Friday, May 7, 2010

Gold Fluctuates Around $1,200, Then Moves Upwards

After yesterday's rocket-up, a sink-down isn't all that surprising. After doing so in the overnight session, gold essentally marked time in morning regular trading. The absence of any fear driver led to gold being essentially directionless.

After sinking when regular trading opened, likely due to profit-taking, the metal rose to $1,199 on the heels of the latest jobs report. Pulling back after, the metal then entered into a two-stage rally that pulled it up to $1,206.70 as of 10:05 AM ET. That peak was followed by a drop that took the metal down more than ten dollars an ounce to $1,193. Reversing at 11:20, it pulled up a little above $1,200 before hesitating. As of 11:49 AM, the spot price was $1,200.20 for a loss of $8.60 on the day. The Kitco Gold Index attributed +$4.10 to weakening in the greenback and -$12.70 to predominant selling.

The U.S. Dollar Index fared well, until a mid-morning drop. After a dip down to 84.65 around 8:50, the Index recovered and advanced very slightly until a dip at 9:30 that took it below 84.8. Then, a rally that began slowly but accelerated got the Index up above 85.1 as of 10:28. At that point, the rally reversed with a slow-starting but accelerating decline that brought the Index down to below 84.5. Pulling up subsequently to 84.77, it began sinking again. As of 11:50, it was at 84.60.

So far, there hasn't been any definite downtrend; the metal may keep fluctuating around $1,200 this afternoon. Further profit-taking and a general letdown, though, might drag it down to well below $1,200 and hold it there. The afternoon will show.

Update: I manage to underestimate the metal again. After pulling back to $1,198, reached just before 12:15 PM ET, the metal went on another run that took it up to a new daily high. Just before 1:00, it touched a new 2010 high of $1,215.20 - ten dollars below its all-time high. Pulling back to $1,209, the metal jumped up again to $1,213 before sinking back again. The end of the pit shift left it virtually unchanged on the day. As of 1:47, the spot price was $1,208.70 for a loss
of $0.10. The Kitco Gold Index attributed +$5.80 to a weakening greenback and -$5.90 to predominant buying.

The U.S. Dollar Index changed little since the last update. Continuing its slide after noon, it sunk to below 84.5 by 12:20. From there, it recovered and pulled up to 84.72 before sliding back down a little. As of 1:51, it was 84.65.

The odds say that gold wil spend the rest of this week drifting at about the level established at the end of the pit shift. Although a drift-down is likely, there's a chance that gold will close unchanged.

Update 2: It didn't, but the metal was very close. For a time in the later-afternoon shift, gold was sporting a gain.

That's fairly impressive, as well as unexpected (at least by me.) Given gold's rocket-up yesterday, a sink-back today wouldn't have been all that abnormal. The fact that the metal held on to almost all of yesterday's gains shows real bullishness. Profit-taking did occur today, but it was counterbalanced by new buying. Given that the German lower house okayed the German part of the bailout commitment, there was an opportunity for crisis-trade payers to exit out. To the extent that they did, they were replaced by new longs.

As mentioned above, a new 2010 high was made today; it was ten dollars below gold's all-time high. This is May, a month that's traditionally (but not always) been good for gold. Sadly, the next month is known for not being very good for the metal. It would make an important statement for gold to make a new all-time high in greenback terms before the summer doldrums start. Of course, it would be much better if gold bucked the summer droops - but that's too much to ask at this point.

The electronic-trading shift of the day session, beginning at 1:30 PM ET, started with a slight recovery that turned into another dip. The drop, which ended at $1,207 as of about 1:50, marked the low point of the later-afternoon electronic-trading shift. After recovering gold spent the next hour and a quarter in a trading range between $1,209 and $1,210. Starting at 2:05, a mild run upwards got it to $1,211 by 3:30. A fallback put gold down to $1,108, where it crawled along before advancing slightly near the end of the session. As of the close of the week, the spot price was $1,208.00 for a loss of $0.80 on the day. The Kitco Gold Index assigned +$8.20' worth of change to weakness in the greenback and -$9.00' worth to predominant selling. So, if the greenback is factored out, it can be said that there was some overall profit-taking today.

The close last week was $1,179.30, making for a weekly gain of $28.70 or 2.43%. This week marks the third weekly gain in a row.

It could be said that the U.S. Dollar Index's declines helped gold overall, but that belies a concurrency that showed up in the movements of both in the later-afternoon part of the session. From 84.73 as of 1:30, the Index plopped down to below 84.5 fifteen minutes later. A relief rally was followed by a churn, which ended with another plop as of 2:45 that took it down a little below 84.4. Rising up later, it sunk back down to the 84.4-84.45 until the end of the week's trading; a last-minute drop just before 5:00 left it at 84.36.

The Index's daily chart, from, shows the pullback which, it has to be admitted, was overdue:

The chaos god didn't intrude after all, and the Index pulled back from its highly overbought level. Its RSI line, found at the top of its chart, is still in oversold territory. Given how the Index has acted over the last five months, it would be reasonable to expect the pullback to continue. Of course, the chaos god may intervene again.

Turning to gold, its own daily chart shows that there was some profit-taking today even though it evened out at the end:

Instead of a candlestick, there's a cross; that mark shows the metal closed about where it opened. The lower part of the wick is longer than the upper part, showing that there was a sizable profit-taking drop in the middle of the day. Gold's own RSI value is still in oversold territory, suggesting that a pullback is still in the offing. It might not come Monday, but the potential is there.

Today being Friday, the Commitment of Traders data have been released. As a reminder, the records of positions is current to last Tuesday's close. Gold had fallen back then, and was about to bottom around $1,155 in the next day, but was on the cusp of its run. The CoT graph for the metal shows an overall increase in open interest to a one-year record. Both non-commercial and commercial longs expanded somewhat. Commercial shorts did too, of course, but so did non-commercial shorts. Again, the longs had it. Of interest is the fact that commercial longs, supposedly more savvy than non-commercial longs, crept up.

The U.S. Dollar Index's CoT graph, a snapshot of the market for it in the middle of it rocketing upwards, shows a modest increase in open interest. Non-commercial longs expanded, but commercial longs contracted by a smidgen. Commerical shorts expanded - but non-commercial shorts didn't. That was wise of the ones who covered, as the Index near-exploded upwards over the next two days.

A Wall Street Journal report, covering the day's action up to the end of the pit session, explains that gold held up because of safe-haven buying still.
"Nobody wants to be short gold over the weekend," said Michael Gross, broker and futures analyst with, the Web site of Tampa, Fla.-based futures brokerage Liberty Trading Group....

In recent months, amid extremely low interest rates that make non-interest-bearing gold more atractive, the metal has been behaving as a so called risk play. It has tended to benefit when investor risk appetite is high for such volatile, but potentially profitable, investments like metals, higher yielding currencies and equities.

But in recent days, the heigtened market worries have brought investor focus back to the metal's historical role as a hedge against market uncertainty.
Also mentioned is an IMF board meeting this Sunday to work on the bailout package. It's suggested that too much can change over the weekend to risk betting against the metal. The same consideration doesn't seem to apply to staying long.

I understand the uncertainty. Given that gold now thrives on crisis, and has thrived when the government bailouts get rolling, there is a real risk to remaining short over the weekend. I merely note that the way for the gold market to fool as many people as possible would be for a decline to set in on Monday. That's Monday's worry, however, and the gold market may not be that refractory.

Again, thanks for reading, and have a cheery weekend.

"Gold For The Long Run"

Taking the form of a debunking of Stocks For The Long Run by Jeremy Siegel, Drew Mason makes the case for "Gold for the Long Run" over at Minyanville. The nub of his argument for holding physical gold is wealth preservation: gold has held its value over the very long run while fiat cash hasn't. Mason explains the drop in gold from 1980 to 2001 is the product of falling interest rates, a phase which isn't going to be repeated:
We make no bones about how horribly gold performed from 1980-2000. Investors need to realize though that the key input in valuing hard and paper assets, namely interest rates, went from 20% to near 2% over that period. Such a move is generational that mathematically can't be repeated from current levels. That move provided a brutal headwind for gold and was the afterburner for paper assets. Now that we are poised to see rates move higher rather than lower, the headwinds will reverse, providing the fuel for hard assets and a multiple compressor for equities. The fundamental landscape is more like 1970 than 1980 so investors may be well served to recognize the period from 1980-2000 bears few similarities to today’s markets.

Times change, in other words. They already have for the stock market, which is stuck in a very-long-term trading range at the same time gold's been going up.

Gold Rates Mention In Time Magazine

And a surprisingly balanced one. Although he drifts into the mainstream narrative regarding gold, about how fiat money has been a blessing and how goldbugs are alienated, David von Drehle makes an eye-opening admission at the beginning of it:
One particularly grim day in the middle of the financial collapse, as the value of my retirement account plummeted like Wile E. Coyote off a cliff, my brother asked me if I had considered buying gold. Without thinking, I said, "I'm not quite ready to dig a bunker in the backyard." Which was a silly thing to say about a perfectly reasonable investment, one that has appealed to figures as diverse as Cleopatra, King Midas, the Rothschilds and the villain in Goldfinger.

