Gold, After Early-Morning Run, Pauses

Regular trading began with a slide down to $1,173, but that drop proved to be misleading. Catalyzed in part by U.S. first-quarter GDP results, the metal reversed direction and marched up to $1,180 by 9:45 AM ET. After slumping a little, it forded back up above that level - although labouredly at that point. The peak of the day came a little after 10:30, at $1,182.50. Since then, the metal pulled back a little and marked time in a range between $1,179 and $1,180 before advancing a little. As of 11:53 AM, the spot price was $1,180.80 for a gain of $13.60 on the day. The Kitco Gold Index divvied up the gain into +$11.90 for predominant buying and +$1.70 for weakness in the greenback.

The U.S. Dollar Index recovered from its earlier-morning slump down to the 81.65 level, but an attempt to get above 82 didn't last. The run-up started just before 9:30, and carried the Index up to 82.07 in a last-minute burst of buying as of 11:00. Since then, it's tailed back somewhat to just above 81.85. As of 11:56 AM, it was at 81.87.

Gold's run this morning may be the end of its ramp-up for the week. According to this Kitco report, shorters getting out of town and momentum buying are the two main internal causes for its gains. Sentiment is already largely bullish, which is a sign that buying power may lessen as new bulls become scarcer. Whatever the afternoon holds, though, the metal's got a good daily gain in the bag; there are no storm clouds evident.


Update: By a nice coincidence, gold had a "high noon" moment today. After inching up for an hour at 11:00 AM ET, the price spiked up to make a new 2010 high of $1183.00...almost right at noon. That spike didn't last, and gold pulled back after a little indecisiveness. After slumping to below $1,178, gold spent some time in a range bordered by $1,177.50 and $1,179 before pulling up a little. As of 1:47 PM ET, the spot price was $1,180.00 for a gain of $12.60 on the day. The Kitco Gold Index split the gain into +$11.70 for predominant buying and +$0.90 for a weakening greenback.

Although a little weak over the course of the day, the U.S. Dollar Index was steady in early afternoon. Drifting between 81.85 and 82.05, there was fluctuation but little direction. As of 1:48 PM, the Index was at 81.93.

As the end of the week approaches, the gold market is likely to be quiet; it should be steady. There's a fair shot of the metal ending the week and the month at about $1,180.


Update 2: The high-noon high held as the rest of the week's trading proved to be listless. $1,180 turned out to be unreached at the close, but the metal did poke its nose above that level a few times during the electronic-trading part of the session.

The rest of the afternoon saw gold range-bound, between $1,178 and $1,180. At the close, the metal ended slightly above the middle of the range: $1,179.30, for a day's gain of $12.10. The Kitco Gold Index (KGX) attributed +$10.60 to predominant buying and +$1.50 to weakness in the greenback. KGX tracking of gold ex-greenback made another record closing high today.

Last week's close was $1,157.50. For the week, gold was up $21.80, or 1.88%. This week's gain was slightly larger that last week's. For the month, gold gained $65.70 or 5.90%. This, from a March 31st close that I pegged as going out like a lamb.

The U.S. Dollar Index slid below its early-afternoon range, but recovered late in the session to get back within that confine. Taking a spill at 2:10 PM ET, it drifted down to 80.8 before a slight capitulatory drop put it back on a rising track. For the end of the week, it closed at 81.91.

Its daily chart, from Stockcharts.com, shows yesterday's slump continuing today:



The most likely explanantion is the EU/IMF bailout package being discounted. Now that the anxiety is draining, there's less reason to hold on to the greenback and more reason to take a profit. If those two institutions get the package ready for Monday, the slump in the Index will likely continue. Fear-trade players will continue to cash in their chips, and other players will see the Euro as something other than a train wreck.

Turning to gold, its daily chart shows the indecisiveness of the previous two sessions being resolved firmly on the bull side:



I have to admit my skepticism about the MACD lines' flip to a bullish configuration proved to be unfounded. Those lines, found at the bottom of the chart, are now in a solidly bullish pattern. As it turned out, the quick flip from a bearish configuration was a genuine sign of strength.

Long-term, gold is still in a bull market. Given the action since early February, though, the question needs to be asked: is the gold bull waking up? Was March 25th's short-term bottom the end of an intermediate-term trading range and the beginning of a new bull run? Is the range-boundedness of gold now over, to be replaced by an advance to a new record high in U.S. dollar terms?

Right now, the question is easy to answer with a "yes." After all, the initial part of the advance was unusually strong and sustained. The subsequent pullback left gold at a significantly higher level than it was at as of the beginning of the advance. The next leg up has been less strong, but it's not exactly muted. And - an important point - the credulous were on board for the beginning of the run.

There's only two kinds of advances that fit this pattern after a decline like December-to-February's. It's either a new advance, one that fooled the skeptical pros, or it's a sucker rally. There are three reasons why I believe it's not the latter.

First of all, sucker rallies tend to top out at around the half-way point between the low and the high. The Dec. 2nd high was around $1,225; the Feb. 5th low was around $1,045. There's $180 between them. From the low, today's close of around $1,180 retraced $135 of that $180, or about 75%. It's gone too far to be a sucker rally.

Secondly, sucker rallies begin with a widespread "whoopie!" The rally that began on March 25th began in a climate of fear and skepticism. No-one, except for the usual suspects, was willing to stick his/her neck out and say that the good times were rolling again. And, none of the usual gang of permabulls stuck his/her neck out in the short term.

Thirdly, the market already had a sucker rally. It took place between the December 22nd low and the January 11th high, when more than a few were writing off the December spill as a mere interruption of late '09's run. Unlike at the end of March, there were some people willing to stick their necks out on a short-term basis and call for a new record high. That sucker rally collapsed when the People's Bank of China announced its first tightening measure; that collapse prefaced the second stage of the decline.

By process of elimination, I have to say that a new rally began last March 25th. I don't know how far it will go, and I certainly can't predict how many bumps it will have, but I can say that the bull is back. The action over the last month is not only inconsistent with a sucker's rally but also with a trading-range upswing. The most logical ceiling for said range, $1,140, was broken some time ago. So, I conclude that it's an intermediate-term bull run.

The Commitment of Traders graph for the gold contract, which captures positions as of last Tuesday, shows the open interest for the contract is now at a year's high. After a dip last week, non-commercial longs sprung back to above the level they were at as of two Tuesdays before last. Interestingly, commerical longs also went up and non-commercial shorts shrunk. These three items are consistent with the more jaded circuit jumping on board with the naifs for the rally. Gold stalled last Wednesday and yesterday, but of course continued upwards today.

The CoT for the U.S. Dollar Index shows a growth in open interest, but only to the level of two weeks ago. All four reportable categories expanded: commerical and non-commercial longs, and commercial plus non-commercial shorts. For an asset about to make an eleven-month record the next day, the total open interest was fairly low - and the balance between the four categories, untilted. It's hard to see evidence of a speculative frenzy developing for the Index.

A post-pit Wall Street Journal report pegged the cause of today's rally as continued safe-haven buying. In the opening paragraph, it also mentions that some are talking about new record highs for the metal in U.S. dollar terms.

"We're seeing the safe-haven element of gold, over the last several weeks, continue to play a major role in the move higher," said Dave Meger, director of metals trading at Vision Financial Markets....

"[T]he dollar is a little bit weaker today. So that might have encouraged just a little bit more buying," said Caesar Bryan, GAMCO Gold Fund (GOLDX) portfolio manager....

[M]ostly, it's the worries about sovereign debt--and not moves in currencies--that are the main catalyst driving gold at the moment, Bryan said. In particular, investors are jittery that Greece's problems will be cropping up in other nations.

"There is a feeling that although Greece is small in terms of GNP [gross national product], is it the canary in the coal mine?" Bryan said.

He looks for gold to eventually break its early-December record high, which was $1,227.50 for the benchmark Comex futures. "I don't think these debt issues are going to go away," Bryan said.

The other experts quoted did not say outright that gold was going to a new record.


This week, and month, have been pretty durn good for gold - quite good, given the U.S. dollar's own performance. Naturally, the excitement is coming back; sentiment may be a little too bullish for comfort right now. In the intermediate term, despite any short-term pullbacks, gold's performance has been sufficiently good to say that the range-bound phase has come to an end. This intermediate move may top out at the record high, or near it, but the internals are such that it's safe to say $1,100 is history. There may be more churning in gold's future, and the intermediate move may end next month because of seasonal factors, but any summer churning is likely to stay in the upper 1100s.

The only glitch is the seasonality one: "Sell in May and go away/Don't come back 'til November's day." If this script is followed, the the metal will pull back in late spring and spend the summer in the doldrums.

An Ease Too Far?

The latest offering from the "Calafia Beach Pundit" points to gold as one of the indicators showing that inflation, benign for the last ten years, is more likely to go up than down. Handcapping Obama's three choices for the Fed Board of Governors, he says that they're all going to be inflation doves:

Obama's choice of three new Fed governors does little to reassure investors that the Fed will ever pay more attention to the value of the dollar than it does to the health of the economy. Indeed, all three picks promise to be firmly in the "dovish" camp when it comes to the hardest choice any central banker has to face: whether to tighten to defend the value of its currency, or to ease to support the economy.

