As of 7:56 AM ET, spot gold was at $1,152.40 for a loss of $2.40 on the day. The Kitco Gold Index attributed +$4.20 to predominant buying and -$6.60 to a strengthening greenback. (Both values, which break the daily change into the two associated categories, sum up to the day's change.)

The U.S. Dollar Index went almost nowhere last night as the trading range established in the afternoon was only expanded slightly. Until just before 1 AM, the Index never got above 80.25 or below 80.15. The 1 AM break to the upside didn't last very long, and the Index remained largely quiescent until 3:00. Then, prompted by Greece-related fears, it went on an upwards tear that took it all the way up to 80.75 by 5:50. Since then, after a slight pullback, it's been fluctuating between 80.6 and 80.7. As of 8:04 AM ET, it was at 80.64.

A Reuters report attributes the decline to both the rising greenback and weaker commodity prices. The expert commentary therein was still sanguine, though:
"We saw the upward move last week in gold and... it seems the market is happy with the levels we are seeing," said Deutsche Bank trader Michael Blumenroth. "There is still some demand for gold for safe-haven purposes."

"We should find good support at $1,140-1,150. That has been established as the downside as we take a breather and get some strength for the next upward move. I think $1,180 will be the target next week, and ahead of May."
Also mentioned in the article is Indian physical demand easing, but holdings for the SPDR Gold Shares Trust staying steady. Palladium came off its two-year high.

The greenback was highlighted in a Bloomberg report webbed by Business Week, which also mentions oil's drop as another influencer.
“The stronger influence is the dollar,” said Edel Tully, a precious-metals strategist at UBS Ltd. in London. Oil was “certainly helping,” she said.

The same strong-dollar explanation was the center of this morning's Wall Street Journal report.
Concerns about Greece's and other European nation's sovereign-debt problems are keeping the markets nervous and are weighing on the euro, said Afshin Nabavi, head of trading and physical sales at MKS Finance. Gold is likely to remain in a range of $1,145 an ounce to $1,160 an ounce as a result, he said.
Also mentioned is a report from Barclay's Capital that notes investment in commodities in the first quarter of 2010 is down about 47% from the same period a year ago, although still positive; precious metals investment slowed down too.

Two U.S. economic indicators were released at 8:30; put together, they yield a somewhat inconsistent picture. The Empire State manufacturing index for April jumped to 31.9 from March's 22.9, and the subsidiary data suggest that the jump was no fluke. On the other hand, new jobless claims jumped to 484,000 when a decline was expected. The latter was explained as a fluke, by invoking the Easter season.

The U.S. Dollar Index took well to both; gold didn't. After slumping to slightly below 80.6, the former leapt up to 80.65 on the news. So far, the Index hasn't managed to break above 80.65 sustainably even with that breeze at its back; as of 8:50, it was 80.64. Gold dropped on the news. After regular trading started with the metal fluctuating around $1,153, the announcement pushed the metal down a few dollars an ounce to $1,149.60. That dip didn't last; gold bounced back up to the $1,152 level, slightly below where it was as of the opening of the regular session. As of 8:53 AM, the spot price was at $1,152.90 for a drop of $2.00 on the day. The Kitco Gold Index assigned +$4.10 to the predominant-buying category and -$6.10 to the strengthening-greenback category.

There was a report on the wires that the Grecian government is asking for talks about economic policy, which "'could be supported with financial assistance from the euro-area member states and the IMF, if the Greek authorities were to decide to request such assistance,'" according to a Marketwatch write-up. Copies of the written request was sent to the European Commission, the European Central Bank and the International Monetary Fund. It looks like bailout time's coming...

Wednesday, April 14, 2010

Morning Spill Fails To Drive Gold Into Loss Column

After an initial rise, gold was beset by one of those morning declines, but the metal was still in the gain column even at the climax of said drop. After a false start, the metal recovered almost all of its loss in late morning trading.

The day began fairly well for the metal, with it fluctauating between $1,159 and more than $1,161. Starting at 8:45 AM ET, though, a decline set in that took about eight dollars an ounce off by 9:50. Fluctuating around $1,154, gold dipped down below between 10:00 and 10:15. A run just before 10:30 put more than three dollars on the price, but it fizzled; the metal wound up making a daily low of $1,151.20 just before 11:00. Since then, the metal rocketed up to ascend above $1,160 again before pulling back somewhat. As of 11:50 AM ET, spot gold was at $1,157.80 for a gain of $6.70 on the day. The Kitco Gold Index divided the gain into +$2.20 due to predominant buying and +$4.50 due to a weakening greenback.

The U.S. Dollar Index did continue to weaken, although it didn't sink to 80. A downward drift ending at 9:05 was replaced by an upwards drift that took the Index up to 80.47 by 10:15. Subsequently, it began to fall steadily until 11:40, at which point it was below 80.1. Since that bottom, the Index drifted directionlessly. As of 12:00 PM, it was at 80.10.

Afternoon trading may be pockmarked, but there's a good likelihood that gold will close with a modest gain on the day.

Update: The early-afternoon session saw gold sagging a bit. A two-stage drop down to $1,157 ended around 12:25, which was followed by another rally up to the $1,160 level. Unlike the last one in late morning, this attempt didn't breach the level. After topping at $1,160, the metal underwent a gentler decline that took the price down to $1,158. As of 1:31 PM ET, spot gold was at $1158.90 for a gain of $7.80 on the day. The Kitco Gold Index split the gain into $3.85 for predominant buying and $3.95 for a weakening greenback.

The U.S. Dollar Index went almost nowhere in the same timeframe. Although trading since noon shows a slight upward direction, it resembled a trading range in that the Index wasn't able to get above 80.15. The first attempt prefaced the establishment of a real (and tight) one between that same 80.15 and 80.1. As of 1:39, the Index was at 80.14.