Although he doesn't explicitly say so, it sounds like von Drehle regrets having thought of gold in such terms because doing so made him miss out on its run. I wonder how representative that (possible) regret is...

Gold Pops Up In Another Counterintuitive Place

The New Scientist, science magazine and recurrent flack for AGW, has webbed a brief article relating to gold exploration: "Survey finds $20 billion of hidden Aussie gold." The survey referred to is a GeoScience Victoria survey of the geology of that Australian province.
Most of the gold already mined in the region is from central Victoria, where gold-bearing quartz rocks are exposed on the surface, says Lisitsin. "In the northern part of the state the same potentially gold-bearing rocks are hidden under the sediments, and gold deposits are still there waiting to be discovered," he says.

Lisitsin and his colleagues have used geological data from three zones in the gold province to work out how much of the metal might still be in the ground. He says it is 90 per cent certain that at least 500 tonnes is waiting to be discovered in the region. At today's prices, that would be worth $20 billion.

Much of this gold – some 290 tonnes – should be in a 10,000-square-kilometre region in the north of the gold province called the Bendigo zone. However, the team doesn't know precisely where....

Of course, an article of this sort is a far cry from the New Scientist turning into a recurrent flack for gold. Given time, though...

The Case For The Gold Standard...In The Wall Street Journal

Although only appearing in the Opinion section, the piece makes the case for gold as a way of preventing imbalances in the economy. The effects of the dollar standard aren't confined to the U.S. goverment being able to run huge deficits; it also engenders a bubble economy.
In the 1970s, the mole took the form of high inflation and stagnation. In the 1980s, high interest rates and big budget deficits that reared their heads. In the 1990s, regional or one-sector investment bubbles triggered emergency easing of interest rates by the Federal Reserve. Finally, reacting to deflation fears following the bursting of the dot-com stock-market bubble, the Greenspan Fed pushed the federal-funds rate down to 1% or less and kept it there for far too long.

This brought forth the Mount Everest of bubbles, a boom in U.S. residential real estate derivatives that spread all over the world. When credit-worthy investors and firms can borrow money for virtually nothing and aggressively leverage their investments in a market that seems headed in only one direction, no force on earth—not even an Obama-appointed regulator—is going to stop them from making that bet.

Now Ben Bernanke's Fed is repeating recent patterns of keeping interest rates too low for too long, creating new bubbles and risking a whack-a-mole encore: 1970s-style stagflation. Before that happens, we need to lead the world back to the monetary system that worked better than any other—and, moreover, the one most appropriate for a global economy that is integrating about as rapidly as it was in 1900.

Unfortunately, as the EU has hinted, a gold standard isn't feasible when governments are used to deficit spending. If the United States can be compared to Greece, then a United States on the gold standard can be compared to present-day Greece. It looks to me like the U.S. won't be ready for a gold standard unless the U.S. government racks up surpluses. Given the entitlements crisis, that's all-but impossible without restructuring.

Indian Wholesale Gold Demand Still Weak

According to an article in Moneycontrol, wholesale gold demand is still dormant. It's now six days in a row:
"The demand is nil... it's been a similar condition since many days, I have booked shipments only for a tonne since May, which is a bad figure given the festival," said a dealer with a state-run bullion dealing bank.

"I have advanced orders at about USD 1,170 (an ounce)," said another dealer with a private bank.

It isn't a case of sharp traders holding back because the price is too high. Retail demand on the eve of the Akshaya Tritiya festival is much lower than last year.

Gold Sales For Akshaya Tritiya Festival Expected To Drop By More Than 50%

According to a report by the Economic Times, high gold prices have led to a dampening in demand that's likely to result in buys that will be less than 50% of last year's total:
Gold consumers may buy about 20 tonnes of the precious metal on the day of the festival that falls on May 16, less than half of the 45 tonnes they bought last year, Prithviraj Kothari, director with Bombay Bullion Association said on Friday.

"Looking at the prices, if they want to buy 10 grams, they will now buy 5 grams for the festival," he said.

Post-Panic Letdown Leaves Gold Below $1,200

The British election results indicate, as of the time of this writing, a hung Parliament. A day after the Grecian parliament voted for the austerity package, the German lower house has voted to approve the German government's contribution to the bailout package; the tab for the German government will come to 22.4 billion Euros. This vote, if ratified by the upper house, will mean the German government has joined the French and Italian governments in approving the bailout.

After reaching its 2010 record yesterday, gold tailed off in the overnight session. The absence of new fears led to some relief selling. The drift-down was fairly steady until gold dipped below $1,200 around 11 PM ET. Hanging around $1,200, the metal climbed up slowly from that level between 2:00 AM and 4:00. That rally failed to last, and gold sunk to well below $1,200. But, that level ended up being the centre as the decline reversed course starting at 5:00. Again, an attenpted rally above $1,200 came to naught. As of 8:15 AM, the spot price was at $1,197.60 for a drop of $11.20 on the day. The Kitco Gold Index attributed +$4.60 for weakening in the grenback and -$15.80 for predominant selling.

The U.S. Dollar Index, failing to get above 85 in the evening session, drifted down itself. Two attempts to surmount 85, one at 9:50 PM and another at 1:55 AM, were thwarted. After the first, the Index drifted down to 84.5. There was hardly a pullback after the second until more than an hour later, when it sunk below 84.5 by 6:50 in a two-stage decline. A recovery rally followed, which pulled the Index up above 84.6. As of 8:23, it was at 84.62.

A Bloomberg report, webbed by Business Week, pegged last night's drop as the result of profit-taking. Demand shot up in Europe yesterday, particularly for physical metal.
“Gold has been firmer than any other assets of late,” said Paul Yamamura, a metals trader with Sumitomo Corp. in Tokyo. “There could be more correction on the downside should people want to lock in some gains. It could be sold off a bit, but will regain strength before too long.”
Also mentioned is the SPDR Gold Shares Trust's holdings making a new record. Those holdings leapt up 19.78 tonnes to reach 1,185.79 tonnes.

The morning Reuters report, as webbed by the Globe and Mail, also ascribed the dip to profit-taking. The experts quoted therein were still optimistic, like this one:
“Certainly a pull-back in this market is more than likely, but the overall trend for gold is higher,” said Peter Hillyard, head of metals sales at ANZ Bank in London. “Gold’s run-up is related to the various economic themes running through Europe.”

“It is a question of people being fearful of what is happening to the euro and a recognition of the financial mess that people find themselves in,” he said. “That has people focusing more on what is a reasonably safe haven, and that is gold.”
However, the article mentions near the end that jewelry demand is softening.

The jobs figures for the U.S. economy were released, and they show an addition of 290,000 jobs in April. The unemployment rate edged up to 9.9% as the measured labour force expanded. Both figures were higher than expected. The U-6 rate also rose, to 17.1%. The news reversed a decline in gold that seemed to anticipate another result. From $1,197-8, the metal sunk below $1,193 before reversing course right at 8:30. A quick rally to $1,200 on the news didn't last, though. As of 8:54, the metal was at $1,195.80 for a loss of $13.00 on the day. The Kitco Gold Index assigned -$15.30 to predominant buying and +$2.30 to greenback weakness. The U.S. Dollar Index was boosted by the news, topping at 84.86 as of 8:35 after dipping down just before the release of the unemployment news. That rally fizzled, though, and the Index started churning. As of 8:58, it was at 84.73.

So far, gold has pulled back in a not very surprising manner. Absent any drivers, it's likely to stay down for today.

Thursday, May 6, 2010

After Hesitation, Gold Rockets Up; Closes Well Above $1,200

As of late morning, gold made it well above $1,190. As is becoming more common, the beginning of regular trading featured a decline that proved to be misleading. Declining from $1,182 to below $1,176, gold reversed course at 8:50. Initially vacillating, the metal rallied with little hesitation until it reached above $1,187 a little after 10:20. Then stumbling, it fell to $1,182 before rising hesitently at first. That tentativeness turned into a solid rally which peaked at $1,192.50 before pulling back. As of 11:58, the spot price was $1,195.90 for a gain of $19.30 on the day. The Kitco Gold Index attributed -$8.40's worth of change to strength in the greenback and +$28.30' worth to predominant buying.

The U.S. Dollar Index, after wobbling early on in the session, climbed itself. Advancing to almost 84.65, it dropped swiftly from 9:23 to 10:04; that dropped dragged the Index down to below 84.3. Recovering, it sailed back up to 84.65 before rising more hesitantly. But, rise it did in late morning; as of 11:50, after peaking at 84.8, it was at 84.72.

The fear trade is still two-tracked, with gold returning to rise in rough concurrence with the greenback. Gold is on track to chalking up a solid double-digit gain for the day...and $1,200 is awfully close.

