Saturday, May 22, 2010

Aftermath Of The Great debate

In this week's Financial Sense Newshour podcast, the first segment had a lot on gold - but that's because of the public reaction to last week's "Great Gold Debate," on whether or not the gold price is manipulated. [.mp3 file of it here, if you need it.] More than a third of that more recent segment [.mp3 file], at the end, was devoted to reactions to each side. One of the callers used the word passionate, which was the right word to describe GATA's Bill Murphy. He carried the day with those who respected his passion, as well as with the disaffected. Those more dispassionate, as well as the image-conscious, tended to favour Jeffrey Christian. There was at least one caller who thought Jim Puplava was unfair to Murphy, which I don't believe was the case.

Also on, just before the Q-calls, was Ron Greiss of The Chart Store. He raised the possibility of gold entering into a bullish cup-and-handle formation, which may lead to the metal going back up again once the present difficulties are hurdled over. Mindful of the seasonality factor, Puplava suggested that gold may be in the doldrums until June.

The third segment features an interview with one of FSN's more colourful guests. Martin L. Gross is a bestselling author who thinks that the fisc has gone to a rather sulphrous place, and he has some choice words to describe politics as usual in today's D.C. The title of his interview, which has been placed early in the segment [.mp3 file], gives a good indication of what his words are: "When Racketeering Is Legal."

Here's an important point relating to the $100 trillion in unfunded liabilites the U.S. government has assumed: as of now, total U.S. household wealth is somewhere in the neighbourhood of $60 trillion. Since corporations are owned, this figure captures corporate wealth as well - more specifically, that part of it owned by members of U.S. households. Here's the jaw-dropper: if the U.S. government instituted a 100% wealth tax, its shortfall would still be in the neighbourhood of $40 trillion. Yes, if total 100% expropriation could somehow be enacted, the U.S. goverment still couldn't fully fund all its unfunded liabilities.

Now here's an interesting legal decision that's made all the difference in the world to U.S. Treasury debt: a court once ruled that a future entitlement commitment is not an asset. Unlike a whole-life insurance policy, it's impermissible for someone to borrow using future Social Security payments as collateral. It can be done with a whole-life policy, which is an asset of the policyholder.

If the decision had gone the other way, GAAP would require the U.S. government to record those "assets" as firm, real liabilities. By extension, Medicare would be a firm liability too. Had it not been for that judge, unless it could be demonstrated that U.S. government property has a value of $40 trillion or more, GAAP rules would officially declare the U.S. government insolvent. That's right: under GAAP terms, Uncle Sam would be a walking bankrupt. Imagine Moody's twisting words around to justify not slapping a C-Ccc rating on long term T-bonds.

It's amazing how a seemingly quotidian legal decision makes the difference between Aaa and Ccc.

Thanks to that decision, the U.S. government has the right to do the as-now politically unthinkable: slash entitlement spending without being held in breach of contract. The way the numbers work out, a future Congress will need that right.

Friday, May 21, 2010

After Early-Morning Spill, Gold Recovers But Falls Bsck

The start of the regular trading session saw a ten dollar an ounce drop, but gold managed to recover after a later drop took it down to a lower level. The initial drop ended at 8:40 AM ET, and it was followed by a relief rally that crumbled as gold was pushed down to $1,171. However, the metal reversed course and rallied by more than thirteen dollars an ounce in the next twenty minutes. Pulling back to around $1,178, and fluctuating around that level, the metal climbed to a morning high of $1,186.20 before falling back a little. As of 11:55, spot gold was at $1,184.70 for a gain of $1.70 on the day. The Kitco Gold Index attributed -$4.40 to predominant selling and +$6.10 to a weakening greenback.

The U.S. Dollar Index sunk in early morning trading to 85.45, but climbed up to almost 85.75 by 9:30. At that point, the rally lost steam and turned into a decline to a lower level. By 10:10, it has bottomed to below 85.4. After a partial rebound, the Index settled into a trading range bordered by 85.43 to 85.53 until breaking through on the upside. As of 11:56, it was at 85.55 after vaulting up to almost 85.66.

So far, the declines since the close have been erased. The afternoon session may keep gold in the the gain column, but the early-afternoon timeslot hasn't been very kind to the metal recently.

Update: Gold did top out shortly before noon ET, at a new daily high of $1,188.90, and it did sink subsequently. The rest of the pit shift saw a steady if somewhat interrupted decline, which took more than twelve dollars off the price before leveling off just prior to the end of the shift. As of 1:31 PM, the spot price was $1,175.70 for a drop of $7.30 on the day. The Kitco Gold Index assigned -$14.50 to predominant selling and +$7.20 to weakness in the greenback.

The U.S. Dollar Index stayed fairly steady in early-afternoon trading, around the 85.5 level. Although it fluctuated, the Index never got that far from there. As of 1:40 PM, it was at 84.47.

As the week ends, the gold market is likely to be fairly quiet from now on; that suggests gold will end up with yet another loss on the day. There's a good chance of an overall drop remaining by the time the close arrives.

Update 2: There was, and the gold market was quiet for the last stretch of the week. With the exception of an upward blip around 2:45, gold stayed within a range bordered by $1,176 and $1,178. At the end, the market closed right in the middle of the range: $1,177.00, for a drop of $6.00 on the day. The Kitco Gold Index attributed -$14.20 to predominant selling and +$8.20 to weakness in the greenback. The two numbers sum up to the raw change on the day.

This week was not a good one for the metal. From last week's close of $1,208.00, gold lost 31 dollars or 2.57%.

The rest of the day was also quiet for the U.S. Dollar Index, which slumped in mid-afternoon before climbing back up to the 85.5 level. The decline reached its low point just before 3:00, when the Index touched 85.3. After lumbering up to slightly above 85.5, a last-minute drop left it at 85.46 for the end of the week.

