Saturday, May 15, 2010

The Great Debate On The Financial Sense Newshour

The second segment of this week's Financial Sense Newshour podcast was a debate between Jeffrey Christian and Bill Murphy on the subject "Is the Gold Market Being Manipulated?" - or, "Are GATA's Allegations True?" [.mp3 file]. It took the form of Jim Puplava presenting GATA's main claims to Christian for rebuttal, and then allowing Murphy to counter-rebut. I have my own preconceptions on the subject, but the most telling point to me was Christian saying that the gold market isn't seen by central banks as important enough to manipulate now.

From what I've read, the typical central banker is a monetarist who believes that a system of fiat currencies in a floating-exchange-rate framework is the best monetary system. When central bankers say that the gold standard is obsolete, they're not being disingenuous; they really mean it. I have this suspicion that presiding over the gold desk is regarded by Fed employees the same way as CIA agents regard a posting to Alaska to keep an eye on the Russians: a career-killer. A job that a high-flyer avoids at all costs; the real-world equivalent of the War Graves Commission in Truro on the show Yes, Minister.

To be blunt about this, I believe the central bankers don't see the gold market as worth manipulating. It ain't worth the ammo. This belief can easily be checked by looking at the career path of high-flyer employees at the Fed, or at any other central bank. If managing the gold market were that important, there should be promotions out of the gold desk. I don't think they are.

I also have something else to mention. One of the comments on the Q-line part of the first segment [.mp3 file] is mine; I identify myself as "Daniel from Toronto." Thanks to Mr. Puplava for airing it.

Friday, May 14, 2010

What Went Up, Came Down And Partially Recovered

Unusually for recent times, the slump at the beginning of regular trading catalyzed a plummet that visited gold mid-morning. Unlike the ones that afflicted the gold market earlier this year, this morning's was drawn out over a little more than an hour. Despite that relative stretch, it still took off almost thirty dollars an ounce. The momentum is now working the other way.

After hovering when regular trading began, gold slipped down about four dollars an ounce around 8:40 AM ET. Recovering to about $1,247, it slid down to $1,245 a half and hour later. A drop at 9:45 was reversed.

Then, at 9:50, the avalanche decline began. Accelerating in the next hour, it slammed gold down to $1,217.00 before it finally abated just after 11:00. Subsequently, the metal bobbed at just above that level before entering a rally mode. As of 11:35 AM ET, the spot price was $1,226.50 for a loss of $6.10 on the day. The Kitco Gold Index attributed +$3.70 to predominant buying and -$9.80 to U.S. dollar strength.

A concerning aspect of this rally is the fact that gold plummeted while the U.S. Dollar Index kept rising to a new thirteen-month high. Starting below 85.5 as of 9:00, the Index climbed rapidly and fairly steadily until it reached just below 86.25 as of 11:25. A reversion to the more usual inverse relationship between gold and the greenback, given the latter's run, wouldn't be all that good for the metal. As of 11:49, the Index had pulled back a bit to 86.12.

I admit that I didn't see the plummet coming, but momentum-driven markets are at risk of those plummets for reasons that no-one can really see in advance; avalanche declines of that sort are auto-catalytic, which makes then unpredictable except at the general-warning level. It may be portentous, or it may be shrugged off as another healthy correction; the metal may have just fallen out of bed. Gold's subsequent action, including this afternoon's, will show the aftereffect.

Update: Although the pull-up had a similar magnitude to a relief rally, it doesn't look like one. After falling back down, the metal bottomed at a higher level than the bottom of the plummet itself.

That rally, which began just after 11:00, didn't stop until it reached $1,237 just before 12:15 PM ET. In total, it retraced two-thirds of the mid-morning plummet. Gold then fell, but that drop began declerating once it reached $1,230. Bottoming above $1,125 around 1:00, the metal inched up afterwards. At the end of the pit shift, or 1:30 PM, spot gold was at $1,227.90 for a loss of $4.70 on the day. The Kitco Gold Index assigned -$9.30's worth of change to a strengthening greenback and +$4.60 to predominant buying.

The U.S. Dollar Index pulled back below 86 prior to recovering to above that level. The decline mentioned above continued until 1:05, when it bottomed out at 85.8. Since then, it pulled up until pausing around 86.1. As of 1:40 PM, it was 86.08.

Most likely, the rest of the afternoon will be quiet. As the week winds down, the electronic-trading shift after the pit's closed tends to see gold adrift. There is a little upwards momentum thanks to the recovery from the plummet, but it's not likely to have much of an effect on the rest of the day's trading. It should be enough, though, to pull the metal above $1,130 at the close. There's an outside chance of gold ending in the plus column.

Update 2: Although it looked like the metal was going to for a while, gold didn't close with a gain. But, thanks to a trading range that got established a little after 2:00 PM ET, it went and stayed above $1,130. At the end of the last trading day this week, the metal was left with a miniscule loss.

After the volatile pit shift ended, gold was in the high 1220s. Climbing up to $1,230 by 1:45, it slumped back to the high 1220s at 2:00. From there, it pulled up and eventually carved out a range between $1,230 and $1,235. After getting close to the top of the range just before 5:00, the metal sunk back and closed a little above range's bottom. As of the close, it was at $1,231.40 for a loss of $1.20 on the day. The Kitco Gold Index (KGX) attributed +$11.00 to predominant buying and -$12.20 to strength in the greenback. Thanks to the former component, the KGX had gold ex-dollar set another record high today.

It was the fourth week in a row for gold to show a weekly gain. Last Friday, spot gold closed at $1,208.00 Today's gain left the metal up $23.40, or 1.94%.

The U.S. Dollar Index, subsequent to a mid-afternoon drift, climbed for the rest of the week. Although interrupted, the climb was enough to get it up to a new thirteen-month closing high of 86.30. It's now the Index that looks and seems unstoppable.

Its daily chart, from, shows the momentum is still strong at the end of its fourth up session in a row:

Again, the Index's RSI value is in overbought territory; in fact, that value is the highest it's been since late October of '08. However, it was higher in August and Septenber of '08 when the Index itself was much lower. This two-year chart shows both the differences and similarities between then and now:

If there's any period that the Index's run-up now is similar to, it would be August's. The move now is more attenuated than then, but the renewed rally from a slighly less than overbought value has the stamp of the late-August rally that carried over into September. That said, the pattern this time 'round is shorter and less powerful - which means it carries less potential for a sickening pullback like that of late September-early October. I note that the Index has bested a resistance level that confounded it three times, back in late March, April and May of '09. A little more of a run and it will be at levels not seen since March of last year. Should it go above 87, the next major resistance level (88) is one that confounded it back in '08. That said, it's still in the hands of the chaos god.

The daily chart for gold shows its volatility today, both on the upside and downside:

As evident at the top of its own chart, gold's RSI number is still in overbought territory. The new interday record high is shown in the top wick, while the mid-morning spill is shown by the bottom wick. The body, which shows the difference between the open and the close, is miniscule. The metal's partial recovery from the morning plummet, although it erased more than all of gold's early-morning gains, shows that there is some resilience even in the teeth of an all-out plummet. It looks like the short sellers are holding back as of now. After a powerful rally like this month's, they don't move in unless there's little doubt that the run is over. Evidently, that's not the case today.

The Commitment of Traders graph for the metal shows its open interest continuing to expand; another year's record was made. As of last Tuesday, when gold had reached its highest close of the week, both non-commercial and commercial longs expanded. The former category was up 6.54%, while the latter category was up 11.0%. It's unlikely that the commercials would be speculating alongside the non-commercials; the most sensible reason is they bought as agents, to meet outside demand. Non-commercial shorts, a relatively small fraction of the short contracts outstanding, jumped up by 13.6%. Commerical shorts, the largest category of all of them, was up 6.54%.

Moving back to the U.S. Dollar Index, its own CoT graph shows that its open interest actually shrunk. As of last Tuesday, the Index had been through the first day of its four-day bull run. All reportable catgories shrunk. The most startling shrinkage, of 38.3%, was in the non-commercial short category. The ones who got out, did well to do so at that time. The next three days saw the Index rally strongly.

The end-of-week post-pit Reuters report explains the mid-morning drop in gold as being caused by options-related and selling out of need for cash. Amongst the points therein, these were made:
* Investor risk appetite drops because of lingering Greek debt contagion fears and economic uncertainties - traders.

* Margins-related selling hit the metal as investors tapped into liquid gold market for cash due to equity markets' sell-off - Bill O'Neill at commodities firm LOGIC Advisors.

* Investors take profits after the metal rallied sharply to record highs this week due to uncertainty that a European rescue will be effective - analysts.

* Sizable sale of put options by a trading house triggered options-related selling in gold futures - COMEX gold floor trader Jonathan Jossen.
The two selling sources built on each other, and in part were triggered by strapped traders using gold as a piggy bank. No mention of short sellers was there, nor of any momentum selling.

As the week ends, despite gold looking toppy, it's fared fairly well. Traders using gold profits as a means of raising ready cash for losses elsewhere, bent but didn't break gold's momentum. There are bound to be slips in a rally that starts at near-overbought levels, and this morning's was one of them - but the plummet didn't seem to do any lasting damage to the uptrend. If gold drops more durably next week, it'll be because of other factors.