Update: It took a couple of bounces and weaves, but gold has made a 2010 milestone. Right around the end of the pit shift, just before 1:25 PM ET, gold got above $1,200. It peaked at only 30 cents above that price, and has since pulled back, but the metal still made it. $1,200 gold is now in the books for 2010.

After dawdling around $1,190 from 11:35 to 11:50, gold shot up to above $1,196 before pulling back to $1,193. A second run ended near the same high and low. It wasn't until the run at 1:00, which moved fairly slowly, that gold managed to peak at its new 2010 record. The subsequent fallback only subtracted a few dollars an ounce, which left the metal with more than a twenty dollar gain on the day. As of 1:55 PM, the spot price was $1,196.50 for a gain of $20.90 on the day. The Kitco Gold Index assigned $27.60 to predominant buying and -$6.70 to strength in the greenback.

The U.S. Dollar Index gave up some of its strength after approaching 85. Sinking down to below 84.5 by 12:30, it turned up and sunk slightly lower before getting on the recovery track again. As of 1:56, it was at 84.74.

The pit session has turned into electronic trading, which is likely to pull gold down a bit. That's what tends to happen after a blazing run like today's was. Still, the metal is almost certain to clock in with a double-digit gain. It's just not likely to keep a $20+ gain.

Special Update: That scenario was thrown for a loop when the stock market went into an auto-catalytic plummet, which bottomed with about 9% losses for the three major averages. From a downward slide, gold got a kick upwards as the fear-trade money flowed in. Of special significance was the fact that gold went up while the stock market was collapsing. In previous routs, gold went down as traders liquidated assets to pile in to the greenback and U.S Treasury securities. Despite the unsustainability of the rally, today was a game-changer for the metal.

Gold peaked at the height of the rout, at $1,209.90 - about fifteen dollars away from its all-time high. Now that the market's settled, the metal's sinking down again. As of 3:13 PM, it sunk back below $1,200.

Update 2: The dip below $1,200 didn't last long. Although the market averages shaved more than half of their interday losses off, returning a semblance of calm to a day that looked for a time like it would gestate an all-out crash, gold still returned to near its interday high in the rest of the electronic-trading shift in the regular session.

Supposedly, a trader's glitch caused the 2:00-2:45 selloff; the latest word is that someone entered "billion" when "million" was meant for a sell order. Stories conflict about whether it was S&P eMini futures or Proctor and Gamble stock that was the security on the purported poison sell ticket. Whatever the trigger, it can be said that the stock market was vulnerable to a downswing anyway. As the market was being routed, live TV was showing protestors and rioters on the streets of Athens as the Grecian parliament passed the austerity package.

As noted in the special update just above, this day was a game-changer for gold. Instead of the later-afternoon scenario I expected, which was in the midst of taking place pre-rout, gold shot up to well above $1,200. This day made it clear that the concurrency effect is still with the gold market when panic descends. There were three asset classes that went up when the stock market was plummeting: the U.S. dollar, U.S. Treasury securities, and gold. Granted that the three make for somewhere between a mixed bag and an inducer of cognitive dissonance, theoretically speaking, but the fact that gold has joined the panic party speaks of a transition. When liquidation time comes, gold is no longer just one of the assets to be liquidated. The metal may have been pushed up by risk appetite in the near past, and has been pushed down by the panic trade in the near past, but it was not today except initially and briefly. Today, U.S. traders joined their European brethren in seeking safety in gold. It's been long anticipated, but was only made real today.

Adding to the game-changing nature of the day is the fact that gold closed at a price that was less than two dollars below the height it reached at 2:45. The U.S. Dollar Index lost most of its rout-related gains by the time the market closed. Gold, on the other hand, went on to a new daily high. Its peak at the height of the aborted crash was lower than its $1,212.60 peak as of 4 PM ET, which was its interday high of the day.

When the pit shift ended at 1:30, gold initially marked time; then, it slipped a bit before rallying up again to $1,200. Stuck there between 2:05 and 2:15, the metal took a tumble; by 2:25, it has sunk to $1,190. An initial upthrust came to naught, until at about 2:35. Then, the metal rocketed up to well above $1,200. After a brief pullback, the metal continued to reach the above-mentoned $1,209.90 as of 2:50 PM. I note that, when the 2 o'clock rout got started, gold was sold off like any other risk asset. It wasn't until outright panic set in that gold took off. So, the fear jump wasn't automatic; it took a little time to get rolling. A "mere" stock-market selloff did push it down until the panic point was reached.

The metal then fell back as the panic eased, to $1,198, but it began spiralling upwards until it calmed down after the stock markets closed. With them shut, the metal coasted up to its closing price of $1,208.80; the day's gain was +$33.20. The Kitco Gold Index (KGX) attributed a huge +$41.90 to the predominant-buying category and -$8.70 to the strengthening-dollar category. Both categories sum up to the raw change on the day. The KGX, tracking gold ex-dollar, not only set another record closing high today but also reached a milestone of its own: it closed above 1,000. Well above 1,000.

As noted above, the U.S. Dollar Index shot up too when the market began collapsing, although it began its run earlier than gold did. Until 2:30 PM, the advantage was with the greenback and not gold. As of 2:05, the Index had already risen from 1:30's 84.56 to 84.83. The rise continued smoothly until it hit its peak of 85.275 between 2:40 and 2:45. Falling back below 85, the Index spiked slightly above that level as of 3:30 but failed to hold; by 3:50, it was below 84.75. Pulling up into a trading range between 84.8 and 84.95, the Index briefly sunk below before recovering. As of 5:30, it was on the rise again at 84.91.

Its daily chart, from, shows the entire day's rally - one that took the Index up to a new high for the year:

Today marks the fourth day in a row of strong gains in the Index. Just like Tuesday's, today's action saw the Index close the pit session at the daily high. The time of closing did not capture the rise to above 85.25. Still, even at the closing level depicted above, the Index closed higher than it has been this past twelve months. It finally joined dollar/euro in making a yearly high.

As can be expected, its RSI line at the top of the chart shows that it's also at the most overbought level since late October of 2008. That's not the highest it's been in the last two years; the RSI was well above 80 in early August of that year. Beyond noting this point, I can't comment. Even being blisteringly overbought is no barrier to further advances in a buying panic. To be honest, I have no idea how much higher the Index will go; it's in the hands of the crisis god. Suffice it to say that, if a reaction comes, it'll be swift and brutal but likely short-lived as long as the crisis continues.

As for gold, its own daily chart shows today's gain as being the largest daily leap in the last six months. Yes, that includes November:

In fact, it might as well be the reverse of February 4th's plummet. For the first time since December 2nd's peak, gold's RSI rose into above-70 oversold territory. Speaking of December, today's close was above December 3rd's. The only day which saw a higher closing value for gold - ever - was that same December 2nd. It would only take one more strong rally day for gold, in U.S. dollars, to join gold in Euros, pounds and Swiss francs in making a record high.

That said, there's no guarantee that the metal will make that level. The momentum generated today was stunning, but it might not even be followed by a gain at all tomorrow. Today was only the second rally day in a row, so gold hasn't gone into full-scale buying-panic mode. Until or unless it does, I have to stay the wet blanket by reminding everyone that it's quite overbought at this point. It's also well above any bargain point; the only demand that can be counted on is momentum demand, which is fickle.

Whatever the metal path tomorrow, it won't change the fact that gold is a genuine safe haven again. It hasn't elbowed the greenback out, but it has nudged its way in.

Fate Of Gold In Market Meltdown?

In a Seeking Alpha article, Peter Cooper notes that gold has held up quite well in comparison to stocks and other commodities. He says further that gold will continue to benefit from its crisis-hedge status. He leaves, though, with this question:
What comes next is the big issue for gold bugs. Will a second major stock market sell-off revisit the lows of March 2009 and the autumn of 2008? If so, will that drag gold down as a part of a general sell-off with everything up for sale to meet margin calls?
In other words, will a panicked scramble for liquidity leave gold reeling like it's '08? He seemingly thinks it will:
One thing that can be fairly certain is that in relative terms gold will outperform most other major asset classes, but whether that will include cash in dollars or short-dated treasuries is perhaps unlikely.

In a sense, his call is an easy one to make. A liquidity squeeze pretty much drives down all asset classes, except for those that directly benefit from the flight to liquidity. There's just one question that comes to mind: if gold is to plummet, from what level?

Gold Too High?

Instead of the usual mention of the nine-year bull market, Kathleen Brooks of City A.M. says that gold has performed quite well over the last two years. "It’s been one of the only assets to march higher during the financial crisis, and is now getting a boost from the sovereign debt problems in Europe." Most of her commentary is devoted to explaining the reasons why gold is rising: gold is becoming a crisis hedge, near-zero interest rates mean the opportunity cost of holding gold is also near-zero, investor demand is spreading because investing in gold is more convenient now than in times past. Thesw point come largely from Adrian Ash.

She ends, though, by relaying a bearish call that plays off against gold's crisis-hedge role:
“One of the main drivers of the gold price is crisis. In times of crisis the gold price can be driven up by 20-40 per cent,” says Crook. “However, once everything calms down we almost always see crisis premiums come out of the market.”

