Friday, April 23, 2010

Catalyzed By U.S. Housing Data And Grecian Bailout Request, Gold Tears Upwards

The doldrum period for gold has come to an abrupt end. Primed by the news that Greece is formally seeking a 45 billion Euro bailout package, and sparked by an almost unbelievable increase in U.S. new home sales for March, gold went on a tear that not only erased an early-morning decline but also put a double-digit gain on the metal's price.

Earlier in the regular session, the metal wasn't doing all that well. Prompted by renewed strength in the greenback, gold sunk from $1,143 to just above $1,135 between 8:20 and 9:00 AM ET. After dawdling around the $1,137 level, and dipping back to $1,135 as of 9:45, the metal went on a powerful rally that pushed it up to $1,158.20 by 11:15. That rally was not only strong, but long; it lasted about an hour and a half. Subsequently, the metal took a rest and dipped down to and below the $1,155 level. As of 11:57 AM, the spot price was $1,153.90 for a gain of $12.60 on the day. The Kitco Gold Index split the gain into $10.40 for predominant buying and $2.20 for a weakening greenback.

The U.S. Dollar Index did fall back to below 81.5 as the implication of a bailout for the Euro sunk in. Peaking at 81.93 as of 9:30, the Index at first sunk slowly. That decline accelerated in the next hour and didn't stop until it was well below 81.5. Since then, it's been trading raggedly but with a saucerish downward bias turning into a slight upward bias. As of 11:59, it was at 81.49

This morning's rally was impressive, but it's not likely to be built upon this afternoon. Still, given gold's recent weakness, a close above $1,150 would still be impressive.

Update: Gold's pullback continued as the pit session ended. Although the metal did get back up to a little above $1,155 around 12:20, it pulled back to between $1,152-$1,153. It came nowhere close to $1,150. As of 1:40, the spot price was $1,153.80 for a gain of $12.50 on the day. The Kitco Gold Index divided the gain into $9.70 for predominant buying and $2.80 for weakness in the greenback.

The U.S. Dollar Index stayed below 81.5 in the early afternoon, although in a relatively narrow trading range between that same 81.5 and 81.45. As of 1:40, it had dipped slightly below the bottom of the range to 81.44.

As the week ends, there's a good chance that gold will hold above $1,150 for a sizable gain. It may not be double-digit, but it'll be close. The rest of regular trading is almost surely going to be quiet.

Update 2: The metal not only held above $1,150, but also bested and closed above $1,155. A mid-afternoon drop in the greenback was the cause.

As the pit shift closed, gold reached its afternoon low of about $1,153. The price started climbing around 1:30 PM ET; $1,155 was reached just before 2:00. It meandered at that level until 3:30, and climbed again albeit slowly. At the end of the trading week, spot gold closed at $1,157.50 for a gain of $16.20 on the day. The Kitco Gold Index split the gain into +$11.70 for predominant buying and +$4.50 for a weakening greenback.

For the week, due to last Friday's Goldman-related plummet, the metal gained $20.70 or 1.82%. Almost all of that gain came as a result of today's upsurge, which reflects the difficulties gold had this week except for today.

The U.S. Dollar Index didn't hold its 81.45-81.5 range; that range broke on the downside shortly after the pit shift ended. After some hesitation, the Index plopped down to 81.31 as of 2:05. After meandering around the 81.335 level until 3:00, it leapt up for a partial recovery of its earlier losses. Until the very end of the sesssion, the rest of the afternoon saw the Index in a range centered around 80.405. In the last ten minutes of trading, it dropped below to close at 81.35.

Its daily chart, from, also shows its strength earlier in the day before the Eurocrisis trade started to unwind:

In fact, the Index showed a lot of strength earlier in the day, opening around 82 before dropping to close at a loss on the day. Even though it did, its MACD lines switched to a bullish configuration today. Despite today's reversal, the short-term performance of the Index has been fairly impressive.

For perspective's sake, the bottom in mid-month was 80. March 17th was 79.5. April 8th's top was just below 82. Today's top, if it be one, was above 82. It's close, but there's a higher high and higher low for this run-up.

Granted that the fiscal powder keg in Greece was responsible, and that impetus may fade if the Grecian government gets its bailout request granted. The Index pulling back for this reason would leave it in a wide trading range between 80 and 82. For that to happen, there has to be a decline to 80 and no rise significantly above 82. That's possible, as is a lesser sink-down with no rally above 82, but the Index's performance up to this morning was fairly strong. Even if the Index keeps falling, even if it heads back down to 81, I'd still watch for any reversal that takes it above 81.5 and towards 82. Today's bulge-up actually took it above the level needed for a clean inverse head and shoulders pattern; one may still be in the offing.

Turning to gold, its own performance was fairly impressive after its early-week doldrums:

In my comments from more than a week ago, I picked the $1,120 and $1,125 figures out of my hat as hypothetical bottoms. As it turned out, last Monday's interday low was within that range. A more optimistic person could argue that Monday's interday low was an outlier, and the real bottom was $1,135. Be that as it may, today's candlestick shows something not often seen: a nice run-up with no "top" to the candle, implying a close at the daily high.

Me saying so gives the impression of me being a wet blanket, but I wouldn't assume right now that gold is moving above $1,160 and staying there. Despite gold's own strength, the strength of the greenback has to be kept in mind. If it co-operates by weakening further, we may see a run all the way up to $1,170. If the bailout-related strength in gold continues to exert its influence, we may see the same thing. Both concurrently could result in a run well above $1,170. In any of these cases, it's likely that the MACD lines at the bottom of gold's chart will switch back to a bullish configuration, making the four-day stretch in bearish territory little more than a fake-out.

I'd wait until said break-out before believing it, though. Granted that my skepticism was untoward during the last run-up, and it's based upon an inverse correlation between the greenback and gold that may be blinding me right now, but I still express caution. That doesn't mean I believe today's rally wasn't for real.

This being Friday, the Commitment of Traders graphs are out for both gold and the U.S. Dollar Index. Gold's, which shows commitments as of last Tuesday, showed a slight drop in open interest overall. The number of commercial-long contracts increased by 4,492 contracts, or 3.32%. Commercial shorts decreased by 1,596 contracts, or 0.400%. Interestingly, non-commercial shorts dropped by 1,294 contracts or by 3.02%. Evidently, some non-commercial shorters decided to cover in the wake of Monday's short-term bottom. Non-commercial longs shrunk by the most: 11,355 contracts, or 4.32%. All in all, though, there wasn't that much change despite last Monday's end to last Friday's Goldman-related plummet.

As of last Tuesday, the U.S. Dollar Index was in the near-beginning of its run but was also tailing off at just above 81. At the time, it looked as if the rally could be cresting. Consequently, its own CoT graph shows a further shrinkage of open interest. This time, non-commerical shorts as well as non-commercial longs seem to have been caught with their pants down. Total open interest shrunk by 2,277 contracts, or 5.10%. Non-commerical longs shrunk by 1,792 contracts, or 5.40%. Non-commerial shorts increased by 904 contracts or 16.4%. On the commercial side, longs shrunk slightly by 130 contracts, or 2.15%; shorts shrunk by a much wider margin: 3.087 contracts, or 8.47%. Taken collectively, all categories were surprised by the subsequent continuation of the rally. That's not good for greenback bears, as it suggests that the rally was greeted with skepticism rather then optimism and hype. The overall picture suggests that last week's run was for real.

We may be in for a week where the Index pulls back and gold rallies in consequence - or, I dare say, a week when both are up. My cautionary words above may belie what I'm about to say, but gold's technical position is fairly good right now.

Again, thanks for reading. May your weekend be a cheery one.

Frank Holmes Rebuts Gold-Bubble Talk

His own reasoning behind his claim that gold is not in a bubble rests on the current bull market being longer but less volatile than that of the '70s. He also notes that current investment demand is twice what it was at the peak of the '70s bull market, reflecting gold's newfound status as a legitimate investment alternative.

He has a point, but I'd like to inject one of my own: had there not been price controls on gold, its bull market would have started much sooner. The London Gold Pool has to exert its financial muscle to keep gold at $35 in the late 1960s, suggesting that gold would have gotten rolling in 1967 or '68 [or 1966, for that matter] had the price not been suppressed. To make for a fairer comparison, his chart should have overlaid the present bull market with the 1967-80 period. From a mechanical standpoint, that would compare gold as of now to gold in 1977 or so.

Based upon my own sketchy reading of the chart, his point would have carried anyway. Gold more than doubled in the '73-4 crisis and then halved; the volatility over the last two years has been nothing like that extreme. Also, a mechanical comparison sugggests that the current gold bull has a few years before its run is over - perhaps several.

That's why I've gotten gold pegged as being in a nascent bubble, not a full-blown one. The big inflation driver has yet to make its appearance, but once it does the message will spread much more widely than in the late '70s. Gold is more popular now than then; more of the public will be receptive to the hype that accompanies any bubble.

[Admittedly, my use of the term "bubble" does dovetail well with "third stage of a three-stage bull market." I confess.]