In closing, thanks for reading what I've posted and written in this blog. Enjoy your weekend.

Protecting What You Have

One aspect of holding gold when it goes up isn't often discussed: protecting the gold that you have. An article in the Creston News Advertiser discusses what owners of gold jewelry should do now that gold is way above what it was several years ago. The article focuses on insurance, and is aimed at people who really don't know what their gold is worth, but it is worth thinking over.

As gold keeps rising, security is going to be more of a concern. A private mint can one-up government mints by putting serial numbers on rounds. If serial numbers can be used to track down thieves that stole cash, they can serve the same purpose for gold. Not every thief is diligent enough to melt down the gold he's stolen.

Gold-Manipulation Meme Makes The Huffington Post

It's an unusual venue, to say the least, but these are unusual times. The Huffington Post has an article about Andrew Maguire's tell-all and his recent accident. There's even a link to King World News at the bottom of the piece.

No comments, though - an indication that a gold-related story doesn't have much legs in the HuffPo part of the world.

Gold And...Monaco Real Estate

From Marketwatch's Market Junkie blog comes this suggestion: the same forces pushing up gold also tend to push up silver, platinum, diamonds...and real estate in tax havens. Given the underlying conditions behind gold's overall rise,
government debt levels in the U.S., United Kingdom and Europe will lead to higher taxes, meaning deep-pocketed people might flock to Monaco and the Channel Islands. Even though Americans need to pay taxes wherever they live, [BNY ConvergEx group’s chief strategist Nicholas] Colas says he suspects "Monte Carlo real estate agents are going to have a very, very good year."

Funny that Switzerland wasn't mentioned...

Indian Retail Demand Smothered By High Gold Prices

According to a report by the Economic Times, Indian retail demand for gold pre-Askhay Tritiya festival is effectively zero. Moreover, sellers are beginning to emerge.
"Forget buying for the festival, on the contrary people are selling," said Suresh Hundia, president of the Bombay Bullion Association in Mumbai.

"There is a queue of sellers."...

"If prices stay like this, near all-time highs, physical demand could take a hit and a lot of scrap could start coming in. Imports for the full year could fall by 25-30 per cent," said Abhishek Raval, a precious metals manager at IndusInd Bank.
The article does mention that investment demand is increasing despite jewelry demand dropping.

Consumer Sentiment, Inflation Expectations Up

The April consumer sentiment number has been released, and it shows an uptick from March. Not only the sentiment numbee increased, but also inflation expectations. "Looking ahead, one-year inflation expectations rose to 3.1% in early May from 2.9% in April."

This result hasn't done much for gold, which endured a sharp drop just before the numbers were released. The release may have interrupted the drop, or coincided with a halt, but it had no effect otherwise.


Gold does have some industrial uses, but the use to which a new technique developed by American scientists have put won't consume much. As reported by CNET's blog, a nanomachine made up of DNA can produce eight different kinds of nanoparticle containing gold.
"We have the three robot stations lined up in a row, and the walker walks by them. Depending on how we program the system, the walker will or will not accept cargos from the three stations," Seemen told Nature Podcast. "This is very analogous, in my mind, to the way the chassis of a car rolls by the various robots in an automobile assembly line."

The research takes advantage of DNA's unique ability to store information, which the team manipulated to adjust the structure of the molecular robots and how they connect to other molecules. Adding DNA strands to the walker and the forklifts allows them to move....

It's only done in experimental scale, and its eventual use is likely to be assembling gold nanocompounds for medical use. Once these molecular machines can self-assemble, though, there's going to be macro uses for them.

Imagine real gold thread, laced seamlessly into a shirt. Imagine gold laced seamlessly into thread. Gold jewelry that's not only custom made, but also custom redesigned without any loss of the gold....

Gold Skeptic Makes Appearance In Business Week

Now, there's a warning about gold posted by a mainstream publication. Perhaps it was inevitable that an article like "The Gold Frenzy: Why Investors Should Resist" would be webbed by a major business magazine. It's in the top-5 list of most popular pieces.

Its author, Ben Steverman, brings up in more diplomatic form all the points that gold skeptics like repeating. He does make room for holding gold as a portfolio hedge. Interestingly, one of his data shows that ordinary people aren't holding that much gold despite the newfound exitement over it.

It can be taken as a timing warning.

Gold Inches Above $1,250 In Overnight Trading

No immediate news drove the price up, but post-Eurobailout jitters were enough. Thanks to an early morning run, which topped out at just above the magic number, gold made a new record high of $1,250.40 early in the morning Eastern time. Momentum-driven it may be, but the momentum hasn't gone yet. In retrospect, yesterday's decline looks like a puase that refreshed.

The rallying started right after overnight trading began. Climbing up to $1,235 by 6:30 PM ET, the metal made $1,238 a little after 9:00 before sliding back to the $1,235 level. It fluctuated around there until a little after 3:00 AM, when it took off. Pausing for a while at $1,240, the metal made it all the way up to its new record by 6:45. Afterwards, it pulled back to above $1,245. As of 8:05, the spot price was $1,247.10 for a gain of $14.60 on the day. The Kitco Gold Index attributed -$3.50 to a strengthening greenback and +$18.10 to predominant buying.

The U.S. Dollar Index's momentum continued overnight, as it made another 13-month high. Stuck in a trading range between 85.3 and 85.5, it initially broke through on the downside as of 1:25 AM. Pulling back up to near the top of the range, the Index continued to sink until bottoming below 85.2 as of 3:05. Shaking off the decline, it rallied along with gold until its own peak at 85.84 came a little more than three hours later. Tailing back subsequently, it slid down below 85.6. As of 8:13, the Index was at 85.57.

This morning's Bloomberg report ascribes gold's latest run to aversion to European debt and other safe-haven needs.
The euro fell to a 14-month low against the dollar amid speculation that debt-cutting measures by European nations will undermine economic growth.... Gold advanced to records in European currencies.

“A lot of people still believe it’s going to be very difficult to resolve the European debt” situation, said Bernard Sin, head of currency and metals trading at bullion refiner MKS Finance SA in Geneva. “Gold has detached itself from other financial instruments. It’s basically trading all by itself.”
Also noted was a threat by the French government to leave the Euro unless the German government approves its part of the Eurobailout. Another quoted analyst expects the current run to peak at $1,300, to be followed by a $1,100-$1,300 range in the summer season.

The cause given by a Reuters report is similar: hedging against sovereign-debt and foreign-exchange risks.
Gold priced in euros, sterling and Swiss francs extended the record highs they have already set this month as investors concerned about the outlook for the European currencies chose gold as an alternative asset.

"The gold price has benefited from strong safe-haven demand linked to fiscal issues in the euro zone, and a pull-back from the euro as a reserve currency," said BNP Paribas analyst Anne-Laure Tremblay.

"We expect incremental safe-haven demand to ebb as the Greek crisis subsides," she added. "However, gold will remain a much sought-after hedge should fiscal concerns over Greece or other EMU countries mount again."
Also mentioned is the possibility of Indian gold imports sinking for a third year in a row this year due to high prices.

The morning Wall Street Journal report mentions demand caused by the Euro weakening to an 18-month low, below $1.25 in U.S. funds, and the risk of higher inflation in Euroland.
"Gold behaves like a currency in periods of economic uncertainty and more like a commodity in period of stability," said Numis Securities analyst Cailey Barker. "It is now acting as an alternative currency."
Also quoted is Dennis Gartman, who notes the historically unusual concurrrence of gold rising along with the greenback.

April retail-sales numbers were released, and they came in stronger than expected. Instead of the anticipated decline of 0.2% overall, the main number was an increase of 0.4%; ex-auto sales, from which a 0.2% gain was expected, the rise was also 0.4%. Around the time of the release, gold blipped up to $1,247.50 but then stumbled down to a little above $1,243. As of 8:52, the metal was at $1,243.80 for a gain of $11.20 on the day. The Kitco Gold Index assigned +$11.50 to predominant buying and -$0.30 to strength in the greenback. The U.S. Dollar Index continued sinking after blipping up right after 8:30; as of 8:55, it was at 85.45.

Gold's rally has stalled so far, but that's not been unusual recently; nor has it been indicative of how the metal will trade in the rest of the regular trading session. The metal might continue rallying later.

Thursday, May 13, 2010

After Drifting, Gold Goes Up

The metal just won't quit. After an initial run upwards which began before regular trading opened, gold drifted around the $1,238 level until 11:00 AM ET. In a range between $1,236 and $1,240 from the start of the pit shift, which narrowed to a drift right around $1,238, the metal rose above $1,240 to make a new daily high of $1,244.30. As of 11:46, the spot price was $1,242.20 for a gain of $5.10 on the day. The Kitco Gold Index attributed +$9.50 to predominant buying and -$4.40 to a strengthening greenback.

Although less strong then earlier in the morning, the U.S. Dollar Index has shown that strength today by rallying above 85. Reaching above 85.25 as of 9:30 AM, it then drifted down until it bounced off 85 and recovered. As of 11:48 AM, it was at 85.18.