He notes at the end that it isn't just the Fed that has turned on the spigots to high; it's a global phenomenon.


He doesn't come out and say it, but he seems to think that the Bernanke Fed has made the same mistake as the Greenspan Fed did in '03: leaving rates low for too long.

Not Really Monetization Of Gold, But...

...it may lay part of the foundation for monetizing. A large Indian financing bank, HDFC, is offering secured loans with gold as the security. Granted that it's little more than assembly-line pawnbroker loans at this point, but it does encourage Indian borrowers to think of gold as an alternate money - or point them in that direction.


We're far away from the real thing: gold being used in barter (using gold as money would be counted as barter formally and legally) and loans being made in gold and paid back in gold: in other words, borrowing a 1-oz gold coin and paying that same coin back with an interest charge. But, small steps towards that alternative transaction system are being taken.


And while I'm on the subject: the Indians seems to be a step ahead of everyone else in this area.

Gold-Investing Primer Webbed By Christian Science Monitor

The contents of it are likely to be familiar to gold vets, but I call atytention to it to show that gold investing is spreading into the mainstream. The introduction sets the tone:

I never quite understood how gold works as an investment, and how it might fit as a part of one’s portfolio. Sometimes I’ll hear statements such as, “Now’s a great time to buy gold!” Or I’ll read in investing books that you should have a small percentage of your portfolio invested in gold or precious metals. This article will explain how to invest in gold and why you may or may not want to....

This piece, webbed only, is by a guest blogger and is clearly intended to be informational. It's not boosterish, and it's not a feature piece. It's far from the stereotypical gold-ad-in-disguise MSM cover story.

But the trend should be clear. Count this one as further mainstreaming of gold as an asset class. Had it been written two years ago, or even last year, its introduction would have been indicated another gold-is-in-a-bubble piece.

Indian Wholesale Gold Demand Dormant For Third Day In A Row

According to a Reuters India report, wholesale gold demand in the Indian market was weak yet again.

"Demand is not much as prices are very high, it was slack yesterday as well. People are waiting for $1,160 (an ounce)," said a dealer with a state-run bank in Mumbai.

Part of the reason for the raising of the buy point was strength in the rupee, but gold's recent performance has had its influence too. $1,100, and even $1,120-25, has been left in the dust.

Details Creeping Out About Austerity Part Of Aid Package

The one to the Grecian government, that is. According to a Marketwatch report, that government is expected to agree to getting its fiscal deficit to below 3% of GDP in three years.

News reports on Friday said the Greek government has agreed to implement an additional 23 billion to 24 billion euros ($31.8 billion) worth of cuts in return for the aid. The Financial Times said Greece's parliament would likely approve the plan next week....

Reports said the measures, which equal around 10% of Greek gross domestic product, are aimed at cutting Greece's budget deficit by 10 to 11 percentage points over three years from the 13.6% of gross domestic product seen in 2009.

The package would reportedly impose a three-year pay freeze on public sector workers, while also eliminating bonuses that amount to two extra months of pay, the FT reported. The package would also eliminate seasonal bonuses for pensioners and boost the average retirement age to 67 from 53....

(53?)

The aid package will be much larger than was originally assumed, 'tis true, but that package is coming with IMF-level austerity measures. Later, the article passes on the current yield of 10-year Grecian sovereign debt: 9.47%. That's way above what the yield was when the Eurocrisis first broke. (Remember the tizzy when 10-years vaulted above 7%? It seems so long ago now.)


A cynic I may be, but I can't help remembering that the Grecian government also agreed to get its deficit below 3% of GDP when it first signed up for the Eurozone...

Moody's Downgrade Nine Grecian Banks

In the middle of a Marketwatch gold report, this item appeared:

On Friday, rating agency Moody's Investors Service downgraded the bank financial strength rates and deposit and debt ratings of nine Greek banks.

Those downgrades evidently had their effect on the gold market, upward. As of the time of this post, gold's still above $1,180.

Indian Post Office Selling Gold Coins With Own Logo On The

As reported by the Economic Times, the Indian postal service is selling 24-karat gold coins with the postal service's logo on them. Sold on a test basis since October 15th 2008, sale of the coin is going national.

India Post, the government's postal department, on Friday announced sale of gold coins with its own logo at hundreds of post offices across the country.

Besides, it also announced plans to expand the network of post offices where these gold coins would be sold from 466 currently, to 700 post offices during May 2010....

The Department also announced a special one-month discount of six per cent to mark the launch of new coins with the 'India Post' logo.

Commenting on the launch, Reliance Money Infrastructure Director Vikrant Gugnani said, "We expect this move to grow the demand for gold significantly."

I point out an obvious suggestion, given the U.S. Postal Services's permanent deficits...

Consumer Sentiment Up

The University of Michigan's consumer-sentiment index was up for late April, to 72.2 from mid-April's 69.5. The expected number was 71, and ther longer-term trend was stable.

After a nice run that took it above $1,180, gold dipped marginally when the news was released. It's since risen back to above $1,180 again.

Gold Makes New 2010 High

The gold market has evidently taken a shine to the impending bailout, which is expected to have details added to it by Monday. The metal spent most of the overnight session on a rising track, and made another new 2010 high. Although unrelated to the main event, the Bank of Japan is mulling ways to inject money into the banking system although not making any explicit easing steps at this time. A spokesperson said that any such initiatives would be "unorthodox," which seems to mean some kind of quantitative easing. Japan has had a more than one year spate of outright deflation, although mild: -1.3% over the last twelve months.

That announcement certainly didn't hurt gold. Starting off the overnight session with a rise, which pulled it up to about $1,168, gold added to its gains at about 8:40 PM ET by vaulting up to almost $1,175. Peaking just after 9:00, the metal slid back to the $1,172-3 range until midnight; it fell a little more, but drifted up to that range again. 3:30 saw a drop, to as low as $1,169.50, which proved to be a fake-out. After springing back to $1,171 and muddling along until 4:00, gold took off; it topped at $1,176 an hour later. Pulling back to around $1,174, and remaining there until about 7:00, the metal went for another leap that took it to a new high of $1,179.00 before pulling back once again. That pullback had left the price at above $1,175. As of 8:04 AM, spot gold was at $1,175.10 for a gain of $7.90 on the day. The Kitco Gold Index split the gain into +$4.65 for predominant buying and +$3.25 for a weakening greenback.

After drifting in the night part of the overnight session, the U.S. Dollar Index dropped well below 82. After dipping down below 81.9 in the evening, the Index pulled up to 82.1 by 10:15 and then fell to a little above 81.9 by midnight. An attempted rally after that point turned into a decline that pulled the Index down to 81.7 by 3:15. Subsequently, it fluctuated in a somewhat ragged trading range between 81.7 and 81.8 until testing it on the upside. As of 8:12, it was at 81.80.

The morning Bloomberg report, as webbed by Business Week, ascribed gold's rise to the drop in the greenback as well as safe-haven demand.

“On the one hand, gold is benefiting from dollar weakness, but it’s starting to decouple from currency movements,” said Suki Cooper, an analyst at Barclays Capital in London. “It is very much the safe-haven appeal of gold that is boosting prices.”

Prices of the metal are up 5.5 percent this month, heading for the biggest monthly jump since November, as investors bought gold and the U.S. currency on speculation Greece wouldn’t get loans quickly enough to avoid defaults on its bonds. Gold will probably climb to a record in the third quarter, Cooper said.

Part of the report was devoted to the recent string of increases in the holdings of the SPDR Gold Shares Trust, again increasing to a record high; as of yesterday, it held exactly 1159.00 tonnes. It's on track to having the best weekly gain in its holdings since March of last year. Also mentioned is an unusually lopsided result from a Bloomberg straw poll: " Eighteen of 21 traders, analysts and brokers surveyed by Bloomberg, or 86 percent, said gold may rise next week, the most bullish result since November. Two people expected a decline and one was neutral."

The same two causes kicked off the morning Reuters report, which also noted that gold made a record high in Swiss francs. Like the Bloomberg report, this one notes that gold is on track to make its best monthly showing since last November.

[T]he fear of contagion [from Greece to other Euro nations] was clearly evident in gold, analysts said, with prices now on track to move back toward their December high, a record peak of $1,226.10 an ounce.

"Gold has been trading in a range of $1,160-1,175, and if $1,175 gets taken out, we should be in for a sharp rally," said Afshin Nabavi, head of trading at MKS Finance in Geneva. "We could head for the $1,200 area."

"Precious metals have put in a very good performance this week," he added. "Once the metals show confidence and direction, we see investors coming back in, given the situation in Europe."

Also helping the metal was a recovery in other commodities, including the more industrial-related precious metals.

The morning Wall Street Journal report succintly cites investor demand as the reason behind the new 2010 high. It also mentions a factor that's been overlooked in the focus on the Grecian mess:

Data from the euro-zone showed that inflation in April hit its highest since December 2008. The figure is just below the European Central Bank medium term target of 2%.