Inflation-Hawk Dissent Growing In The Fed

As excerpted is growing within Fed ranks.
The most vocal dissident is Thomas Hoenig, president of the Federal Reserve Bank of Kansas City and the Fed’s longest-serving policymaker, who has twice formally objected to the Fed’s “extended period” language. That commitment plus zero rates, he explained on April 7th, lead “banks and investors to search for yield… take on additional risk [and] increase leverage”. He argued the Fed should soon raise rates to 1% to “end the borrowing subsidy”.

The next day Narayana Kocherlakota, president of the Minneapolis Fed, voiced a different concern: that the excess bank reserves created by the Fed’s MBS purchases create the potential for high inflation. He advocated selling $15 billion-25 billion of MBS a month, which would clear the Fed’s inventory in five years instead of the 30 it would take for the bonds to mature.

The rest of the Fed and its chairman, Ben Bernanke, have listened politely but are not ready to drop or even water down the “extended period” language, much less raise rates. Dropping the commitment would be tantamount to a tightening of monetary policy as bond yields rise in anticipation of short-term rate hikes. Mr Bernanke has already said the Fed would eventually sell some MBS, but not now. By pushing up long-term rates that too would be a tightening of monetary policy.

As the article further notes, there might as well be a lone hawk as far as the majority is concerned. The new vice-Chair, Janet Yellin, is a known dove. One of the Fed's favourite metrics, bank credit (including consumer credit), is still shrinking. There isn't much hard evidence on the hawks' side as of yet, which suggests the Fed will stay the course for now.

Even though the central bank to the north, the Bank of Canada, is already gearing up for a rate hike of its own.

Marc Faber Says Gold Has A Long Way To Go

In his outspoken way, he says that as long as there's inflation and near-zero interest rates, gold will continue to go up - way up.
Faber said that "as far as the eye can see, interest rates under Bernanke will stay at zero and below." He noted that the current Vice Chairman of the Fed , "Janet Yellen, another totally, ignorant economist, removed from any reality, said herself six months ago, ‘if I could implement interest rates below zero, I would do it.’ So now you know what the policy in the US will be,” Faber said.

He also said that if gold prices substantially rise one day, there could be expropriation. “The Americans could force the Europeans to do the same – once they have all the gold in the world they would re-value it at $10,000 an ounce," Faber said.
Faber also took a cyncial view of the the SEC going after Goldman:
"Obama has lost the trust of the people; his approval rating is worse than Bush at this stage in the presidency. When people are dissatisfied in a democracy - you go after a minority to target – in the case of America you go after Goldman Sachs because it is the symbol of Wall Street and excessive money creation and there is also a tone of anti-Semitism there.”
And, he had some sharp-tounged words about the folks who claim that gold is being held down by manipulation:
On the subject of market manipulation talk, Faber said that if market manipulation exists then it is good for gold buyers since it keeps the price down.

"If you have manipulation to keep the price down, it eventually goes ballistic. So, all the people that are bitching about the manipulation of silver and gold should be happy that it is manipulated because it still gives them an opportunity to buy it at a depressed priced,” Faber said.

Faber said he suspects that there may have been some efforts by Central Banks to keep the price down but wouldn’t go as far to call that manipulation.

“If someone talks about manipulation, well, I think the whole world through government intervention has become manipulated so it is very difficult to make forecasts,” said Faber.

The Commodity Online article from which the above was lifted has some more Faber plain talk.

Indian Wholesale Gold Demand Stagnant

According to the Economic Times, a quest for lower prices eased demand in the wholesale market.
"Yesterday we did about 75-100 kgs, the lowest deal was done at $1,132 (an ounce) up to $1,144," said a dealer with a state-run bank....
In addition:
Supplies of the yellow metal were getting restored, after a volcano in Iceland treatened to disrupt shipments, dealers added. "Yesterday we recieved one consignment after a gap of 10 days, tomorow we are getting one and on Monday we will be getting another two," said the first dealer.

WGS Says Indian Gold Demand Improved In First Quarter Of This Year

As reported by the Economic Times, the World Gold Council said that its preliminary figures indicate that Indian gold demand for the first quarter of this year improved over the fourth quarter of last year.
"Preliminary reports on Q1 2010 demand trends in India suggest a continuing improvement, as witnessed in Q4 2009, and supported by seasonal festivities which include a number of Hindu New Year festivals," the WGC said ahead of the release of its quarterly report in mid-May.
4Q '09 demand rose 13 percent. The report notes, though, that higher prices will call forth greater supply from gold recycling.

Greenback Bull Expresses Longer-Term Reservations

In an interview with Mark Hulbert, U.S. dollar bull John Dessauer explains that his bullishness on the greenback is largely a reflection of his skepticism about the Euro, which he believes will fall apart. [He also believes that such a disintegration would be beneficial to Euroland.] His case for the greenback is built upon the U.S. dollar becoming the sole viable reserve currency, as the Euro falls apart and the yen gets entangled in the Japanese government's fiscal troubles. His longer-term outlook for the greenback has turned cloudy, though:
Deficits in the U.S. have become staggeringly large, and if this country doesn't correctly deal with them then the dollar will itself suffer. China, for example, might be prompted to give up on the dollar as a reserve currency, turning to gold instead. Greece's current problems are a dress rehearsal for what could happen to the U.S. down the road.

The U.S. economy and currency are not automatically doomed, however. But the only way it will survive its debt mess will be through economic growth. This is possible, especially if the U.S. figures out how to exploit the major opportunity that exists to participate in the economic growth of emerging markets around the world.

So, he still has hopes but he also sees weak points that greenback skeptics know well.

U.S. New Home Sales Jump By 27%

This datum goes beyond exciting to perplexing. New homes sales for March have leapt up by 27% from February's record low, making for the largest month-to-month gain since April 1963. A last-minute rush to take advantage of the new-home tax credit, as well as better weather, were mentioned as causes.

The Marketwatch article that reports on it is laden with skepticism, which says something in itself.
Government statisticians have low confidence in the monthly report, which is subject to large revisions, and large sampling and other statistical errors.

In most months, the government isn't sure whether sales rose or fell. The standard error in March, for instance, was plus or minus 21.1%. Read the full government report.

The government says it can take up to five months to establish a statistically significant trend in sales. Over the past five months, sales have been on a 358,000 seasonally adjusted annual pace, up from 355,000 in the five-month interval through February.

Sales of new homes had fallen four months in a row before March's surprising boom. A federal tax credit for home buyers that expires soon seemed to have little impact on sales until March....

The news hardly affected the U.S. Dollar Index, but the gold market took the opportunity to build upon a rally that started at 9:45 AM ET. As of 10:22, the spot price was $1,145.20 for a gain - yes, a gain - of $3.90 on the day.

After Slight Dip Overnight, Gold Goes Nowhere

Given the news, the reaction of the gold market was surprising - unless the participants have already come to the conclusion that the announcement was inevitable. The Grecian government has formally requested a 45 billion Euro rescue package from the EU and IMF. The request was taken well by European stock exchanges but had no effect on gold, despite having some effect on the greenback. All told, it was an unusually dull day for gold.

The only move of consequence was at 7:00 PM ET, when gold went from $1,142 down to a little below $1,140; that move was greenback-driven. Since then, the metal's been hovering around the $1,140 level - between $1,138 and $1,142 - in a directionless trading range. Since the news of the request was released, there's been a bias towards the upper end of that range but no real movement outside it. The metal did spike up to $1,144.20 on the news, and did reach $1,137.40 just before 2:00 AM, but pulled back to the range in both cases. Given that just below $1,142 was around where it closed, after some dawdling near there, it can be said that the $1,138-$1,142 trading range has held since early yesterday afternoon. As of 7:59 AM ET, spot gold was at $1,140.50 for a drop of $0.80 on the day. The Kitco Gold Index attributed -$1.50 to predominant selling and +$0.70 to a weakening greenback.

The U.S. Dollar Index has an exciting night, both ways, in contradistinction to gold. It got up to well above 82 as of 7:10, subsequent to rallying a little earlier in the evening. It actually peaked at 82.1 as of 7:25, but that peak proved to be a spike. After dropping to just above 81.9, the Index made another run at 82 which was briefly successful but failed to stick. The decline from that peak went lower, to about 80.875. A third attempt at rallying, which peaked at 2:20 AM, barely made it to 82. And then, the bailout-request news started making its way to the market. In a little more than two hours, including a climactic bottom, the Index got pummeled to below 81.5. It didn't stay there; a relief rally pulled it up to almost 81.7. As of 8:17 AM, seemingly shrugging off the news, it was at 81.69.

A Bloomberg report webbed by Business Week pegs the influence of the bailout request as negative for gold, as it should put out a fire that's been keeping the metal up.
“Certainly the immediate high wave concerns regarding Greece are now in calmer waters,” said Bayram Dincer, a commodity analyst at LGT Capital Management in Pfaeffikon, Switzerland. “Gold prices should trend lower.”
On the other hand, a Wall Street Journal report jibes with my own take above: gold was essentially flat.
Spot gold held steady amid uncertainty over how Greece's decision to request financial aid would play out.

"Everyone is looking at the Greece story; gold is a range market with all the problems happening," said Afshin Nabavi, head of trading and physical sales at MKS Finance.
The article also mentions that holdings of the SPDR Gold Shares trust (GLD) dropped by 0.91 tonnes yesterday, and quotes two other analysts to the effect that gold's currently in a range but could move upwards.