Crook says that the gold price could fall even more than normal because he believes that even at 0 per cent interest rates in the US are still too restrictive. Usually the gold price falls when interest rates are too high, and then rises when rates are too low. Crook believes that US interest rates are far from restrictive: “We think that with unemployment this high, interest rates should be negative, but of course the Fed can’t lower rates from here.”
In other words, a return of low-inflation growth will push gold into a bear market and send its price down to $800/oz.

Crook doesn't seem to be a deflationist. His forecast is a bet that things will return to the same conditions that essentially defined the 1990s: growth with low inflation. The $800 figure is fairly close to the level at which gold would be at if investment demand is essentially ephemeral. It's the figure that can be justified by non-investment demand for gold as paired with extraction costs.

Again, we have an analyst who sees gold at a level that's too high to justify in terms of traditional fundamentals. By that measure, the metal's been at the significatly-overvalued point for more than a year now. The December decline followed by the early-January sucker rally which prefaced the early-February rout, still left gold at four figures even at the panic low. There were a lot of people expecting gold to subsequently collapse after the December drop; what they got was a standard correction. Even at its lowest Feb 4th interday value, as measured from its high point on December 2nd, the metal dropped 15%. That's less than half of the decline from the February 2008 high point ($1,035) to the October low ($700.) Had there been people saying that gold was in a bubble when it broke above $1,000 in February '08, they would have been more credible than the current crew is. As far as I know, there were far fewer then than now. There might not have been any.

In my second look at the gold-bubble question for Enter Stage Right, I reiterated the point that a real bubble incubates when an asset stays overvalued by traditional measures and doesn't get knocked down. The resultant explanatory gap is filled by a "New Era story," which proffers an answer as to why the asset trades as if it were undervalued albeit at elevated levels. The traditional measure for gold, which treats it as a commodity, uses non-investment demand as balanced with supply. By that measure, gold should be around $800.

And yet, despite the near-panic that enveloped the market last February, gold hasn't even come close to that level.

The New-Era story that focuses on the gold market specifically claims that the rise in investment demand is essentially permanent, and deserves to be treated as if it were as legitimate as jewelry or indutrial demand. The macro New Era story is gold as an alternate currency, which will eventually be remonetized as a real one. It's only a matter of time before one wins mainstream acceptance as explaining why gold skeptics have been confounded. Based upon the mainstream media reports I've read, investment demand is the plausible candidate; the remonetization one is too wild, even though its more moderate offshoot - gold as a crisis hedge - is acceptable.

As regulars already know, I think gold is on its way to going into an all-out bubble - one that won't be veering towards an end until the "cocktail-party" indicator signals a mania. Perhaps strangely, that puts my own opinion in line with many goldbugs; they prefer less charged terms like "third stage of a bull market."

We're not there yet. There has been some excitement in the junior-exploration sector, but it's been intermittent. During bad stretches, the juniors are still flattened. But, the gold market is approaching the take-off point. Once it does, the point that gold didn't have a down year since 2001 will be all over the place. Although omitting the 1/3 drop between February and October of '08, it connotes a kind of safety from market risk. That kind of point has been a traditional attractant for the bubble-prone punter.

Indian Wholesale Gold Demand Fades Back To Dormancy

According to a report by the Economic Times, Indian demand has drained again:
"I haven't struck any deals since morning as the rupee is not acting in support, the weakness started yesterday evening, when prices displayed huge volatility," said a dealer with a state-run bank in Mumbai....

"I have some orders at $1,150-1,159," said another dealer with a private-run bullion dealing bank.
The rupee hit its lowest level in six weeks, adding to the expense of buying gold.

After Drift, Gold Pulls Up

The strikes in Greece turned violent yesterday, with three people killed in a bank when it was set on fire by violent strikers. There's now talk about contagion risk affecting UK and other European banks from Moody's, and eyes are on the European Central Bank. The latest worries had gold climbing up after a night spent drifting downwards.

After a bump-up when overnight trading began, gold drifted back to $1,175, where it centered at until 2 AM ET, when it started dipping. Reaching $1,172.00 an hour later, the price turned up; it reached $1,178 by 4:00. Hovering a little below that level, the metal bumped into it a few times before shooting above it as of 6:00. A quick run to $1,185 was followed by a pullback that left it well above $1,180. As of 8:04 AM ET, the spot price was $1,181.80 for a gain of $6.20 on the day. The Kitco Gold Index attributed +$10.20 to predominant buying and -$4.00 to a strengthening greenback.

At first pulling back, the U.S. Dollar Index also rallied early in the morning. The pullback started at 8:15, and got the Index down to below 84.0. An attempted rally followed shortly afterwards, but faded; a more durable rally didn't start until midnight. In two stages, the second more rapid, the Index got all the way up to 84.5 by 3:05. Its rise was the force that initially pulled gold down, in what proved to be a fake-out before the metal took off on its own. Pulling back again, the Index fluctuated between 84.2 and 84.4 until it broke out definitively at 7:50. As of 8:13, it was at 84.48.

The morning Bloomberg report, as webbed by Business Week, said that gold climbed due to alternative-investment demand in counterpoint to non-U.S. currencies and stocks.
Bullion denominated in euros, British pounds and Swiss francs rose to a record, and holdings of metal in the biggest gold-backed exchange-traded fund increased to an all-time high. The metal also has advanced this month to the highest level in yen since February 1983. Concern about governments’ ability to control their debts has helped to lift prices.

“Gold will become more and more of a safe haven, as people just want safety,” David Thurtell, an analyst at Citigroup Inc. in London, said today by phone....

Gold has gained against the euro on concern about the possible spread of Greece’s financial turmoil. Investors in the country and elsewhere in Europe are buying bullion coins, raising premiums by as much as 6 percent in the past two weeks, Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland, said today in an e-mail.
Just before noting that buying panic, the article mentions that the holdings of the SPDR Gold Shares Trust rose 7 metric tonnes; its new total is a record 1,166.00 tonnes.

A Reuters report ascribes the rise to fear of contagion from the Eurocrisis.
Gold is becoming increasingly attractive as a hedge against sovereign risk and the resulting volatility in the foreign exchange markets, analysts said....

"People are concerned about sovereign credit risk and this is going to stay around for some time. This type of risk is not solved in a week, or a month," said Standard Bank analyst Walter de Wet. "Gold has performed very well, and it is going to continue to perform well if things get worse."

He said, however, that persistent strength in the dollar, weakness in jewelry demand and the weight of scrap returning to the market are likely to cap gold's gains in the longer term....
Also noted was a bullish report from Morgan Stanley that cited further sovereign-risk fears as a driver for the metal.

The morning Wall Street Journal report said that gold bucked a falling commodity complex for the second day in a row; it mentions the greenback as the pusher-downer of the metal before it rose on its own.
Participants were moving out of the euro and gold and into the dollar as a preferred refuge after Moody's placed Portugal on watch for a downgrade and Greek austerity protests turned deadly. Shortly after gold closed, the euro was down 0.6% at $1.2860, while the ICE U.S. Dollar Index was up 0.8%.

The shift in gold came when the metal hit its intraday low. Some began viewing that level as support from which to buy because it was right around the 20-day price average for the metal, a closely watched technical factor, said Charles Nedoss, senior market strategist with Olympus Futures.

"Technical buying held the market together, and safe haven buying came in," he said....

"The underlying nature of sovereign risk is allowing gold to stabilize," said Jim Steel, senior vice president and metals analyst with HSBC.
Also noted was that some participants still see gold as a risk asset.

Preferring reflation to currency boosting, the European Central Bank held its rate at 1%. In a press conference, ECB central bank president Jean-Claude Trichet said that the inflation outlook was still benign, but the ECB expects further growth and is keeping an eye out for inflation rising. He also said that EU money-supply growth was moderate, and he included a scold for EU nations to get their deficits down. More data was released that covered the U.S. economy: initial jobless claims fell 7,000 to 444,000. Nonfarm productivity rose 3.6% in the first quarter, slowing from 4Q '09's 6.3% figure. Unit labour costs fell.

The news didn't do much for gold, which fell below $1,180 as regular trading began. A slight rally at 8:30 didn't hold, and the metal sunk further. As of 8:55, it was at $1,175.70 for a gain of $0.90 on the day. The Kitco Gold Index assigned +$5.90 to predominant buying and -$5.00 to strength in the greenback. The U.S. Dollar Index churned around 84.5; as of 8:57, it was at 84.51.

So far, the pit shift has been a letdown. Gold may continue to rise in the day, but that tendency has not been evident so far.

Wednesday, May 5, 2010

After Spill, Gold Rebounds

This morning's regular-trading action in gold, both down and up, was driven by the U.S. dollar. After an initial rise up to $1,175, the metal at first dipped and then plunged. The catalyst was a slew of mostly job-related U.S. economic data that shows a slowly healing job market. The news got the metal down to $1,170 right after 8:30. After a relief rally, the metal dropped from $1,171 to $1,156.20 between 8:45 AM ET and 9:15.