There isn't much to drive gold right now, and the later afternoon session typically doesn't hold much excitement. The fix ain't in, but the chances look better for gold to post a gain at the close.

Update 2: It did, but not by much of one. The early-afternoon weakness continued until late afternoon, when the dropping stopped.

The third and final leg of the afternoon downturn started after gold pulled up from $1,156.50 to just above $1,158 between 2:00 and 2:40 PM ET. In the next forty minutes, the metal lost five dollars an ounce before the decline came to a halt. The uptrend that followed could be described as a relief rally; it was good for little more than three dollars per ounce, and was partially reversed in the last half-hour of the regular session. At the close, spot gold was at $1,154.80 for a gain of $3.70 on the day. The Kitco Gold Index divvied up the gain into $0.60 for predominant buying and $3.10 for greenback weakness.

The U.S. Dollar Index, although closing down on the day, did recover somewhat from its earlier lows. That tight trading range it was in was broken, although slightly, on the upside until 3:00, when it was broken definitively. The upsurge wasn't much, though; the Index didn't make even 80.25 at its height. After that spurt, and pulback, it drifted slightly upwards while failing to crack a new afternoon high. As of 5:30 PM, it was at 80.205.

The Index's daily chart, from, shows a significant decline but one that failed to do more than touch the significant 80 level:

I have to say that things aren't looking very good for the greenback right now. It's been three days since its plummet last Friday, and at least one of them has been a down day - possibly two. Both the open and the close today were below the Index's 50-day moving average, something that has not occurred since December 4th's rocket-up early on in its bull phase. Of course, the 50-day (traced out in blue in the middle of the graph) is much higher than it was in early December.

Nevertheless, the Index had managed to outpace it for more than five months. Although it's too early to jump on the bear train, it can be said that the current rally is tired. The post-Eurocrisis hangover, for this iteration of it, has had the effect of draining away almost all of the crisis premium from the greenback. Given how crisies go, it's unlikely that another iteration will erupt - regardless of how close any other country is to the tipping point - until complacency over the "solved" Grecian debt snarl settles into the EU seats of power. That's how it happened in '08, when Lehman was allowed to fail in large part because of the market's shrugging-off of the Bear, Stearns debacle. We're not there yet in Euroland.

The MACD lines on the bottom of the Index's chart are solidly bearish, so much so that there's a fair bit of leeway for a relief rally to develop without interrupting the configuration. Regarding their absolute level, I'd like to point out a divergence that's developed: both lines are lower than they were as of January 14th, while the Index itself is much higher than Jan. 14th's 76.7. The same divergence exists for the RSI line at the top: today's the RSI level is slightly lower than it was as of Jan. 14th.

According to chartist theory, those divergences are a bad sign for the Index; they point to the raw value dropping in the weeks ahead, or at least a higher risk of it doing so. As a strict matter of market internals, both say that the Index's are worse than they were back in mid-January when the short-term decline back then turned into a continued rise. The Index has ascended a fair bit since then, but its recent performance has been tired rather than chipper. The momentum that's developed over the last four months is being drained from the Index's performance. Next to go, should its current difficulties continue, would be the 50-day moving average falling.

To repeat, it's too early to say whether the bull trend is being reversed...but it's thinkable.

Turning to gold, its own chart shows today's modest rally that basically reversed yesterday's decline:

Gold was higher earlier in the day, indicating headwinds that it still has to face, but so far the correction has been orderly. Based upon its action in the last several months, from internals alone it looks like any further declines are going to be part of a downward slog. That guess of mine would be obviated by any bearish driver that appears over the horizon, as it would by the appearance of any bullish driver, but the morning tests of gold have not led to any waterfall plummet despite the high level the metal ascended to recently. Gold holders' hands seem to be stronger nowadays. From an internals standpoint, there's less reason to be fearful (or hopeful, if a bargain-hunter.)

The weakening greenback was the cause highlighted by a Bloomberg report webbed by Business Week, which also notes that palladium scooped the thunder today.
The greenback fell against a basket of six major currencies for a fourth straight session, and the Reuters/Jefferies CRB Index of 19 raw materials advanced. Global equities also gained. Gold may climb to a record [of $1,300] late this year or in early 2011, [and then turn bearish,] said GFMS Ltd., a research company in London.

“What you’re seeing is a macro move up in all commodity markets,” said Adam Klopfenstein, a senior market strategist at Lind-Waldock, a broker in Chicago. “The weaker dollar, coupled with a wave of economic optimism, is supporting every commodity.”
In other words, gold is going along for the ride right now. Another trader quoted in the article has this optimistic take:
“The path of least resistance for gold still remains higher,” said Matt Zeman, a metal trader at LaSalle Futures Group in Chicago. “This is a market that people still like on the long side. We had bargain hunters come in after yesterday’s moderate sell-off.”
This take speaks to the internals point I raised above, which do show a weatheredness that wasn't there earlier this year (particularly in February.) I can confirm that traders' skittishness has lessened.

Regarding tomorrow, gold's been indeterminate enough to make it a guess as to what will happen. Myself, I believe that the pullback isn't over and gold has still some room to decline further - but I also believe that the short-term bottom will be well above $1,100. Someone more optimistic than myself may think that today's small rally indicates that the short-term pullback is over, even though the Eurocrisis-related demand for the metal seems to have faded for the nonce. As always, the market itself will make it clear.

Frank Holmes Rests Optimism For Gold On Emerging Markets, Future Inflation

A Mineweb summary of Holmes' speech at the Denver Gold Group European forum sketches out his reasons for gold going higher. Top on his list is emerging-markets growth, particularly in China and India. The latter country's buyers tend to be more price-sensitive, but the former's don't seem to be as much. Overall, emerging-market growth will spill over into higher demand for gold.