More data has come from the U.S.-economy-watching machine, specifically durable-goods orders. March new orders for those goods dropped 1.3%. The data were better than that figure looked, however: a plunge in aircraft orders brought the figure down. Ex-transporation, orders rose 2.8%; for core capital goods, orders were up 4%, the strongest result since June. The spin on them was manufacturing is showing continued underlying strength.

The U.S. Dollar Index drew some benefit from the news, although a rally was already in place beforehand. Initially blipping up to 81.85, the Index pulled back a little before making a run at 81.9. As of 8:55 AM, it had sunk back to 81.84. Gold, in contradistinction, slumped several dollars an ounce. From $1,143 just before 8:30, the metal dropped to $1,138 by 8:45; it then paused, and then sunk a little further. As of 8:55, spot gold was at $1,137.20 for a loss of $4.10 on the day. The Kitco Gold Index split the drop into -$1.40 due to predominant selling and -$2.70 due to a strengthening U.S. dollar.

The story of the week is still the greenback, which shows little sign of slowing down now that the bailout-request news is out. Its run has taken a toll on gold. So far, anyways; the implications of a bailout haven't seemed to have sunk in yet, except for the possibility of others for Portugal and Spain to the detriment of the Euro. There's still the cost, and how they'll be paid for...

Thursday, April 22, 2010

Gold Takes A Tumble

I have to admit to not seeing today's decline at all. Prompted by a rise in the U.S. Dollar Index, itself pushed upwards by continuing Greece-related troubles and encouraging economic data, gold dropped in two stretches during morning trading. At the beginning of the pit session, it was around $1,144. When both declines were finally over, gold had sunk to below $1,131.

The first decline was relatively slow, taking the price down to $1,138.50 in the first half-hour of regular trading. After a slight recovery, and a wobble around the $1,140 area, the metal managed to climb up to $1,142 before it was hammered. Within ten minutes, it dropped eight dollars an ounce to $1,134. Again, it hovered around the bottom price; this time, though, it made a new bottom at $1,130.80 before spiking up to $1,134. After some meandering, and despite a lesser spike-down, the metal got up above $1,136 before pulling back a little. As of 11:54 AM ET, the spot price was at $1,135.50 for a drop of $10.70 on the day. The Kitco Gold Index split the loss into -$6.10 due to strengthening of the greenback and -$4.60 due to predominant selling.

The U.S. Dollar Index had a good morning; it vaulted easily above 81.5. Starting the regular session below 81.4, it moved up in a two-stage rally to above 81.7 by 10:05 before pulling back somewhat to the 81.55 level. Subsequently, it recovered to around 81.65 and carved out a trading range between that level and 80.6. As of 11:55, it was at 81.64.

So far, today hasn't been a good one for gold. The only upside is the chance that bargain hunters will come in and prevent any further declines. That's what we may see this afternoon.

Update: The morning drop was mostly erased as the pit session came to a close. Gold got above $1,140 again.

After bouncing around $1,136, the metal jumped up to $1,138 only to fall to below $1,135 as of 11:50 AM ET. From that point, gold managed a nearly hour-long rally that took it up to $1,144. That level failed to hold, but the pullback brought it to around $1,142; it's been near that level since 1 PM. As of 1:46, spot gold was at $1,141.10 for a loss of $ on the day. The Kitco Gold Index attributed +$0.35 to predominant buying and -$5.45 for strength in the greenback.

The U.S. Dollar Index largely treaded water in this part of the session. There was a slight pullback to the 81.55 level, but 81.5 has remained out of reach. As of 1:47 PM, it was at 81.57.

Partial erasure of the decline was good news for gold, as it suggests that this morning's plummet was overdone; that plummet was erased in its entirety. The rest of the afternoon session is likely to see $1,140 hold.

Update 2: It did, as did a trading range between $1,140 and $1,142. At the end of the day, the metal closed at a price only slightly below the one at the start of the mid-morning plummet.

Not much happened in the post-pit stretch of regular trading, which can be seen as some good news. There have been stretches where the price has declined a bit after a substantial advance; today's wasn't one of them, perhaps because gold closed at a loss. As of its close, spot gold was at $1,141.30 for a drop of $4.90 on the day. The Kitco Gold Index assigned a +$1.40 change on the day to the predominant-buying category and a -$6.30 change to the strengthening-greenback category.

Gold's action may have been nearly nonexistent mid- and late-afternoon, but the U.S. Dollar Index's wasn't. After declining below 81.6, the Index rallied through the late afternoon with barely a pullback until it hit 81.7 as of 4:40 PM ET. A less insubstantial pullback dropped the Index below 81.65, but a recovery near the end pushed it up. As of 5:30 PM, the Index's value was 81.67.

Its daily chart, from, shows its one-year record extending for another day. It's now has six consecutive up sessions:

And the 81.5 resistance level was bested - on something more than rumours this time. There's some dirty laundry creeping out of the Grecian government's file cabinets. This time, it pertains to the real size of the deficit in relation to Greece's GDP. As the talks progress, there may be more. Given the dog-and-pony show that's been going on there, it's not too surprising in retrospect that some unmentioned mentionables have now seen the light of day.

The possibility of the deficits being even larger, or of other snags in the works surfacing, will likely give more boost to the Index. It's going to be a long two-to-three weeks for greenback bears.

From the technical standpoint, the Index looks pretty good. As mentioned above, the 81.5 resistance level was crossed. Now, the chart looks well into the process of forming an inverse head and shoulders pattern; that formation is bullish. The Index may well descend soon. Unless it drops to 80 or below, though, that descent is likely to preface a run-up above 81.5. Also looking bullish is the crossover of the MACD lines from a bear configuration to a bull configuration.

The last crossover of that sort didn't last long, but the bear phase that just ended started when the Index was slightly below today's level. In other words, if someone had bet against the MACD bear crossover by going long the Index on the day the crossover was made, (s)he would be closing out with a slight profit if not margin-called out. If a little money can be made by going bullish when an indicator goes bearish and closing the long position when the indicator turns bullish again, then the long-term orientation of that investment is bullish. It's true that going long in harmony with the MACD's previous bull phase would have resulted in a small loss: both topsy-turvy results from both phases may simply impugn the MACD's effectiveness as an indicator at this time.

The impugnment has been lopsided, though. Over the course of the last four-and-a-half months, going long when the MACD indicator tells you to would have led to a substantial profit in most cases. The returns from going short when the MACD lines crossed over in a bearish fashion would have been spotty. Given this lopsidedness, the lines tend to be more trustworthy when they signal "bull." The Index may be in for a run upwards, although not immediately.

It doing so would, of course, put a headwind opposing any upward march in gold. The metal's own daily chart not only shows the $1,140 level holding up, but also a deep interday decline which reflects the mid-morning plummet:

A successful test of a support level is grounds for optimism, but the metal's own MACD indicator has spent its second day in a bearish configuration. Given the greenback's rallying power, it's not difficult to see why. I have to admit to being blindsided today; yesterday's wrap-up proved to be too optimistic.

Even if the decline continues, however, gold isn't that far away from bargain levels. A short-term decline to $1,120-$1,125 may be in the works, but I don't see any decline going much further than that. The Eurocrisis is benefitting gold ex-greenback; the metal is getting a share of safe-haven money, particularly when the costs and effects of fixing things up sink in. Moreover, I've read of that range being the bargain zone for Asian (particularly Indian) wholesale buyers. It seems to be for other participants. Gold could get hammered successfully tomorrow, in the sense of the plummet sticking, but there doesn't seem to be too far to go before the bargain range is entered. The only way the metal could get down to $1,100 would be a large hammering that scares or encourages bargain hunters into lowering their buy points to that level or below. Possible, but not likely.

The regular end-of-pit-session wrap-up from Reuters attributes the metal's drop to the usual suspect. Amongst other points, these were therein:
* Gold hammered earlier in the session as worries over Greece's ability to pay its debt led to a broad sell-off.

* Euro plunges to lowest level since May against the dollar after Moody's cut Greece's rating by a notch and placed the rating on review for further downgrade.

* Gold market largely ignores benign inflation pressures. U.S. data showed increase in wholesale prices in March was 0.7 percent.

* Gold holding up well despite dollar rise and liquidation pressure in an overly long futures market - COMEX floor trader Jonathan Jossen.
It's held up so far, anyways.

I wish I could be as cheery as I was yesterday, but I doing so got a little egg on my face. Despite a strong test of the $1,140 support level today, it held up. Gold may hold up tomorrow, particularly if the U.S. Dollar Index takes a rest from its current climb. Tomorrow's session will tell the tale.

A New Manipulation Theory

I suppose it has to happen. Using a little-known report, Form FR Y-9C which contains gross commodity exposure of banks in its listing of off-balance-sheet items, Peter Krauth of Global Resource Alert has concluded that the big banks are manipulating the price of gold upwards.
The basis for Krauth's contention lies in the quarterly reports filed by financial holding companies with federal banking regulators. Krauth's holy grail is the Form FR Y-9C, an analytical tool used to monitor financial institutions between on-site inspections. The manipulation smoking gun, says Krauth, is found in the summary of the banks' off-balance-sheet items.