Then, after another relief rally led to the metal bottoming at a higher price, gold went on a real rally starting right after 9:35. From a little below $1,158, the metal soared up to $1,176.90 before pulling back to just above $1,170. A pull-up to a little below the same level petered out, leaving the metal near the $1,172 level. The loss earlier today was erased. As of 12:00 AM ET, the spot price was $1,175.00 for a gain of $2.80. The Kitco Gold Index attributed -$4.40 to strentgh in the greenback and +$7.20 to predominant buying.

As mentioned above, the U.S. Dollar Index was the big influence today. Egged on in part by the above-mentioned economic data, it had rocketed up to 84.3 by 9:16 AM. Since then, it tailed off. Sinking below 84 just before 10:00, it bounced off 83.9 while trying unsuccessfully to surmount 84.05. As of 11:38, it dropped below 83.9 and continued to sink; as of 12:01, it was at 83.77.

As the timelines make clear, the greenback was the force that humbled gold earlier today. When the currency itself was humbled, the metal rose back. The afternoon part of the session will show if gold can hold its gains, which would be an encouraging sign.

Update: At the end of the pit shift, gold held on to a gain. After peaking at $1,178.30 just before noon ET, the metal pulled back only to rally to a lower top at just above $1,176. From that point, it descended to a trading range between $1,174 and $1,172. After a brief drop below at 12:45, gold regained that range; starting just after 1:15, the metal climbed above it before pulling back. As of 1:37, the spot price was at $1,172.90 for a gain of $0.70 on the day. The Kitco Gold Index assigned -$5.60's worth of change to U.S. dollar strength and $6.30's worth to predominant buying.

The U.S. Dollar Index's decline ended right after noon as it dipped below 83.75. Since then, it's crawled upwards to recover the 80.9 level. As of 1:40, it was at 83.92.

The later-morning recovery held, which is a good sign for the metal; it says that the earlier-morning drop was overdone and suggests that it was unsustainable. Although the start of the later afternoon shift saw gold sink a little, there's a likelihood that gold will close with a gain when regular trading ends.

Update 2: The metal did do so, after drifting upwards in the later part of the afternoon. It was a benign end to a volatile day, one with a second morning plummet in a row. Unlike yesterday's, today was wiped out. If there were any shorters encouraged by yesterday's drop, they're likely cautious now. The ball is back in the longs' court.

Although the movement was too slight to build a mountain of encouragement upon, the U.S. dollar rising in the same time period was still a sign for hope. Although the rise was much slower than this morning's, it still bent the negative-correlation jinx that made itself re-known shortly after regular trading had opened. That jinx does surface during the pit shift, but not in electronic trading (as yet, anyway.)

Gold did drift down gently until 2:45 PM ET, but it only reached $1,172 before reversing. The next move, over the course of the next hour, was upwards to $1,176. The rest of the day saw the metal in a range, with that level being the ceiling and $1,174 being the floor. Gold managed to end the day close to the top of the range; at closing, it was $1,175.60 for a gain of $3.40 on the day. The Kitco Gold Index (KGX) attributed -$9.30 to U.S. dollar strength and +$12.70 to predominant buying. Once again, the KGX had gold trading at a new record high ex-dollar.

There's really no precedent to this divergence. The closest comparison is to the 2008 period, when the KGX bested its February '08 level in late September with gold itself about 10% lower as this five-year chart shows:

The trouble with the comparison is that gold itself performed noticeably worse during that timeframe than it has in the last five months, and the KGX barely bettered itself then while considerably beating its last peak now. The comparison makes gold look a lot better now than in '08, which should allay any concern about an October '08-style plummet in the metal's near future. At most, there'd be another correction.

As noted above, the U.S. Dollar Index spent the rest of the afternoon rising. Starting around 1:00, it lifted itself above the 83.75 level and climbed to above 84.1 by 3:10. The next hour and a half was spent in a narrowing range whose center was just below 84.1. Breaking out of it on the upside, the Index leapt up to 84.25 before settling back down above 84.15. As of 5:30 PM, it was at 84.16.

Its daily chart, from, shows that yesterday's rise did continue today:

I have to say that I didn't expect it to be this strong today, even though I did expect a further gain. Ignoring the wick part of the candlestick, the Index gapped up today. The RSI line, found at the top of its chart, is now well into oversold territory. Its MACD lines, found at the bottom, are in a very solidly bullish configuration. The Index itself is within breathing room of a one-year high. Although weaker, both on the upside and in downward reactions, its rise is definitely reminiscent of late '08's rise - as this three-year daily chart shows:

I'm not questioning the greenback's bull trend, but it is oversold right now. The German legislature approving the bailout is likely to take the wind out of its sails.

Turning to gold, today's action on its daily chart is reminiscent of the day after a far worse session than yesterday's:

Yes, todays' action is like the day after Feb. 4th's sickening plummet. Like Feb. 5th's, today's candlestick shows an interday continuation of the previous day's plummet; it also shows a gain on the day, with the bottom of the body of the candlestick matching up to the bottom of the previous day's. That's a good sign, as it suggests that the bearishness of the previous day has exhausted itself. I can't say that the uptrend will get rolling tomorrow, but it does look like a short-term bottom has been put into place. There may be some muddling around tomorrow, with no real action either way.

The post-pit Reuters report ascribed the reversal of the morning's loss to safety-trade bids, made on the possibility that the Eurocrisis will spread beyond Greece. Amongst the points therein, these were made:
* Gold sharply recovers initial losses on flight-to-quality buying due to worries about the viability of the euro, which was falling toward $1.28.

* Investors sold the metal for liquidity needs as global equities fall for a second day and as commodities led by crude oil slide - traders.

* Flatter U.S. Treasury curve signals deflationary concerns and sharp loss of risk appetite, and that will likely weigh on bullion - James Steel at HSBC.

* The unusual positive correlation between gold and euro is showing signs of breaking down in the past two weeks - analysts
Given the caution still out there, gold is not likely to have a stellar day tomorrow. The metal's action, though, shows an encouraging break of a downtrend. $1,200 isn't out of the cards for this month.

Will Gold Fall With Stocks?

According to a Seeking Alpha article by Jason Hamlin, it shouldn't. Gold's fall yesterday was due to the rise in the greenback. It and gold stocks should rebound given how gold's performed lately.
While precious metals may initially get taken down if the market sells off hard, this correlation appears to be weakening. We have witnessed several days over the past few months when gold advanced despite a declining S&P 500. While there will always be a knee-jerk reaction from investors to sell everything in a panic, I believe gold and gold stocks will snap back much faster than during previous sell offs. Rushing to cash (dollars) as a safe haven will become less and less prudent and investors will instead begin rushing into hard assets whose value can not be inflated away by irresponsible politicians.

Given how gold's recovered from its spill earlier this morning, he seems to be right.

Gold Funds Top Performers In April

As reported by the Vancouver Sun, precious metal funds were the top performers in Canadian equity funds for the month of April.

That's a far cry from January...

IMF Unloaded 18.5 Tonnes In March

So far, the institution has been as good as its word regarding its plan to unload gold at a measured pace. February's sales were for 5.6 tonnes.

24.1 tonnes done, 167.2 tonnes to go...

Investec Sees Gold Above $1,200

It's be cold comfort now, but Investec's co-portfolio manager Daniel Sacks sees gold going above $1,200. The main reason he gives is the metal's performance over the latest leg of the Eurocrisis: its postive corrlation with the U.S. dollar as late.

The interview seems to have taken place yesterday, but it's still informative.

Indian Wholesale Gold Demand Less Dormant But Still Weak

According to a report by the Economic Times, Indian gold demand was waking up but was still sluggish:
"I did more than 150 kgs yesterday at about $1,175 (an ounce), and I have booked only 60 kgs since morning as the rupee is weak," said a dealer with a state-run bullion dealing bank in Mumbai....

"Still buying is not in full swing, I have many advanced orders at lower levels below $1,160 level," said another dealer from a second state-run bank.
Again, a weakening rupee hindered gold buying.

James Turk Uses BIS Report To Warn Og Higher Inflation

Commenting upon a recent BIS report, which highlights the long-term dangers to developed economies from permanent deficits plus aging populations and concludes that there's a risk of higher inflation and debt monetization to reduce the real value of debts, James Turk said that buying physical gold is the most rational response.
The signs are all around us. Iceland, Dubai, Latvia, Greece with Portugal and Spain not far behind, and the UK and even the U.S. and most every other country on the not-too-distant horizon. The sovereign debt crisis – which is actually a latent bank crisis because banks are stuffed full with the worthless paper of over-indebted sovereigns – is a powder keg, and the fuse has already been lit. So what should we do? What can we do?