Also on his list is a shift towards world inflation.
Money supply - and the huge growth in it, particularly in North America and Europe is another determining factor, with the currency risk aspects of this benefiting gold as an alternative - and while interest rates remain low, holding U.S. T-bills, or cash, no longer generates any serious interest, but still carries credit, inflation, foreign exchange and political risk whereas, arguably, gold does not to the same extent.

Holmes has always been particularly keen on the effects of gold purchases in China and India (Chindia as he calls them) on the global market. With increasing liberalisation of gold markets in Asia we have been seeing a growth in individual demand in China... He also feels Emerging economies will increasingly switch their Central Bank assets to gold as they see the continuing effects of what is, in essence, competitive devaluations of western currencies.

A counterpoint to Holmes' claims is from GFMS in London, as highlighted by Jon Nadler in his latest column. GFMS claims that gold has risen because investment demand is the driver; if that demand source is factored out, then the supply-demand picture is out of whack. The firm thinks the long-term bull market is going to end at $1,300 this year, as investment demand proves to be more ephemeral than others (including Holmes) believes it is.

My own take? I have to categorize GFMS as one of those old-time analysts who are going to be made to look like fools should the gold bubble kick into gear. We're still in the nascent bubble stage, with old-style analysts seeing only overvaluation in the market.

Of course, GFMS (and Nadler) may be right and I'll wind up being the fool. The tides are turning to inflation, however, and gold is being genteelly mainstreamed in such a way that it'll be widely known as an inflation protector (if not hedge) should inflation heat up. There are signs pointing to such a heat-up gathering now.

PRC Gold Output Up 4.38% Year-On-Year For Jan-Feb Period

According to a ChinaKnowledge report webbed by, gold output in mainland China grew to 42.94 tonnes in the first two months of this year.
In the period from January to February, gold mines in the country produced 34.96 tons of gold, 2.67% more than in the corresponding period of last year, while the amount gold produced as a by-product of the smelting of nonferrous metals grew 12.62% to 7.98 tons, said the ministry.

The gross industrial output value of the gold industry surged 21.38% year on year to RMB 21.6 billion in the first two months, and the sector's profit grew 50.35% year on year to RMB 2.41 billion during the period.

John Mangun Discusses Where's-The-Gold Theories

In his latest column for the Phillipines' Business Mirror, Mangun reviews the recent financial and fiscal sins committed by central banks and financial institutions, such as the Grecian government hiding the size of its deficit with the co-operation of Goldman, Sachs. Those miscreancies have made credible theories that have typically been branded conspiracy theories: most notably, the one that claims there's no gold in Fort Knox (or a lot less than what the U.S. government claims.)

Related to it is the charge that bullion banks, storage companies for privately-held gold, have not kept the gold on hand but instead have lent it out or even sold it outright. This long-running charge claims the bullion banks inflate the gold supply through those means, in co-operation with the U.S. government, to keep gold prices lower than what they should be.

Mangun focuses on two governments, the U.S. and that of his home:
The Bangko Sentral ng Pilipinas (BSP) claims on its statement of assets that it is holding some $6 billion worth of gold. That may be true in an accounting sense, but it may not be true that the BSP is actually physically holding anywhere near that amount.

The US government says it is holding tens of billions of dollars worth of gold. That is possible but no one really knows. There has not been a physical audit of the gold supposedly stored in Fort Knox for nearly 50 years. It is possible that Fort Knox is not filled with shiny yellow gold, but with pieces of paper, receipts for that physical gold that has been loaned to another government or financial institution....

It is likely that many countries (hopefully not the Philippines) have loaned their gold to companies like Morgan Stanley and that many of those government bank vaults are empty, holding only paper receipts.

I am not saying it has happened, but this could be the reality. Say for a moment that the BSP loaned out its gold when the price was $500 per ounce. The borrower sold the physical gold at that $500 price, hoping they could buy it back at $400 to make a profit and then repay the BSP with physical gold. Now that the price is $1,000, the borrower of gold from the BSP cannot afford to buy back.

So the question that is being asked about and to the world’s central banks is: Do you still have the physical gold in storage or are you holding receipts and promises to pay that are potentially worthless?
He ends his column by saying that he hopes he's wrong about his suspicion that the Bangko Sentral ng Pilipinas has paper instead of gold. There's no parallel opinion about Fort Knox...

U.S. Business Inventories Rise More Than Expected

They rose 0.5% in February, and January's rise was upwardly revised to 0.2% Expectations were for a 0.4% rise.

The news had little effect on the U.S. dollar and gold.

Indian March Gold Imports Up Six Times

According to a report by the Economic Times, Indian gold imports in March surged to 27.7 tonnes as compared with only 4.8 tonnes a year ago,
Suresh Hundia, president of the Bombay Bullion Association (BBA) said on Wednesday. "Prices are down from the all-time highs we saw last year and that is why people are buying," Hundia told Reuters.

In 2009, the worst year in more than a decade for gold sales in India, gold imports were at 339.8 tonnes, down from 420 tonnes a year ago, data from the BBA showed.
The strengthening rupee and the relative lack of severity of the monsoon season helped the current figure.

A Trial Balloon

The column by Anthony Mirhaydari has an unusually blunt title: "Why inflation would be good for us." His message is fairly simple: inflating would be the least painful alternative to dealing with the current fiscal squeeze and its consequences. The prime beneficiary would, of course, be the U.S. government. But, Mirhaydari beleives that many ordinary Americans would benefit too:
The idea is that a quick bout of higher-than-normal inflation would lower the nation's debt in real dollars, bailing the government out of the debt threat. That means we could avoid Draconian tax increases or big spending cuts, both of which would be politically unpopular and could scuttle the economic recovery. (One example of what such cuts might bring is the "Roadmap for America's Future" proposed by Paul Ryan, R-Wis., the ranking Republican member of the House Budget Committee. It envisions phasing out Medicare in favor of private health vouchers and calls for raising the Social Security retirement age, among other changes.)