By poring over the Y-9C forms filed by Morgan Stanley, Goldman Sachs, Bank of America, JPMorgan Chase et al., Krauth claims to have tracked the movement of $4.68 trillion into the commodity sector in what he describes as the "the biggest bank manipulation in generations."...

Krauth backs up his argument by pointing to the banks' forecasts. "In its 2010 forecast, Goldman Sachs called for gold prices to spike to $1350 and up to $1425 an ounce by 2011, " he says. "That price should be easily attainable considering they're buying up gold. According to reports from the COMEX, Goldman Sachs and JPMorgan have begun taking delivery of thousands of ounces of physical gold, instead of settling their futures contracts in cash."
"Hard Assets Investor," the fellow that wrote the article from which this snippet was extracted, points out that Krauth has seized upon gross, not net, exposure to all commodities, not gold. Consequently, there's a lot less to this theory than what's apparent.

An Interesting Compromise

As reported by the Economic Times, an Indian fund has tried to get around the no-income dilemma with a fund that invests mostly in fixed-income instruments but also in gold.

It's an idea that can be copied, but unfortunately it's not that feasible as of now in North America because nominal interest rates are too low. On the other hand, rates are so low that they can go nowhere but up on the short end. An allocation of, say, 75% in short-term and/or variable-rate debt instruments and 25% in gold wouldn't provide any income now - what little sliver of income after tax would barely pay for the storage or management fees on the gold - but it would cushion the principal and provide income once rates moved up.

I make this comment as a North American resident, of course, and I have to say that I'm not a financial planner; so, it's just me commenting.

Kevin Grewal's Four Reasons To Be Bullish On Gold

As webbed by Minyanville, his bull points are familiar ones to goldbugs: an increase in inflation, as partial monetization of huge sovereign debts is resorted to; economic uncertainty; a surge in investment demand; and, shrinking supply. In addition to expanding on each argument, his piece contains some tips on investing in gold ETFs.

The Case For Gold Enters The Telegraph

Ian Cowie explains why gold may be a good investment for U.K. residents on the eve of the election. Inflation is heating up, and interest rates aren't rising enough to compensate. More to the political point, election season seems to be good for gold in sterling terms.
Uncertainty created by general elections appears to boost the sterling price of gold. During the year after the last election in May, 2005, the bullion price increased by 62pc.

That was its biggest ballot year rise since Margaret Thatcher's first election victory in May, 1979, when the gold price soared by 89pc.

While the price fell by 10pc and 12pc respectively during the election years of 1987 and 1997, bullion's average one-year gain over all national ballots since 1970 has been 18pc.

While history is not a guide to the future, those who fear a hung Parliament may draw some comfort from the fact that gold even staged a modest increase of 6pc after the last indecisive election in February, 1974.

Governments in a tight spot can print money or let inflation devalue the currency to float them off the rocks of excessive debt. But they cannot make more gold or debase this precious metal.
The rest of the article contains a brief overview of the options to buy gold as well as the inflation case for buying it. The way it reads, it seems targeted to those who haven't considered gold.

As a reinforcer of a sort, I point to the fact that the most-read article in the Telegraph's personal-finance section is entitled "Britain's savers face 'worst time' to save." I'll let its intro speak for it:
Financial experts warned it is now the “worst time” to save following a drop in savings rates during the last six months and a rise in inflation to 3.4 per cent.

It means savers are out of pocket by more than £200 in a year on a £10,000 savings deposit once inflation and tax is taken into account....

Central Bank Stealthily Acquiring Gold

This central bank has been on a multi-year campaign to increase its reserves as the economy of the associated country has grown out of a wrecked state. The same central bank has been moving more of its foreign-exchange reserves outside of the U.S. banking system. The associated country's influence has been growing in the rest of the world, outside of close U.S. allies, as the U.S. government continues to frown on and even veiledly threaten it.

The country in question is Iran. As Geena Paul explains in her latest column, Iran has been accumulating gold. They may need it...

Indian Gold Demand Remains Weak

According to a Reuters India report, dealers are still waiting for lower prices to restock.
"There is no much interest at these levels... yesterday there was minor buying at the dip below $1,140 (an ounce)," said a dealer with a state-run bullion dealing bank.

"There may be interest at $1,125 levels," said another dealer with a private bank.

However, a strong rupee, which makes the dollar-quoted asset cheaper aided sentiment, they added.

Given how the metal's performed so far today, they may get their wish.

Home Sales Up 6.8% In March

Thanks largely to the extension of a subsidy to first-time home buyers, home sales in March increased 6.8% from the downwardly-revised February figure. Compared with those of a year ago, sales were up 16.1%. Although inventories increased 1.5%, house prices have stabilized.

The U.S. Dollar Index benefitted from the news, but gold didn't. The former got up to 81.7, while the latter is still languishing at around $1,134 after an eight dollar an ounce drop around 9:30.

Gold Slumps On More Bad News From Greece

This time, U.S. dollar bulls have a little more than speculation to feed on. A Eurostat audit of the Grecian government's deficit has found that its deficit may be 0.5% more than the reported 13.6% of GDP. The European Commission is calling for efforts from the Grecian government to implement austerity measures that should shave off a full 4% from the deficit-GDP ratio; that body says that the government is on track so far this year. As the dirty laundry seeps out, the Euro keeps falling and the greenback keeps benefitting. Gold hasn't.

After a sag down to $1,145, the metal did show signs that it would. Attempted runs above $1,147 last evening were eliminated by a further drop down to $1,145. Starting around midnight, however, the metal went on a run that carried it all the way up to $1,150.30 as of just before 4:00 AM ET. The EU news, and its effect on the greenback, took the steam out of that rally and turned it into a decline. In the next two hours, ten dollars was sliced off the gold price before a bounceback brought it back up to the $1,142 level. A slight relief rally followed, which drained away for a time as the price sunk to the $1,141 range. As of 8:02 PM ET, though, spot gold was at $1,144.20 for a drop of $2.00 on the day. The Kitco Gold Index attributed +$0.40 to predomainant buying and -$2.40 to strength in the greenback.

As noted above, the U.S. Dollar Index went for a run once the bad news from Greece was disseminated. It was, however, declining a little beforehand. After an aborted slump between 7:20 and 9:05 PM, which took it down below 81.15, the Index recovered to the 81.2-81.25 level. Then, it declined in a more sustained way until 3:50 AM and 81.05. That drop ended when the news hit and was replaced by a swift rally that had the Index up to 81.45 by 6:15. After holding between that level and 81.4, it pulled back a bit starting at 7:40. As of 8:11, it was at 81.38.

The regular Bloomberg report, as webbed by Business Week, attributed the fall to the above-mentioned Grecian dirty laundry.

“Gold is responding first to a stronger U.S. dollar or weaker euro as deficit figures for the EU are coming in,” said Bayram Dincer, a commodity analyst at LGT Capital Management in Pfaeffikon, Switzerland. “The second response could be risk aversion.”
The morning Wall Street Journal report was webbed before the decline, but contained some hints of trouble that panned out:

The Greek situation remains the dominate driver in the gold market, said SEB Commodity Research analyst Filip Petersson....

James Moore of TheBullionDesk said gold and the precious metals in general will be in a "volatile mood" in the coming days with meetings of G20 members and between International Monetary Fund and Greek officials underway.

Investors that are particularly pessimistic about debt issues are buying gold as an insurance policy, [Commerzbank trader Michael] Kempinski said, noting decent buying when the metal dips.
The opening paragraph noted that traders were still cautious just before the opening of the talks.
A Reuters report did manage to catch the decline, with the same reason mentioned.
Such fears sometimes benefit gold as a haven from risk, but currencies are currently to the fore. In the longer run, concern over sovereign debt may lift gold, analysts said.

David Wilson, an analyst at Societe Generale, said gold's correction on Thursday notwithstanding, it had trended higher on a number of occasions despite a strengthening dollar.

"The relationships and the drivers for gold are changing over time," he said. "There is enough nervousness out there in terms of what is happening in Europe to spark some degree of support for safe-haven assets."

"That is why we are seeing the dollar supported, and for the same reasons we should see gold supported."
Again, there's the same optimism for the period passed the initial storm. It did kick in during yesterday's regular session.

Regular trading opened with a five-dollar decline in the gold price, which started at opening and ended at 8:40. The PPI data was released at 8:30, showing a 0.7% increase mainly because of higher prices for vegetables. The core CPI, excluding food and energy, was up only 0.1%. Also released was the weekly new jobless claim figure, which dropped 24,000 to 456,000 last week. The U.S. Dollar Index took well to the news, rallying above 81.5 by 8:40 and staying there. As of 8:58, spot gold was at $1,139.20 for a drop of $7.10 on the day. The Kitco Gold Index split the loss into -$2.50 for predominant selling and -$4.60 for U.S. dollar strength. As of 8:59, the U.S. Dollar Index was at 81.53.

So far, at least, the resilence I myself expected for gold hasn't been there. The U.S. dollar is still benefitting from the Eurocrisis, and is picking up some steam from U.S. economic data. It looks like the metal is going to have a tough day.