Near the end, James Moore of TheBullionDesk.com is quoted as saying that the metal's on track to making $1,200.

The first-quarter real GDP figure for the U.S. economy was released at 8:30; it came in at 3.2%, which matched expectations of the economists surveyed by MarketWatch. An increase in consumer spending and a leap-up in business investments were the main drivers for the increase. Before it was released, there was a small breakdown in gold below $1,175: from above $1,176 at the open of the pit shift, it dropped to just above $1,173. The release of the number reversed that drop. As of 8:53 AM, the spot price was $1,176.90 for a gain of $9.70 on the day. The Kitco Gold Index divided the gain into +$5.80 for predominant buying and +$3.90 for a weakening greenback. After rallying slightly above 81.8, the U.S. Dollar Index fell on the news to the lower end of the above-mentioned 81.7-81.8 range. As of 8:55, it was at 81.74.

Evidently, the implications for the Eurobailout are sinking in to gold's benefit. So far, there's next to no sign that gold will suffer any mishaps during the last regular trading session of the week and month. The metal has it good right now.

Gold Bobs Up And Down

As the financial world takes a rest from the Europanic, gold was largely directionless as it came off its pre-regular-trading high. Initally, it moved little when the pit shift opened. Then, starting at 8:40, it fell in two sharp drops to $1,162 by 9:00 AM ET. Then, it advanced in a forward-and-back pattern until it reached $1,169.50 by 10:05. After sinking, it edged slightly higher before reversing to the downside. A sense of relief in crisis-affected markets prompted the downturn, as safe-haven demand ebbed. As of 11:49 AM, spot gold was at $1,164.60 for a loss of $0.40 on the day. The Kitco Gold Index assigned -$2.60 to predominant selling and +$2.20 to weakness in the greenback.

The U.S. Dollar Index managed to break well above the 82 level earlier in the morning, but failed to hold up there despite two tries at rallying above 82.2. The first started at 9:25, and was mostly staunched an hour later. The second attempt got rolling at 10:50, and was also largely staunched. Still, the Index remained above 82, a level it was below when regular trading started. As of 11:51 AM, it was at 82.05.

Without any Eurocrisis-related driver, gold's been fluctuating but not adding - or substracting all that much. Although afternoon trading may be different, the morning's harbinges a close near yesterday's $1,165.00.


Update: Continuing the overall directionlessness, gold moved up in early afternoon trading; the end of the pit shift left the metal with a small gain. Although the rise was two-stage, and laboured at times, it was enough to pull the price up to just above $1,169 by 1:15 PM ET. Since then, it pulled back a bit; the fluctuation phase was continuing. As of 1:40 PM ET, spot gold was at $1,167.40 for a gain of $2.40 on the day. The Kitco Gold Index assigned -$0.90 to predominant selling and +$3.30 to a weakening greenback.

The U.S. Dollar Index fluctuated as well with little direction. After sliding below 82 right after noon, it pulled back up and entered a ragged-bordered trading range that was centered around that same 82. As of 1:41 PM, it was at 82.01.

Although the fluctuations themselves have added a little excitement, it's been a rather dull day all told. Gold has a good chance at closing with a gain, but the most likely close will be not far from unchanged.


Update 2: Gold did close with a gain, and the gain was small enough to be close to unchanged. Interestingly, the Kitco Gold Index had a flat zero for change ex-greenback (predominant buying or selling.)

The metal went on a bit of a roller-coaster ride today, but its overall directionless was accompanied by a quickened pace towards a bailout of the government of Greece. There's no longer talk of weeks before a a bailout is forthcoming; they're now talking days. The German finance minister is behind the effort now. So, of course, is the IMF. This speed-up, prompted by the three recent downgrades of the sovereign debt of three PIIGS nations [PGS, to be specific; the IIs have been spared so far], has softened the greenback but not exposed any air pockets. My expectation for a further rise today was mistaken.

After the pit shift ended, gold climbed up to above $1,169 again. Peaking at 2:45 PM ET, it slid down again to reach below $1,167 by 3:30. From that point, it settled into a range between $1,166.50 and $1,168; at the end of regular trading, the metal was in the lower part of the range. To be more specific, the closing price was $1,167.20 for a gain of $2.20 on the day. The Kitco Gold Index (KGX) attributed all of today's change to a weakening greenback. That means the ex-greenback KGX measure, down a little from day before yesterday's record high, was unchanged today.

The U.S. Dollar Index didn't change that much over the rest of the afternoon. It dipped between 1:50 and 2:10, but the drop only took it down from about 82.03 to below 81.94. After resting, it climbed up and peaked as of 5:15 but the rise only took it to a peak of 82.09. In other words, had it not been for the directionality, the Index might as well have been in a trading range. As of 5:30, right after a pullback got rolling, it closed exactly at 82.00.

Its daily chart, from Stockcharts.com, shows the pullback, in which today's high failed to best yesterday's:



I did expect a further bump-up today, as I didn't expect the bailout machinery to speed up as quickly as it did. No more dirty laundry fell out of the Eurobin, so there wasn't any bullish driver for the Index today to counteract the relief drop. Still, the Index didn't sink all that much today. 82 held as a support level; in the context of recent action, today's fall looks like a mere pullback. Had there been resolution instead of respite, it would have sunk a fair bit.

Once a bailout package is put together and activated, it may. I'm tempted to say that it should. Regardless of the current quick-march, the bailout package is not going to be ready overnight. The Index may have a bit of run left in it, particularly if more dirty Eurolaundry is exposed to the light of day. So far, the Spanish sovereign debt market hasn't imploded. If a finished bailout, it's unlikely that that market would. But, accidents can happen between now and Bailout Day; if none arise, then the Index is likely to keep pulling back. The bailout is beginning to look like a deal whose doneness should be discounted. Even the German authorities are getting anxious to see one put together.

The above-mentioned yo-yo'ing in gold shows in its own daily chart, which as today's action as an almost level blip that's little more than a plus sign:



As shown by the colour of the candlestick, gold did close up today. But, today's candlestick is essentially beside yesterday's. The MACD lines at the bottom of the chart are still in a bullish configuration; there's some grounds for optimism because the greenback pulled back today while gold was up a little. A technical analyst would say that today and yesterday's action constitute a triangle, where the price veers in on a specific level in an increasingly narrow range. That pattern, if it can be trusted, signals a continuation upwards.

But, it might not be trustworthy. Handicapping the bailout is a little trickier than it looks. Granted that moves towards a bailout has brought out a lot of safe-haven demand for gold, as bailouts go hand-in hand with fiscal bloat and carry the potential of debt monetization leading to inflation, but the bailout isn't going to be carved together instantly. If there's no gold-energizing accident between now and le jour de bail-out, gold may pull back as safe-haven demand drains away. Given the action until very recently, the announcement of the bailout itself should send gold up - but that was before gold began rising on the bad news along with the greenback. Before a few days ago, gold would rise after the greenback had already shot up and was pulling back. Now, the rise in gold is concurrent with the U.S. dollar. Although economic logic argues against it, there's a chance that gold will fall once the bailout is announced as safe-haven speculators sell on the news.

Myself, I'm sticking with economic logic; I believe that gold is likely to go up once the bailout is put together and activated. I note the above to make the point that a rise isn't a sure thing.

As for tomorrow, it's more of a toss-up. The gold market may begin discounting the bailout by moving upwards, but exiting safe-haven money may counteract.

President Obama Appoints Three New Members To Fed Board Of Governors

One of them was the widely-anticipated Janet Yellen for the vice-chairship. She's an inflation dove; the others, Peter Diamond, an economist at the Massachusetts Institute of Technology, and Sara Bloom Raskin, the Maryland state banking regulator, aren't as well known but are likely to be dovish too.

Eurocrisis Fears Ebb...For Now

Grecian government bonds, as well as bank shares, have soared today as the IMF said that the bailout package may end up being 100-120 million Euros. An issue of Italian government bolds was well-received.


Admittedly, they were oversold yeaterday, but there seems to be a hope-springs-eternal componet as well.

2009 American Eagle Mintage Almost 1.5 Million

That's the highest it's been in ten years. Ironically, the mintage was higher in 1999, when gold was in the final stages of its bear market.

A Key To Forecasting Gold Prices

In a nutshell, real interest rates. When after-inflation rates are negative, gold goes up and vice-versa. That's what gold analyst John Doody has found.

As John explained, when the real interest rate is negative – when inflation is higher than risk-free interest – "cash loses purchasing power and buys fewer goods than it bought earlier in the year. When that happens, for protection, investors buy gold and drive its price higher."

Now, take another look at the chart [in the article itself]. John explained, "Today's gold bull market and 1970s gold bull market were eras of negative real interest rates. But importantly, for 2010 to date, the real interest rate has been barely negative, as shown by the chart's red-circled area."

With the real interest rate at about 0%, gold isn't moving anywhere. And John pointed out that the Fed rarely raises interest rates as elections approach. So interest rates should stay where they are.