The answer is simple. Own physical gold instead of someone’s promise. Its time-proven record built up over the centuries clearly illustrates that gold is the ultimate safe haven. Gold is the best way to avoid counterparty risk, which is essential today as the sovereign debt bubble continues to lay bare the stark reality that governments throughout the world are bankrupt, and more to the point, that the bubble has popped. People holding sovereign paper are already heading for the exits. As a result, everyone needs gold now more than ever.

Kinross Profit Up, Yamana Boosts Dividend

Although the company only met expectations, Kinross Gold's first-quarter profit was up 45% from the same quarter a year ago. It had some trouble in the last fiscal year, but seems to be surmounting it.

Also: Yamana Gold is hiking its dividend by 50% from 4 cents/share annually to 6 cents, or 1.5 cents per quarter.

Both provide further evidence that the senior golds are improving on a fundamental basis.

Gold Slips A Little Lower As Greenback Keeps Rising

As Greece is ridden by a general strike to block the austerity measures the Grecian government agreed to in return for the bailout package, Angela Merkel faces political difficulties of her own as she tries to shepherd the German government's part of the bailout commitment through the German parliament. Saying that passing the package will prevent a chain reaction that would bring down the European and international financial system, her voice dovetailed with the voices of EU officials. Interestingly, the head of the IMF distanced himself from the contagion talk. The Spanish prime minister had to quash a rumour that the Spanish government was going to ask for a 280 billion Euro bailout package.

Practically the only beneficiary was the U.S. dollar. Gold fell below $1,170 last night, at 9:00 PM ET, although it stayed above $1,165. An early-morning rally pushed it above the $1,170 level by 3:00, but evaporated; the metal fell to a little below $1,165. Another rally commenced, pushing gold up to $1,173.80 around 5:00. Again, the metal sunk back down: this time, to a little above $1,165 before pulling up again. As of 8:06, spot gold was at $1,168.80 for a loss of $3.40 . The Kitco Gold Index split the loss into -$1.00 for predominant selling and -$2.40 for strength in the greenback.

The U.S. Dollar Index did continue to rally, but its rate was much slighter than yesterday's shoot-up. After stalling in the evening, the Index lumbered up before pulling back between 12:30 AM and 3:00; that slide left it below 83.4. Reviving, it slid back to where it was as of 3:00 by 5:10. Bottoming below 83.4, it then climbed up to 83.75 as of 7:40. After that peak, it pulled back a little; as of 8:14, it was at 83.72.

A Reuters report, written when gold had jumped earlier in the morning, ascribed the rise to a statement warning of Eurocontagion.
European Central Bank Governing Council member Axel Weber said on Wednesday there is a serious threat of Greece's problems spilling over to other parts of the euro zone.

His comments helped lift gold from a low of $1,164.70 an ounce, hit in early European trade.

"We think the flight to safety will continue, and we expect to see more inflows into physical gold products like exchange traded funds," said Commerzbank analyst Daniel Briesemann.

"As long as uncertainties on the markets persist, gold should remain well-supported. We have seen record highs in euros, Swiss francs and sterling in the last few days and it should only be a matter of time before gold reaches new record highs in dollars as well."
Also mentioned in the report was a softening of Indian jewelry demand, but continued firmness in investment demand.

A Bloomberg report, webbed earlier by Business Week, expresses the risk of gold declining further as the U.S. dollar continues to rise.
“Sentiment across precious metals markets is likely to remain fragile, with risk appetite currently being the major driver,” said Stefan Graber, a Singapore-based analyst at Credit Suisse Group.
The greenback, the article notes, is still competing with gold for safe-haven dollars.

From the Wall Street Journal, webbed later, comes the morning report which notes that safe-haven demand offset a decline due to the greenback's rise.
Gold had in recent weeks disconnected itself from its traditional inverse correlation with the dollar, moving higher even as the euro/dollar rate slid. But as the metal is priced in dollars, the correlation is likely to reassert itself if the dollar continues to strengthen against the euro, said Jeremy East, global head of commodities at Standard Chartered in London.

"It is going to struggle at the moment because gold does have this correlation to the dollar," Mr. East said. "Either we see gold come off or the dollar start to weaken. And it is looking like the dollar will strengthen."
Another quoted expert said that gold had sunk because of profit-taking.

The opening of regular trading saw gold shoot up to $1,175.10, but fall back as encouraging data about the U.S. economy was released. The private sector added 32,000 jobs in April, and job cuts sunk to a four-year low. Demand for homes, largely due to a last-minute push because of the near-expiry of the tax credit, were up 13 percent in the week ending April 30th. Gold quickly lost about five dollars an ounce after the news was released, and fell below $1,170 after a relief rally. As of 8:56, the spot price was $1,167.80 for a loss of $3.80 on the day. The Kitco Gold Index attributed -$5.50 to strength in the greenback and +$1.80 to predominant buying. As for the U.S. Dollar Index, its rally continued after the pullback ended at 8:15. By 9:02, it had jumped to 84.17.

So far, the day hasn't been that good for gold. There's a chance that the metal will rise later in the day, but it's not very likely that there'll be any sustained jump.

Tuesday, May 4, 2010

Strong Greenback Finally Drags Gold Down

In contradistinction to my complacency early this morning, gold has plummeted after shooting up to well above $1,190. When regular trading began, the metal was building on an early-morning rise that had taken it up to $1,190. By 8:50 AM ET, it had hit its daily high of $1,193.30.

Initially, the subsequent plummet was merely a downturn; by 9:30, the metal was still above $1,188. Falling below $1,185 shortly afterwards, gold hovered around that level until a decline got rolling that started slowly at first. Accelerating, it pushed gold down to $1,167.20 by 11:05. Then done plummeting, the metal began climbing back up. As of 11:42, the spot price was $1,173.90 for a loss of $8.40 on the day. The Kitco Gold Index attributed -$11.90 to strength in the greenback and +$3.50 to predominant buying.

The U.S. Dollar Index continued its climb, which finally overwhelmed gold. Largely uninterrupted, the Index sailed easily above the 83 level to veer close to a new 12-month high. As of 11:43, after pulling back from its peak above 83.25, it was 83.16.

Needless to say, there's no chance that gold will reach $1,200 today. The normally negative correlation between the metal and the greenback finally caught up with gold. Also having an influence was profit-taking - not to mention a conviction that the early-morning gain had pushed the metal up too far.

Update: The decline didn't stop with the morning. After recovering to the $1,175 level just before noon ET, gold hung there until 12:20 when another decline hit. When through, as of 12:45, it had erased about eight dollars an ounce and had left the metal at $1,166.20. Since that drop, gold fluctuated between $1,167 and $1,170. As of 1:42, the metal was at $1,171.90 for a loss of $10.40 on the day. The Kitco Gold Index assigned +$1.90 for predominant buying and -$12.30 for strength in the greenback.

After its morning peak, the U.S. Dollar Index sunk back down a bit. Reaching 83.1 by 12:00, it undulated between that level and 83.175 before making another run at 83.25. This run didn't quite make the morning high; it peaked at 83.24. As of 1:44 PM, the Index was at 83.22.

Unless something untoward takes place, gold should be finished dropping for the day. It's not likely to rise all that much, either; a close between $1,170 and $1,175 is in the cards.

Update 2: It closed within the middle of that range. As is often the case, not much happened in the electronic shift of regular trading.

With the exception of the U.S. dollar, the markets were hit hard today as worries about contagion from Greece spread. (They made for quite a contagion themselves.) Gold did not benefit all that much from those worries, as panic-trade buyers went back to the greenback. Ex-dollar, the metal did benefit somewhat but not enough to take away its loss on the day.

The morning plummet was another one of those air pockets, which seemingly had disappeared as gold rallied upwards. Enough shorts had been burned, or inconvenienced, to make them cautious recently; the old rules seemed to have been upset. That newfound caution indicates that this morning's plummet was triggered by profit-taking and amplified by stop-loss hitting and momentum traders pulling out manually. Some shorts may have benefitted, but they would have had to have been pretty nimble. The ones that were, would have had to have been primed by yesterday's gain melting away for a time. Given that gold made a new 2010 high early this morning, an exiting-long cascade was more likely. It may have been delayed selling on the bailout-agreement news.

For mid- to late-afternoon trading, electronic, the metal first underwent a relief rally that ended at 2:00 PM ET. It set up the higher border of a $1,170-$1,173.50 trading range in which it spent the rest of the regular session. The metal closed in the upper-middle part of that range, at $1,172.20 for a loss of $10.10. The Kitco Gold Index (KGX) assigned -$15.20' worth of change to a strengthening greenback and +$5.10' worth to predominant buying. The latter made for a very unusual day: despite the morning plummet, the KGX for gold's performance ex-greenback made another record closing high today. Yes, another record - indicating that some safe-haven buying did enter the gold market, which was swamped by the greenback's.

The U.S. Dollar Index got off to a slow start, but it rallied for the rest of the session. From 3:20 PM to 5:30, the rally was almost completely uninterrupted. As of 5:30, it closed at 83.51: close to a one-year high. Had it been next week, there would have been one at that close.