Wednesday, April 21, 2010

Gold Prices Recover

Regular trading for the metal didn't begin all that propitiously. From the open until 9:20 AM ET, gold fluctuated around $1,139 as a slight downward bias turned into a slight upward bias. Then, starting at that time, the metal put on a quick five dollars an ounce. Making a double top a little above $1,144, gold sunk back to $1,141 by 10:35. A subsequent uptick turned into a relief rally as the metal sunk back to the $1,141 level and below As of 11:38 AM ET, the spot price was $1,139.10 for a small loss of $1.30 on the day. The Kitco Gold Index attributed +$2.10 change due to predominant buying and a -$3.40 change due to a strengthening greenback.

The U.S. Dollar Index has strengthened this morning. After pulling back to around 81.13 by 9:30, and fluctuating just above that level for the next half hour, the Index pulled back up. A rise to a little above 81.2 was halted by a pullback to 81.17, but that pullback prefaced a rally that took it up to 81.31. That rally helped take the wind out of gold's sails from 10:48 to 11:30. As of 11:40, the Index was at 81.29.

So far, things don't look that good for gold - but, given the U.S. Dollar Index's performance, things haven't been that bad for the metal. Although not a sure thing, there's a possibility that gold will eke out a gain at the end of today's session.

Update: Early afternoon action was more positive than I had expected. Just before 1:00 PM ET, gold managed to get above $1,150.

It sinking below $1,140 just before 11:30 marked the bottom of the late-morning session. After hanging around that level until 11:45, gold went on a run that lasted almost an hour and put more than ten dollars on its price. Since that top, the metal's been hovering around $1,148 and looking as if its run upwards was spent. As of 1:42, the spot price was $1,147.40 for a gain of $7.00 on the day. The Kitco Gold Index had a change of +$8.90 due to predominant buying and -$2.00 due to a strengthening greenback.

Although still stronger on the day, the U.S. Dollar Index did weaken somewhat; that helped kick off the noon rally in gold. After peaking at 81.31 as of 11:35, the Index slid down slowly at first but picked up speed. By 12:45, it was below 81.2. Since that time, it halted its decline and has been in a trading range between 81.15 and 81.2. As of 1:43, it was at 81.19.

There's a chance that gold will slide down during the rest of the afternoon session, but a gain on the day looks all-but assured. Of some comfort is the fact that the major mid-session move was upwards.

Update 2: The gain did come in - not as much as it had been at the high, but still fairly solid. The price did descend somewhat in the post-pit part of the regualr session, but not by that much.

Gold continued to hover around $1,148 until a decline got rolling at 2:10 PM ET. Taking the price to just above $1,145, it ended at 2:50. From there, it drifted up to the $1,146-$1,148 range in which it stayed until the end of the session. At the close, spot gold was at $1,146.20 for a gain of $5.80 on the day. The Kitco Gold Index assigned a +$8.30 change on the day to the predominant-buying category and a -$2.50 change to the strengthening-greenback category.

The U.S. Dollar Index didn't change all that much during the rest of the afternoon session. An attempted rally starting at 2:05 PM didn't get up above 81.25. That rally thwarted, the Index fell all the way down to a little below 81.15 by 3:20. A subsequent gentle climb got it up to almost 81.25 again, but two attempts to breach that level in the late afternoon didn't succeed. As of 5:30 PM, the Index was at 81.21.

Its daily chart, from, shows the resistance at 81 finally overcome:

The chart also shows something that's a record for the last year: five consecutive up days. Although the absolute amount of the gains isn't very impressive as compared with the stronger action earlier this year, the consistency of them says something about the greenback. In terms of interday levels, the five-day streak went from 80 to well above 81.

But not to 81.5, at least not yet. Despite that record, the Index is still in indeterminate territory. Its streak would be even more impressive if it got up to 81.5 tomorrow. As I noted yesterday, the rally looked as if it were cresting; today's rise was solid enough to render that opinion mistaken. The Index may have enough momentum to keep going to 81.5, or even beyond. That primarily depends upon more Eurojitters hitting the Euro market. The latest speculation is that a bailout will not be forthcoming for the Grecian government. If there is one, then the Index will sink again. More immediately, if there's no cause for worry the Index may slump tomorrrow. Even if it rises because of further speculation and worry, that rise will be on borrowed time if a bailout does ensue.

Turning to gold, I have to say that the metal put my worries yesterday to rest, as its own daily chart shows:

During yesterday's display of my own jitters, I compared gold's action up to then to two episodes in late January and early February. With today's action added, the action of the last four sessions resembles neither of them. It's possible that the uptrend will continue from these levels, although hesitantly and choppily given the U.S. Dollar Index's strength.

There's just one wrinke to the story, found at the bottom of the chart. For the second day in a row, the MACD lines there are in a bearish configuration. There have been one-day fake-outs, although all of them have been bull fake-outs, but no two-day ones. Today marks the second day of the current bearish configuration, even though it's milder than the start of the other three bear phases.

What would be best for gold would be a pause or slog upwards despite that MACD bear signal. As I've noted earlier in the year for the U.S. Dollar Index, a bear phase combined with an essentially sideways move is a bullish signal for the longer term. We may see that for gold because of safe-haven demand trickling in once the buy-greenback panic button is no longer being pushed. That's what happened the last time the Index was propelled upwards by the Eurocrisis only to sink back down. Although the greenback is still the reflex choice in any crisis, more deliberate buying of gold does kick in later. Given that pattern, there is the possibility that yesterday and today's rise may be continued in the near future. One caveat: gold's now above levels that are now considered bargain points. The higher it goes, the farther away it is from such support.

Tomorrow's session may continue to show gains for the metal; the way it's reacted after a Greece-related scare suggests a good chance that it will. Even if it doesn't, we may be in for a period where the metal essentially goes nowhere. Despite the jitters accompanying the austerity talks, there's a fairly good chance that the Grecian government will end up with some sort of aid package. That decision will take two to three weeks, but I doubt that that government will be hung out to dry. Not all Germans are opposed, and Germany's banks are hurting from the bear market in Grecian sovereign debt...

Przemyslaw Radomski Sees Retracement For Gold Shares

After beginning his analysis with the story of Gordon Brown and his legendarily mis-timed sale of about 60% of the U.K.'s gold reserve, Randomski uses some technical indicators - particularly the gold miners percentage bullish index - to conclude that senior gold shares are likely to pull back. He makes it clear that he's only expecting what he calls a "local top;" he expects the shares to rally higher subsequently.

Good News For Miners In Western Australia

The mining royalty rate isn't going up in that province.
GOLDMINERS in Western Australia breathed a sign of relief last night after Premier Colin Barnett ended weeks of controversy by ruling out an increase in gold royalty rates.

When Mr Barnett raised the prospect of a rise last month, some producers claimed it could force them to close.

Mr Barnett confirmed the plan was opposed by his Mines Minister, Norman Moore, and would not proceed this year....

Jaohn Paulson Goes Into Damage Control

As reported by the Wall Street Journal, John Paulson has spent some time with some of his clients reassuring them that his part in Goldman's synthetic CDOs at the heart of the SEC civil-fraud charge was above-board. He also indicated that his firms deals in high-volume stocks that can be gotten rid of without gutting their price.
Investors have indicated they are concerned that scrutiny over the firm's deals may spread, including to overseas regulators. They said they wanted to protect themselves in case new information emerges that could damage the hedge fund, they say. Another issue, they say: The legal case could simply prove a distraction for Mr. Paulson.

"Some of the callers asked pointed questions, almost like a court inquisition, but most people were supportive," said Brad Alford, who runs Alpha Capital Management. "I felt reassured that he did nothing wrong."

"It's not a rush for the doors," said another investor in Paulson & Co. who has communicated with larger Paulson investors since Friday, when the government unveiled its Goldman case.

Actually, it looks like Paulson has put out the fire.

Jeffrey Nichols Says Gold Good Value Right Now

The current fall was prompted by panic selling, and a price of $1,130 is low enough to spark bargain buying in Asia: that's Jeffrey Nichols' take on the gold market right now.
"There is good support under these levels from the main Asian markets – China and India – where current prices should engender price-sensitive buying. In addition, we are at a seasonally important time for the Indian market ahead of the propitious May wedding period. Bullion traders and jewelry manufacturers stepped up their buying earlier this month – and I expect we'll see still more buying at recent prices."
Nichols also expects gold to keep going higher as inflation settles in.

Commodity Online Poll Finds 93% Expect Gold To Fall

That's quite the majority. The most popular reason given for the gloom was the recovery in place:
In an online poll of a sample size of 21,600 respondents selected from across the globe, 93% or 20,100 of the total sample size had opined that there would be a fall in gold prices due to a recent upbeat mood in the global equity markets, while only 1400 respondents contradicted the stand, while 0.46% did not comment on either side. This showed that most of the respondents believed that there would be a fall in gold prices in near future due to recovery in global equity markets....

The global economy is recovering with rapid pace and the risk appetite of the investors prompting them to undertake higher risk involved in investment instruments other than gold would inevitably result in a reduced gold demand thereby pulling down gold prices. However, 52% of the respondents did not agree to the argument that increased risk appetite will bring down gold prices.