But eventually, John says, "A pickup in the economy will be the key to higher inflation. With the U.S. economy slowly on the mend, we could see inflation. Real interest rates would go negative and gold would rise."

In order for that driver to kick in - once again - inflation has to pick up. I note that Doody's framework explains why gold can keep rising when nominal interest rates are too.

Demand For Fake-Gold Jewelry Rising In India

It's prompted in part by gold's price rising, for two reasons: the expense and the greater likelihood of theft. Another reason is the female characters on daytime soap operas wearing lots of jewelry; the only way for most to emulate is through imitation jewelry. That's what's driving a veritable trend, according to the Wall Street Journal's India-watch blog:

“Demand for imitation or fashion jewelry, as it is called, has been growing day by day because of its affordability,” Nagendra Mehta, secretary of the Mumbai-based Imitation Jewellery Manufacturers Association, told India Real Time. “In the last one year itself, demand has risen 10%-15%.”

Compare that with the 19% decline in gold jewelry demand during 2009, when only 459 metric tons were imported compared to the 700 to 800 tons imported during previous years, according to World Gold Council data.

Of course, this trend is likely to complement rather than crowd out Indians' traditional demand for the real thing.

Indian Wholesale Gold Demand Still Dormant

According to a report by the Economic Times, the market reamined listless for the second day in a row.

"Last two days demand was dull... even today I did less quantity," said a dealer with a state-run bank in Mumbai....

"There are previously placed orders below $1,150," said another dealer with a private bank.

The bargain point is inching up, but it's still well below the current price. There's no sign of an inventory squeeze.

David Crichton-Watt Sees Gold Going Up To $1,500

Crichton-Watt, manager of the Phoenix Gold Fund, says that he will be surprised if gold does not hit $1,500 this year. The catalyst for his expectation is the Grecian government's fiscal crunch, which he expects to spread to other countries in Euroland.

Also quoted in the report was none other than Nouriel Roubini, who raised the possibility of monetization:

Nouriel Roubini, the professor who forecast the U.S. recession more than a year before it began, said yesterday that Greece’s problems may be “the tip of the iceberg” for a wider range of fiscal problems. Governments may print money to “monetize” their debts, fueling inflation, Roubini said.

The times are changing, and someone seems to be changing with the times...

Barrick EPS Almost Doubles

Another senior producer has reported first-quarter results that are way above those from the first quarter of '09. Barrick, which closed its hedge book when gold made a record high, has reported 1Q '10 EPS of 76 cents per share. Excluding items, it was 75 cents. Analysts were expecting 63 cents. In 1Q '09, it was 42 cents.

That makes for another senior gold stock that's beaten expectations. As yet, the general market doesn't seem to recognize the shft in the tide, althouhg Barrick was up substantially on the news.

Gold Advances Overnight On Greater Commitment From IMF

The IMF has stepped up its commitment to aid the Grecian government, boosting the bailout package to a maximum of 120 billion Euros over three years. The head of the IMF is complaining that Europolitics has led to delays which have increased the commitment needed; there's talk that offering the Spanish and Portugali governments a similar bailout package would exhaust the fund.

That news got gold up in the early-morning part of the overnight session, after a night where the metal unsuccessfully tried to rise above the $1,165 level. Starting at $1,163.90 at just after 12:00 AM ET, the metal rallied to $1,172.30 in the next four and a half hours. Peaking at that level, gold pulled back below $1,170 but stayed well above $1,165. As of 8:02 AM, the spot price was $1,166.70 for a gain of $1.70 on the day. The Kitco Gold Index attributed +$3.65' worth of change to a weakening greenback and -$1.95' worth to predominant selling.

The U.S. Dollar Index drifted in the early part of overnight trading but sunk later. The decline started at 9:30 PM, and was slow at first. A recovery between 1:55 and 3:10 brought the Index up to 82.35, just below its overnight high. Then started a three-hour drop, which brought the Index down below 82. Recovering a little, it drifted around the 82 level in the next two hours. As of 8:14 AM, it was 81.98.

A Wall Street Journal report ascribed gold essentally holding steady to continued safe-haven demand.

Gold made strides even though the euro is recovering against the dollar, and equities and commodities are higher in a modest improvement in risk appetite....

A senior trader in London said gold's next resistance target is $1,175 an ounce. "If we get above $1,175, the all-time high is back in play."

A near-term pullback to consolidate gains of the past few days may occur but few market participants will want to have short gold positions with the market focused on sovereign debt, he added. "With what's going on at the moment, I don't think (gold's) going to back off far."

Another quoted expert, though, was neutral to bearish in the near term because of IMF/EU efforts to contain the Eurocrisis.

The same reason was given by the morning Bloomberg report, as webbed by Business Week.

“As the risks intensify in Europe, I see further reason to own gold,” said Edel Tully, precious metals strategist at UBS Ltd. in London. “If stocks are under pressure, other commodities are under pressure, gold is performing as you would expect it to perform given external circumstances.”

Also mentioned in the report is yet another increase in the holdings of the SPDR Gold Shares Trust, to a new record. As of yesterday, the new total is 1,152.91 tonnes.

"[C]oncerns over the euro zone's fiscal health" was how the morning Reuters report put it. The first quoted expert is a little skeptical about the current rise:

"With the contagion of Greece, Portugal and Spain coming through, it has given a perfect backdrop for those who view gold as a safe haven," said RBS analyst Nick Moore. "We have had a record gold price in euros, sterling, and Swiss francs."

However, with gold's rise driven solely by sovereign risk fears rather than fundamental factors, the metal is unlikely to justify these levels long-term, he said.

"The European situation will probably rumble on for weeks and months, but further out we know interest rates are going up and the opportunity costs for holding gold will become more expensive," he said. "Once the markets confidence returns, I think gold will be found wanting."

Also brought up is a pledge by the European Council president Herman Van Rompuy, echoed by European Central Bank president Jean-Claude Trichet, that the Grecian government will not default - and the gold market's interpretation of its sureity.

The U.S. jobless-claims number was released, and it matched expectations: a drop of 11,000 to 448,000. The four-week average of continuing claims inched down slightly. Gold didn't react to the datum when it was released, after the price went up slightly when regular trading opened, but did drop five dollars an ounce between ten and fifteen minutes later. After a slight bounce, spot gold was $1,162.30 as of 8:57 AM for a drop of $1.10 on the day. The Kitco Gold Index assigned +$3.30 to greenback weakness and -$4.40 to predominant selling. The U.S. Dollar Index, after sinking down to 81.9, started rallying at 8:40 but barely rose above 82. As of 9:02, it was 82.00

So far, gold hasn't been doing that well in the regular session. That above-mentioned caution about not going short may save gold from simking much further, but it may not. It may also be ignored.

Gold Shifts To Gain As Safe-Haven Rise Extends

Some of the earlier pullback in gold took place in overnight trading, although it did continue at the beginning of today's pit shift. From $1,165.50, the metal fell to $1,161 in the first five minutes of regular trading. A recovery from that level took gold up to $1,166 by 9:30 AM ET before another decline hit it. Ending just after 10:00, that drop pushed gold down to $1,159.80. Overall, a trading range between $1,160 and $1,165 carved out in the overnight session held until that time.

Then, like it did at 10:00 AM yesterday, gold began taking off. More muted than yesterday's rocket-up, the uptrend took the metal up to a gain on the day. At first a slight gain, it turned into a substantial one as late morning headed towards afternoon. As of 11:31 AM, spot gold was $1,173.90 for a gain of $5.50 on the day. The Kitco Gold Index's predominant-buying category shifted from negative to positive, to +$8.30, and the greenback category shifted to -$2.80 for renewed strength in the currency.

Like gold, the U.S. Dollar Index ralled in regular-session morning trading. Starting just before 9:00 at just above 82, the Index moved up to the 82.35-82.4 level by 10:00. Pausing and then pulling back, it spurted up to a new high of 82.62 just before 11:30. Subsequently, after pulling back a little, it hovered indecisively before pulling back up. As of 11:43, it was at 82.61.

Although more muted, the same concurrence still exists between gold and the greenback. Breaking to $1,174 did make for a new 2010 interday high, although only slightly higher than yesterday's. It's up to the afternoon session to make a substantial break if one is coming.


Update: A new 2010 high was made interday, but the metal pulled back from it. $1,170 held, but the metal got close to that level as the pit shift ended. A Standard and Poor's downgrade of Spanish sovereign debt from AA+ to AA helped push gold up to its high.

The high of $1,175.70 was made around 11:45 AM ET. After a pullback from it, gold stayed in a range bordered by $1,174 and $1,172. Although tested on the downside, it wasn't broken until 1:00 PM; the metal slid down to a lower one centered at just above $1,171. As of 1:43 PM, the spot price was $1,171.50 for a lessened gain of $3.10 on the day. The Kitco Gold Index attributed +$4.90 to predominant buying and -$1.80 to a strengthening greenback.

A similar pullback took the U.S. Dollar Index down from its morning peak, above 82.70 right around noon, to below 82.5. That drop took place over the next hour. Since then, it partially recovered to get comfortably above 82.5. As of 1:45 PM, the Index was at 82.54.