Its daily chart, from, shows its decline continuing for a third day in a row:

So far, the decline has been fairly orderly - but it's also been fairly consistent. As the lower wick of today's candlestick shows, the Index did touch 85.0 today.

Its RSI line, as shown on the top of the chart, isn't close to overbought any more but it's still well above the neutral range where declines have tended to stop. The MACD lines at the bottom are moving in close to crossing over to a bearish configuration. On the bull side is the fact that the 50-day moving average (in the middle of the chart, drawn in blue) is above the 200-day moving average (red), and both are rising. Also, the Index is still well above its previous short-term low, suggesting that the last three days constitute a pullback in a bull market. There's nothing to suggest it won't keep declining, but there's also nothing to suggest it'll fall to the point where the overall uptrend is in jeopardy.

In terms of a threatened uptrend, gold is closer:

Its own daily chart, also from, also shows three declines in a row - but it also shows six declines in the last seven trading days. Gold's own RSI value is slightly below neutral, around the point where declines reverse in a bull market. It action, though, gives no real assurance that there will be such a reversal Monday.

The metal's performance since Wednesday before last looks like an all-out correction is blooming, although it hasn't fallen the requisite 10% as of yet. The bargain-hunting that stepped in early this morning did not keep gold from descending again into a loss, although it had a couple of good runs in the regular-trading session. The Eurocrisis premium keeps evaporating.

If gold does turn around on Monday, its interday low today will be higher than its last short-term bottom on May 5th. The consistency of the decline, though, suggests that gold has farther to fall before it shakes off the (perhaps pre-)summer doldrums.

Last Tuesday, the metal recovered a little after Monday's drop; it closed above $1,220. That close was the cut-off for this week's Commitment of Traders report, graphed here. Total open interest declined slightly from Tuesday before last; so did the number of non-commercial long contracts. Interestingly, commercial shorts fell slightly too. Commerical longs were up a bit, and non-commercial shorts were up 8.09%. That group, as a group, nailed it for the rest of this last week. Both side of the commercials were slightly at odds with what transpired.

The CoT graph for the U.S. Dollar Index showed a further slumpage in open interest. At the end of last Tuesday, which saw an up day that ended up prefacing three subsequent days of declines, every category shrunk; the commercial long category shrunk the least. The catgeory that shrunk the most was actually non-commercial shorts; that shrinkage didn't exactly gibe with the rest of the week's action. Non-commercial longs shrunk the second most.

Moving back to gold, a post-pit Wall Street Journal report notes that gold seems to be moving with equities again after mentioning that there was a definite bounce off the lows of the day:
The initial decline was blamed largely on selling to raise money for margin calls in other markets that suffered this week....

Several analysts described a gold market now tracking equities rather than getting a safe-haven bid when stocks fall, as has occurred in other recent sessions when the continuing European debt saga prompted worries about economic growth.

"Gold is closing lower again due to sellers responding to margin calls from other areas," said George Gero, vice president with RBC Capital Markets Global Futures in New York.

However, shortly after gold open-outcry trading ended Friday, the Dow industrials were up by around 70 points. As a result, some of the recent margin-related selling abated, analysts said. In fact, gold's $1,188 peak came right around the time the Dow hit its peak.
However, ther's still talk about this being a dip that presents a buying opportunity. One familar face said he's getting back in:
Investor Dennis Gartman, publisher of the widely followed Gartman Letter, said he now favors buying gold in British pound and euro terms again. He had exited from positions and moved to the sidelines earlier in the week, although emphasizing at the time he remained longer-term bullish in gold in non-dollar terms.
Also cited as reason for optimism is the overall rise, and lack of daily declines, in the SPDR Gold Shares Trust's holdings.

Perhaps the decline was accentuated by the same factor that helped drive down equities this week: Angela Merkel's attack on "speculators." If so, then gold will climb up again once the dust settles. How long that would take, is anyone's guess.

Thanks for reading this blog, and have a nice warm weekend. If you're celebrating a long weekend, I hope the entertainment-related line-ups aren't too long.

Attempted Debunking Of Sprott Physical Gold Trust

The bulk of Lara Crigger's article is a defense of the SPDR Gold Shares Trust (GLD): she notes that GLD doesn't dispense physical gold to ordinary investors, but stock ETFs don't dispense stocks. The rest of it is an attempted debunking of Sprott's Physical Gold Trust (PHYS; PHY). Noting correctly that PHYS is structured as a closed-end trust, she claims that it's rigged because it can't issue new shares for gold like GLD does; that means PHYS can sell at a premium to its intrinsic value, which it is right now.

The trouble with her argument is that it doesn't account for the fact that popular closed-end trusts sell above their net asset value (NAV) simply because they're popular. Back in the early 1990s, when European economic integration caught the investment world's fancy, a German-equity closed-end fund sold at double its NAV at the peak of the resultant Eurostock frenzy. There wasn't any scam or issuer hype behind that premium; it just caught investors' fancy. PHYS has gotten nowhere near that level.

Normally, closed-end trusts sell at a substantial discount to NAV. Part of the reason why Sprott's is structured for withdrawals is to minimize that discount.

Peter DeGraff Debunks Selling In May, Buying Back In September

Over at GoldSeek, Peter de Graaf has gone through charts of gold that cover the May-September period from 2001 to this year. He found that selling in May and coming back in September would have cost money in most cases. The only years in which the strategy really worked were 2006 and 2008.

His charts do show, though, that summer doldrums do kick in most years - but the overall point he makes, that it's best to simply buy and hold, is a good one.

Treasuries The New Gold?