Similarly, of the total respondents as many as 53.1% believed that US dollar would replace gold from its status of ‘safe haven’. Looking at the recovery of US economy from the nightmarish recession which had started from the US and hit the world economy in 2008, dollar was found gathering steam once again. However, 46.8% of the respondents contradicted the view and maintained their skepticism towards dollar and put gold to their preferred investment mode.

It's not a very inspiring result...except for contrarians.

Gold Creeps Up Overnight, Driven Down In Early Morning

The talks between the Grecian government, the European Central Bank, euro-region officials and the IMF have started and the markets haven't reacted well to them. The yield for 10-year Grecian sovereign debt has climbed well above 8%, and related CDSs have climbed to record levels. The spread between those bonds and German bunds is also at a record level. Ostensibly, the talks are about the austerity measures the Grecian government has to enact. There are fears that no bailout will result from the talks, which pushed down the Euro as well as gold.

The metal wasn't doing all that badly until the above news intruded. After dawdling around $1,140, the metal inched up to $1,143 by 12 AM ET. From 1:00 to 2:30, it managed to climb above $1,145. Failing to rally above that level, gold sunk back down to $1,143 before making another run at the $1,145 level. That second run, ending just after 6:00, barely touched it. At that point, prompted by a rally in the U.S. dollar, gold slid down to below $1,140. As of 8:08 AM, the spot price was at $1,140.00 even for a loss of $0.40 on the day. The Kitco Gold Index attributed +$2.60 to predominant buying and -$3.00 to a strengthening greenback.

The U.S. Dollar Index rallied well on the news about the talks, even though it has been inching up in the prior evening. After starting off the evening session slightly above the 81 level, the Index climbed up above 81.15 by 8:20 PM and stayed stuck around that level until 9:45. A pullback to 81.1 preceded a period of indecisiveness, followed by a run up to 80.2 that crested as of 1:05. A drop to below 81 provided the impetus for gold to make $1,145. Another period of indecisiveness followed, which was broken by a rally that started just after 6:00. From the 81.0 level, the Index shot up to a little above 81.3 before fluctuating between that level and 81.25. As of 8:15, it was at 81.28.

The morning Bloomberg report, as webbed by Business Week, didn't cover the more recent drop. Instead, focusing on its earlier-morning rise, the report says earlier gains resulted from gold being favored as an alternative to debt.
Gold climbed for a second day in London on demand for a hedge against risks in the debt market....

“We have Greece, there’s also questions about Ireland, Spain, and Portugal, and what about the U.K. deficit,” said Gerhard Schubert, head of precious metals at Fortis Bank Nederland in London. “Gold is what it says on the tin: a safe haven.”
The article also goes into the bigger gains made by both platinum and palladium.

Regular trading's first stretch pushed gold down further, even as the U.S. Dollar Index slumped. Seesawing downwards, the metal got down to $1,138 before recovering a little. As of 8:51, it was at $1,138.90 for a drop of $1.50 on the day. The Kitco Gold Index assigned +$0.60 to the predominant-buying category and -$2.10 to the strengthening-greenback category. With regard to the U.S. Dollar Index, it pulled back from the 81.25-81.3 level to around 81.2; as of 8:54, it was at 81.18.

So far, things are not looking very good for gold. A nice, if small, gain turned into a small loss as a result of the Eurocrisis intruding. The U.S. dollar is still the prime beneficiary of any jitters. As I said in yesterday evening's write-up, the gold market is going to be dicey this morning. How dicey will be revealed later in the day.

Tuesday, April 20, 2010

After Spike-Up, Gold Pulls Back And Stays Flat

Gold started off indecisively as regular trading began, but coalesed into a rally that turned into a spike. After some hesitant attempts at an upward run that turned into smaller spikes, the metal went on a larger run at 9:30 AM ET that brought its price up to $1,147.40 as of just after 10:00. The rally lost conviction, though, and the metal descended down to where it has been at the beginning of its rally. Muddling along further, its later indecisiveness turned into another drop by 11:15. As of 11:41, the spot price was $1,138.90 for a gain of $3.70 on the day. The Kitco Gold Index attributed +$5.90 to predominant buying and -$2.20 to a strengthening greenback.

The U.S. Dollar Index made it above 81 again, making things harder for gold. Most of the early-and mid-morning session saw it bump up against the 81 level, but the Index didn't surmount it until 11:17. Rising to 81.05, the Index slid down to 81 before making a run at 81.10. As of 11:49 AM, it slid back down to 81.04.

Gold came in with a gain from yesterday's close, which has been whittled back in the late morning. $1,140 was successfully broken through, even though the metal has been hovering a little below it. The afternoon session will show if this drop is accentuated, or reversed.

Update: Another attempted run upwards near the end of the morning session went nowhere. After descending to a little above $1,138, the gold price crawled back up to $1,141 by 12:20 PM ET. From there, the price slid back to a slightly lower level before turning up again just after 1:20 PM. So far, the drop has been slightly accentuated but not by much. As of 1:41 PM, the spot price had recovered slightly to $1,140.30 for a gain of $5.10 on the day. The Kitco Gold Index assigned +$7.40 to predominant buying and -$2.30 to a strengthening greenback.

After stopping its slide at 81.01, the U.S. Dollar Index turned upwards but failed to cross 81.1 until 1:15 PM. In between, it bottomed at higher levels. Once broken through, though, it failed to follow through with any conviction; three attempts to rally conclusively above 81.1 led to a fallback below that level - but not far below. As of 1:42 PM ET, it was at 81.08.

As of the end of early afternoon trading, gold's action looks soft but no worse. There's a good chance that the metal will end with a gain of the day, although it's likely to be a small one. The rest of the afternoon will show.

Update 2: Thanks to a last-minute blip-up, gold not only closed with a gain but also above $1,140. Almost all of the entire afternoon session was spent in a trading range with that level being near the ceiling.

The last dip of the afternoon session ended just before 1:30 PM ET, with gold sinking a little below $1,138. Since that time, the metal drifted in a trading range with $1,138 the floor and $1,140.50 the ceiling. The latter number is pretty much at the same price that formed the top of the early-2010 trading range. After sinking to near $1,138 by 4:30, the metal climbed above $1,140 by 5:00 and stayed there for the rest of the session. As of the close, spot gold was at $1,140.40 for a gain of $5.20 on the day. The Kitco Gold Index assigned a +$7.20 change on the day to the predominant-buying category and a -$1.90 change to the strengthening-greenback category.

The U.S. Dollar Index did hold above 81, but barely and with little conviction on the upside. An attempt to get above 81.1 crested at 81.115 as of 1:20 PM. Since then, it stayed between 81 and 81.10, with two tests of the lower level in mid-afternoon that bottomed at 80.995. As of 5:30, the Index was at 81.045.

Its daily chart, from, shows the fourth daily gain accompanied by a slowdown in its rate:

Actually, the Index hardly moved in today's session. 81 was closed above, but the close was arguably close enough to chalk it up to sponginess in the resistance level. The gains are still continuing, but it looks as if it's cresting.

Certainly, the news that the Grecian government's talks with European Commission authorities and the IMF are on for tomorrow added a bit of help to the Euro; jitters about the bailout being derailed pushed the Index up recently. Given its recent action, no suspicions enter into my mind about where it's headed unless it either sinks or rallies up to 81.5. It may dawdle tomorrow.

As far as gold is concerned, its own daily chart shows a gain that looks fairly miniscule, despite the top wick in today's candlestick being considerably above the body. Monday's looked like a nail:

One development that rates some concern is the pair of MACD lines at the bottom of the chart. Today, they shifted from a bullish configuration to a bearish one. In MACD-watcher jargon, that makes for a bearish crossover. It's true that there have been one-day fake-outs this year, but so far they've all been busted bullish crossovers; all the bearish crossovers have panned out. Still, it's possible that today's is a one-day fake-out.

Of more concern is the resemblance between the action of the last three days and that of January 21st to 23rd. I'm aware that the trends on the chart are different for each time period: back in late January, gold had fallen to about the same level at which it was when the December 22nd bottom was made. Currently, gold is nowhere close to the last intermediate-term bottom it made: below $1,090 on March 24th. Instead of approaching a lower low after manking a lower high, gold has made a significantly higher high and is carving out a significantly higher low. By making this comparison, I am not forecasting a mauling like that suffered on Feb 4th. My comparison only speaks to short-term considerations.

January 25th's gains were followed by a tepid decline day, and then by a more serious decline the next day that took the price a little above the interday low made on January 22nd. Two more decline days pushed it below, until a strong rally day kicked in. Should market internals follow the same script this time 'round, then we'll see some declines this week that'll pull gold down to $1,120. Even if that script is followed, which it may not, gold will still have made a higher low after April 9th's higher high. Unless another dark surprise engulfs the gold market, this week's performance isn't likely to be worse than what I've described. As far as the Goldman one is concerned, it looks like cooler heads are deciding that Friday was just a panic day for reasons unrelated to gold's fundamentals. The only bearish kicker would be a continued rise in the U.S. dollar. It besting 81.5 in its current rally phase would signal another short-term uptrend, for reasons less panic-centered than recently. Unless more aftershock demand comes into the gold market, greenback strength would depress the gold price.