Unless there's a bullish surprise coming at the end of the Fed meeting, which is unlikely, gold will continue to drift. There's a good chance of a day's gain, but that gain is likely to be slight.


Update 2: As it turned out, I was too optimistic about the later part of afternoon trading. Instead of drifting, gold fell down fairly steadily. There weren't any surprises from the Fed this afternoon; the Fed Funds rates is still where it is, and it's staying where it is for an extended period. Nevertheless, the metal fell below not only $1,170 but also yesterday's close. Profit-taking took its toll.

$1,170 was breached on the downside just before 2:00 PM ET. After reaching $1,168, the metal drifted in a ragged trading range centered at $1,169. The stay-the-course announcement by the Fed had next to no impact on the price. After getting up to $1,170 by 3:00 and hovering there for almost half an hour, the price slumped to a little below $1,168 and drifted until 4:40. Then, an end-of-session drop took the metal down to its closing price of $1,165.00; the day's loss was $3.40. The Kitco Gold Index assigned -$5.60 to predominant selling, reversing the earlier predominant buying, and +$2.20 to a weakening greenback, also a reversal from earlier in the day.

The U.S. Dollar Index did show weakness in the later part of the afternoon, in a downtrend that was barely interrupted by relief rallies. From above 82.5, it slumped down to below 82.2 by 4:45 PM. The Index did pull up to 82.25 afterwards, but rather listlessly. As of 5:30, it was at 82.235.
Its daily chart, from Stockcharts.com, shows the Index jumping to a level not seen since last May:



The range of today's trading is rather wide, even though the difference between the open and close is quite narrow. The performance of the Index itself shows that the bullish phase is still operative, and is likely to be unless things calm down in Euroland. Angela Merkel was quoted today as saying the talks should be hurried up; should a bailout package be put together and activated, the Index may pull back as the Euro recovers.

It's not going to happen overnight, however. The Index may have a bit of life left in its current run upwards, which would show in tomorrow's trading.

As far as gold is concerned, its own daily chart shows its slump near the end of the day as well as its new 2010 interday high:



The difference between opening and closing values wasn't that much, but today's slump was still evident. The MACD lines at the bottom of the chart are still in a bullish configuration, although slightly - just as they were in a bearish configuration from the 19th 'til last Monday, although slightly. The formulas for both are exponential moving averages; their values are completely based upon market internals. Sometimes, the luck of the draw will have them fluctuate so that their difference is effectively zero, making them neutral in effect if not in form. I think the gold MACD lines are in a phase like that right now, where their fluctutations make for a little whipsawing. If gold pulls back further tomorrow, then the lines are likely to move back into a bearish configuration. Given gold's recovery from the sub-$1,135 level, and given its new 2010 high, any bearish MACD signal tomorrow wouldn't provide that much meaningful direction unless gold itself fell well below $1,160.

I know I was a little optimistic yesterday evening, but the optimism was justified as of early afternoon. Unfortunately for me, the late-morning rally didn't last. What did last was the positive correlation between gold and the greenback, both ways. Again, both benefitted from the latest proceedings in the Eurocrisis. Eyes are on Portugal and Spain, although neither of the two countries have shown any sovereign-debt squeeze like Greece has. As yet, anyways.

Moving back to Greece, a Reuters piece warns of another side effect of the Grecian mess: a possible credit squeeze on Grecian banks. They hold a lot of Grecian government debt, which has plummeted in price recently. That means losses and capital impairments, even if those banks aren't answerable to mark-to-market rules: a restructuring will impel them to write off a portion of the value of their holdings. Enough impairments of capital and the banks will have trouble raising money for their own credit needs. Most banks, wherever located, run on a credit shoestring and would be in real trouble if they're downgraded. [Isn't modernity wonderful?] There's

rising worry among analysts that Greece may restructure its debt.

If this last possibility happened, it would be a major blow to Greek banks, which hold around 40 billion euros in debt on their books, and raise the specter of capital hikes in a market that has seen foreign investors flee as the debt crisis intensifies.

Analysts agree the Greek banking sector is relatively well capitalized and has a comparatively low loan-to-deposit ratio, and they are not yet predicting a banking crisis.

But the crux of the issue remains whether a multi-billion-euro aid package Athens is trying to secure from euro zone states and the International Monetary Fund will tide it over long enough to cut a bloated public sector and tackle a 300 billion euro debt pile....

"If the situation really deteriorates sharply and with it systemic risk for the Greek bank sector, I don't think the Greek government has any money left to support that or any other sector of the economy," said Diego Iscaro, a senior economist for IHS Global insight.

As of now, this possibility is one for the worry file. Deposits in Grecian banks have shrunk, although not at bank-run rates. Those deposits are guaranteed all right...by the Grecian government. Needless to say, the gurantor has been having a little trouble meeting its own obligations lately.

Yes, Euroland is providing a fair bit of grist for the worry mill. The resultant worries may benefit gold further tomorrow, even though the profit-taking may extend from this afternoon 'til then. The only real worry for gold would be a Fed rate hike, which isn't in the cards right now; the Fed today made that plain.

Indian Gold Imports For April Expected To Be 27-30 Tonnes

That's according to Suresh Hundia, president of the Bombay Bullion Association. He said that higher prices have drained some demand away.


The middle of that range represents a slight increase from March's figure of 27.8 tonnes. The eatimated range for March was 23-28 tonnes, so this month's 27-30 range is higher than that for last month.

Indian Wholesale Gold Demand Remains Dormant

According to a Reuters India report, Indian wholesale demand remained listless for the second day in a row - today, because of yesterday's run-up.

"Offtake is very little today on a sudden spike in prices," said a dealer with a state-run bank in Mumbai....

"I have a few orders below $1,150," said another dealer with a private bank.

Also draining demand was a weaker rupee, which made gold more expensive for them.

CPM Group Unveils Gold Yearbook For 2010

According to a Reuters summary, the CPM Group expects investment and jewelry demand to increase this year, although not enough to erase 2009's declines in both. Central banks, net buyers in 2009 for the first year since 1964, are expected to remain net buyers in 2010. Investment demand, despite that forecasted partial rebound, is expected to remain muted overall. The CPM Group seems to expect a modest decline in the gold price for this year, although they are firm about gold not dropping below $1,000.

Gold Drifts Down After Yesterday's Rocket-Up

Perhaps the letdown was inevitable. In the night part of the overnight session, gold drifted downwards to $1,165 before pausing around that level. In the morning part, $1,165 was initially clung to, but dips below it made for a new range between $1,165 and $1,160. An hour-long dip starting around 3:00 AM ET took the price down to below $1,163; a more sustained decline, starting a little before 5:00, took the price all the way down to $1,160.20 by 6:40. A recovery put the price back near $1,165, but failed to ford above that level. As of 8:02 AM ET, spot gold was at $1,164.80 for a drop of $3.60 on the day. The Kitco Gold Index attributed -$5.00 to predominant selling and +$1.40 to weakness in the greenback.

The U.S. Dollar Index did see a pullback, but not before it reached another near-year high. The night part of the overnight session saw the Index drift down to below 82.1, but the morning part saw it pick up again. Beginning slowly, it rallied on further fears of another European blow-up erupting. By 4:50 AM, it had reached slightly above 82.5. Stalling at that level, its rally evaporated and it pulled back to below 82.2 before recovering a little. Of note is the fact that gold did not benefit from any jitter rally in the same timeframe. As of 8:12 AM, the Index was at 82.21.

A Wall Street Journal report starts off by noting that gold hit a new record high, interday, in Euro terms.

"At the moment, the propensity on the part of European investors, and perhaps even governments, to own euro- or sterling-denominated assets is reduced, while their propensity to move euro-denominated assets into something 'harder' is higher and is rising," said Dennis Gartman of the Gartman Letter.

As a result, he said he favors owning gold in non-dollar terms.

"We are seeing good safe-haven buying, and some investors shifting money from bonds and other investments over to gold," said Michael Kempinski, a trader at Commerzbank.

Gartman warned that gold could be hit by investors liquidating positions to fill margin calls.

That warning is consistent with the air pockets that gold has hit over the last several months. Also noted is the fear that the two downgrades yesterday, of Grecian and Portugali sovereign debt, indicate more trouble coming.

The morning Bloomberg report, as webbed by Business Week, pegs gold's pullback as the result of speculation that economic recovery will drain demand for the metal. There's concern expressed over higher interest rates coming.

“In the short term, there may be safe-haven buying, but I don’t think that will be as important in the weeks ahead,” said Daniel Smith, an analyst at Standard Chartered Plc in London. “The Greece issue won’t derail economic recovery.”

Also mentioned is Goldman, Sachs reducing its forecast for gold's average price this year. The number used to be $1,265; it's now $1,165. Economic recovery was cited as the cause for the drop. (I suspect that gold's performance so far this year was another reason. The average price from Jan. 4th to now, encompassing almost a third of this year, would be somewhere around $1,120 or so; it may be lower. I think the analysts are becoming reconciled to 2010 being a less exciting year than was thought at the beginning of it.)