So far, the rise in gold hasn't been that steep - but the usual early-morning catalyst didn't kick in today, so seeing it move up in the pit shift is a little unusual. It may continue going up in the afternoon.

Update: It didn't, at least in the later part of the pit shift. The peak actually came with the above-mentioned daily high. After stabilizing for a short while, gold headed down to $1,232. Subsequent to bobbing above that level, the metal fell through it around 1:00 PM ET. Not stopping until $1,228, it recovered somewhat only to keep falling at the end of the pit shift: 1:30. As of that time, spot gold was $1,228.80 for a loss of $8.30 on the day. The Kitco Gold Index divided the loss into -$5.10 for predominant selling and -$3.20 for strength in the greenback.

The U.S. Dollar Index has fallen too, but only in a drift-down that was close to a trading range. After getting up to 85.22 by 11:55, it pulled back and made its way down to below 85.1. A pull-up at 1:05 only got it to 85.15; two minutes later, it fell below 85.1 again. As of 1:35, it was at 85.03.

At least seemingly, the short-term rally that gold's enjoyed has run out of steam. It would be very surprising if gold turned around enough to sport a gain at the close. However, thanks to a post-pit pull-up, the metal may pare its losses to the low single digits. Despite gold's overboughtedness, the metal isn't ripe for an all-out plummet.

Update 2: That guess, I lucked out on. After a slight rally brought the metal up above $1,132, it closed with a loss of less than five dollars an ounce.

Subsequent to making the day's high around 11:30 AM ET, gold made a daily low of $1,226.60 as of 1:15 PM. The rally that ensued was uneven, but it pulled up the price to $1,234 before halting. An attenpt to get above petered out at $1,235 as of 2:30. Afterwards, the metal traced out a range between $1,132 and a little above $1,134. The close was at the lower end of the range: $1,232.60, for a drop of $4.50 on the day. The Kitco Gold Index (KGX) attributed +$2.90 to predominant buying and -$7.40 to a strengthening greenback. Thanks to the rise in the former component, the KGX had gold ex-greenback at another record high today at its close. The KGX value, less than 1000 as recently as eight days ago, closed at above 1050 today.

The U.S. Dollar Index, after dawdling for an hour after 1:20, took off on a rally that sent it up to a new yearly high - at a level that hasn't been seen since April of last year. Barely pulling back until 4:55, the Index got well above 85.4 before stumbling to below 85.35. After some more hesitancy, it began climbing again to touch 85.45 just before 5:30. As of that time, the Index closed at 85.43.

Its daily chart, from, shows that new high made with momentum firmly im place:

Because the cut-off time for the daily chart is earlier, the number shown as the closing value is less than what I have above. That fact shows that the momentum did continue, making this a strong day. It's also the third day in a row that the Index has gone up, even though the lower wick of today's candlestick bottoms at about the same level that the previous two did. Based upon how the Index has done today, it looks like its run is fording through some skepticism. Still, I have to say that its post-Eurobailout upturn began at near-overbought levels, as indicated by its RSI values at the top of its chart, which makes for a risky rally even if it puts a real stamp of bullishness on the Index. Its latest upturn can be justified as a fairly rational response to the corrosion of the Euro, which gold is benefitting from too.

Still, the frothiness of the Index's ride does leave open the question of what will take place once it's over. The last short-term drop was sudden, but it lasted only two days; at the end, the Index dusted itself off and kept climbing. The next one may take the same course, in which case the corrosion of the Euro is likely to continue. $1.25 isn't that far away. The last time the Euro visited that level, it bounced off in the post-Eurobailout relief rally. Now, it's almost back there. Should the Euro break down below $1.25 and stay down, the upward run in the Index will continue for a fair stretch.

Turning to gold, its own daily chart shows today's pullback leaving gold still in an overbought position:

As noted above, it was the U.S. Dollar Index's turn to make a new high today; gold, after making an all-timer yesterday, didn't. As a sign of momentum, the metal's price is well above its 50-day moving average; it's traced out in blue in the middle of the graph. For perspective's sake, the metal never got below its 200-day moving average, traced out in red, even on the darket day of 2010. Its long-term bull trend, at least by that measure, never went away.

The reason why it's rolled upwards at near-overbought levels is the momentum funds have gotten ahold of the gold theme, as explained in this Kitco interview with John Doody. Those funds tend to accentuate both the rise and the fall, leaving gold vulnerable to a sharp pullback like the one it suffered after making its December 2nd '09 high. There's a possibility of a similar rush to the exits taking place in the near future, but I don't think it's likely as of now. The only driver that could upset the gold market to that extent would be a Fed Funds rate hike, which isn't in the cards anytime soon. But, the rally could collapse of its own weight like late '09's did. All I'll say is that the people who waded in during the new year, when it became fashionable in certain circles to cast the correction as a burst bubble, wound up benefitting. Even if it didn't seem that they would in February.

For the nearer term, I again demur. Rallies when overbought are tricky, and do tend to either drain away or collapse of their own weight through essentially intermal factors. Any such decline will serve as a test for the intermediate status of gold: if one hits that still leaves the metal over $1,200 when the dust settles, then gold's intermediate-term bull run will not be over. Anything above $1,180 would, and above $1,160 would still be arguable.

The post-pit Wall Street Journal report pegs today's pullback as a "'tame correction'," as the above-mentioned momentum funds and other short-term players aren't running out.
"There's no exiting of existing positions," said Bob Haberkorn, senior market strategist in Chicago with Lind-Waldock.

Rather, short-term traders are selling to make a quick buck, but they're ready to come right back in and buy.

The consolidation may end up helping the metal maintain overall gains. When markets rise too far too fast, "you generally don't hold those gains," said Frank Lesh, broker and futures analyst with FuturePath Trading in Chicago.
So, if the market is going to break down, there's no hint of it doing so yet - not even nervousness.

That suggests gold will not be mauled tomorrow. Although the trend can change on the proverbial dime, the dime isn't visible as yet.

Last December 2nd, the top of the run to then-record levels was marked by Barrick closing its hedge book. At that time, selling on the news ended up cascading into an all-out correction. Should the current run-up continue in the near future, that's what to watch for: an exciting and "obviously" bullish event that ends up triggering catalytic selling. Of course, there's no inevitability to that kind of avalanche decline taking place; if it does, however, it would fit the "sell in May and go away" script. Gold is holding up, but at nosebleed levels still.

Gold Skeptic Sticks His Neck Out At Seeking Alpha

It was only a matter of time before someone did. Michael Levy has done the typcial skeptic one better, though: he seems to calls gold's entire bull market a mania. Interestingly, the comments left are mostly supportive towards him.

Gold: Time To Buy, Or Sell?

Gold continues to spread into the mainstream media; the latest example, from the Omaha World-Herald, is a balanced look at the question of whether to buy or sell gold. The two experts are gold watchers, but the one inclining to sell expects gold to sink to $1,000 before heading up again. His reason for not buying gold right now is that it's become too popular as late.

Of interest is this ear-to-the-ground report from South Omaha gold dealer David Schroeder:
[The rise in gold] is sparking an interest locally, Schroeder said, from people looking to cash in by selling their jewelry and scrap gold, as well as investors looking to buy.

Interest in buying generally increases when gold prices increase, Schroeder said, but the big difference this time is the entry of what he calls “entry-level bullion buyers.”

“Regular people,” he said, “not your salaried position-type workers, your hourly workers are coming in and buying. They see the writing on the wall, they see the deficit climbing, they see the interest on our deficit. . .”

The big investors (often called “gold bugs” for their unwavering bullishness), are less active now, Schroeder said.

“They’re enjoying the increases in the numbers because they bought at a lower number,” he said.

Today’s buyers and investors fear they missed the opportunity to buy low and want to protect their wealth from future inflation, Schroeder said.

So, interest in buying physical gold is spreading beyond the usual confines. That's why the mainstream media is picking up on it.

Inflow Into Gold ETFs Over Last Six Trading Days Reaches $2.3 Billion

The reporting of tonnes' inflow into the SPDR Gold Shares Trust (GLD) is pretty antiseptic; the Finanacial Post has put a dollar figure to the flood. In the last six trading days, US$2.3 billion has headed into GLD and its likesakes:
TrimTabs Investment Research said on Wednesday that the net inflows into gold ETFs are the highest in 12 months. Last Thursday during the near 1,000-point plunge in the Dow Jones industrial average, gold ETFs saw net inflows of US$1.1-billion, TrimTabs said.
More than a billion for bullion in a day. Soon, it'll add up to real something.

A New Bullion Coin

This one, from Israel. The Israel Coins and Medals Corporation is issuing a 1 ounce bullion gold coin, the first of a series, with mintage limited to 3,600 coins. The series' theme is "Gold of Jerusalem," and this coin features the Tower of David. No more than five will be sold to an individual customer.

The first Israeli bullion coins are priced according to their weight and in accordance with the daily international price of gold, plus a reasonable premium above the gold spot price. Hence the price of the coin is not permanent, in contrast to that of most other coins, since it fluctuates in accordance with the daily international price of gold. On Wednesday’s issue date, the Tower of David coin was priced at NIS 6,393, or $1,467.
I got the images from its Israel Coins and Medals Corp. page.