A Wall Street Journal afternoon report ascribes gold's rise today to bargain-hunting.
Gold and other precious metals closed higher Tuesday as a willingness to take risk returned to the market and investors used a price retreat over the last two business days as a buying opportunity.

Investment demand overall remains good, due to ongoing concerns about sovereign debt in many nations and the potential for stimulus-spending efforts and loose monetary policy around the world to eventually lead to inflation.

The metals sold off Friday and early Monday on general uneasiness in the equity and commodity markets after the government announced a civil suit against Goldman Sachs for alleged subprime fraud. Further pressure came from a stronger dollar, which reduces the need for investors to hold gold as an alternative currency, as well as selling to book profits after gold ran higher in late March and early April.

Profit-taking emerged after the pullback. "The relatively low prices compared to previous weeks drew some increased buying from investors," said Carlos Sanchez, associate director of research with CPM Group....

Traders also cited an increase in physical demand for gold...
The part of the report that discusses the Goldman matter is consistent with my own reading above.

Tomorrow has the prospect of being a dicey day. If the gloomy scenario I sketched out above is going to come to pass, then gold will be down on the day tomorrow. If it keeps gaining, then that scenario is likely to be outmoded. One timeframe to watch is the late morning, when most of the damage tends to be done. Gold rising in that timeframe would be especially encouraging.

Interview About Chinese Gold Consumption: Why It's Expected To Keep Rising

The Seeking Alpha interview, with mainland Chinese gold analyst Eily Ong, has this as its nub: mainland Chinese growth in demand is keeping pace with GDP expansion, and shows no sign of stopping.
Gold demand has grown in China at an average rate of 13 percent per annum. During the past decade, the Chinese gold mining producers stepped up production by 84 percent. So Chinese demand growth has continued to outpace domestic production capacity, and we've seen this since 1992.

But China is still ranked No. 2 behind India in terms of demand. And although we see the acceleration in the demand growth, the country still has one of the lowest gold consumption intensity rates, if you compare it to Western economies, or even countries with similar gold cultures, like Taiwan or South Korea....

[W]e had this deregulation in the Chinese gold market; I think people aren't really aware that the regulations were only lifted less than a decade ago. So, yes, we've seen the per capita consumption level growing: From 2002, the per capita consumption was at 0.17 grams, and this has almost doubled to 0.33 grams in 2009. But it's still one of the lowest in the world. So they are catching up in terms of their Western counterparts.
Ong expects holding rates to catch up with those other countries, which would make mainland China the biggest gold consumer.

Possible Bullish Fallout From Goldman Investigation

Moses Kim, a gold bull, says that the Friday plummet was a real buying opportunity from a fundamental standpoint, even if hazardous from a technical standpoint. He opines that there's a hidden upside to financial institutions becoming more regulated:
Now let's think logically for a second about the repercussions of increased regulatory scrutiny of financial institutions. Although most people with a brain know that Government Sachs has been operating a crime syndicate for years, there are obviously people who live in a constant state of oblivion. As more allegations of wrongdoing come to light, the general population will lose confidence in financial institutions and the government, since the government failed to identify fraud as it was happening. This is all to be expected in a cyclical move from paper assets to hard assets.

Gold will benefit from the growing distrust of the government. We are in the middle of a long-term cyclical bull market in gold, and the truly explosive moves lie ahead. Patience and discipline are the name of the game moving forward.

Gold is still flying under the radar and investors are still hesitant to buy. The window of opportunity to accumulate is closing, so investors should be focused on accumulating right now. However, how many people will actually buy at these levels? We all know most people have trouble buying gold above $1,000 dollars since it is so "expensive." Ironically, these are the same people who will be waiting on lines around the block at gold shops to buy above $2,000 dollars. Human nature is a funny thing.

Quanting It Up With Gold

More specifially, with gold price changes in a given timeframe. Chris Dillow has compared the frequency of gold price drops since 1979, on a percentage basis, with two tables: one representing the normal distribution and the other, a cubic power-law distribution. He finds that outlier drops are far more frequent than the normal distrbution predicts, but are roughly in line with a cubic power law.
The message is simple. A cubic power law seems to apply to all major assets, including gold, which means that big losses are more likely than bell curve thinking predicts.

But so what? Does it follow that you should hold less gold?

It does, if you believed returns were normally distributed, and if you are loss averse - that is, more fearful than the average investor of big losses.

For others, though, this fact might might be so worrying, for two reasons.

First, it's not just big losses that are more common than a normal distribution predicts. So too are big gains. Indeed, these have actually been even more common than a cubic power law predicts.

Second, probabilities must equal one. A higher chance of a big loss must therefore mean a lower chance of something else. That something is a small loss. A normal distribution says we should have had 1,254 daily losses of one standard deviation or more (1.23 per cent in sterling terms) since January 1979. In fact, we've had just 720.

So, although gold offers a big chance of a big loss, it also offers a bigger chance of a big gain, and a smaller chance of a small loss than a bell curve predicts. Whether this increases or decreases the allure of the metal is a matter of taste.

Finland Mints First Gold Coin Denominated In Euros

It's been struck to commemorate 150 years of Finland having its own currency. In a 100-euro denomination, it contains 5.65 grams of gold, or about 0.1817 troy ounces. [H/T: this converter page.] The list price, according to the Finnish mint Website, is 395 euros for the proof version.

Below, in larger size than the real thing is, is its obverse and reverse. The design came from a Finnish sculptor ["Suomi" = Finland:]

Indian Stockists', Traders' Selling Helped Drive Prices Down

That's according to a report in the Economic Times, which says that bearishness triggered the sales:
Gold prices dropped further at the bullion market here on Monday on sustained selling from stockists and jewellers triggered by a bearish overseas sentiment...

Traders and speculators preferred to take out profits at higher levels as the trading sentiment in global markets remained bearish after the US Securities and Exchange Commission charged Goldman Sachs with fraud for allegedly marketing a sub-prime mortgage product [without disclosing John Paulson's role in its assembly].

Mark Hulbert Not Impressed By Rationale For Gold Plummet

Evidently, the explanation for gold's drop on Friday has achieved mantra-like status - enough to get Mark Hulbert skeptical about it. That rationale says Goldman's legal trouble involved John Paulson, who might face pressure from his investors to liquidate some of his gold holdings.

Hulbert takes the rationale seriously, by assuming that 30% of Paulson's total hedge-fund holdings are in gold ETF and gold-related holdings, and that 10% of those holdings would have to be sold due to client redemptions. Even under this scenario, which also assumes that clients of Paulson & Co. can pull out whenever they want, it would have led to the sale of about $1 billion' worth of gold and gold-related securities. That amount's little more than a drop in the bucket.

Hulbert's point, after the debunking is through, is made in the conclusion:

Why, then, do so many gold traders nevertheless believe that gold's weakness is being caused by Paulson & Co.'s involvement in the Goldman Sachs mess? My hunch is that their willingness betrays too much underlying complacency, if not outright bullishness -- a sentiment condition that, according to contrarian analysis, is not conducive to much higher prices....

Indeed, one of the hallmarks of such a sentiment condition is otherwise mysterious air pockets in the market -- just what we've witnessed over the last couple of trading sessions.

In other words, the run-down would have happened anyways. The Goldman story just drained the air pocket.

Gold Rebounds Above $1,140

Things seem to be calming down, for the nonce, in Euroland. Despite yesterday's jitters, a short-term auction of Grecian government bonds went well. Although the paper was only three months' duration, the yield was lower than expected: 3.65%. The Greek Public Debt Management Agency was hoping for 3.6-3.9%, and most watchers were expecting more than 4%. The talks between the European Commission, the IMF and the same Greek government are expected to take place tomorrow; they're expected to last two to three weeks. Although the subject is the Grecian government's austerity plans, a bailout cheque should be cut if asked for. Another EU item is more directly inflation-related: as reported in the Guardian, the surge in U.K. inflation means that savers are getting drained once taxes are taken into account. The only way to break a little more than even is with a non-taxed account. We're still a long way from debt instruments again being known as "certificates of guaranteed confiscation," but...

Thanks largely to the calming effect of the short-term debt sale, and perhaps the indirect implications of the bond market letting up on the Grecian government in advance of the talks, gold made it above $1,140 in the wee hours of the morning. When evening trading began, the metal initially fluctuated around the $1,135 level with a slight upward bias kicking in after 8:00 PM ET. From just after then 'til a little before 3:00, the metal hovered between $1,135 and $1,137. Then, it took off. Pausing at $1,140 and backtracking a little, the metal jumped up further; by 4:00, it was at $1,142. Between that time and 7:00, it climbed slightly before pulling back to the $1,141-2 range. As of 7:59, spot gold was at $1,141.30 for a gain of $6.10 on the day. The Kitco Gold Index split the gain into +$5.50 for predominant buying and +$0.60 for a weakening greenback.

The U.S. Dollar Index did sink a little overnight, but not by much. The night part of the session saw it rallying a little, starting at 9:00 PM. From below 80.9, it drifted up to reach 81.125 by 2:30. Then, its rally reversed in the next three hours; by 5:30, it had sunk below 80.8. The rest of the pre-regular session saw the Index recover a bit; as of 8:06 AM, it was at 80.893.