The report also notes that the holdings of the SPDR Gold Shares Trust hit another record high yesterday, but the gain from the day before was fairly small: 0.61 tonnes.

With regular trading open, gold slumped down almost five dollars an ounce before recovering a little. The slump ended at 8:25, and the recovery added about a dollar to the price. As of 8:50, the spot price was $1,162.10 for a drop of $6.30 on the day. The drop in the predominant-selling category widened to -$9.70, while the weakening-greenback category widened to +$3.40. The U.S. Dollar Index is pulling back after fluctuating around the 82.2 level; as of 8:57, it was at 82.07.

Overall, the slump is a letdown drop which will likely stay in place unless there's another catalyst to move gold upwards. So far, there seems to be none of the horizon.

Propelled By Safe-Haven Buying, Including Outright Panic Buying, Gold Shoots Up

Regular trading didn't begin all that well for the metal. After meandering down, gold dropped to $1,145.40 an hour after the pit shift began. Rebounding to above $1,148, the metal still couldn't get above $1,150. Until...the consumer-confidence number was released. That datum got gold rolling up almost ten dollars an ounce before peaking at 10:45. That peak, however, proved to be a pause that prefaced: the metal shot up further to $1,165.80 before pulling back again. The pullback was partially caused by an advancing U.S. dollar. As of 11:48 AM ET, the spot price was $1,158.00 for a gain of $5.00 on the day. The Kitco Gold Index's change on the day due to predominant buying sported a double-digit gain of $14.60. The change attributed to a strengthening greenback was -$9.60.

The U.S. Dollar Index muddled along between 81.7 and 81.8 until it dipped below the former level as of 9:43. Pulling back up to close to 81.75, it continued muddling along until a half-hour downturn took it from 81.75 to 81.55. Reversing at 10:47, it rallied in a two-stage uptrend that took it above 81.94 as of 11:29. Since that peak, it pulled back before recovering and then dithering. As of 11:49 AM, the Index was at 81.88.

I have to admit to being surprised by the extent of the rally this morning; as of 9 AM, I was convinced that gold would close at a loss today. Now, it looks positioned for a solid gain. The afternoon session has yet to begin, and the impetus for gold to shoot up has gone, but the metal has a shot at closing above $1,160 today.


Update: Despire a pullback, $1,160 held as the pit shift came to a close. The gold price bumped down to the $1,157 level twice before noon ET, but a recovery starting at 11:45 pulled the price up to $1,162. The afternoon has seen the metal in a trading range, between $1,160 and the aforementioned $1,162. As of 1:42 PM ET, the spot price was $1,161.30 for a gain of $8.30 on the day. The Kitco Gold Index attributed +$18.50 to predominant buying and -$10.20 to strength in the greenback.

The U.S. Dollar Index has itself been on a run upwards, although its rise was blocked a little above 82. After ascending above 82.1 shortly before noon, it pulled back to a little below the 82 level. As of 1:43 PM, it was at 81.94.

So far, $1,160 has held up. Now that the pit shift has ended, the electronic-trading part of the regular session is likely to see gold drift along. There's now a good chance the metal will close above $1,160.


Update 2: Again, I have to admit to being surprised. Instead of the usual drift in the electronic portion of regular trading, the run-up continued. More unusually, there was no specific news item to account for it.

The last time the electronic-trading joint jumped was the day the Fed announced that the discount rate was being raised; right afterwards, gold plummeted. This time, the movement was in the opposite direction. At the top of the rally, spot gold made a high at a level that hasn't been seen since early December of last year.

Adding to the unusuality was the fact that the U.S. Dollar Index was zooming up too. Normally, of course, the two move in opposite directions. This inverseness, as bruised gold-watchers know, also kicks in in times of crisis. Either the greenback zooms up, or gold does. It's not exactly standard procedure to see them both shoot up.

And yet, that's what happened today. To my eyes, both benefitting from today's action - an outright panic out of Grecian sovereign debt, plus the turmoil resulting from Portugese sovereign debt as well as the Grecian variety being downgraded - suggests a transition period. In recent history, the greenback's benefitted and gold's suffered from panic. Recently, gold benefitted after heads had cooled - but the initial beneficiary was still the U.S. dollar. Now, both are benefitting simultaneously from the panic trade.

The greenback's bull run has not been impugned, but I'm idly wondering if the transition will proceed further: gold benefitting while the U.S. dollar doesn't. It's a formidable barrier to cross, given the strength the greenback's still showing, but the appearance of the old inflation dragon would make the transition complete. There was a bare hint of that this morning, when gold got rolling thanks to the much better than expected consumer-confidence figure. A soft-greenback policy to aid U.S. exporters would also do the trick.

Of course, there's the possibility that we'll return to the more familiar pattern: the greenback benefitting, initially, alone. I say this because today's pattern was anomalous, and not necessarily the sea change that so many gold bulls have been waiting for. The same simultaneity occurring again - we all know there'll be a next time for the Eurocrisis, likely soon - would be a really encourgaing sign for the gold market.

Moving back to later afternoon's action: gold took off slowly starting at 2:00 PM ET. Accelerating, it reached $1,168 before coming to a halt just after 3:00. A gentle slide downwards over the next half hour gave way to another rally, this one a two-stager. At the peak, as of 3:50, the spot price was $1,173.80. A two-stage pullback brought gold down to $1,167.50 by 4:35. A final blip-up left the metal at $1,168.40 for a gain of $15.40 on the day. The Kitco Gold Index (KGX) attributed an incredibly high +$31.50 to predominant buying: in the months I've been watching it, I've never seen a daily gain that large for the category. Speaking to the U.S. dollar's strength today, the change attributed to a strengthening greenback was -$16.10. The two, summed together, give the daily change. The change in predominant buying was enough to put the KGX, which measures gold's performance ex-greenback, well into record territory today.

The movement of the U.S. Dollar Index in later afternoon trading was fairly uncomplicated, and sweet it was for a greenback bull. Starting as of 1:40 when below 81.95, the Index rallied with barely a pullback until it got all the way up to 82.395 as of 5:30. This level is the highest it's been since May of last year.

Its daily chart, from Stockcharts.com, shows the abrupt reversal that was also part of today's gain:



Although it could be said that the Index hasn't truly bested its previous high made on March 25th, the momentum it's developed makes a newfound push to a new high likely tomorrow or in the near future. Needless to say, the inverse head and shoulders pattern I mentioned in recent days has come to pass with today's shoot-up. There's really little to be said about today's action, as it pretty much speaks for itself.

Again, I have to disclose my surprise at seeing gold break out of its range with such strength, as shown on gold's own daily chart:



The metal doing so put it at a closing high equal to a level that hasn't been seen since December 4th. The MACD lines at the bottom of the chart have flipped into a bullish configuration. If said configuration prevails tomorrow, then the previous bearish interlude will have been the shortest and mildest bear phase this past year. More encouraging is the fact that the RSI line at the top saw its recent low at about 50, the same level it bottomed when gold was marching up. Although I don't want to put it excitedly, there is a chance that the RSI line will get into genuinely oversold territory - above 70 - for the first time since December.

Again, though, I have to wave the wet blanket around and say that today's performance was anomalous because of the gold-greenback concurrence. It'd be nice if this concurrency stuck throughout the Eurocrisis, but one swallow does not a spring make.

An afternoon Wall Street Journal report ascribed gold's shoot-up, naturally, to the safety trade in response to downgrades of both Grecian and Portugese sovereign debt.

These types of things are highly supportive of the gold markert," said Bill O'Neill, one of the principals with LOGIC Advisors. "There is a clear run to a flight to quality."

The metal is acquiring a role as an "alternative currency," he said.

Many investors are re-evaluating where they want to put their money amid the ongoing European debt issues, and some are turning to gold, said Adam Klopfenstein, senior market strategist with Lind-Waldock, a division of MF Global.

"Gold is going to move higher regardless of what happens in the currency market, as long as there are fears of problems in Europe," Klopfenstein said. "People are starting to have more skepticism to a lot of these sovereign entities."

The article notes that the pummeling the stock market took today was also endured by industrial metals. Today's action in gold was unusual, or divergent, for yet another reason.

As to where the metal will go tomorrow, I have to confess that I don't know. I've already been taken by surprise, and I'm likely to again. Today was really an incredible day for the metal, one where it not only rocketed up but also acted out of character. Where the metal ends up tomorrow largely depends on what latest twists and turns come out of Euroland. I won't presume to guess what those may be.

But I wouldn't be too surprised if gold continued to go up...

Consumer Confidence Way Up

Although the April number is well below the level that would indicate a healthy and thriving consumer sector, it was much higher than expected: 57.9, up from a revised 52.3 for March.


The gold market took heart from the number. After lumbering along below $1,150 until 10:00, it took off shortly after the number was released; it peaked at $1,159.80 as of 10:45.

This take-off represents a bit of a sea change. Formerly, gold would have been depressed by good economic data because of what it implies for Fed interest-rate policy. Now, economic recovery seems to be interpreted as a harbinger of higher inflation. Perhaps the gold market has forgotten the implication it read into good data beforehand.