Over at Barron's blog, Randall W. Forsyth offers the opinion that U.S. Treasury securities may be the "new gold." Pointing to a large drop in yields since early April, about the time the Eurocrisis heated up, Forsyth intimates that Treasuries were woefully underestimated two months ago.

Yields are nowhere near their crisis low, of course, and the Treasury bull market is quite long in the tooth...

South Korea Accumulates Gold Surplus For Significantly Long Time

As reported by the Korea Times, gold inflows into the country (not counting the Korean central bank's holdings) have been positive for an unusally long 18 months:
The nation's gold account posted a surplus for the 18th straight month in March as global demand for the precious metal has been on the rise with investors flocking to safe assets in the wake of the global financial crisis.

The Bank of Korea (BOK) said Friday that the gold account, which excludes gold holdings by the central bank for foreign reserves, has been in positive territory from October 2008 until March this year. The accumulated surplus during the period reached $2.19 billion (2.60 trillion won).

This is a very rare phenomenon as the gold account used to be in negative territory, meaning that the county sees more gold flowing in rather than out.

Analysts attribute the current phenomenon to rising demand for gold as a safe haven.

According to them, gold prices have been soaring due to growing uncertainties over the financial markets triggered by Southern Europe's debt crisis.

"Recently, investment-related gold demand has been growing faster than that for jewelry or industry," an economist said.

Before the on-going surplus, Korea had mostly run into red figures within the gold trade....

It isn't just Indian and Chinese buyers in Asia who are moving into gold in a big way.

Porter Stansberry Says Buy Gold For The Long Term Due To Euro Mess

Saying that the Eurobailout will bring more inflation, Stansberry points out that the fiat money system has no limits to the amount of credit it can generate - and people are beginning to realize that inflation is in store for them, which explains why they're moving into gold:
To maintain a veneer of legality, the ECB will create an off-balance-sheet entity to "borrow" roughly $1 trillion from itself, the U.S. Federal Reserve, and the IMF. Europe's member states agreed to guarantee these debts, which the ECB claims will be "riskless" because they're simply loans between central banks.

At the root of every paper currency arrangement is a simple scheme to grant credit where none is due. In this case, the scheme is designed to give credit to bankrupt governments in the European Union, via guarantees from those same bankrupt governments and additional credit from the U.S. Treasury, which is itself a troubled creditor at best....

Will this work? At the risk of dramatic future inflation, will creditors really be willing to accept devalued euros, which offer investors almost nothing in interest payments? I don't think there's a chance in hell.

The reason paper money systems always fail is because they provide no practical limit to credit. New currency reserves can always be printed. Bad debts – credit defaults – can be "papered over" rather than restructured. The stability of paper money systems seems like a virtue. The ability to simply manufacture money – without a deposit or true asset as collateral – is the ultimate financial sinecure. As long as confidence in the system remains, the amount of credit that can be manufactured seems limitless.

Unfortunately, this always leads to more debt. At some point, the whole system simply collapses. The debts become so large, they create an untenable economic imbalance, overwhelming the real economy. And when the credit bubble finally bursts, it doesn't destroy just one or two banks' house of cards. It wipes out the entire system, which is linked together by the currency itself.
He also points to gold rising in tandem with the U.S. dollar as exhibiting a sea change in people's confidence in fiat money.

WGC Says Akshay Tritiya Gold Sales May Exceed Last Year's

If so, then the reports that trickled out about sales being much slower this year have proven to be wrong. According to the World Gold Council, gold buying for this year's Akshay Tritiya festival might be greater this year than last year, as a report from the Economic Times relates:
Despite a 21% year-on-year rise in per gram gold prices on Akshay Tritiya, the quantity of gold sold this year is expected to be higher than that of last year’s, indicative sources from industry body World Gold Council (WGC) told ET. Across the country, 45 tonne gold were sold last year on the festive occasion....

Based on information trickling in from across the country, the WGC sources said they anticipated higher sales this year because large retail jewellers with multiple outlets across cities have seen a rise in volumes sold from last year’s festivity. Significantly, while these large players constitute 20-30% of the country’s five lakh-odd jewellers they control 70-80% of the business.

WGC was not able to provide numbers as the council is still compiling the data, which will be consolidated in its third quarterly trends report. The first quarter trends are expected to be out next week....

The surprises keep on coming. If the WGC's estimate pans out, then the demand was really underestimated. The dealers that reported may have been squeezed out by the gold equivalent of chain stores.

National Review Online Goes To Bat For Glenn Beck

Stephen Spruiell points out that at leat two of Rep. Weiner's political allies are taking the U.S. government to task using language that Glenn Beck and other conservative commentators have been using. One of them is George Soros, who could also be descibed as a man who "profit[s] on people's fear." Spruiell also points out, in regard to the mark-up question, the Weiner report is a little incoherent.

Rather than cast it merely as a vendetta against Glenn Beck and talk radio, Spruiell offers this take:
One way to look at this is as a typical liberal nanny-state intervention. Busybody Democrat with too much free time wants to tell you what to buy — news at eleven. But there is a darker possibility here, one foreshadowed by government bans on short-selling and denunciations of those seeking insurance policies against widespread sovereign defaults as greedy “wolf packs” bent on destroying the global economy. Weiner’s report is a tinny echo of these broader crackdowns, an attempt to delegitimize dissent by painting it as something motivated by profits instead of patriotism. Glenn Beck and others are trying to sound, for the nation’s small-dollar savers (what few we have left), the same alarm bell that the nation’s large-dollar money managers have evidently heard loud and clear. That’s not against the law — yet.