A Wall Street Journal article ascribed the recovery to yesterday's gains in equities along with some bargain-hunting.
Gold traders said the dip in prices brought out bargain hunting and physical demand, a bullish sign that there is pent-up demand for gold.

"All these dips are getting bought. Physical demand is picking up," said the head of precious-metals trading at a London-based investment bank. If prices remain near current levels or lower, physical demand, choked off by April's rally, is likely to come back to the market, said VTB Capital analyst Andrey Kryuchenkov.

"[We] still believe that the latest selloff will be positive in the long run as it is likely to lure physical traders back, while the fundamentals catch up with the market," Mr. Kryuchenkov said in a report Tuesday.
The article also notes that gold moving with equities seemingly contradicts its status as a safe haven, but makes sense given that the recovery is accompanied by reflation.

The morning Reuters report said gold's rise was caused by risk appetite returning, along with a slight rise in the Euro. (There's another connection between the revival in equities and gold, as both were shot down by the SEC charges against Goldman, Sachs.)
"Technical signals are still fairly supportive for all precious metals. Momentum and trend ratings are still positive," said Tobias Merath, head of research at Credit Suisse. "And we have seen the euro-dollar creeping higher."

"Since the beginning of April yields have been coming off, and that is supportive for gold," he added. "You don't get any yield from your investment in gold, so when yields drop, then other investments become less attractive."
Also noted in the article was a partial recovery in the price of oil.

Despite a continued (if slight) rise in the U.S. Dollar Index, gold remained largely unchanged as regular trading opened. Fluctuating around $1,141 as the session began, the metal popped up above $1,142. As of 8:52 AM, the spot price was $1,142.80 for a gain of $7.10 on the day. The Kitco Gold Index attributed a -$0.60 change to the greenback-strengthening category and a +$7.10 change to the predominant-buying category. The U.S. Dollar Index continues to inch up, although it has not reached 81. As of 8:54, it was at 80.96.

The recovery in gold has come, and it may stick for the rest of the day. So far, the recently perilous morning session hasn't eroded the early-morning gains. That may reverse over the next several hours, but there's no sign of such a drop so far.

Monday, April 19, 2010

Gold Recovers To Above $1,135, Slides Back

After gold's early morning decline to below $1,125, it looked as if today's regular trading session would include another drop or even plummet. As of late morning, it hasn't. Instead, despite an initial drop, gold rallied before pulling back later in the morning.

The rallying was somewhat intermittent, as some fear still remained. After jumping up to the $1,133 level, the gold price entered into a widening spiral that took the price up above $1,135 and down below $1,131 before the spiraling resolved into a rally that took the price above $1,137 by 10:25 AM ET. Since then, the price has pullled back even below $1,135, but not to the levels seen at the bottom of the spiral. As of 11:44, the spot price was $1,134.30 for a drop of $2.50 since Friday's close. The Kitco Gold Index attributed +$0.60 to predominant buying and -$3.10 to a strengthening greenback.

There was a bit of a pullback for the U.S. Dollar Index after it reached above 81.25 as of 8:30. Starting an hour later, the Index drifted down from the 81.2 level to a little below 81. That level ended up holding, though, as what little conviction the downturn had drained away. As of 11:45 AM, it was at 81.04.

The Goldman decline was accentuated by a volcano-related scare over Greece and its government's bailout package, which has since faded away. Although gold has not rallied, it has ended up showing some resilience at its lower level. Early afternoon trading may see another decline, but this morning's market action indicates that it won't be a serious one (if one at all.)

Update: So far, there hasn't been one; instead, gold has stabilized. After sinking to $1,132 by 11:15, gold pulled up to $1,135 only to sink again to below $1,131 by 12:15. That point marked the end of the late-morning decline. Between 12:15 and 1:20, the metal eased up but had trouble breaking above $1,133.00 After trying three times, and bottoming at a higher level after each attempt, it broke through and sailed up above $1,135 by 1:30. As of 1:43, the spot price was $1,135.00 for a loss of $1.90 on the day. The Kitco Gold Index assigned +$0.90 to predominant buying and -$2.80 to a strengthening greenback.

The U.S. Dollar Index stayed above 81, but barely. After climbing to 81.15 by 12:10, the Index sunk back to just above 81 by 1:00. Since then, it's been in a range between 81.0 and 81.05. As of 1:45, it was at 81.01.

Gold hasn't acted that badly today. There's a possibility that there'll be a drift-down for the rest of the afternoon, but any decline in that period is very unlikely to be more serious than that. There's some chance that gold will shift over into the gain column.

Update 2: It didn't, but there was no further decline. The last four hours of trading were quite similar to the 10:00 PM - 2:00 AM ET shift.

To be more specific, the price hovered around $1,135 for the rest of the afternoon. Bordered by $1,134 on the downside and $1,136 on the upside, the metal stayed in that range except for a brief blip above it just before regular trading ended. At the close, the spot price was $1,135.20 for a loss of $1.60 on the day. The Kitco Gold Index divided the day's loss into -$1.40 for strength in the greenback and -$0.20 for predominant selling.

The U.S. Dollar Index continued to slide downwards, sinking below 81 in the process. After nudging that level in mid-afternoon, the Index fell below as of 3:25 PM. It didn't sink that far, not getting below 80.9. Instead it spent late afternoon in a range between that level and 80.95. As of 5:30 PM, it was at 80.91.

Its daily chart, from, shows 81 being breached today on the upside but not overcome:

The difference between the opening and the closing, despite the stretch in between, was miniscule. For the third day in a row, the Index was up on the day; this last day was prompted by Greece-related jitters once again.

The question, of course, is how much higher? So far, the Index's rise can be pegged as little more than an extended relief rally. The last top was above 81.5, and the Index currently has a ways to go before reaching that level. It did break above the 80.75 high that made for the top of last Monday to last Thursday's trading range, but the top of that range was established at the low set at the end of the month. I'll grant that not much other than jitters was there to drive the Index higher, but that also indicates no real driver to push it up substantially. The current rally has some conviction, but it's still within relief-rally bounds.

So, I have to say that the picture right now is indeterminate. Despite the good performance by the Index over the last three trading days, the MACD lines are still in a bearish configuration. The raw level of both is consistent with a rally that's gone tired. Although the MACD crossover is a lagging indicator, there's often a little warning when it's about to cross over: a rise that brings the two lines close to each other followed by another one or a pause at a higher bottom than the last. So far, the Index itself hasn't shown either of them.

But, there's no real conviction in the drops either - no sign that the Index is going to go into a serious tumble. A jump above 81.5 would preface another bull run, whether strong or weak.

Turning to gold, its own chart shows today's action resembling the action shown on other post-plummet days:

The good news is, that action is consistent with the short-term bear phase nearing its end. With the sole exception of a close lower than the open, today's candlestick is similar to the one the day after the huge Feb. 3rd plummet. A closer similarity is found on the day after Jan. 20th and 21st's double plummet. The downward slide after the earlier double plummet had a little more to go, but Feb. 4th's marked the end of the declines. Of course, gold was much lower on Feb. 5th; well into bargain territory, while today's close really isn't. I wouldn't get concerned unless the price falls below today's low of around $1,124. Gold was driven down in the wee hours of the morning by panic related to the Eurozone and the Grecian debt crisis. Recently, during those frights, gold gets driven down but later comes back: panic-button buying of the greenback ebbs, and safe-haven buying of gold kicks in. Granted that the panic botton is still connected to the greenback, not gold, but the action after some calm has returned shows that gold has a tendency to benefit also. Unless things have changed back to where they were early this year, when the U.S. Dollar Index was rocketing up, I see no reason to expect the opposite. It's too early to say that the current bear phase for gold is ended, but the end is in sight unless the metal does not behave as it had in recent weeks. As noted above, the Index isn't rocketing upwards; it's tired.

The post-pit-session Reuters report ascibes the bounceback to short covering. Amongst the point in the article these were therein:
* The metal retraced initial decline as investors covered short positions following Friday's 2 percent sell-off - traders.

* Boosted by economic optimism after a gauge of the U.S. economy's prospects was stronger than expected and rose to a record high in March.

* Cautious tone in gold market after the SEC charged Goldman Sachs Group Inc (GS.N) with fraud in structuring and marketing a debt product tied to subprime mortgages.

* The news took a toll on investor sentiment as major hedge fund Paulson & Co, also a notable gold investor, was named by the SEC as working with Goldman in creating a collateralized debt obligation. Paulson was not charged.

* Gold prices' limited losses on Monday quelled speculationthat Friday's sell-off in gold was related to any liquidation by Paulson - traders.
That last point shows a bit of post-Goldman panic crept in to the gold market, which was allayed today.

There's a chance that tomorrow's action will end with a gain on the day. Further falls may come this week, but it's unlikely that the price will go below $1,120. On the off-chance that $1,100 is reached, the range that gold's been in for the first three months of this year will have been re-established. Given the high reached a week ago, and given the steadiness with which gold approached it, a drop to that level is unlikely. Panics allayed often coincide with panic bottoms.