It seems that I was too pessimistic earlier this morning...

World Gold Council Says Gold Prices Have Held Up Due To Strong Fundamentals

According to an excerpt at Bullion Vault,

Gold Prices have performed well in the first three months of the year thanks to "solid fundamentals".

That is according to the World Gold Council (WGC), which reveals that while Gold Prices are often assumed as having a negative correlation with the US dollar and stock markets, this year is proving this is not always the case, according to the Telegraph.

The WGC suggests that Gold Prices are performing well despite US dollar and stock market improvements....

Along the same line, although more tub-thumping, is an opinion piece webbed by Jutia Group written by John Taylor, which says that elitists like to bash gold because they're too tied in to the present fiat-money standard. Along with Jon Nadler, Jeffrey Christian is criticized as being part of that elite:

John and Jeffrey personify the “Almost hysterical antagonism toward the gold standard that unites statists of all persuasions” that Alan Greenspan wrote about in his 1966 essay titled, “Gold and Econmic Freedom.”... My friends John and Jeffrey would never admit it and indeed they might not even be conscious of it, but they love statism. They have no doubt convinced themselves that people like your editor and other common folks among the masses of Americans are too ignorant to be left with the kinds of freedoms our Constitution guaranteed. And so they have appointed themselves as benevolent leaders who are simply doing us a favor by taking away our wealth and our freedom.

So when you hear the likes of John Nadler and Jeffrey Christian always, always, always presenting a bearish view on gold, realize they are simply talking their fiat currency book. They are not being entirely dishonest, because consciously they believe what they are saying. But they either don’t want to understand or simply have not done enough independent thinking to question the answers they wrote in their little blue test booklets in Keynesian Economics 101. And it just so happens that those are the same answers they need to keep regurgitating on CNBC and Bloomberg in order to keep in good standing with the ruling elite that employ them....

Strong words.

Venezuelan Blues

The political aspects of gold investing doesn't just encompass the fiat-money supply and government deficits. Sometimes, the rawer side of politics impinges. Two exploration companies with projects in Venezuela have had them effectively outlawed by new restrictions passed by the Chavez government. Chavez is evidently edging towards a takeover of the gold industry in that country.


Hope still springs eternal, but the typical mining project can't be put on a plane and shipped out when the political climate turns threatening.

Two Senior Producers Announce Leap In Earnings

The two are Newmont Mining and the recently spun off African Barrick. The former company's first-quarter profit came in ahead of analysts' estimates, leaping to $1.11 per share as compared with $0.40 in the same quarter a year ago. Ex-items, 1Q '10 earning were 83 cents; the consensus estimate was for 79 cents. Not only higher gold prices but also increased gold sales were responsible.

The latter saw its EBITDA shoot up to $100 million from last year's $41 million. Since it hasn't been listed that long, earnings per share weren't used for comparison purposes.


It looks like the senior producers are in the money zone, most likely because their costs have been held down. It doesn't seem to have been widely recognized as yet...

Gold Continues To Slip Down

The metal had a nice run last night, gaining almost four dollars an ounce from yesterday's close when it topped out around 9:00 PM ET. From that point, though, the action was mostly downwards. A three-stage overnight downtrend took it below $1,151 a littel before 6:00 AM from last night's peak of $1,157. After a recovery to $1,152, a final drop took the price down to $1,149.30 around 7 AM. Another recovery prefaced yet another low on the day. Largely behind the drop was uncertainty over the stringency of the conditions on any aid package for the Grecian government, which dropped the Euro and benefitted the U.S. dollar. As of 8:03 AM, spot gold was at $1,148.70 for a drop of $4.30 on the day. The Kitco Gold Index apportioned +$3.30' worth of change to predominant buying and -$7.60' worth to strength in the greenback.

After a slump that ended at 7:15, which took it down to just above 81.15, the U.S. Dollar Index went on a sustained rally that took it above 81.75. Part of the rally took place last night, before news from Euroland affected it, but most of the rally did occur during the Euro news cycle early this morning. From an intermediate low of 81.275 as of 12:45 AM, the Index inched upwards at first and then jacked up as the latest Eurocrisis news and rumours disseminated. By 6:35 AM, it was slightly above 81.7; later, a pullback led to a new high. As of 8:11 AM, it was at 81.75.

The morning Wall Street Journal report ascribed last night's drop to the above-mentioned causes, and notes that the consensus impression is for a range between $1,140 and $1,160.

"As long as the euro struggles, and by that the dollar remains strong, it's difficult to see rallies above $1,160 an ounce [being] sustainable," said Standard Bank analyst Walter de Wet. He noted that the metal will continue to outperform in euro terms. Spot palladium is trading down along with the euro after hitting a fresh two-year high Monday.

Markets are likely to be cautious ahead of the two-day U.S. Federal Reserve interest rate committee meeting that begins Tuesday, said analysts at SEB.

Another quoted source said that gains in gold are likely to be capped as long as the greenback benefits from the current turmoil in Euroland.

An earlier Reuters report, written last night, focuses on the still-existing safe haven demand for gold as a result of the Eurocrisis. Even when things were looking good, though,

buying has faltered whenever gold nears a four-month high of $1,168.70 marked earlier this month, capping further gains in the precious metal with the outlook of global economy remaining uncertain, analysts said.

Highlighted in the report was a new record high in the SPDR Gold Shares trust's (GLD's) holdings of gold. Yesterday, they increased by 6.088 tonnes to 1,146.216 tonnes.

The morning Bloomberg report, as webbed by Business Week, points to scrap-gold sales meeting investor demand to keep the price from rising.

Sales of old jewelry and other scrap gold have increased at the same time as demand from investors gained, according to Walter de Wet, an analyst at Standard Bank Plc in London....

“Investment demand is there but we’re also seeing decent physical selling” of scrap metal from Asia, de Wet said. “Investment demand must be much bigger than people wanting to sell old gold” for prices to advance.

The greenback's rise was attributed to "speculation Greece won’t get a loan quickly enough to avoid default on its bonds." This report also made special mention of the new record in GLD's holdings, a datum that seems to be growing legs.

With the opening of regular trading has come fluctuations that were directionless. Gold has yo-yo'ed between $1,148.50 and $1,150.50. As of 8:50 AM, the spot price was $1,148.70 for a drop of $4.30 on the day. The Kitco Gold Index assigned +$3.80 to predominant buying, reflecting safe-haven demand still extent, and -$8.10 to a strengthening greenback. After sliding down a bit, the U.S. Dollar Index went on to a new daily high. As of 8:53 AM, it was at 81.79.

Due to that strength, gold hasn't been doing so well even though it's still up ex-U.S.-dollar. The way things have gone so far, the metal's likely to put in a loss on the day.

After Early-Morning Spill, Gold Recovers To Tepidness

Overall this morning, gold's been yo-yo'ing. A dip at the beginning of regular trading was recovered from, but the recovery was followed by a larger decline that took gold down to $1,151.10 at 9:20 AM ET. Although the recovery after that drop was slower, the metal clambered up to the $1,155 level after the jumps and back-steps are taken into account. As of 11:46 AM ET, the spot price was $ for a drop of $2.30 since Friday's close. The Kitco Gold Index split the loss into -$0.55 for predominant selling and -$1.75 for strength in the greenback.

An attempted continuation of the pre-regular-trading rally in the U.S. Dollar Index came to naught in mid-morning. A choppy run-up crested at just below 81.65 as of 10:19. Following that climax, the Index drifted down to a little below 81.5 and carved out a trading range between 81.44 and 81.48. As of 11:54 AM, it was at 81.47.

Despite the early-morning bobbles, gold seems to be taking a rest this day. There's little bullish pressure to speak of, but bearish pressures are being counteracted. The afternoon will show if this holding pattern keeps holding.


Update: The yo-yo'ing continued in the early afternoon, although at a lower level. Shortly before noon, gold took a spill from above $1,155 to below $1,152. A short recovery presaged a downward spike to $1,149.90 that ended with a pull-up to $1,153. That upturn thwarted, a pullback to $1,151 prefaced a more durable bob-up to $1,154. That one, too, decayed. As of 1:42 PM ET, spot gold was at $1,152.60 for a loss of $4.80 on the day. The Kitco Gold Index divided the loss into -$3.00 for greenback strength and -$1.80 for predominant selling.

The U.S. Dollar Index did break out of its late-morning trading range on the upside, but its noontime rally was stopped just below 81.6. After falling down to 81.5, it muddled along above that level with a slight upwards bias. As of 1:43, it was at 81.545.

The pit shift's end left gold sunk a bit. Given normal post-pit behavior, the metal will likely end up with a slight loss since Friday's close.


Update 2: Not much did happen subsequently, and gold did close with a loss. It hovered between $1,152 and $1,154, with hardly a break-out from that range, and closed right in the middle of those borders. At the end, the spot price was $1,153.00 for a drop of $4.50 since Friday's close. The Kitco Gold Index (KGX) attributed -$5.20 to predominant selling and +$0.70 to a weakening greenback. As mentioned by Peter Brimelow, the KGX itself, which measures gold's performance ex-greenback, made a closing record last Friday.