Peter Brimelow Notes Gold-Manipulation Meme Spreading

In his latest Marketwatch column, in which he notes lot of bullishness and a little gloating in the goldbug camp, Brimelow points out that the gold-manipulation crew has a new supporter: legendary advisor Richard Russell.
Dow Theory Letters' Richard Russell... doesn't even bother with these details.

He says flatly:

"Do not trade your gold or gold shares. The third phase for gold lies ahead. The central banks do not want to see a new high in the price of gold, and they will do anything they can to keep the price of gold down. But the primary trend of gold is more powerful than all the world's central banks taken together."

"There is nothing more powerful than an idea whose time has come. The idea -- gold is the only money that's safe from the world's clueless governments, and their obsession to escape a recession or a depression."
This is a change for Russell, too -- he used to deride the claim that gold's price has been long manipulated....
Near the end, Brimelow notes that there's not that much worry over the relative sluggishness of gold shares, which used to be treated as a cautionary sign of non-confirmation. Perhaps that's because the seniors have leapt up since last Friday; it could also be a sign of over-enthusiasm in goldbug ranks.

A Crib Guide To The Akshay Tritiya Festival

That festival, which is one of the two days in which Indians tend to buy a lot of gold, has a bit of tradition behind it. Thanks to an article in Commodity Online, the meaning behind Akshay Tritiya has been explained for outsiders.

As it turns out, there's a lot of tradition behind the day.

Now That's A Premium

From what I've seen of the junior exploration market, there's no mania. The stocks sometimes shoot up, but there has to be a specific driver behind any leap. If anything, anticipatory leaps seem to have diminished.

But, the right driver can push a stock way up. Like this one: Brazauro Resources is being taken over by mid-tier producer Eldorado Gold...for a 92 percent premium over its last trading price. Yep, 92%:
At $1.33 per share, the all-stock Eldorado offer came at a stunning 92 per cent premium to where Brazauro stock was trading before the deal was announced. Typcially, takeovers play out at a 20 to 30 per cent premium.

Not all deals are that rich; far from it. It's still a jungle in there.

Look What's In The Vending Machine

Gold, in both coins and bars. The Emirates Palace Hotel in Abu Dhabi has in its lobby a vending machine that dispenses 1, 5 and 10 g bars as well as bullion coins. The price is linked to the spot price of the metal itself.
There's no mistaking what's in this vending machine. The well-heeled in the Gulf can now grab "gold to go" from a hotel lobby in the United Arab Emirates, when the need for a quick ingot strikes.

On Thursday, a day after its inauguration, the shiny machine attracted spectators of many different nationalities who gathered to watch whenever an enthusiast was struck with the urge to splurge on a bar of the precious metal....

Hotel general manager Hans Olbertz said they wanted the hotel to be the first in the world to offer guests what he called "this golden service."

Coming soon to a city near you?

After Reaching Record Yesterday, Gold Pulls Back

There was little news out of the Eurozone trouble spot last night; the main story was about the Portugese Socialist-led goverment putting together an austerity package through a combination of tax hikes and civil-service salary cuts. Since the Socialists are in a minority, they need the support of the main opposition party to get the austerity pacakge through. The Spanish government is trying to institute similar measures.

As things have quieted down on the disaster-watch front, at least for now, gold tailed off in the overnight session. Initially fluctuating between $1,235 and $1,240, the metal drifted to the upper end of the range in early morning ET before sliding downwards during the time when European markets opened. The drift-down was fairly gentle, given the recent excitement in the gold market, and didn't contain any major spikes either way. As of 8:00 AM ET, spot gold was at $1,232.20 for a drop of $4.90 on the day. The Kitco Gold Index split the loss into -$3.60 for predominant selling and -$1.30 for a strengthening greenback.

The U.S. Dollar Index spent the night trending down, but that drop was reversed in the early morning. The turning point came at 3:00, with the Index just above 84.5, and the reverse was fairly sudden. Two hours later, it was just below 85.15. After that run, the Index sunk back to 84.5 before heading back up again. As of 8:15, it was at 85.00.

A Marketwatch report ascribes the pullback to profit-taking combined with a decrease in safe-haven demand.
"Gold came under initial pressure in Asia yesterday [Wednesday] as profit-taking emerged following the overnight gains," wrote analysts at
The morning Wall Street Journal report conveyed the impression that the pullback was just a dip.
Spot-gold prices pulled back on Thursday after hitting a record high in the previous session.

However, analysts and traders say that lingering worries over the European Union governments' response to sovereign-debt troubles in the region and renewed fears over inflation should support the precious metal....

"It's not just sovereign default that bond investors fear, resurgent inflation is also a worry," said Standard Bank currency analyst Steve Barrow. "There may be some very early signs that these concerns could be realized in Europe."
Also mentioned is another rise in the holdings of the SPDR Gold Shares Trust, to 1,209.50 tonnes as of yesterday, on an unusually large increase of 17.35 tonnes.

The latest weekly jobless-claims figure for the U.S. economy came in at 444,000, which made for an unchanged number once a revision to the prior week's number was made. The release of the data coincided with the end of a more than seven dollar run-up in the price of gold, starting at 8 AM, which ended at $1,239.50; since then, it trended up a little. As of 8:53 AM, the spot price was $1,240.20 for a gain of $3.10 on the day. The Kitco Gold Index attributed +$6.85 to predominant buying and -$3.75 to strength in the greenback. The prime beneficiary of the data was the U.S. Dollar Index, which took a ride up to 85.17 shortly after its release. As of 8:59 AM, after a pullback, it was at 85.13.

Gold may extend its run today without support from an overnight run-up, but it may fizzle. The day's trading, particularly in late morning, will tell.

Wednesday, May 12, 2010

Gold Drifts, Rallies In Afternoon, Pulls Back

After making a new record high during the European trading slot early this morning, gold had pulled back a little before it stabilized. Its morning peak came just before the start of regular trading, at $1,242.50 as of 8:20 AM ET. When the pit shift opened, the metal sunk by more than eight dollars an ounce.

Its later rise was staggered by pullbacks. After reaching close to $1,242 around 10:30, the metal sunk back down to $1,234 before pulling up somewhat. Overall, the morning's trading defined a range between the two values mentioned above; even at its lowest, gold was still above its closing value yesterday. As of 11:45 AM, the spot price was $1,236.60 for a gain of $5.20 on the day. The Kitco Gold Index attributed +$5.80 to predominant buying and -$0.60 to strengthening of the greenback.

The U.S. Dollar Index stayed steady for most of the morning, but began climbing late in the time period. Stuck in a range between 84.45 and 84.65 until 11:20, although briefly penetrating it on the downside at 10:00, it rallied above 84.8 around 11:30. As of 11:47, the Index was at 84.74.

On a momentum basis, gold has come to a halt but it could start moving again. My own inclinations lead me to expect a downturn, but it could go either way or neither way; straight technical analysis would call for a continuation of the range. The afternoon will tell.

Update: The early afternoon part of the session resembled the later-afternoon part of yesterday's. After bottoming at $1,234 as of 11:15 AM ET, the metal went on a sustained if occasionally interrupted rally that took its price up to a new record high. That high, $1,248.20, was made just after 12:45 PM. Since then, gold tailed down to the top of its earlier range: $1,242. After rebounding to almost $1,246, the metal tailed off again to leave its price near $1,144 at the end of the pit shift. As of 1:47 PM ET, spot gold was $1,244.70 for a gain of $13.30 on the day. The Kitco Gold Index assigned -$1.90's worth of change to strength in the greenback and +$15.20's worth to predominant buying. The two figures sum up to the raw change on the day.

The U.S. Dollar Index, after jumping up to above 84.8, did little subsequently except drift down and back upwards. Bottoming below 84.7 at 1:00, it climbed back to reach 84.8. As of 1:49 PM, it had levelled at 84.82 after advancing to 84.86.

Today's mark to watch is $1,250; gold came very close to reaching it in the later part of the pit shift. Normally dormant, the electronic-trading shift has seen some nice gains recently. At the risk of sticking my other foot in my mouth, I'm going to guess that a new all-time high will be made later this afternoon at above $1,250. Althouhg it may later, the momentum shows little sign of slowing down as of yet. Whether I'm right or wrong, there's a good chance of a double-digit gain at the end of the session; an overall gain is almost certain.

Update 2: Thanks to a later-afternoon fade-back, gold did not close with a double-digit gain; instead, only a single-digit gain was sported at the close. Although a new all-time high was made in later-afternoon trading, it fell short of my guess by forty cents; it was $1,249.60. Still, it was close enough for someone less rigorous than myself who predicted $1,250 gold for this year to declare that prediction to have been fulfilled. (Myself, I didn't.)

The metal continued to inch up after the last update to 2:15 PM ET, when it stalled before making its new record around 2:30. From then, the price sunk to $1,238, reached at 3:45. Pulling up a bit, it reverted to dropping although in a drift rather than all-out decline. At the close, spot gold was at $1,237.10 for a gain of $5.70 on the day. The Kitco Gold Index (KGX) attributed +$8.30 to predominant buying and -$2.60 to greenback strength. Thanks to the former component, the KGX had gold ex-greenback at another record closing high today.