But accepting higher inflation wouldn't help just the government.

It would also benefit many Americans, who would see the value of their homes and retirement accounts increase. U.S. exports would become more competitive as the dollar weakened. The unemployment rate would fall, partly because real wages would decline, a less pleasant result.

Yes, this strategy carries dangerous risks. But we're in an extremely serious situation.
He's aware of the danger that rising interest rates would present to an ramp-up of inflation, which he believes would be a controlled one at about 4%, but he suggests that banks be forced to buy Treasury securities so as to keep Treasuries from falling all that much. Such a mandate would counteract the bond vigilantes for a time.

I only point to this column as a straw in the wind, one that certainly validates the long-term gold bull market.

[H/T: The Free Republic, in this thread.]

Gold Reverses Direction Overnight

Although gold started trading flat, it picked up steam as the overnight session wore on. Dawdling just above $1,150 until 8 PM ET, the metal went on a rise that carried it up to the $1,155 level by midnight. After making an aborted attempt at rising above, the metal fell back and later took a tumble that brought it down to $1,151.80 around 3:30. Reversing, it rallied all the way up to $1,161.30 in the next two hours. A pullback preceded an attempt to get above $1,160 again, which was foiled. Instead, the metal dropped to the $1,157 level. As of 8:03 AM, spot gold was at $1,158.80 for a gain of $7.70 on the day. The Kitco Gold Index attributed -$0.05 to a strengthening greenback and +$7.75 to predominant buying.

The night wasn't kind to the U.S. Dollar Index, but early morning was. After churning between 80.4 and 80.45, the Index tumbled at 8:15 and ended up sliding down below 80.2 just before midnight. The change from yesterday to today saw the drop change into a rally. Starting slowly, it picked up speed around 2:30; as of 3:35, the Index was above 80.4 again. Falling back to 80.25, it picked up again at 7:05 with a rally that took it above 80.45. Since 7:40, the Index was in the same 80.4-80.45 range; as of 8:09, it had fallen back a little to reach 80.39.

All three reports on gold's overnight action highlight palladium, as that metal reached a 22-month high. The Wall Street Journal wrapup casts gold as following in palladium's wake.

The morning Bloomberg report, as webbed by Business Week, ascribes gold's rise to the weakening greenback spurring demand for the metal.
“People are looking for short-term direction, and currencies will be back as a driver” of gold prices, said Wolfgang Wrzesniok-Rossbach, head of sales and marketing at Hanau, Germany-based Heraeus Metallhandels GmbH. Investors “are looking at the instability of the financial system with regard to debt problems,” weakening gold’s correlation with the dollar, he said.
Summarized was a prediction by Jeffrey Nichols for $1,500 gold by the end of this year. Nichols dismissed day-to-day fluctuations as the result of insutitutional speculation. Also noted is another optimistic forecast from Edel Tully of UBS AG, who believes that gold would benefit two ways from a revaluation of the renminbi: stimulating demand by making the metal cheaper in renminbi terms, and signalling that inflation is a problem in mainland China.

A Reuters report explained gold's rise as the result of bargain hunting and speculation on mainland China's first-quarter GDP figure.
"The GDP should be a good reflection of China's disposable income. If China's consumer demand is good, it's most probable the gold price will be well supported," said Wong Eng Soon, an investment analyst at Phillip Futures in Singapore.

China's first-quarter GDP figures are due on Thursday.

"I think the downside for gold will be limited because I see most of the risky currencies like euro all up at least for the last couple of days. I don't think there is a problem in crossing $1,168 again."
Also mentioned is the anticipated release of more economic data from the U.S.

Two of those items have been released, including the March CPI figures. The overall CPI rose 0.1%, in line with expectations, but the core CPI was unchanged; expectations were for a 0.1% gain too. Raw retail sales for March rose more than expected, by 1.6% instead of the anticipated 1.3%, but sales ex- autos and trucks rose by the expected 0.7%. On a raw basis, retail sales are 7.6% higher than the figure from the same month a year ago.

The prime beneficiary, for a time, was the U.S. Dollar Index. After sinking to 80.35 by 8:18, the Index trundled upwards until the news hit; it then spiked up to 80.49 before reversing and sinking back below 80.4. As of 8:52, the sinking was continuing as the Index hit 80.30.

Gold reacted to the news in an inverse way. When regular trading opened, the metal had rose to $1,159. That rise continued to $1,161.50 before being derailed by the news. Pushed down to below $1,159, the metal quickly reversed course and climbed to a new height. As of 8:52 AM, it was at $1,160.50 for a gain of $9.40 on the day. The Kitco Gold Index split the gain into $7.50 for predominant buying and $1.90 for U.S. dollar weakness.

The metal's two-day decline has been reversed, with quoted analysts notably optimistic for gold's near-term prospects. Part of that sanguinity is the result of journalists quoting those experts whose opinions gibe with the daily move, but there seems to be some optimism afoot that can't be explained by headline-compatible selection. I'd like to believe that the two-day decline spanning Monday and yesterday was the entire pullback, but my own skepticism inclines me to a wait-and-see stance. Today's regular trading may be gainful, though.