Gold Spills Below $1,170 Last Night, Mostly Recovers

The Eurobailout package moved closer to a done deal as the German lower house passed Germany's expanded share of the expanded package. Also passed, by the American Senate, was retiring Sen. Dodd's financial-reform bill; its version doesn't square with the one passed earlier by the House, so the reconciliation process begins. In inflation news, the latest country to see a higher-than-expected inflation rate is Canada. Although only 1.8%, it's part of a trend that has not visited the U.S. as yet.

All of this news didn't help gold all that much. After hovering in the low 1180s yesterday evening, the metal suffered a quick drop of more than ten dollars an ounce just before 10 PM ET. Hovering around $1,170 afterwards, the price recovered somewhat after midnight. The top of the early morning, until 5:00, was $1,180; two attempts to get above failed until that time. Shortly after 5:00, the metal managed a leap to $1,186.20 and a hover just below $1,185. That new level gave way to a drop to $1,180; after testing that level from just after 6:00 to just before 8:00, the metal rose above it slightly. As of 8:04, the spot price was $1,181.50 for a drop of $1.50 on the day. The Kitco Gold Index attributed -$5.60 to predominant selling and +$4.10 to a weakening greenback.

The U.S. Dollar Index stayed below 86 as the Euro kept rising. A Reuters report says that short positions in the currency are stil being unwound as something of a short squeeze develops. [That selling of gold for margin might well have been to meet margin calls on Euro shorts.] A night decline took the Index down to below 85.15; it ended at 12:25 AM. Subsequently, the Index managed to rally almost to 86, on two occasions, before pulling back; since 2:30, it's been in a trading range between 85.5 and 86. As of 8:13, the Index was at 85.85.

A Reuters report, as webbed by the Globe and Mail, says the slide was halted by some bargain-hunting buying.
Prices earlier fell to a low of $1,166.50 an ounce, down more than 5 per cent from last Friday. Traders say prices are due a period of consolidation after rising 6 per cent in the first two weeks of May to record highs at $1,248.95 an ounce.

“We traded up from $1,125 to the high at $1,248 not even in a month, so it is quite normal that you have a movement against that,” said Commerzbank trader Michael Kempinski.

“There is really too much investor money in there, and the funds are not all interested in the long term performance. Long term, I’m not really worried, I’m sure gold is coming back.”

The correction in prices is also likely to bring more demand for physical gold, in the form of coins, bars and jewellery, Mr. Kempinski said. “It’s good to have a healthy consolidation, so that the physical market comes back into line.”
Also mentioned is the fact that the SPDR Gold Shares Trust's holdings remained unchanged yesterday; other gold ETF holdings are firm.

The morning Bloomberg report, as webbed by Business Week, said that gold declined with other commodities this week but might advance if Eurobailout-related fears come back.
“Many would see the latest pullback as a good opportunity to go long yet again,” said Andrey Kryuchenkov, an analyst at VTB Capital in London. “As long as the flight to safety carries on, gold will perform better than other precious metals and most commodities.”...

“There is a lack of confidence in the euro zone, and people may have to shift portfolio assets to safer vehicles” such as gold, said Bernard Sin, head of currency and metals trading at bullion refiner MKS Finance SA in Geneva. “We think the market is very oversold. Bargain-hunters may come in and support prices.”...

“Long-term-oriented investors are still accumulating gold,” Eugen Weinberg, a Frankfurt-based analyst with Commerzbank AG, wrote in a report yesterday. The recent slump “is probably attributable to profit-taking by speculative investors,” Weinberg wrote.
The parade of experts have lined up with buy-on-the-dips.

A Wall Street Journal report is less sanguine, noting that more selling may come due to more margin calls needing to be met. The report quotes someone bringing up equities plus other markets.
Gold also is struggling against bearish short-term technical factors. Its slide this week broke through several key trendline supports, triggering selling from funds that rely upon technical trading strategies.

"I think there's still more space on the downside," said Commerzbank precious metals trader Michael Kempinski in Luxembourg.

With regular trading open, gold went on another downward slide of ten dollars an ounce; the bottom, reached just before 8:40, was $1,172. The metal then rallied a little. As of 8:54 AM, spot gold was at $1,174.10 for a drop of $8.90 on the day. The Kitco Gold Index assigned -$14.50's worth of change to predominant selling and +$5.60's worth to weakness in the greenback. The U.S. Dollar Index sunk back from 85.9 but didn't broach the lower end of its range; as of 8:57, it was at 85.56.

So far, the bargain hunting hasn't made its appearance in the pit shift. It may later in the day.

Thursday, May 20, 2010

Gold, After Further Slippage, Fords Above $1,190

The fall at the beginning of regular trading proved to be a fake-out. Influenced by the jobless-claims number and the resultant plummet in the U.S. stock market, gold rallied to the tune of almost eighteen dollars an ounce from 8:35 AM ET to 10:00. Falling back down after peaking at $1,195, gold gave up almost all of that gain before floundering around the $1,184 level. After stabilizing as of 11:00, the metal turned up again to reach a slightly lower peak. As of 11:48, the spot price was $1,191.90 for a gain of $0.50 on the day. The Kitco Gold Index attributed +$3.90 to predominant buying and -$3.40 to greenback strength.

The U.S. Dollar Index's strength is still there, but it diminished as a rally to 86.8 failed to be followed through upon. Falling to 86.45 as of just before 10:00, the Index rallied again but failed to best its high. That lower high preceded a lower low as it fell below 86.4. As of 11:44, the Index had shaken off a relief rally, which ended at 86.44, and sunk to 86.37.

So far today, the post-plummet script of a lower interday low ending with a small gain is being followed by gold. The afternoon may well see it continue to that conclusion.