The U.S. Dollar Index spent the rest of the afternoon dawdling, mostly upwards. From its low made at 1:00, it rallied for an hour before settling into a rising-bottomed range with ceiling of 84.88. That range was gently surmounted as of 4:40. Shortly afterwards, the Index plateaued at 84.92 before pulling back; as of of 5:30 PM, it closed at 84.83.

Its daily chart, from, shows yesterdays' recovery from the Eurobailout-induced letdown continued today:

As is evident from the RSI line at the top of the chart, the Index's RSI value is back in overbought territory. Rather than being a mere relief rally, the upswing over the past two days has pushed the Index very near to its highest closing value of 2010. It has some ways to go to making a new interday high for '10, but it's not all that far away.

Given the sharpness of its rise over the past month, there's a risk of a sudden downturn rather than a mere pullback. As of now, though, the risk doesn't seem to be all that great. The Index may continue to oscillate near and below 85, if not break above it to a new one-year high. There isn't any bearish driver behind the immediate horizon to push it to plummet, and the Index isn't prone to plummets due to market internals. Still, overbought is overbought; if the Index takes off on a renewed run at this level of overboughtedness, it would be setting itself up for a shock plummet that may be only short-term in duration.

The level of overboughtedness is higher with gold, as its own daily chart shows:

To be more specific, gold's RSI value is higher into overbought territory. However, the duration of the overboughtedness isn't as extensive all told. It's only been the third session in a row that gold's RSI has been in overbought territory, while the Index's has been so for the last four sessions out of five.

Gold's run-up late last year was notable for continuing while in overbought territory, which hasn't been a feature of the present rally. In other words, gold is less vulnerable to a vicious and sustained pullback than it was at the beginning of last December. In this context, I can say that a pullback would be healthy for the rally overall. Short-term rallies that start in overbought territory, like the one that started on November 19th, tend to come to a bad end when they run out of gas.

That being said, the present rally shows little sign of exhaustion as yet. The later-afternoon decline would have to be reinforced by an overall decline this overnight session for a real short-term pullback to set in. Whether or not one does, largely depends upon how much profit-taking is called forth by gold just missing $1,250.

The end-of-pit Wall Street Journal report ascribed today's rise to continued safe-haven appeal, as well as to inflation hedging, as the worries about the indirect effects of the Eurobailout continue. As the concurrency effect between the greenback and gold indicate, the inflation being hedged against is expected to bloom in Euroland:
"The sovereign debt issues are not yet resolved," said Ira Epstein, director of the Ira Epstein division of The Linn Group, an asset management and brokerage firm.

In addition to these worries feeding safe-haven demand, some are now returning to the metal as a hedge against inflation.

"The market is starting to contemplate how much currency is going to be thrown" at the debt crisis, Epstein said....

"The gold price is being driven by ... the rising concern of the 'exit strategy' for central banks given that the ECB is the latest agency to join the (quantitative easing) bandwagon," J.P. Morgan analyst Michael Jansen said in a note.

"Indeed, the perceived breach of the ECB's independence...adds to the view that in the long-term monetary and fiscal authorities will be forced to choose between anemic economic conditions or monetary-driven inflation."
In other words: Euroinflation is baked in the cake, and won't be removed without a painful, politically difficult and quite possibly bailout-counterproductive effort. The ECB's hands, despite steps taken to sterilize its planned quantitative easing, might be tied right now with respect to rising inflation.

The gold market is still heady, and may have some rally left in it. Any rally at this point, though, should be sized up as if it were on borrowed time. Not only the RSI level, but also overall sentiment is in the toppy range. In times like now, pullbacks are healthy.

Gold As Canary In Inflation Mine

Beginning by noting that gold is still 30% below its peak in yen terms, and ascribing it to Japan's much lower long-term inflation rate, Scott Grannis says that gold is clearly signalling for higher inflation down the road.
Unfortunately, I am unaware of any formula that relates changes in gold prices to changes in future inflation. The linkage is loose, the lags are long, and there are other things which get into the mix—such as geopolitical risks—that muddy the waters. But if this theory of gold and currencies holds any water at all, we should see rising inflation in the future, and that should be quite a surprise to most global bond markets, since they are currently priced to inflation remaining very low and stable.

By way of illustrating how this process works, I offer the following simple rule of thumb for any central bank desiring to keep its currency stable against gold (and thus replicating a gold standard): add or subtract whatever liquidity is necessary to keep the price of gold within a relatively narrow band. In practice, that means trying to find the short-term interest rate that makes the public indifferent between owning a short-term deposit or owning gold.

If interest rates are too low, gold becomes more attractive and rises; people prefer to hold less money and more gold, and the unwanted money tends also to get spent on things, pushing up their prices in the process (this is similar to the velocity story I have been highlighting in recent months). If interest rates are too high, the public prefers to own bonds rather than gold, and gold prices fall. When gold prices are stable, a currency is "as good as gold;" demand for the currency exactly matches the supply of the currency, and inflation is negligible. The history of gold standards tells us that when implemented correctly, a gold standard is virtually guaranteed to deliver very low inflation....
Grannis, I should add, doesn't think much of gold as a long-term investment at these levels. He thinks that substantial inflation is already priced into the metal as of now.

Another Call For A Gold Bubble

Not from a gold skeptic, but from another watcher who thinks that gold's on the verge of going into one. Introducing the subject by discussing the Beanie Babies mania, Joseph Meth argues that world inflation and the intrinsic valuelessness of fiat money [if unprotected by law] has made conditions ripe for gold to become the next bubble asset.
The financial crises in the EU and our own staggering and still escalating national debt underscores that the world’s spending and obligations has outgrown it’s ability to pay. Inflation is coming and there isn’t any way around it. The policies that pulled us out of the recent economic crash put trillions of new dollars into circulation. That makes all of our existing dollars worth less… but it increases the value gold and silver. In other words, currency is being devalued around the world-even in China.

The rise in the price of gold didn’t start last month or last year. It really started to run (see chart above) about the same time as the US deficit started to balloon due to the recession following the DotCom Bubble Crash and 9/11. Rather than slowing down, the worldwide financial crises and recessions could accelerate the rise. Consequently, gold now has characteristics similar to the objects of earlier bubbles with two exceptions: its demand is worldwide and governments could stop it by agreeing to fix currency exchange rates fixed to gold.

Until that happens (it may come at any time), the price of gold will probably act the same as did for beanie babies, tulips, tech stocks or stocks in companies that promise to develop mines on Mars and the moon (ala, South Seas Company stock).

Interestingly, the only people using "gold bubble" now are normally pro-gold commentators and analysts; they expect one to form and turn into an all-out mania at the end. I haven't come across a gold skeptic proclaiming that gold's bubble is about to burst since January of February. I've only read tradition-hewing analysts who see the growth in investment demand as only a temporary and self-reversing phenomenon.

If gold sinks down later this month, and stays in a doldrum phase this summer, those skeptics will probably be out in force again.

Beware Of The Hype

Although it's entitled "The Dangers Of Buying Gold," this piece by bullion dealer Bill Haynes is really about the danger of buying gold at well above bullion value based on an emotion-inducing sales pitch.
Advertisements promoting gold dominate the airwaves, touting gold as the ultimate investment, the place to be in these times of financial and economic uncertainty. Will the respondents enjoy the benefits that the ads promise? Probably not.

Most of the firms sponsoring the ads promote gold coins at grossly inflated prices, as much as 30%, 50% even 100% above the real market prices of the coins. How do these firms convince investors to buy at such inflated prices when the normal markup on gold bullion coins is 2% to 7%, depending on the coins and the quantities? Several factors come into play.

First, the ads are based on fear, and the telemarketers reinforce that fear by talking about alarming topics that dominate the news, such as the declining dollar, the burgeoning national debt and massive deficit spending. The possibility of war with Iran is often used to scare callers.

By focusing on scary topics, the telemarketers get callers to react emotionally, instead of logically....
He then takes up the possibility of confiscation, noting that the claims in the sales pitches do not square with the facts. If gold is confiscated, common collector's coins might be confiscated along with bullion coins. The fact that the terms exempting collector's coins were never defined in President Roosevelt's executive order leaves a leeway if the same Executive Order is reinstated.

(Actually, the leeway existed on both sides. One of the reason why so many semi-numismatic pre-1933 gold coins exist nowadays is because more than a few people concluded back then, "well, they're of special value now.")

Granted that business is business, but caveat emptor is part of business too.

Austrian Mint Overwhelmed By Demand For Philharmonic Coin

According to a Reuters report, the Austrian mint sold more Philharmonic gold coins in the last two weeks than it did in the first three months of this year:
The mint sold 243,500 ounces of gold in coins and bars in that period, compared to 205,000 ounces in the entire first three months of the year, marketing director Kerry Tattersall told Reuters in a phone interview.

'Demand is exclusively from Europe, we haven't had any orders from the United States and Asia in the last few weeks,' Tattersall said. 'That's a clear sign that there is panic buying because of concerns about Greece and the euro.'