Tuesday, April 13, 2010

After Lull, Gold Continues Dropping Overall But Moderates In Afternoon

I have to admit to being surprised again. After a slight gain in the first hour of regular trading, which left gold peaking at more than $1,157, the metal took a tumble after a dip-and-return failed to reach the regular-trading high made at 9:00 AM ET. Starting at 9:30, the resulting three-stage decline pulled down the metal more than twelve dollars an ounce before bottoming at $1,144.20 just after 10:35. Since that time, gold has been fluctuating in a $1,144-$1,148 trading range that yielded on the upside only at 11:20. As of 11:44, the spot price was $1,150.70 for a loss of $5.30 on the day. The Kitco Gold Index apportioned -$5.05 to predominant selling and -$0.25 to a strengthening greenback.

The U.S. Dollar Index did reverse its earlier weakness, starting to rally around 9:10. From below 80.3, it ascended in a relatively smooth rally all the way up to 80.75 by 11:15. Again, an Index rally has prompted (or accentuated) a drop in gold. Since that peak, the Index has tailed off a bit; as of 11:46 AM, it had sunk to 80.58.

The morning action showed that the correction gold has undergone is not over, and that a rising U.S. Dollar Index still provides a trigger for selling. The decline in gold may be put on hold for the day, but the corrective phase is not over. The afternoon will show if the drops continue.

Update: So far, gold's recovered a little. After rallying to the $1,150 level, and hanging around there until noon, the metal crept up above $1,152 before pulling back to $1,150 again. Another rally to a little above $1,152 carved out a new short-term trading range between $1,150 and $1,152.50. As of 1:43 PM ET, the spot price was $1,152.10 for a loss of $3.90 on the day. The Kitco Gold Index assigned -$4.50 to predominant selling and +$0.60 to a weakening greenback. (When added together, the two figures yield the raw gain or loss.)

The U.S. Dollar Index, after pulling back a little in late morning, remained largely quiescent in the early afternoon. Establishing a new range between 80.5 and 80.6, the Index fluctuated directionlessly. As of 1:45 PM, it was at 80.54.

During the early afternoon, there was no resumption of the morning decline in gold. That might be a sign that the metal will close around $1,150 for a modest loss. The rest of the afternoon will tell.

Update 2: It didn't close at $1,150, but it wasn't much above.

Gold actually spent two and three-quarter hours in a trading range between $1,152 and $1,153.50. The range wasn't broken through, on the downside, until 3:45 PM ET. That fall-through established a slightly lower range, between $1,050.50 and a little over $1,152; the metal stayed within its confines until the end of the regular session. At that close, it was at $1,151.10 for a drop of $4.90 on the day. The Kitco Gold Index attributed -$6.60 to predominant selling and +$1.70 to a weakening greenback.

The U.S. Dollar Index did weaken somewhat during later afternoon. That above-mentioned trading range was broken on the downside as of 2:50, but further declines were sluggish and partially reversed until 4:05. In the interim, the Index did climb back up into the range. Starting at the latter time, though, a decline pushed it down to below 80.4 before a recovery pulled it up above 80.45. That recovery draining away, the Index closed at 80.42.

Its daily chart, from, shows how little volatility there was for the Index today:

More remarkably, the Index stayed about where it was as of yesterday. Also remarkable: for the second time since December 7th of last year, the first time being yesterday, it's straddling its 50-day moving average (in blue.) It's still well above its 200-day moving average.

For a relief rally, today hasn't been much of one. The last comparable plummet, as of March 29th, saw a nice relief rally the next day. Today, there wasn't. The wind is out of the Index's sails in a way that it hasn't been since the present bull run began.

On the other hand, yesterday's decline hasn't continued. 80 remains unbreached on the downside, and the Index seems comfortable enough hanging around 80.5. It's unlikely that the current quiescence will last, but there's little to determine where it'll go once the quiet time ends. The MACD lines are in a solidly bearish configuration, but they're bearish enough to allow for a little upside leeway without breaking the pattern. Tomorrow may see a rally that makes a try at 81, which wouldn't be a threat to its present short-term bearish trend. I think the more significant move would be a downward one, particularly if 80 is breached. 79.5 would set off an alarm bell, even if followed by a decent short-term rally. Of course, the Index is nowhere near that right now. For today, although the short-term trend is presumably bearish, the Index is still in wait-and-see mode.

As far as gold is concerned, its decline today was fairly moderate:

Although no relief rally benefitted gold today, the decline could have been much worse; in fact, it was worse as of mid-late morning. $1,150 held up, and there was no major plummet that stuck 'til the end of the day. Admittedly, that moderation also means that the current downtrend may simply take longer.

Even if it does, the short-term bullish trend is still intact and likely'll still be once the bottom comes. Gold's own MACD lines are in a solidly bullish configuration, and there's a chance that the RSI line at the top will bottom at about 50 - the mid-level. If so, then gold would have acted like it did back in the old bullish days: back in '09, a 50 RSI served as a reliable bottom. Regarding the price, I say that bottoming above $1,120 will be encouraging.

Of course, we're a long way from declaring the gold bull to have awoken using standard technical measurements. In order to declare a bullish uptrend, gold would have to bottom at well above $1,100 and then make a new 2010 high above $1,170. We might see a corkscrew instead, which would mean that the bull's still snoozing. My own trend-change hunch may be wrong. As things stand as of now, though, the picture still looks good for the metal.

An afternoon Wall Street Journal report ascribes today's drop to profit-taking, and the moderation of the loss to short covering.
"The market is stalling in this area, so some of the dealers in Asia took a few profits," said Bill O'Neill, one of the principals with LOGIC Advisors. This prompted weakness overnight in Asia-Pacific trade, which spilled over into the U.S.

Also, there is less "fear" in the market about sovereign debt issues in Europe, at least for the moment, O'Neill said. Still, he and others expressed doubt the issues will go away and suggested they are likely to remain a longer-term supportive influence for gold.