Update: After making that slightly lower peak, gold fell again until bottoming at $1,182. The decline started slowly, but climaxed just before 12:45. Once at $1,182, reached just before 1:00, the metal fluctuated between that level and $1,185 before pulling up again. At the end of the pit shift, the spot price was $1,188.40 for a drop of $3.00 on the day. The Kitco Gold Index assigned -$3.80's worth of change to predominant selling and +$0.80's worth to a weakening greenback.

Weaken, the U.S. Dollar Index did. After bottoming around 86.35, it recovered up to 86.57 as of just before 1:00. Subsequently, it plummeted down to 85.85 before advancing to 86 in a relief rally. As of 1:43, that upturn was partially shaken off, with the Index at 85.92.

Aagain, the above-mentioned script is being followed, with gold in a trading range whose bottom is well above the day's low. The rest of the afternoon shouldn't see that much of a drop. Although my guesses at the close haven't been really accurate, I'll lob off another one: $1,190.

Update 2: That guess was fairly off too. Since I haven't demonstrated any real talent at it, I'm going to bring the guessing game to a close and go back to my previous kibitzing. Suffice it to say that gold deviated from the above-mentioned script.

During the rest of the afternoon, gold didn't make it above $1,188. Although there were frequent relief rallies, the overall trend was a drift downwards until late afternoon when a range was established between $1,181 and $1,184. The metal closed in the upper end of that range, but well below yesterday's close. As of today's, the spot price was $1,183.00 for a loss of $8.40 on the day. The Kitco Gold Index attributed -$10.10 to predominant selling and +$1.70 to a weakening greenback.

The U.S. Dollar Index's decline continued until 2:50 PM ET, when it bottomed out at 85.4. From that low, it recovered most of its losses for the day by climbing up all the way to above 86. There was some hestiation when a little below that level, but it was eventualy surmounted. As of 5:30 PM, it was at 86.02.

Its daily chart, from, shows that three-day plateau formed Monday to yesterday being broken today:

With today's drop, the RSI value found at the top of the chart is no longer in overbought territory. The 86 support level was broken, indicating the crisis-related gains are finally melting away. Significantly, the greenback was down on a day when the U.S. stock market was pummeled. If there were any flight to safety caused by the decline, it was more than compensated for by the postcrisis drop.

Given that falloffs after rocket-ups by the Index tend to be sharp, there's a good chance that it will continue to drop in coming days. It has a long way to go before its MACD lines cross over into a bearish configuration, so the drop is a short-term pullback. It's nowhere near its previous short-term low of about 83.

The same post-crisis letdown affected gold even more, as its own daily chart shows:

Although the end value is significantly higher than its interday low, the metal still saw a notable drop today. Gold's MACD line had it: the bearish crossover yesterday did prefigure today's decline. Although still far away from its last short-term low of $1,155, the metal is still coming up to that figure. Its RSI value is now slightly below the neutral level.

This day does not look like the other post-plummet days this year, suggesting that the metal has had more of a letdown coming to it than after those days. Sadly, the Europeans who bought in a panic seem to have bought near an intermediate high.

What to watch for now is any bargain-hunting amongst physical buyers. A couple of months ago, that buying kicked in at $1,100/oz and cushioned any declines below that level. As the gold price shot up, the bargain point rose too. I'm not sure where it would be now, but it's a potent figure once it settles in. That being said, gold's short-term downtreand doesn't show much sign of abating.

A post-pit Wall Street Journal report said that the decline was not that bad, given that afternoon buying stepped in around $1,180 which kept the metal from falling further.
[G]old pared its loss into the open-outcry close, faring better than other metals as it retains some safe-haven luster. Investors used several intraday retreats as buying opportunities....

A move by Germany this week to ban short sales of some securities added to fears about the extent of European sovereign-debt issues and also prompted worries about further regulation of financial markets in other nations.

"It's risk aversion to the ultimate, and this may continue," said Leonard Kaplan, president of Prospector Asset Management in Chicago....

Also, some investors were cashing out gold positions to cover margin calls in other markets, said Bart Melek, global commodity strategist with BMO Capital Markets in Toronto. Furthermore, there have been reports that the recent surge in prices hurt gold-jewelry demand.

But after hitting a two-week low of $1,175, benchmark gold snapped all the way back to steady levels on two occasions during a volatile session.
The other experts quoted therein expressed their belief that this dip presents a buying opportunity. Also mentioned is the fact that platinum and palladium dropped far more than gold today.

Current prices could represent a buying opportunity to those uninterested in timing considerations, but a more momentum-influenced person would note that the metal's declines have not yet ended. There is still some sovereign-risk premium, and the rise in the SPDR Gold Share Trust's holdings yesterday does show that some already do see this drop as a buying opportunity. Whether any such demand will be enought to reverse the fall, will be apparent tomorrow.

Big Fall In Store For Gold?

Daryl Mongomery, over at Seeking Alpha, points out that the current spill was evident at the time by a gold and silver mining stock ETF failing to make a new high when gold did.
When trying to determine what gold is going to do, it is a good idea to look at mining stocks. These almost always lead the metal both on the way up and the way down. Interestingly, GDX, the gold and silver ETF for the major mining companies, failed to make a new high and break out in the days around May 11th. This non-confirmation was disturbing at the time and is even more disturbing now. GDX almost touched its 50-day moving average in the almost $30 drop in gold prices yesterday. The more volatile GDXJ, the junior miners ETF, convincingly sliced through its 50-day and closed well below it. The technical indicators on GDXJ are starting to look quite sickly. The juniors are clearly breaking down and it makes sense that they should lead the way for the complex. If so, bullion itself could be in a lot of trouble soon.
He ends by pointing out the risk of a cash squeeze for gold: gold leasing, which provides funds at a low rate that can be turned into currency by selling. Since a gold loan has to be paid back in gold, the price being driven down that way is actually advantageous for the borrower.