Sales of its signature Philharmonic gold coin reached 108,000 ounces in the same period, also surpassing the 89,000 ounces in the first quarter, which Tattersall said had been an average quarter that did not live up to the previous year's.

'In the last two, three weeks, it was pretty frantic again,' he said. The mint has started working in three shifts again, minting coins and bars around the clock to keep pace with demand, he said.
The mint, which doesn't keep a lot of inventory in any case, is currently sold out and whipping up more.

Another bullion coin that's sold out is the Australian "Year Of The Tiger" 1 oz. bullion coin. That size is limited to 30,000 pieces, while other sizes have no limit. Also limited is a 10-kilogram (!) coin, whose run was 100.

Both of these stories show that the recent thirst for gold is by no means limited to futures contracts and ETFs. The buying frenzy seems confined to Europe, for the moment.

Gold In Rupees Near Record High; Wholesale Demand Dormant

According to a report by Reuters India, gold being on the verge of a record high in yet another currency (the rupee) has left traders leery of committing to too-expensive stock four days before the Akshaya Tritiya festival.
"The feedback from customers is that they would wait rather than buy at current near-record levels," said a dealer with a private bullion importing bank....

"Nobody had expected such a sudden jump in prices, they are all waiting for below $1,200 (an ounce) levels," said another dealer with a state-run bank.
Again, the under-$1,200 figure is cited.

Gold Hits Another Record High Overnight

With little news from the usual Eurozone trouble spot, except for sluggish growth in both the Euro area and the entire Eurozone over the first quarter, gold still had enough post-bailout momentum to make another record high early in the morning. Sliding down to below $1,230 last night, it broke above at 12:30 AM ET and moved upwards to $1,234. Remaining in a trading range between that level and $1,229 until 5:00, the metal pushed up to $1,242 by 6:00. A pullback to $1,240 set up the run to the new record high of $1,245.70, reached at about 7:00. Although the momentum tailed off afterwards, with gold sinking below $1,240, the metal still stayed above yesterday's closing level. As of 7:55 AM ET, spot gold was at $1,238.50 for a gain of $7.10 on the day. The Kitco Gold Index split the gain into +$4.10 due to predominant buying and +$3.00 due to weakening of the greenback.

The U.S. Dollar Index actually was up a little last night while gold slid back. Advancing in the early evening, it settled into a range centered at around 84.75 for the rest of the night. After a one-hour run starting at midnight, which took it up above 84.9, it declined in an accelerating downturn until bottoming at below 84.2 as of 4:45. Partially reversing the decline, it made its way up to 84.66 as of 7:20 before pulling back to a little below the 84.5 level. As of 8:06 AM, it was at 84.48.

The morning Wall Street Journal report ascribes the new record high to "a swell of bullish sentiment and a flight from currencies to the safe haven of gold." The swelling is chalked up to its momentum.
Gold's strength indicates investors view the European Union and International Monetary Fund rescue package as a short-term fix that doesn't reduce uncertainty on how governments will reduce their high debt levels.

"I think the package crystallizes some of the longer-term risks," said Mr. Jansen. "For the European Central Bank to monetize the debt of Greece is a huge worry for a number of people."
The article also mentions technical analysts who think in U.S. dollar terms are watching $1,250, while those who think in Euro terms are concentrating upon €1,000. Given the demand for gold in Europe, and the especial significance of the switch from three digits to four, it's arguable that the latter number will prove to be more significant.

As an aside, the WSJ's "The Source" blog has an entry entitled "Gold: A Low Risk Bet in a High Risk Environment" posted this morning. Because of the longer-term effects of the Eurocrisis, gold is referred to as "a low risk, blue sky asset" near the end. I'll confine myself to noting that the enthusiasm is understandable, given gold's ascent to a record high in U.S. dollars, but its message doesn't gibe too well with gold being overbought at the moment.

A Marketwatch report credits safe-haven demand for gold's continued gains.
"The gold price has been supported over the past days by safe-haven demand on the back of ongoing concerns about Europe," said Anne-Laure Tremblay, metals analyst at BNP Paribas in London.

"While Monday's announcement of an EU fund calmed immediate fears about risks of contagion of the Greek crisis, markets remain doubtful about the capacity of governments to cut their deficits swiftly," Tremblay said in emailed comments.
Although the Spanish government is taking steps to reduce its own deficit, overall skepticism about such efforts and the longer-term effect of the Eurobailout is keeping the gold price up. Another article mentions that the Spanish government is seeking a 5% wage cut to be borne by government employees.

Becuase of the record high reached yesterday, news on gold has spread to normally closed channels. The morning Reuters report, as webbed by ABC, highlighted diversification from European government bonds as fears of the Eurobailout's inadequacy spread.
"Safe-haven flows are going to continue for the time being, people are digesting news about the package," said Dan Smith, analyst at Standard Chartered. "This is something of a wake-up call in terms of how safe sovereign debt really is."

Investors and many traders think the scale of Greece's fiscal problems could make it tempting for the country to default, despite the package, which could start a run on the debt of countries such as Spain, Portugal and Italy.

That was partly offset by news that European central banks were buying Portuguese, Irish and Greek government bonds, but investors and analysts are not convinced.

"Gold is benefiting as euro zone government bonds lose some of their safe-haven appeal. With governments tightening budgets, it will take the pressure off central banks to hike," said David Thurtell, analyst at Citi.

"With interest rates around the world set to stay relatively low, the opportunity cost of investing in gold will remain low."
The article also mentions that gold hit new record highs in pound and Swiss-franc terms, and that high prices have bumped up scrap sales in Asia.

Trade data for the U.S. economy were released; for the month of March, both imports and exports jumped up to levels not seen since October 2008. Exports grew slightly faster than imports, but the trade deficit increased anyway. Gold, after jumping up a little before regular trading began, sunk just before the news to $1,238 and dropped another dollar an ounce when the news was released. As of 8:54 AM, the spot price for the metal was $1,236.10 for a gain of $4.70 on the day. The Kitco Gold Index divided the gain into +$2.85 for predominant buying and +$1.85 to overall weakening in the greenback. The U.S. Dollar Index continued to rise on the trade data, after reversing its earlier decline just before 8:10. As of 8:57, it was at 84.58 after pulling back from the 84.65 level.

Although the metal has pulled back, gold's still in a strong position momentum-wise. It may continue to be so today if its overboughtedness doesn't catch up with it.

Tuesday, May 11, 2010

Gold Closes Above Record High

According to Bespoke Investment Group, the all-time high for gold in U.S. funds is $1,226.40. At about 9:50 AM ET, the metal almost made it to that level. It crested at $1,225.60, within a dollar of that record, before pulling back.

After an initial run that pushed it above $1,220 just after regular trading began, gold paused at $1,221 before pulling back and then reaching that near-record. It then pulled back again to around the $1,222 level before falling below $1,220. As of 11:37 AM, the spot price was $1,217.30 for a gain of $14.60 on the day. The Kitco Gold Index attributed +$16.50 to predominant buying and -$1.90 to strength in the U.S. dollar.

The U.S. Dollar Index moved little in morning trading until the last part, when it dropped. After initially descending to below 84.35, reached a little after 9:50, it recovered but couldn't make it above 84.6. As of 11:40, after a renewed bout of sinking, the Index was at 84.34.

It was close, but there's no record-high cigar as yet. The wind is now out of gold's sails for the moment, but there's still an outside chance at the metal making that record high in the afternoon.

Update: Gold did get back up above $1,220, but the record remained out of reach. After sinking down below $1,216, bottoming at 11:45 AM ET, the metal climbed back unevenly but steadily to just above $1,220 as of 12:50. Pulling back, the metal retraced some of that gain to below $1,219 before rising again to $1,221; that rise didn't last. As of 1:41 PM, the spot price was $1,219.40 for a gain of $17.10 on the day. The Kitco Gold Index assigned $17.80's worth of change to predominant buying and -$0.70's worth to strength in the greenback.

The drop in the U.S. Dollar Index continued until 1:00 PM, when it touched the 84.2 level. Since then, a recovery rally pushed it up above 84.3. As of 1:43, it was at 84.34.

With the pit shift over, the metal is still more than five dollars below the record. It looks like the chance was missed, and gold watchers will have to be satisfied with a new 2010 high.

Update 2: As a commenter pointed out, I got some egg on my face from the guess jsut above. Gold did make a new all-time high, and I did miss it. As the day turned out, the metal began rallying shortly after the last update steadily enough to make the last record yield.

The line was crossed at about 3 PM ET, in the midst of a strong rally that started at 2:50. Stopping at 3:20, at its new record high of $1,235.30, the metal pulled back only a little before carving out a trading range between $1,231 and $1,234. As of the close, spot gold was at $1,231.40 for a gain of $28.70 on the day. The Kitco Gold Index (KGX) attributed -$4.30 to a strengthening U.S. dollar and +$33.00 to predominant buying. As fitting for a day when the most-watched record was broken, the KGX's tracking of gold's performance ex-greenback made another record high today.