"The market got a little ahead of itself, and then there was a desire for profit-taking," said George Gero, vice president with RBC Capital Markets Global Futures...

Just as gold initially fell on profit-taking, the metal later pared its loss on short covering, which is buying to offset positions by traders who previously sold, Gero said....

Technically, one key will be whether June gold can hold a breakout level of roughly $1,145 an ounce, says Spencer Patton, founder and chief investment officer of Steel Vine Investments. This area was failed resistance from several weeks ago that turned into support as gold broke above.

"If we break through this level, the sell-off could accelerate quite dramatically," Patton said. If so, this could mean a retest of $1,100.
Maybe, but $1,125 stands between it and $1,145.

As corrections go, this one's been fairly orderly. It's likely to have some ways to go, but gold put on a lot of gain from $1,100 to $1,170. Overall, there's still reason to be sanguine.

Quick Guid To "Peak Gold"

The Globe And Mail has published a guide to the peak-gold argument, which runs along the same lines as the peak-oil case. Simply put, it rests on the claim that the easy gold has been found and mined. As the world become more combed, the number of profitable fields diminishes and the number of profitable and big fields dwindles.

The article notes that some peak-oil advocates see the peak-gold believers as copycatters.

Proposal To Facilitate Gold, Silver As Alternate Money

It's one that can even be described as a compromise of sorts. Those who like the fiat-money system as it is believe that gold has no place at all in it, as money or quasi-money. Many goldbugs want gold to be officially enshrined as money again. The compromise position, one that's not that far from today's reality, is governments continuing to stick with fiat money but tolerating the use of gold and silver as alternate monies.

Where we're at now isn't that far away from the compromise. There's no law preventing any citizen of a developed economy from owning, buying or selling gold. There's no law preventing anyone from bartering with it. There is, however, one barrier that hobbles the precious metals from being used as alternate monies: capital-gain taxes on them.

Hence, Thomas J. Gordon's proposal. In order to place gold and silver on an equal footing, capital gains on gold and silver - more realistically, specific kinds of gold and silver designated as alternate monies - should be eliminated. Doing so would enable ordinary citizens to use gold and silver as wealth protectors should they see the need to. [Gordon doesn't mention it explicitly, but it would also facilitate bartering with them. It's not just the tax bite; it's also the record-keeping hassle that limits gold and silver's use as barter items.]

He's come up with a nice proposal, but it doesn't get over an objection that's fairly obvious to those hep to political economy: enacting it would slice a lot of tax revenue from the government's coffers. The income made by the mints by selling additional gold and silver coins wouldn't cover the difference. There's not even a hope that said elimination would lead to other sources of tax revenue expanding; no reasonable supply-sider could make that case. Thus, there's no incentive (and an obvious disincentive) for the government to eliminate the capital-gains tax on barter gold and barter silver. There's no way that proposal would be enacted without the public leaning on elected officials to do so.

Greek Tragedies, Old And New

Using the term "Greek tragedy" as her muse, Geena Paul discusses tragedies old and new. The new one, of course, is the Grecian government's worsening woes in matters fiscal.

The standard template for the ancient Greek tragedies is a hero with a tragic flaw falling into the grips of hybris, or arrogance. The resultant overestimation of self leads to nemesis, or a mocked Fate dishing out a downfall - typically, through the tragic flaw.

If this template fits the current Grecian government, then its officials' [and/or the electorates'] hybris is one that's, er, shared by many in all developed economies. Governments are better than financial realities: that's the tragic flaw. The hybris consists of believing that there's a higher reality where homely bean-counting doesn't matter, as there's always a fix that the old-style calculator-thumpers just can't see. As far as the identity of the nemesis, the term "bond vigilantes" will do.

Indian Wholesale Gold Buying Goes Dormant Again

Despite somewhat of a pickup yesterday, according to a report by the Economic Times, Indian wholesale buying was listless today. Buyers are waiting for prices to fall further.
"Demand is not much at the moment. However, there was a slight pick-up yesterday at about $1,162-1,165," said a dealer with a state-run bank....They are expecting a fall to $1,135 in the evening, when they hope to buy," said another dealer with a private bank.

A weak rupee, which makes the dollar-quoted asset expensive, weighed on sentiment, they added. The Indian rupee was weaker in afternoon trade on Tuesday but recovered some losses as exporters sold dollars to take advantage of the sharp drop in the rupee over the last two sessions, but weak domestic shares prevented further gains.

I note, in passing, that the good-buy price point has shifted up to $1,135. This upshift is likely due to rupee appreciation, but it might be a result of $1,100 being written off as unrealistically low as of now.

Alix Steel Discusses Effect Of Stronger Renminbi On Gold

In an article webbed by, Alix Steel starts off by discussing the possibility of gold rising as a result of renminbi appreciation. The last time it did so, gold did go up long-term. The reason for a repeat would be gold becoming cheaper in renminbi terms, leading to more demand ceteris paribus. Ir would help fill the "ownership gap" of gold in Chinese hands. (There's already a big push for maninland Chinese citizens to own more gold.)

On the other hand, a rising renminbi would make the PRC economy less competitive ceteris paribus. That's precisely why the U.S. government is pushing for an appreciation of the currency. Should declining competitiveness impact incomes, then demand for gold (whatever the price) would likely go down.

Both arguments are explained in her piece.

Gold Decline Continues Overnight

After dawdling a little above $1,155, gold declined into an $1,150-$1,155 trading range starting at 9 PM ET; it remained there until early morning. An attempted breakout on the upside right after 3 AM got the price briefly to $1,156.00, but it fell back into the range shortly afterwards. More successful for a time was a breakdown below $1,150, which lasted from just before 5:00 until 6:00. The low reached, as of just after 5:00, was $1,147.20. From it, a rally ensued that took the price to above the middle of the range before it pulled back. As of 7:55 AM ET, spot gold was at $1,153.90 for a drop of $2.10 on the day. The Kitco Gold Index attributed -$3.80 to predominant selling and +$1.70 for a weakening greenback.