Sucker Search

Every time an investment turns from rocket-up to plummet, there's always a search for a presumed sucker who bought at the top. Last December, it was Barrick and its de-hedging. This time, Fortune blogger Colin Barr offers the name of value investor Jeremy Grantham. Grantham, a long-time gold skeptic, first bought some in March 2009. Last Friday, he bought some as well.
"I hate gold. It does not pay a dividend, it has no value, and you can't work out what it should or shouldn't be worth," Grantham said, according to an account of the comments by Robert Huebscher of investment advice provider Advisor Perspectives. "It is the last refuge of the desperate."

Grantham... then went on to deliver the punchline -- that he bought some last Friday.

Of course, the final tally isn't in yet. Recently, Barrick did benefit some from closing its hedge book.

Goldman Sachs Executive Says Gold Near Cyclical Top

In a recent speech at the World Mining Investment Congress, Goldman Sachs' global head of commodities research Jeff Currie said that gold's run-up is in part due to a low real-interest rate environment. He also said in an interview, however, that gold is nearing its cyclical peak.
"The very long term price for gold is somewhere around 750 dollars a troy ounce," he says, and, when asked where the market currently is in the extremely long term gold cycle, he told Mineweb "on a scale of 0 to 10, with ten being the top of the cycle, I would say it is somewhere around 8 or 9."
Currie isn't a gold skeptic, not by any means, but the does say the top of the cycle might come in 2011.

If he and Goldman are right, then this cycle will prove to be fairly short. Gold's long-term bear market lasted about twenty years. If the time when the London Gold Pool was suppressing the price is included, its last bull market lasted about fifteen years.

World Gold Council CEO Says Gold Will Climb On European Inflation, ETF Demand

A rise in European inflation and increasing investment demand should push gold up, said World Gold Council Chief Executive Officer Aram Shishmanian.
“Investors are increasingly looking to gold for wealth protection,” Shishmanian said. “The ETF market has been explosive and the intermediate market is on the cusp of growing very rapidly as major pension funds and institutional investors begin to hold gold long-term,”he said....

Demand for gold jewelery, corns and bars as a savings method would rise in rural areas of India and China, Shishmanian said. The possible sale of gold reserves by the International Monetary Fund was already absorbed by the market, he said.
He also mentioned higher jewelry demand, presumably from global recovery.

That puts a question mark on the $800 figure, to which gold would supposedly fall should
investment demand drain. It seems to be based on a currently depressed jewelry market, which isn't depressed solely because gold's up.

Latest Gold-Skeptic Offering

As expected, the recent drop in gold after its upward run is bringing out the gold skeptics. The latest one is Stephen Gandel at Time's blog "The Curious Capitalist." Noting that gold is an inflation hedge, he also notes that there's little U.S. inflation at present but gold keeps going up. He concludes that gold should be going down as a result.

Gandel doesn't seem to be aware that inflation is picking up, but not in the U.S. He also seems unaware of the fact that gold tends to rise in an environment of negative real interest rates. Both are occurring right now.

Indian Gold Demand Blips Up

According to a report in, lower gold prices have not kindled a sustained pick-up in demand.
"Yesterday there was some buying at dips..but these prices will not attract genuine buying on a sustained basis," said a dealer with a private bank.

As of now, not much hope for a revival is held up.

Gold Sinks To $1,180

The level of fear seems to be ebbing in the markets overall as gold continues to sink. The price managed to recover to $1,198 in night trading, but tailed off a little after midnight; it bottomed at $1,183. Recovering to the $1,190 level by the time London trading opened at 3:30 AM ET, gold hovered there until Hong Kong trading closed at 5:30. Then, the metal sunk more than 10 dollars an ounce to bottom at $1,177.50. Reached just before 8:00, it was followed by a slight rally that took the price a little above $1,180. As of 8:08, the spot price was $1,180.70 for a drop of $10.70 on the day. The Kitco Gold Index split the loss into -$4.20 for predominant selling and -$6.50 for strengthening of the greenback.

The U.S. Dollar Index managed to recover from its losses yesterday morning and afternoon. Rallying steadily last evening, it got up to above 86.6 before tailing off to 86.4 shortly before midnight. Another run to 86.6 preceded a quick fall to below 86.1. Reversing at 3:00, it went on a ragged but swift rally that took it up to almost 86.8 by 7:50. In that rally, there were signs that the concurrency between gold and the greenback had ended for a time. As of 8:18, the Index was 86.71.

A Bloomberg report, as webbed by Business Week, reports the selling-off seems to have been prompted by cash-raising but pegs that explanation as speculative.
“Gold may have further to correct short term, having pushed to just short of $1,250 last week and been overbought on the charts,” James Moore, an analyst at in London, said in a report. Still, “we expect investors who missed the boat the first time may view the current dip as a buying opportunity.”...

“People are reducing their long positions on metals,” said Paul Yamamura, a Tokyo-based trader at Sumitomo Corp., referring to bets on price gains. “Considering the volume in exchange-traded funds, gold could be vulnerable.”
Yet, as also mentioned, the holdings of the SPDR Gold Shares Trust increased by 3.04 tonnes yesterday to a record high of 1,220.15 tonnes.

An earlier Reuters report, written before the later London decline, ascribes the fall to traders losing faith in the rally.
In the longer term, however, analysts say the metal is poised for further gains.

"When we have had these sell-offs in gold because of market disruption, which we had in October 2008 when it fell by $100 in one day, it has after that found a new level and started to rise again," said VM Group analyst Matthew Turner....

"It has proven to be resilient, and not a market to stand in front of whilst it's motoring," said Peter Hillyard, head of metals sales at ANZ Bank in London.
Neither report mentions anything about short sellers coming back.