Again, the concurrency effect between the U.S. Dollar Index and gold showed up. Starting at 1:00, when it was below 84.2, the Index rallied with a few mild pullbacks and a marking-time stretch for about an hour between 3:30 and 4:30. When the regular-session timeframe had ended, at 5:30 PM, the Index was at 84.71. It hasn't bested its 2010 high, while gold has made a new record - further evidence that the safe-haven momentum has shifted to gold.

The Index's daily chart, from, shows its recovery from yesterday's drop and its return to overbought levels:

Given the action of the last two sessions, today's rise was relatively sedate. The Index is back in overbought territory, as indicated by its RSI line at the top of the chart; any value above 70 indicates an overbought state. Like gold's rise, the recovery in the Index has been driven by skepticism about the efficacy of the Eurobailout: not skepticism over its passage, which seems a done deal now, but about its efficacy. There's still worry that the sovereign debt of both Portugal and Spain will tip into free fall, like that of Greece earlier. The latter country's government going into fiscal-crunch free-fall would overwhelm even the 750 billion Euro package currently being put together. Even if the bailout succeeds, there's still worry about what it would do to the Euro down the road.

In the case of gold, it's similar - except the latter worry is predominant. Like before, gold is rallying after the rescue on the assumption that the bailout will mean more inflation down the road. The metal's own daily chart shows the extent of its rise today, into new record territory:

Admittedly, I had an inkling that it was coming last night but the overboughtness of the metal caused me to shy away. I did say that gold's action between May 5th and yesterday did resemble February 5th to 12th's. I pulled back from it because gold is nowhere near bargain levels now, and it was back in early-mid February. Evidently, my guesses get worse when the train's rolling at high speed in or near overbought territory.

As gold's own RSI line indicates, it is back in an overbought state. At this point, I have to say it's in the hands of the chaos god, or is in a mini-mania like that of late '09. Whether you benefit or not from gold's rise right now, you might as well sit back and enjoy the ride. Myself, I have a little money in gold exploration stocks; despite my skeptical words, I'm still all in and haven't changed that exposure. Whether disguised complaint or no, I further disclose that the stocks I have haven't gone anywhere over the last stage of this rally. Since these stocks are in the investment underworld, their connection to gold is sometimes tenuous. The HUI average, composed of major producers, has been rallying strongly of late. I note futher that the stocks it's composed of have not been shooting up with gold until recently. The fact that this strength has not reached down to the gold underworld, and has taken its time before transferring to the senior stocks, is a sign that the manic phase of late is only a mini-mania confined to the metal itself. Real manias affect even the underworld stocks.

I want to emphasize that I do not believe that gold is in an all-out bubble as yet. I believe it's on the cusp of one, but the full-fledged mania phase is far from being a reality now. We may read or hear warnings that gold's in a bubble about to burst, again, if the metal continues rallying. They can be taken in stride as warnings of overboughtedness, but I would be very surprised if the recent calls for a gold bear market came to pass. If any such calls surface, I won't go along with them.

As for gold going in to the start of an all-out bubble, there's a test this summer that will shed light on the issue. Traditionally, May has been toppy; the period from June to August hasn't been that good for the metal. If that tradition is broken this summer by gold continuing to rally further, that would be a sign that the metal is tipping in to a real bubble phase. I expect such a bubble to last a few years, not a few months, and there will be at least one scare in the middle of it. The mid-bubble scare is a phase of all real bubbles.

If there's any characteristic of a mania, it's this: a bubble market does everything it can to shake out everyone with any experience with the investment. As it continues into nosebleed territory, more and more experienced players pull out because it seems too high to be true. The real climax of the bubble doesn't start until new entrants, both inexperienced and credulous, make money hand over fist. It's not far from this point that the cocktail-party indicator kicks in. We're not at that stage now, so gold is not in an the climax phase of an all-out bubble as yet. I have my doubts as to whether we're even in the beginning of one.

As for tomorrow's action, a new record may be set again; I honestly don't know, as one of my blind spots is mini-manias. Given that we're in the month that the old saying says to sell in, the rally may not last that long - but it might. The only suggestion I have is to sit tight and enjoy the ride. Gold did make a new record high today, and it's been some time coming. The Eurocrisis has hastened what would have been a recovery in the metal no matter what. Regardless of the vagaries of the metal's action, I also suggest not being rattled by any gold skeptic decrying gold at this point. Myself, I'm in my comfort zone; I'm neither adding to nor subtracting from what little I've got in gold-related stocks. That seems the best way to ride out a manic phase in a longer-term bull market.

As a postscript, the supposedly inane phrase "buy on dips" is made for times when an investment's rally seems unstoppable.

Indian Financial Astrologer Says Gold Looks Weak

Here it is, from the horse's mouth:

Today as per financial astrology gold may show weakness in spot and electronic trading.
The bulk of the forecast deals with Indian stocks.

I couldn't resist posting it because of the boilerplate: "The above recommendations are [based] on financial astrology. Consult your personal horoscope before taking any trading decision."

Always do you own due horoscopy before investing. I can't claim to have run into that one before.

Indian Wholesale Gold Demand Tails Off After Spurt Of Activity

In part because the rupee weakened, in part because prices recovered, wholesale demand went dormant again according to a report in the Economic Times:
The physical market is quiet today, but yesterday sales were good, I believe most jewellers have already bought their Akshaya Tritiya requirements," said a dealer with a state-run bank in Mumbai....

"I have many orders below $1,200," said another dealer with a private bank.

Evidently, the dealers are adjusting to the higher prices of late. It might be too much to ask at this point, but $1,200 as a price point may be on the way to becoming the new $1,100.

Expectation Of A Gold Mania

In a recent Stockhouse commentary, Brian Hunt presents the case for gold going in to an all-out mania. In doing so, he draws upon a February 18th, 2009 article published in the Financial Times predicting the same thing.

(Evidently, someone beat me to it. I thought I was out on a limb, alone, when I penned my own piece in November of that year.)

Hunt's own reason for expecting a mania is the level of government debt, and the number of promises made to pretty much everyone:
As that little-read article mentioned, an asset must have one key ingredient to enter mania phase: It must have the "new era" factor… a set of conditions folks can point to and say, "This time is different… The old, conventional methods of valuing assets are useless in this case."

As we've noted many times in DailyWealth, you can make a good case that this time is different. Never before has the nation with the world's reserve paper currency – which is backed by nothing but faith in a bankrupt government – promised so much to so many people (Social Security, Obamacare, unlimited military commitment).

We're funding many of these promises with borrowed money… so crushing interest payments are on the way. The U.S. government could pay as much as 20% of its tax revenue to service the national debt in just three years. Imagine working your tail off just to pay the interest on your credit cards....

He says "mania," I say "bubble." They amount to the same thing except for the spin factor. I prefer "bubble" because it serves as a reminder when the mania goes manic.

Gold Makes Another New 2010 High

The all-time record is again in sight. Despite news that mainland China's inflation rate is up to 2.8%, banking lending surged, and real rates have tipped into negative territory, gold didn't do much last night; it fluctuated around the $1,202-3 level. Starting just after midnight ET, however, that lassitude changed. Bailout relief is gone, and the consequences are being assessed. European stocks were down sharply, in part because Moody's is threatening a significant downgrade of the Grecian government's debt. This kind of environment revitalized the gold market, sending the metal up to near $1,220.

As noted above, the rally began just after midnight. It proceeded fairly smoothly except for a pullback between 4:30 and 6:00 AM, which took the metal down to about $1,208. Starting at 6:00, the rally accelerated; gold shot up above the $1,210 level it failed to best at 4:30, and $1,215 was surmounted within an hour. A pullback at just above $1,218 left the metal hanging, prior to a mild pullback. As of 8:08 AM ET, spot gold was at $1,218.00 for a gain of $15.30 on the day. The Kitco Gold Index attributed -$4.65 to strengthening of the greenback and +$19.95 to predominant buying.

The concurrency between the U.S. Dollar Index and gold continued overnight, indicating that the common driver for both is still the Eurocrisis. The Index spent the overnight session rising fairly steadily, although it was choppy in places. An early-evening run-up to 84.5 failed to take hold, and the Index slid down to below 84.15 just after 9:00. During that time, gold dipped a little but was restored. The rest of the Index's rise was sometimes laboured, but the overall direction managed to pull it above that 84.5 level. As of 8:16, it was at 84.61. I note as an aside that, although gold made another 2010 high this morning, the Index has failed to do so.

The morning Wall Street Journal report notes that the latest run-up was driven by concerns about sovereign debt issues that the Eurobailout has not allayed.
Euro-zone finance ministers said Monday they had created a €750 billion ($959.1 billion) support plan for countries facing financial meltdown, including funds from the International Monetary Fund. The European Central Bank also said it would buy government bonds.

But Commerzbank bank precious-metal trader Michael Kempinski said this only provided a temporary curb to the debt fears and gold resumed rising Tuesday while investors sought to hold physical metal, particularly in Europe.

HSBC said the debt package was bullish for gold because it underlines the urgency of maintaining financial stability in the 16-nation euro zone.
Also mentioned is the continuing rise of the SPDR Gold Shares Trust's holdings. A new record was made, leaving the holdings at 1,192.15 tonnes. It was the second trading day in a row that those holdings rose, making for new records both last Friday and yesterday. Yesterday's rise of 3.65 tonnes added on to Friday's rise of 2.71 tonnes, which had left the holdings at 1,188.50 tonnes.