The U.S. Dollar Index spent most of the overnight session drifting in a range of its own. Although ragged, the 80.5-80.62 trading range held for most of the session. Once it was broken, on the downside, the volatility increased but the overall directionlessness didn't disappear. Since 6:45, the Index has been in a tighter but slightly lower ragged-bordered range between 80.45 and 80.5; as of 8:03, it was at 80.49.

A Wall Street Journal article attributed the overnight decline to profit-taking and a bump-up in supply.

"I think some guys are starting to think it's overcrowded and are profit-taking," said Standard Bank analyst Walter de Wet....

A pick-up in sales of scrap gold since gold prices rose above $1,150/oz last week has also weighed on gold, Mr. de Wet said. "For the first time in a couple of months, we're seeing decent scrap levels coming into the market."
Also mentioned is the effect of the bailout package for the Grecian government, which cooled safe-haven demand.

The morning Reuters report said that the last stage of last week's rally was prompted by technical buying, in part by people who has missed out on the earlier stages and jumped in so as not to miss any more, which is often a sign that the rally's about to fizzle:

"The latest gains on Friday and early Monday morning in Asia were due mainly to technical buying, and such a rally usually paves the way for a technical correction," said Kaname Gokon, deputy general manager of the research section at commodity brokerage Okato Shoji Co.

"The market could test the next support levels of $1,140-$1,130 by the end of this week," he said.
The article also mentions physical selling as a depressant of the rally, but also notes that the holdings of the SPDR Gold Shares Trust were unchanged yesterday.

The same theme is contained in the regular Bloomberg article, as webbed by Business Week: gold was due for a downturn anyway. Some, however, pointed to the greenback:
The “gold price is dictated by a stronger dollar,” said Bayram Dincer, a commodity analyst at LGT Capital Management in Pfaeffikon, Switzerland. “Not overcoming the $1,170 four-month high indicates a short-term consolidation mode. The Greece euphoria factor also signals that risk aversion is lower.”

With regular trading open, gold moved up to almost $1,156 before pulling back as of just before 8:30. The U.S. trade deficit number was released at that time; it was a wider-than-expected $39.7 billion. The import price index rose 0.7%; the consensus expectation was for 1.1%. Both results added to downwards pressure on the metal, which was shaken off as of 8:40, as well as exerting some downward pressure on the greenback. As of 8:46 AM, spot gold was at $1,155.20 for a loss of $0.80 on the day. The Kitco Gold Index assigned -$3.10 to the predominant-selling category and +$2.30 to the weakening-greenback category. The U.S. Dollar Index, after breaking through 80.5 for a time, started slumping before the data were released but fell further when they were. As of 8:49, the Index was at 80.42.

The decline in gold is continuing, but it's moderating. Today may see some churning rather than an unambiguous drop.

Monday, April 12, 2010

After Morning Drop, Gold Rallies A Little Then Falls Back

The early and-mid-morning part of the regular session was a little hard on gold, but the metal rallied anyway after three bottoms made at below $1,159. The first decline started just after regular trading began, and carried the price from just below $1,164 to just above $1,158. A relief rally kicked in after 9:05 AM ET, which pulled the price up to $1,162 in a two-stage advance. That rally fizzled, though, and the metal descended to $1,159 - twice, after a lesser relief rally in between. Starting at 10:25, though, a more solid rally got underway that got the metal up to well above $1,164. As of 11:55 AM ET, the spot price was $1,164.60 for a gain of $3.20 on the day. The Kitco Gold Index attributed -$2.20 to predominant selling and +$5.40 to a weakening greenback.

The U.S. Dollar Index did go for a bit of a spill earlier in the morning, which pushed it below 80.45 by 9:40. After rallying up to almost 80.6, the Index entered into a slower and gentler decline that took it back down to 80.45 by 10:57. More recently, it was in rally mode again; a trading range between 80.45 and 80.6 seemed to have been established. As of 11:56 AM, it was at 80.53.

Overall, the gold price has been indeterminate so far. A slamdown was avoided, but the metal hasn't had much rallying power. Afternoon trading may lead to one direction or the other prevailing, but the morning picture was one of a dynamic pause.

Update: The indeterminateness continues. After peaking at slightly above $1,165 at 11:30 and 11:45 AM ET, gold pulled back to the $1,163-$1,164 level as it established a trading range between 12:10 and 1:00 PM. A break above failed to hold, but a break below pushed the metal down to below $1,160. As of 1:49 PM, spot gold was at $1,159.80 for a loss of $1.60 since Friday's close. The Kitco Gold Index assigned -$6.20 to predominant selling and +$4.60 to a weakening greenback.

The U.S. Dollar Index is still in a range. After pulling up to 80.63 as of 12:20, it stayed near that level until 1:05, at which point it dropped to a new sub-range between 80.55 and 80.6. As of 1:52 PM, it was at 80.57.

The upward momentum of last week seems gone, most likely because it was anticipatory regarding a Grecian bailout or foiled with respect to worse expectations for the EU region. The current stability of the U.S. Dollar Index hasn't helped much. Gold may continue where it is, but there's a more-than-outside chance that today will see the first day's decline since Wednesday before last.

Update 2: That chance did kick in. Gold wound up closing at a loss, as a mid-afternoon decline wasn't reversed later in the session.