Its daily chart, from, shows yesterday's rally turning into a much stronger one, as the short-term muddling resolved into quite the rally:

The Index's RSI line, found at the top of the chart, is now in oversold territory. The last time that happened definitively was on February 4th; the Index continued upwards for another day before pulling back. There's a good chance of a similar continuation tomorrow. The closing value on the chart is for the end of the pit shift, and the Index rallied more afterwards. A closing at the daily high, as indicated by the wickless candlestick corresponding to today's action, is a sign of strength that is likely to continue. Plus, the backdrop of the rally - the Eurocrisis - still has some fear potential. Any difficulty from, say, the German legislature in approving it will put more upward pressure on the greenback. I'm sure every trader remembers how the original TARP legislation was voted down in '08. There might be some handicapping of a similar fate with regards to the Eurobailout and the German legislature, even if it's a less likely outcome due to greater independent-mindedness amongst U.S. legislators than amongst the German variety.

Should it go through, there may be some profit-taking - but the vote is scheduled for Thursday at the earliest. There's also the potential for trouble from Portugal or Spain tomorrow. If the Spanish government gets into the same fiscal crisis, there won't be enough IMF money to hand over a comparable bailout package.

All of this mess has done wonders for the U.S. dollar, but it had also given gold a hand up. Today, though, gold's own daily chart shows its drop at the end of a volatile day:

Given the rise of the last three days, today's pullback doesn't look all that bad. The length of the lower and upper wicks show the volatility. All told, the short-term uptrend is still intact so far. Gold's own RSI value came close to oversold yesterday. Its MACD lines at the bottom of the chart are still in a bullish configuration, as shown by the histogram which they overlay. This morning's plummet may have opened the eyes of some active short sellers, but they're likely to be cautious at first.

Plus, there's that rule of thumb that's still in play: when panic time comes, traders tend to reach for the dollar before gold; gold comes later. Granted that the two rose simultaneously for a time, and not today. The lack of concurrence doesn't obviate the older rule from working.

Gold may drop again tomorrow, but there's little cause to worry about the uptrend unless the price sinks down to around $1,140. Today's close is well above that level, and it came after a doozy of a day. More encouraging would be the metal hardly moving tomorrow, which may happen if today's drop squeezed out the weak hands for the nonce.

A post-pit Wall Street Journal report attributes today's drop to risk aversion surfacing.
During initial trading Tuesday, investors bought into gold as a "safe haven" amid worries that cash-strapped Greece won't be able to meet fiscal austerity measures demanded by the EUR110 billion bailout package announced over the weekend.

The continued rally in the greenback--with the ICE Futures U.S. Dollar Index hitting a one-year high--proved too strong for some gold market participants to stomach, and they began to book profits, sending June futures all the way down to an intraday low of $1,166.90....

The seesaw moves in gold on Tuesday come as the metal shifts away from trading as a risk play, returning to its more traditional role as an investment seen retaining value in times of crisis.
The article also mentions similar drops in the other precious metals.

All in all, today's decline can be seen as an overbought market righting itself. The greenback certainly had an influence, and it could be argued that the U.S. dollar's rally merely masked continued strength in gold. Tomorrow's trading, particularly during the pit session, will bring a clearer picture of gold's vulnerability.

Coomodity Markets Signalling Inflation

That's the message behind recent upturns in heating oil, gasoline, crude oil and gold according to Toby Connor.

I'm going to start off by stating that I don't think Bernanke is going to "get away" with the insane monetary policy he's chosen. Printing trillions of U.S. dollars, cutting interest rates to zero, trying to manipulate the bond market and generally tampering with the natural finacial market forces is going to have consequences....

I'm afraid Bernanke has probably let the inflation genie out of the bottle with his reckless actions. That means surging commodity prices. The fact that almost all commodities resisted the stock market decline on Friday is an ominous warning sign.

He also points out that strength in the U.S. dollar is better described as greater weakness in other currencies. There's no better way to square the run-up in the greenback with those commodities' run-up in U.S. funds.

March Factory Orders Rise 1.3%

That gain was well above expectations. According to a Yahoo! Finance report, orders ex-transportation-goods was up the highest in nine years.
At the moment, manufacturing is the leading star of the economic rebound and economists are predicting that will continue for the rest of the year, helping to offset weakness in other areas. Manufacturers are benefiting not only from the rebound in the United States but also rising demand for U.S. exports as the global economy recovers at a faster rate than had been expected.
Not all sectors shared in the bounty, though.

Gold didn't react all that much to the news, although the metal did drop beforehand and later.

Not Much Momentum In Gold Shares

That's the conclusion of a chart-rich Seking Alpha article by the "Microcap Speculator." The author doesn't say that gold and gold shares have topped out, but does say that their upwards momentum is draining even though one would expect them to be rocketing up.

Perhpas it is a sign that gold is getting toppy - but it's also a sign that there's no mania in gold as of yet.

Deutsche Bank Says Gold Likely To Sink When Recovery Comes

A Reuters report focuses on a statement made by Deutsche Bank's global head of metals predicting gold will fall once sovereign-debt uncertainly is displaced by global recovery:
Over the past two years, investors seeking a safe haven from the global economic uncertainty shifted their investments to physical and gold securities.

However, the precious metal is likely to lose its lustre when economic growth recovers and confidence in governments' ability to repay debt grows, said Raymond Key on the sidelines of an industry event in Dubai.

"In three or four years, the extent of the uncertainly in the market might decrease and this would lead to the dramatic downfall of gold investments," he said.

"Gold does not return any dividend like other assets, so if faith returns in the global economy we will start to see a move away from gold," he added.
He does believe that gold will stay up for the time being.

Of course, his scenario assumes that growth will come without a ramp-up in inflation...

Indian Retail Demand Likely Slowing This Festival Season

As reported in the Wall Street Journal, the Akshaya Trithya festival is usually a time to buy gold, as it's considered a blessed time for a wedding. This season, higher gold prices are likely to result in less gold being bought.
Gold sales in India's key cities usually pick up days before the festival - on May 16 this year - as buyers place early orders for delivery on Akshaya Trithya day, which is considered auspicious for weddings and starting of new ventures.However, with prices hovering above 17,000 rupees ($382.8) per 10 grams since last week, compared with around 16,500 rupees/10 grams just two months back, many prospective buyers are discouraged from placing new orders this year, they said....

"We could see sales of 35-40 (metric) tons this Akshaya Trithya at these prices," said Pravin Mehta, president of the Madras Jewellers & Diamond Merchants Association.

That is a far cry from an average 50 tons usually sold during the run-up to the festival each year.
Although higher prices are expected to take a toll, some may still buy gold because it's gone up (and is likely to continue to do so.)

At the wholesale level, demand is still stagnant, although there are indications that dealers are becoming acclimatized to higher prices.
"There are no deals today, prices are still high and even the rupee is not in supportive mode," said a dealer with a state-run bank in Mumbai....

"Even a drop of USD 5-10 could result in buying," said another dealer with private bullion dealing bank.

Gold Gets Lift From Bailout Skepticism

The 110 billion Euro bailout agreement may have been inked, but there's still skepticism about it being a done deal. The German government agreed to pony up 20 billion Euros, but political pressures may cause it to pull back. Consequently, there's still skepticism about the deal that sunk the Euro. In the meantime, Grecian government workers are staging a 48-hour strike to protest the austerity requirements. The turmoil did help gold, which had been sinking earlier.

Initially, the metal got up to $1,184 yesterday evening before pulling back to $1,183. Then, starting just before 9:00 PM ET, the metal's price fell to $1,179. A relief rally was followed by a gentler decline to $1,178. Then, starting at just before 5 AM, the metal took off and rose almost twelve dollars an ounce to $1,190.20 before the rally ran out of steam. Pulling back, the metal hovered around the $1,187 level. As of 8:02, spot gold was at $1,187.30 for a gain of $5.00 on the day. The Kitco Gold Index attributed -$7.20 worth of change to a strengthening greenback and +$12.20 worth to predominant buying.

The U.S. Dollar Index sailed up to a new eleven-month high after plodding along last night. Hovering around the 82.35 level until 1:15, the Index took off and forded up in a rally interrupted at times by pullbacks. As of 8:09, it was at 82.86.

A Wall Street Journal report ascribes gold's performance to safe-haven buying, although the report was written before the metal peaked.

"It looks like fear is still in the market," said Michael Kempinski, a gold trader at Commerzbank in Luxembourg. Investors in Europe continue to buy gold coins and bars as they have for the past three weeks, said Mr. Kempinski. "It's quite impressive."

Safe-haven demand has temporarily ended gold's traditional inverse correlation with the dollar. Gold prices have rallied both when the euro is rising and when it is falling.

"Sovereign debt concerns by risk averse gold investors are clearly not over," said Swedish bank SEB in a report Tuesday. The bank said gold could consolidate Tuesday as investors take profits on gold's recent gains, but should quickly resume its uptrend.
The article also mentions that the Euro was driven lower in part because there are worries that the bailout package won't be big enough.