The morning Reuters report ascribed gold's rise to a post-euphoria hangover, as a more sober assessment of the bailout's implications crept into the marketplace. Interestingly, the report characterized yesterday's strong rally in stocks as a relief rally.
"The euphoria we saw yesterday has almost ended. Gold has remained well supported on safe-haven demand, and we think it will drive further from here," said Commerzbank analyst Daniel Briesemann.

"Market participants are still concerned about the financial positions of a number of countries of the euro zone and their debt problems, despite last weekend's aid package."
Investment demand continues to be a driver, even though physical buying in Asia is fading.

A Bloomberg report, as webbed by Business Week, suggests that the concern over the bailout has been prompted by a cautionary stance from some of the authorities themselves.
Marek Belka, the director of the International Monetary Fund’s European department, said he doesn’t consider the rescue package a “long-term solution.” European Central Bank council member Axel Weber said the bank’s purchase of government bonds poses “significant” risks, Germany’s Boersen-Zeitung reported.

There are “doubts about the effectiveness” of the package, James Moore, an analyst at in London, said in a report. Gold “could be poised for a fresh challenge higher to target last year’s all-time high.” Bullion reached a record $1,226.56 on Dec. 3....

“Gold remains in favor as investors haven’t regained full confidence that Greece and debt-ridden countries will survive with the package,” said Steve Chun, a trader with Hyundai Futures Co. in Seoul. “China’s higher inflation is also adding to alternative demand for gold.”
Also mentioned is the fact that gold has gained about 11 percent so far this year, primarily due to the Eurocrisis. The benefit the yellow metal enjoyed overnight did not extend to the more industrial-based white metals.

The opening of the pit shift coincided with the above-mentioned pullback ending at $1,215. Subsequent to the bottoming, at 8:25 AM, the metal reversed course and shot up above $1,220. Gold came within five dollars of its all-time high in U.S. funds. As of 8:53 AM, the spot price was $1,220.90 for a gain of $18.20 on the day, The Kitco Gold Index assigned +$22.10' worth of change to predominant buying and -$3.90's worth to strength in the greenback. The rise in gold accompanied a stalling of the U.S. Dollar Index, which failed to make it above 84.65. As of 8:56, it was at 84.57.

Again, gold has a real shot at besting its all-time high in greenback terms, joining records already made in Euro, pound and Swiss franc terms. Givem the internationalization of the gold market, such a record may be anticlimactic...

Monday, May 10, 2010

Gold Struggles To Best $1,200

After starting off in the lower 1190s, gold clambered back up to the $1,200 level in the morning. The opening of regular trading came in the middle of a recovery from $1,183.20, reached just after 4 AM ET. The metal has been unusually volatile as it climbed; it sometimes dropped five dollars an ounce while struggling upwards. $1,200 was pierced a couple of times in morning trading, but unsustainably. As of 11:45 AM ET, the spot price was at $1,196.20 for a loss of $11.80 since last Friday's close. The Kitco Gold Index assigned $17.70's worth of change to predominant selling, little more than half of what that figure was when regular trading opened, and +$5.90's worth to weakness in the greenback.

The latter figure also shrunk, due to a recovery in the U.S. Dollar Index which took it above 84 after the post-Eurobailout euphoria began to fade. After rallying before 9 AM, the Index pulled back to the 83.5 level until a little after 9:40. Then, it went on a strong rally that took it almost up to 94 within a half an hour. The rally became weaker and more uneven afterwards, but the Index managed to ford above 84 several times before pulling back. As of 11:48, it was at 83.88.

Some of the recovery in the metal is due to the implication of the bailout sinking in, but some of it is a reaction to overdone selling earlier in the morning. The chances of gold making a gain on the day are slim, but the metal has a shot at staying above $1,200 at the end of the session.

Update: After pulling back to the $1,195 level by 11:30 AM ET, gold climbed back up to the $1,200 level, more slowly than in the morning but also more steadily. The peak of the latest pull-up was $1,203.40, reached at 1:20 PM. As of 1:45, the spot price was $1,201.10 for a loss of $6.90 since last Friday's close. The Kitco Gold Index attributed -$9.40 to predominant selling and +$2.50 to weakness in the U.S. dollar.

The U.S. Dollar Index has managed to recover most of its ground since Friday's close. After sinking back until 12:00 PM, it turned up and managed to rally to above 84.35 by 1:20. As of 1: 47, after falling back to below 84.14, the Index was at 84.16.

One interesting aspect of today's recoveries is the concurrency effect continuing. The rallying in gold and the Index are pacing each other, as both recover from relief selling. Shifting back to gold, there's a good chance of the metal staying above $1,200 by the close.

Update 2: It did, thanks to gold entering in to a trading range bordered by $1,204 on the upside and $1,200 on the downside. Unlike the rallies earlier today above $1,200, this one was not all-but reversed.

Despite the post-crisis plummets in both gold and the greenback at the start of trading, both of them retraced most of their losses. Although gold did so hesitantly until this afternoon, the metal put on more than nineteen dollars an ounce all told from its daily low of $1,183.20. There was some hesitation in late morning when it came to pulling up above $1,200, the metal eventually made it. Interestingly, it did so despite the U.S. stock market averages keeping almost all of their post-bailout-announcement gains.

As indicated above, gold stayed in a trading range for the rest of the afternoon. $1,200 was hardly breached, although touched; $1,204 was overcome once, briefly, just before 3:45 PM ET. That upside breach led to the day's high of $1,205.20. Despite the staying power shown after the pit shift this afternoon, spot gold still closed with a loss at $1,202.70, above the midpoint of its post-pit range. The loss was $5.30 since Friday's close. The Kitco Gold Index assigned -$6.10 to predominant selling and +$0.80 to weakness in the greenback; the two figues sum up to the overall change since Friday's close.

The U.S. Dollar Index drifted upwards for the rest of the day, although not without pullbacks. The biggest rally and pullback came between 3:05 and 4:05; at the end of its round trip, the Index was only slightly higher than it was at the beginning. Interestingly, the peak came at the same time that gold made its own daily high. From 84.15 as of 4:05, the Index trundled upwards to close at 84.29 as of 5:30.

Its daily chart, from, shows the post-bailout-announcement letdown but also the day's recovery:

The day's drop overall had the effect of bringing the Index's RSI line, found at the top of the graph, down from oversold levels - but just barely. Given the pulling away of the main Eurocrisis driver, at least for now, the Index's pullback isn't unexpected. Based on how it's acted after previous phases of the Eurocrisis have ebbed, a further decline is likely. There's also another kicker that may pull the Index down in future: the Fed announcement of a credit line to ship U.S. dollars to the European central bank. Ostensibly, it's for lending purposes; but, the last time such a facility was offered in October of '08, the Index ended up taking a tumble. Not immediately, but after the crisis had cleared. The two-year daily chart of the Index makes for a interesting comparison between now and October '08; both periods can be found by looking at the most recent green-coloured areas on the RSI line part of the chart:

Although the magnitude of the move is less than the one in '08, there is a parallel given the crisis-and-bailout backdrop. October's TARP was followed by churning until December, when the Index plummeted. The Eurobailout seems a far more comprehensive measure, so the Index isn't likely to repeat the second rocket-up that early '09 saw. Despite the recent positive correlation between gold and the Index, a drop in the latter should help the former down the road.

Speaking of gold, its own daily chart shows the post-bailout profit-taking followed by recovery that turned a serious decline into a mild one:

Gold's decline today also brought its RSI line down from the 70 oversold level. I note, in part out of wet-blanket duty, that in its bull phase gold didn't have a solid run upwards until its RSI value had fallen to about 50. That said, its recovery could extend tomorrow. Strange as this may sound, there is a parallel on the charts between the last four sessions and the six trading days after the February 4th plummet. I don't want to stretch the comparison too far, because Feb. 4th put gold deep into bargain territory; May 4th's drop didn't. Still, there's enough similarlity for a possible extension of this morning and afternoon's recovery rally. I don't think that such a rally would last long, though.

A Reuters report ascribed the recovery from the metal's 2% drop to handicapping the inflationary potential of the bailout package.
The metal fell as low at $1,183.85 in early trade as the package boosted risk appetite, lifting stocks, commodities and the euro. However it later pared those losses, briefly rising back above $1,200, as dollar weakness also helped prices....

"Today we are seeing a reversal of previous safe-haven flows," said Tobias Merath, an analyst at Credit Suisse. "The medium-term consequence of what is going on is probably easier monetary policy."

"Monetary tightening was on the horizon, and now this is likely to postponed," he said. "That is positive for gold, as interest rates are opportunity costs for non-yielding assets."...

Again, the elephant in the room - a possible Fed rate hike - appears like it's not going to do any damage to the metal's price anytime soon. Certainly, the chance of a European central bank rate hike is slim to none.

As I said above, gold may have a good day tomorrow but it's still overbought. There's still the risk of a pullback, and it is May. A draining of Eurocrisis demand would be consistent with gold going in to its summer doldrums starting later this month.