U.S. jobless claims for last week, instead of declining as expected, jumped up by 25,000 to 471.000. If anything, the number pushed gold up. Prior to its release, though, when regualr trading opened, the metal fell to a new daily low of $1,174.20. As of 8:53 AM, the post-8:30 recovery pushed the metal to $1,180.00 even for a loss of $11.20 on the day. The Kitco Gold Index divided the loss into -$4.65 for predominant selling and -$6.55 for a strengthening greenback. After making another attempt to rally above 86.8, which was thwarted right after 8:30, the U.S. Dollar Index fell. A resting point at 86.65 gave way to a drop to below 86.5. As of 8:56, it had rebounded a little to 86.54.

There are signs of the old inverseness between the U.S. dollar and gold popping up again, possibly due to the inflation differential between the U.S. and most other developed nations. Benign U.S. inflation numbers, of course, don't help gold all that much. The rest of the day's trading will show how things sort out for the metal.

Wednesday, May 19, 2010

Gold Gets Pummeled In Morning Trading

The same phenomenon that made the gold market treacherous a couple of months ago has reappeared. After an early-morning recovery fizzled, gold plummeted in early-mid morning trading; another one of those air pockets has appeared.

It was trending up slightly until the storm visited. Although the metal couldn't get above $1,210, it was crowding that level until just after 9:30 AM ET when the plummet hit. After it was done wreaking its damage, just before 10:15, gold was left at $1,192. A subsequent relief rally couldn't get above $1,200. As of 11:45 AM, the spot price was $1,194.10 for a loss of $28.90 on the day. The Kitco Gold Index attributed a very large -$38.70 to predominant selling and +$9.80 to weakness in the greenback.

As far as triggers are concerned, the stock market was not one of them. At the time when gold was plummeting, the averages were actually trending up. It wasn't until the plummet was mostly over that the averages joined in; the S&P 500's own plummet lasted until 10:24. It could be somewhat implausibly argued, on timing considerations, that gold's plummet triggered one in the U.S. stock market.

A better trigger candidate would be the U.S. Dollar Index, which flailed around a plummet line of its own which started just after 8:00 AM. Beginning when the Index was above 87, the wild drop didn't end until it bottomed at 86.40 as of 10:34. Subsequently, it pulled up in something of a relief rally while keeping its volatility. As of 11:45, it was at 86.65.

The game has changed, perhaps to some of the older rules. Gold and the greenback are still trading in concurrency, and not opposed to each other, but the old parlousness of early-mid morning has come back. The momentum selling may be over and done with, but there's a risk of another drop nearer to the end of the pit shift.

Update: The next wave did come, but it wasn't that bad. At its lowest, just before noon ET, gold was at $1,185.90.

$1,200 was still out of reach. After the second selling wave climaxed, the metal spent some time hovering around $1,190 until 12:50. Later, it climbed up a little but couldn't reach $1,195. At the end of the pit shift, as of 1:30, the spot price was $1,192.30 for a loss of $30.70 on the day. The Kitco Gold Index assigned a huge $41.80's worth of drop to predominant selling and +$11.10's worth to a weakening U.S. dollar.

The U.S. Dollar Index began to calm down after its wild rise earlier in the day. As the fluctuations decreased, it settled mostly down to around the 86.55 level. As of 1:33, it was at 86.57.

Now that the pit shift is over, gold is likely to stay about where it is. The damage has been done, but plummets typically don't spill over into the electronic-trading shift. Today's guess at the close, out of my proverbial hat, is $1,198.00. There's an outside chance it'll crawl up to $1,200.

Update 2: Again, I was off by a fair amount. Instead of creeping back up, gold crawled back down and stayed in a range between $1,190 and $1,195. A dip slightly below $1,190 at 2 PM ET failed to take, and the metal stayed in that range for the rest of the day.

The close was at the lower end: $1,191.40, for a drop of $31.60 on the day. The Kitco Gold Index attributed a whopping -$49.40's worth of decline to predominant selling, and an unusually large +$17.80's worth to a weakening greenback.

Needless to say, the U.S. Dollar Index collapsed today. It was over 87.1 as recently as 8 AM; by 5:30, it was at 86.14. The rest of the afternoon didn't see the wild swings seen in the morning, but the same downtrend was there. The early-afternoon resting point around 86.55 gave way around 1:40, and another around 86.25 also gave way in late afternoon.

The Index's daily chart, from, shows (incredibly enough) that it's still overbought:

As shown on the top of the graph, its RSI value is still above 70; that signifies overboughtedness. Although today's plummet was a wild ride downwards, the end result was today's decline paralleling yesterday's gain. Today's closing value for the Index was quite close to yesterday's open.

I have been suggesting that the Index was due for a fall, but an abortive attempt to time it showed that I couldn't pinpoint the time. Today's action is part of a three-day plateau that has left the Index still well above 86. With the exception of the cautionary RSI, the technical signs still indicate a strong bull run. I reiterate that it's vulnerable to a sharp pullback, but so far there isn't a sign that it's imminent as yet

The plummet today coincided with one in gold, though, which makes it look as if the crisis premium in both is evaporating. Unlike the Index's chart, gold's shows a fair bit of damage done today:

Gold's RSI number is now far from overbought; it's only slightly above neutral. Moreover, and more to the point, its MACD lines at the bottom of the chart have been knocked from a solidly bullish configuration to bearish. The sell-in-May rule seems to be working, or wreaking.

Despite gold's failure to hold $1,200, it's still up a fair bit in the last month. As recent news reports have indicated, one of the reasons for the draining of the crisis premium was gold providing profits that could be deployed to meet margin calls elsewhere. That's one of the reasons why bear markets jack up the correlation between normally uncorrleated asset classes; it isn't just contagious fear that does so.