Sovereign risk fears was the cause mentioned by a Reuters report that covers the rally. More specifically, doubts about the bailout package caused the run-up.
Investors are concerned a 110 billion euro ($146.5 billion) bailout for debt-stricken Greece announced on Sunday may not be enough to resolve its financial crisis, and that other euro zone economies like Spain and Portugal may also be hit by debt problems....

"Gold's (varied) roles as a commodity, an alternative currency and a safe-haven asset are pulling more in the same direction than they have all year," said UBS analyst Edel Tully in a note.

"We would look for a test of December's record high of $1,226.44 so long as the threat of sovereign aftershocks in the euro zone persists."
The article also mentions that gold ended up ignoring the gains made by the greenback, as both are rallying due to the same cause.

An earlier Bloomberg report, webbed by Business Week, said that gold's earlier decline was due to strength in the greenback. Excerpted in the report is this bearish forecast:

Prices will be $1,100 an ounce in six months, down from a previous forecast of $1,250, and $1,050 in 12 months, down from $1,175 previously, Credit Agricole Corporate & Investment Bank London-based analyst Robin Bhar said in a report today.

With regular trading open, the metal spiked up higher after falling a little. Just beforehand, an earlier spike pulled it up above $1,191. After the pullback, which ended at 8:30, it leapt up again to $1,193.30 before tailing off a little. As of 8:54 AM, the metal was at $1,192.20 for a gain of $9.90 on the day. The Kitco Gold Index assigned -$8.25 to greenback strength and +$18.15 to predominant buying. The U.S. Dollar Index continued to ford upwards after slinking a little; as of 8:56, it was at 82.95.

It looks like another good day is in the offing for the metal; the Euromess is the crisis that keeps on giving. The question of the day is, will gold touch $1,200? The chances aren't great, but it might.

Monday, May 3, 2010

Gold Rises, Pulls Back

Regular trading began tepidly, with gold sinking down to bottom at just above $1,180. That level served as a floor until just after 9 AM ET. From then until just before 10:15, the metal ran up to $1,189.00.

As of that time, the action looked similar to the recent bull runs in the pit shift: up in early-mid morning, stable, then up again. Today, though, the run up was almost completely reversed. After reaching $1,189, the metal fell to $1,181 before turning upwards again. As of 11:32 AM, spot gold was at $1,184.80 for a gain of $ on the day. The Kitco Gold Index attributed -$8.15 to a strengthening greenback and +$13.75 to predominant buying.

The U.S. Dollar Index went on a nice run from 10:00 to 11:08 after churning in a range. That rally started slowly and hesitantly, and became choppy after a peak as of 10:37. Topping at above 82.5, it pulled back to 82.4 and muddled around before turning up again. As of 11:44, it was at 82.53.

Gold fell as the Index pulled up, making for a return of the inverse correlation between the two. Although there are signs that the positive correlation is reasserting itself, gold looks a little vulnerable now. There may be a tougher market this afternoon.

Update: The metal stalled near the end of the morning at $1,185. Lumbering upwards until just before 12:30 PM ET, it got a little above $1,186 before turning down again. The downturn was stalled at $1,184, but continued from 1:00 until near the end of the pit shift. After hitting $1,182, it fluctuated. As of 1:49 PM, spot gold was at $1,182.80 for a gain of $3.50 since last Friday's close. The Kitco Gold Index assigned -$7.35 to strength in the greenback and +$10.85 to predominat buying.

After its pullback, the U.S. Dollar Index made another peak at 82.56 as of 11:45. Pulling back again, the Index settled at a slightly lower level than it was at as of 11:30; it entered a raggedy-topped range between 82.35 and 80.4. As of 1:50, it was testing the top at 82.41.

There's a good chance at a gain, but gold's action in the pit shift indicates a rally that's tiring. The electronic-trading part of the regular session should largely leave gold alone, but there may be a gentle slide.

Update 2: Gold did close with a gain, but there wasn't a gentle slide. The metal fluctuated, with $1,180-81 serving as a floor. Interestingly, that same zone served as a floor for the entire regular-trading session.

After topping at $1,184 as of 2:45, gold fell back down to $1,183 and stayed there for a time until dropping down to $1,182. A further period of drift was interrupted by a drop to $1,181, which was reversed plus a little bit. As of the close, the spot price was $1,182.30 for a gain of $3.00 since Friday's close. The Kitco Gold Index (KGX) attributed -$6.70 to strength in the greenback and +$9.70 to predominant buying. Again, the KGX had gold ex-greenback at a record high.

The U.S. Dollar Index went on a mid-afternoon slump, which carried it down to just above 82.25 by 3:00. The timing of that slump roughly coincided with gold's mid-afternoon top, indicating that the inverse corrlation between the two is making a re-entrance. After that slump was over, the Index pulled up into a ragged-bordered trading range centered around 82.35. As of 5:30 PM ET, it ended up at that same 82.35.

The Index's daily chart, from, shows a rebound reversing the declines of the last two sessions:

Evidently, the anticipation of a bailout package for the Grecian government hasn't provided enough assurance to bolster the Euro and sink the Index. Although its interday high was below those of last Wednesday and Thursday, its close was a little above the former's. That made for a new eleven-month high.

Although currently trading indecisively, the uptrend is still intact. Today's high was above March 25th's, and April 14th's low was higher than March 17th's. Not by much, but by enough to make the Index's current bull run still real. That said, it's beginning to trade indecisively.

With respect to gold, its own daily chart shows Friday's rally extended to today:

As noted above, though, the rally looks like it's tiring out. This could be another false signal, as the metal's likely to rally once the bailout package is finalized and approved. Gold's RSI level, found at the top of the chart, is close to oversold levels. Granted that there's no iron law mandating the RSI line to top out at its 70 oversold level, but its current level of 67.58 is close to that oversold point. That said, gold's uptrend is still intact and is likely to survive any near-term dip.

A post-pit Wall Street Journal report has this interesting fact: today's close for the most-active contract was the highest since December 3rd's of last year. (That day was the day after gold made its all time high in U.S.-dollar terms.)
Gains in the dollar hampered gold's rally, but the metal was able to overcome that pressure because it was also being seen as a safe-haven investment. Shortly after gold closed, the euro was down 0.4% and the ICE Futures U.S. Dollar Index was up 0.7%.

"On a day when the dollar is that high, it's somewhat impressive for gold" to be up as well, said Michael Gross, broker and futures analyst with

Gold is often pressured when the dollar rises because a stronger greenback makes the dollar-denominated metal more expensive for buyers using other currencies, dampening demand.

"It's torn between sovereign risk issues on the one hand and the fact that the euro is lower," said Jim Steel, senior vice president and metals analyst with HSBC.
The article also noted that bullish sentiment is increasing as the metal reached the $1,200 mark.

Gold may continue to rally tomorrow as the bailout gets nearer and nearer; that's been the main driver for the current intermediate-tem uptrend. Or, it may pull back. Either way, it's hard to see a large drop coming when the Eurobailout looms.

Graphical Debunking Of Gold-Bubble Claim

There are those who think that gold is in the climax of a bubble right now. In a Seeking Alpha article, Bruce Pile charts the gold market from 2001 to today and compares it with three bubbles that have come and gone: the NASDAQ (burst in 2000), the Nikkei (burst in 1990) and gold in its last bull market (burst in 1980.) His conclusion:
Long-term bull markets usually end in a parabolic rise. The chart above basically divides these bull markets into the relatively flat 8 to 12 year pre-parabolic phase and the 2 to 6 year parabolic rise. As the chart clearly shows, the current gold market is nowhere near the end phase of a historic bubble. In fact, it looks to be just now getting cranked up for that.

His own take pretty much squares with mine. Gold has yet to enter the parabolic rise of an all-out bubble, but it's getting primed for one. It's still advancing despite it being "unbelievably high."

Gold And Fiscal Crises, Present And Future

In his blog, Eric Roseman makes the point that gold isn't rising just because of inflation; it's rising because of the sovereign-debt crisis:
Gold is not in a bull market only because of inflation or fears thereof. It is rising because the big money knows that high levels of government indebtedness can't last indefinitely and that currency devaluations must accelerate if the global economy is to produce a sustainable expansion. Currency devaluations reduce purchasing power and produce long-term inflation. Also, major central banks in the United States, Europe and Japan will be slow to hike interest rates as consumption stalls and labor markets struggle to recover. Central bank policies will remain bullish for gold for the foreseeable future.

Therein lies a point for debate. Is gold discounting a rise in future inflation, which will be caused by partial monetization of sovereign debt being added to earlier monetary stimulus, or is inflation becoming irrelevant to gold's rise? The broader U.S. money supply measures are contracting, even though the narrower M1 had been expanding at a nice clip throughout the crisis. There are hints of inflation, but so far there's been no real upsurge. There hasn't been for about two years now. Nevertheless, gold is still rising.

Is it doing so on the strength of deficits leading to greater inflation, or is it doing so simply on the strength of the deficits? If the latter, then a resurgence of inflation is going to accelerate its rise.