The U.S. Dollar Index went for a bit of a tumble in later afternoon trading after breaking below 81.5 again. Starting at 1:50, the Index fell in four different waves. Right after the end of the fourth, and as of 5:30 PM ET, the Index was at 80.205.

Its daily chart, from Stockcharts.com, shows yesterday's pullback continuing, although today's was much less extensive than yesterday's:



The close wasn't much lower than the open, and the Index is still well above 81. The MACD lines at the bottom of the chart, for what it's worth, are still in a bullish configuration. Interestingly, the RSI line at the top has fluctuated between 40 and 60 since the beginning of this month; it hasn't gotten anywhere near the 30 oversold level, but it hasn't shot up to the 70 overbought level either. Its 40-60 range indicates that the Index, despite its fluctuations, has been trendless overall. For the span of about a month, the Index has been in a wide-spaced trading range between 80 and 82.

That range has a chance of breaking to the upside, though, unless it falls to about the 80 level in the near future. If it bottoms at substantially higher, then it's been set up to make a bullish reverse head and shoulders pattern. So far, the Index's action could presage either.

Turning to gold, its own daily chart also looks like a range has been formed:



In the case of the metal, the borders are $1,135 and $1,160. Last Friday, gold got to near the top of the range; today, it pulled back somewhat. Its own MACD lines are in a bearish configuration, although only slightly so. For the month of April, its RSI values haven't gotten below 50; that suggests a fairly bullish chart. Nevertheless, the metal has had a hard time getting and staying above $1,160. As with the Index, gold's in a holding pattern right now and its direction isn't very determinate. Given its range formation, my best guess would be for a further pullback tomorrow - but I have little more than a hunch behind that guess.

An afternoon Wall Street Journal wrap-up article described gold as effectively running in place today:

Gold futures finished nearly steady Monday as traders balanced a stronger dollar and weaker crude oil, both bearish factors, against expectations for further investment demand in other currencies and a supportive report showing central-bank gold sales remain minimal.

The metal's upside was limited by the ongoing concerns about Greece's debt, which supported the U.S. dollar, said Tom Pawlicki, analyst with MF Global. A muscular greenback removes the need to buy the metal as a hedge against a weaker U.S. currency.

Also, gold's upside was limited by a pullback in crude oil, which often leads investment flows in and out of other commodities, Nedoss said. Crude was hurt by ideas that recently stronger economic data could push the Federal Reserve toward eventually upping interest rates, energy analysts said.

Yet, at the same time, a certain amount of investment demand continues to make its away into gold, others said. Ongoing concerns about European sovereign debt are still attracting some safe-haven flows, particularly in currencies other than the dollar, said Bob Haberkorn, senior market strategist with Lind-Waldock.

"It's very encouraging that gold is trading as strong as it is with the dollar trading as strong as it is," Haberkorn said.

Also mentioned in the article was an IMF sale of 5.60 tonnes, a small amount considering the institution has more than 190 tons to sell. Its staff is doing so slowly, suggesting that they don't want to drive down the price and jeopardize the value of the rest of the metal they want to sell.

Overall, it has been a relatively unexciting day for gold. Tomorrow may see a further slide, but there's no indication of a plummet in the offing unless the Fed surprises at the end of its meeting tomorrow afternoon. The greenback is down, and the typical trigger for a plummet has been an ascending U.S. dollar. There is a chance that the metal will surprise to the upside.

Inflation Dead? Not So Fast

Speaking of bubbles, a Seeking Alpha article by Thomas MacLeod points to a reaction by T-bond bulls that's characteristic of an investment class at the post-bubble "Wile E. Coyote Over The Cliff" phase. Thanks to a recent rally in Treasury securities, inflation is being declared dead by bond traders. This kind of yippee'ing is reminiscent of gold investors in 1981, when it was widely believed that Volker wouldn't or couldn't stay the anti-inflationary course. As MacLeod himself asks:

But if inflation is dead then:

1. Why is the real world market for commodities only a "few good weeks" away from all time highs?
2. Why is it that TIPs are also a whisker away from breaking to a multi-week high against non inflation protected treasuries?
3. Why is it that metals are preferred over US treasuries, JGBs, and Bunds?
4. And why is there this persistent strength in gold in multi-currency terms?

During the post-bubble blasé phase, questions like these are dismissed as foolish - at precisely the time they need to be asked. For gold, one of the apropos questions in 1981 would have been: "Can gold rocket up when real interest rates are so high?"

Another Bubble Debunker

Chris Weber used a cocktail-party gauge to see if gold is in (the climax of ) a bubble. According to his latest sampling, there isn't the same excitement and advice-giving with gold that there was with, say, Internet stocks in 1999. The article in which he mentions that finding contains an eye-opening depiction of what it was like buying near the bottom:

It was this time, nine years ago – back in 2001 – that I put what was for me a large percentage of my assets in gold and gold stocks.

At the time, I saw that gold was looking very good on the charts: its recent lows were for the first time higher than the previous lows. Then there was just a feeling I was getting that the 20-year bear market was over. At the time, the idea of investing in Gold or gold stocks was regarded as laughable, a relic from another generation.

At the start of 2002, I first talked about gold with my readers, recommending some gold stocks. I had to be careful even then, because writing investment newsletters as I have since 1974, I learned long ago that you can't get too far ahead of your readers. If you suggest something that is totally off of their radar screens, they will not be happy.

"Give people what they want... Tell people what they want to hear": that was the advice I'd always been given by other newsletter writers. And it is true, most people only hear and believe what they want to hear and believe. It has been said before, but if there is ever to be a change in anything, "the minds of men must first be fitted to it."

Also, between the time when I first bought the gold area in April 2001 and the time I first mentioned it in February 2002, I told three people what I had done. First was my brother. He looked at me with an expression of pity and sympathy. Next was my neighbor and good friend. He looked at me like I was crazy. Finally was a friend of mine in the gold-mining industry itself. He told me I was much too early, that he saw no end to the 20 year bear market anytime soon.

I relate this to say that the best investments I've made have been at the time when most everyone else thinks you are deranged for even talking about them.

Needless to say, the reaction to gold today is nothing like it was in '02. I note that the cocktail-party indicator is good for spotting the climax, but not necessarily the end, of a bubble.

And (perhaps unfortunately) acting on the cocktail-party indicator is a reliable means of getting out too early, as many professionals do. It's a strong soul that can stand to watch an investment class keep rocketing up, amateurs getting rich with little or no effort, naifs looking like geniuses, the buying public clamoring to get in (as the cocktail-party indicator implies), month after month, while keeping one's distance from the whole party. Although vindication comes in the end, the wait is a psychologically grueling one.

Of course, many professionals get back in due to customer pressures. "Give the clients what they want" also applies to managing money.

Weber's good enough to say that a large majority of people who buy in early, get out before the bull market finishes. He ascribes it to the nature of bull markets, but there's a psychological explanation that gets to the heart of the matter. People who buy in near the beginning of a bull market are also buying in after the end of a bear market. [Gold's last one was 20 years long, or 20 long years.] Even if the fundamentals show undervaluation, there's no guarantee that the investment will become even more undervalued. Moreover, a large valuation gap may indicate a hidden bearish factor that wrecks the fundamanetal value of the asset in question. The only people who can hold on are those who repeat the fundamentals as if they were a mantra. Others, guided more by market internals, are weeded out early on when the asset jumps to an ostensibly unsustainable level.

The trouble, as the bull market matures, comes from using a contrarian stance to stay in. The person who buys an investment near the bottom, when it's widely disparaged or widely ignored except to disparage, tends to become uncomfortable when the same investment becomes popular. In order to buy and hold gold since 2001, someone would have had to tolerate being thought of as a nut or an oddball. [Believe it or not, the same pressure applies for even orthodox investments; it just takes different forms.] The only kind of person who can do this with equanimity is someone who's destined to become uncomfortable when the crowd discovers the asset and likes what it sees. Let's face it: taking pride in being part of a breed apart tends to make newfound popularity at best bittersweet.

To sum up: when the crowd discovers an asset on the merit of its fundamentals, the early entrants (being conscious or unconscious contrarians, or otherwise not caring a fig about being popular) get uncomfortable and leave. The rest of the bull market continues without them.

It's a situation that can be described as tragic. The kind of popularity hound that thrives on being in the swim will be nowhere near an investment that's truly undervalued, like gold was in 2001. The ones who are in, take pride in being beyond the reach of the conformist crowd. As the former type wades in, the latter type gets antsy and pulls out. By the time the second stage of the bull market is through, and the lengthy third stage is beginning, the breed apart is either gone or besotten by worry. Tragically, the ones who hold on tend to allay their anxiety by becoming hyperbullish - it's the only reinforcer that works. These guys are the ones who are likely to hold on to the bitter end once the bubble pops.

The only way around this dilemma seems to be buying in secret in the early stages and telling no-one until it becomes popular. The discretion this approach requires takes a different kind of psychological toll.


[And to think there are people who believe that speculation isn't real work...]