The fall from $1,164 began just before 1:30 PM ET. Starting at that price, the decline pushed gold down to $1,156 by a little after 2:10. The metal stayed at that level until an attempted rally between 2:20 and 2:40, which got the price up two dollars an ounce. The rally didn't hold, and the price sunk back to $1,156. A drop down to $1,154 led to a trading range with $1,156 becoming the ceiling until near the end of the session, when the metal pushed up a little above it. As of the close of regular trading, the spot price was at $1,156.00 for a loss of $5.40 since Friday's close; the seven-day gain streak was broken. Kitco's Gold Index attributed -$10.20 to the predominant-selling category and +$5.40 to the weaening-greenback category.

The U.S. Dollar Index remained in the trading range carved out earlier in the afternoon. In the later part of the session, it never got below 80.5 but never above 80.62. As of 5:30 PM, it was at 80.565.

Its daily chart, as provided by, shows the extent of the plummet before it was mostly reversed:

Between Friday's and today's candlestick, there's a space that's very close to an outright gap - that's how steep the plummet was. Given that the Index partially recovered from its daily low of just above 80, the gap (if a real one) is likely to be a common gap that'll be filled. The lines marking each day's interday lows and highs may have already overlapped, making the supposed gap not a real one.

At any rate, the 81 support level was obliterated and the 80.5 one breached. The Index closed above the latter, but the depth of the low makes it possible that 80.5 was the resistance level for what'll turn out to be a relief rally.

This plummet resulted from a bailout package being assembled by the EU for the Grecian government. Although not a done deal yet, it's close enough to have taken the bulk of the Eurocrisis premium out of the Index. As it stands now, the Index is slightly higher than it was before the Eurocrisis erupted. The only hope for greenback bears is in the fact that today's decline was much more sudden than the ones that occurred in earlier pullbacks. That, and the fact that a new short-term low has been made which worsened April 1st's. The longer-term indicators, though, still suggest that this current downtrend is a countertrend pullback. It would be a different story if the Index managed to drop and stay below 79.5.

Turning to gold, its own drop doesn't look that bad on the charts because its decline was muffled by the U.S. dollar's:

Although the drop is definite, it didn't even reverse Friday's rise - let alone that of the last week. The drop after late Februray early March's five-session rise more than reversed the last day's rise of that streak. This datum doesn't give much in the way of a forecast for this week, as exactly the same pattern showed up on the day before the February 4th massacre as well as before a stand-pat period in mid February that lasted for three sessions. The odds say that today's decline will be prefatory to a more sustained one, but the seriousness of it is anyone's guess. Given the configuration of the MACD lines at the bottom of the chart, my own hunch says that any such decline won't be that bad. As I discussed last Friday, what matters now is where the near-term decline ends. Somewhere between $1,120 and $1,140 would place the current rally as the first wave of a genuine short-term uptrend. In terms of chartists' neatness, $1,140 would be ideal even if said bottom is likely too much to expect.

Whatever the extent, tomorrow isn't likely to be a good day for the metal. As I've intimated before, my short-term gloom isn't as bad as it sounds. Gold came close to being oversold outright, and is in need of a rest anyway. Tomorrow may surprise, but any surprise isn't likely to be terribly unpleasant.

"Gold Price Today" Notes Absence Of Bubble Talk

In a Seeking Alpha article, the author points out that the current rise in the price of gold has not been accompanied by the warnings about gold being in a bubble that were around late last year and the beginning of this one. It's an important omission.

The reason given is that gold rise was easier to describe as "irrational" back then. Not nowadays.

Along that line, a review of several charts has convined "Daily Trading" that the long-awaited pickup in inflation is beginning to surface.

Gold Bull Says Gold Becoming Preferred Alternative To Government Debt

That's according to a Bloomberg write-up on his words. Philip Klapwijk, executive chairman of research company GFMS Ltd, said that gold was likely to go to $1,300 later this year or next year. He also pointed to the fact that investment demand was higher than jewelry demand last year as an encouraging sign for the metal.
“Investors are focused very much on deterioration in credit quality” of governments, the GFMS executive said. That focus on European governments “at some point” will shift to the U.S. “given its fiscal position is at least as bad as some of the European countries,” he said.

Government and other “official sector” gold sales may “blip up” this year after falling to about 1 percent of gold supply last year, he said. The International Monetary Fund still has 191 metric tons of gold for sale that will probably be sold on the open market, he said.

I note that more skeptical, or cautious, analysts would point to the eclipsing of jewelry demand by investment demand as a danger sign.

Indian Wholesale Gold Buyers Vanish

According to an Economic Times report, Indian wholesale gold buying dried up as the price went above $1,140:
"There have been no bookings after 7th of April, when prices moved above $1,140 (an ounce), there was buying before that," said a dealer with a state-run bank in Mumbai....

"A fall to $1,120 or below that could activate the physical markets," said another dealer with a private bank. However, a strong rupee, which makes the dollar-priced gold cheaper, helped sentiment, they added....

"Brown Bottom" Raked Over...By The Manchester Guardian

The opening of the Guardian article features an extended discussion of Gordon Brown's decision to sell off 395 tonnes of U.K. gold - right around the bottom of the market. His decision is already infamous as being the costliest decision made by a U.K. finance minister.

It would have taken a confirmed cynic - and/or a gold believer - to see that sale as a buying signal. At around the same time, the now-defunct show Sabrina, The Teenage Witch portrayed the principal of the school Sabrina attended - a normally buffonish character - as a goldbug. Market nuts take note: had it been read with a cynic's eye, that episode would have been a clarion buy signal for the metal, just as the "Brown bottom" was. Of course, few people of the mind to be contrarian investors would have seen that episode at the time.

The rest of the article uses the bad-Brown example as a hook to make people more aware of the real value of their gold when the "Cash for Gold" companies come calling. It's a very British way of making people look around for a better deal from a vendor.