The next two days are going to be tests of the current intermediate-term uptrend. If the declines halt, and the price slowly picks itself up from the mat, then the uptrend may still be intact. Without any immediate crisis driver, though, gold is likely to lumber instead of shoot up.

The other possibility is a further downturn, perhaps after a relief rally day or two. If gold closes below today's $1,185 interday low, that might as well be an engraved invitation to technically-guided shorters to wade back in.

A post-pit Reuters report begins by noting that gold was driven down by those above-mentioned liquidation sales. Amongst other points therein, these were made:

* Gold heavily pressured by selling related to margin calls to cover losses in other financial markets - traders.

* Bullion investors move to sidelines as euro rallies against dollar after hitting four-year low in early trade.

Those two get to the nub of the matter. Short selling wasn't mentioned. Interestingly, nor was momentum selling - even though momentum funds bailing out was the logical shoe to drop after their pile-in earlier this month. Given Dennis Gartman's decision to liquidate his own holdings, there may have been some copycat momentum selling hidden in the cash-raising crunch.

As for tomorrow, there is a risk that gold will plummet further. If it does, but recovers by the end of the day, it'll have given a good sign. The metal has done exactly that for two recent short-term lows, not to mention the Feb. 5th one that brought an end to its earlier correction. All told, a wild yo-yo'ing ride tomorrow would give grist for a little optimism afterwards.

Gold Rates Mention Again In USA Today Personal Finance

I don't get the pulp edition of USA Today, so I don't know if Matt Krantz's answer to another question about gold has appeared in today's "McPaper." Given its popularity focus, the fact that Krantz is fielding another question testifies to gold's spreading popularity.

This time, he credits gold for its rise over the last ten years but warns against assuming the past is prologue. Krantz seems to be moving to the idea that a 5% holding isn't such a bad idea. He used to be more of a skeptic, but he's bending with the wind.

The spread of the gold meme through the mainstream financial media is basically a process of outreach. So far, it's been successful.

Dennis Gartman Sells In May And Goes Away

He doing so was likely to have had a downward influence on the gold price. Yesterday, formerly bullish Gartman announced that he was closing his long positions.
"We shall surprise a lot of people this morning with this statement, but we wish to rush to the exits entirely with our long positions in gold versus the foreign currencies," he said in his daily Gartman Letter.

Gartman said that the trade to buy gold in euro terms had gone "parabolic" on Monday when it soared above 1,000 euros an ounce.

"Having done so, and with the public now heavily involved, we want out and are heading for the sidelines," he said.
He got in almost a year ago when gold was still below $1,000, so his exit could be pegged as profit-taking. According to Barron's, Gartman was careful to note that he's a trader and is closing a trade.

Given how gold's performed last night and this morning, despite the early-morning respite, Gartman's timing can't really be faulted. He might be back for Labour Day.

Induced Cramer Skittishness

Kevin McElroy of Resource Prospector, a contrarian like many goldbugs are, doesn't like to be on the same side of the trade as Jim Cramer. Last night, Cramer recommended going into gold. That got McElroy antsy.
Is he wrong to tell his viewers to buy gold? Not necessarily. I’m still long-term bullish on gold as a way to protect wealth against inflationary policies of the world’s central bankers and spendthrift politicians.

But his timing couldn’t be much worse. Gold is trading near its all time highs. I don’t watch his show, but I’m wondering if he has a tendency just to tell people to buy investments when they’re at their highest, simply because he knows people are probably already excited about the idea....
McElroy recommends waiting for the dip to buy in.

Jim Cramer is easy to criticize in investment circles because he's combined advice-giving with entertaining. One of the tragedies of Wall Street is that an investment becomes most popular when it's topping, and many bargains are yawners. Hence the skittishness towards showmanship amongst old-style investment pros.

Indian Gold Demand Perks Up

The reason, of course, is lower prices. According to a report by Reuters India:
India's spot gold prices rose on Wednesday as a sharp drop in prices in the previous session attracted brisk buying, but dealers say the prices still remain higher to generate continuous demand, dealers said.

"The dip in prices in the previous session attracted some buying," said a dealer with a private bank....

India's price-sensitive customers, who drive the global gold demand, stayed away from gold buying festival of Akshaya Tritiya on Sunday, an indication demand may remain subdued through the rest of the year if global prices continue to stay firm.

Given how gold's fared so far, demand is likely to continue picking up.

Gold Makes U.S. News And World Report

The timing could have been better, given gold's plummet this morning, but the article is fairly even-handed. Most of it describes the benefits of owning gold, particularly as a portfolio hedge. One of the benefits listed ties in with the claim that gold is becoming a para-reserve-currency. Providing the balance is the warning that gold can be very volatile.

It's further evidence that gold is coming in to its own as an alternate investment. Gold is still in outreach phase.

Glen Beck, Goldline Being Leaned On

Take it as you will; Glenn Beck is one of those fellows who would be pounced on anyways if it can be credibly claimed that he crossed the line. The justification, or pretext, in this case is Beck's association with a company called Goldline. The company's been accused by Rep. Anthony Weiner as selling overpriced gold, and Weiner has announced his intention of introdcing a law that would force gold companies to disclose the bullion value of the gold products they sell and how much gold would have to rise before the buyer would show a profit based on the melt value.

More details are in this pro-Weiner column here.

The Warnings Are Coming Out Again

The latest one has been webbed by Fortune magazine, and it reiterates the same price that old-style analysts have come up with. Ignoring investment demand, gold should be at $800/oz right now; that's what the traditional supply and demand analysis ends up with. The article concedes that investment demand could hold gold well above that level "indefinitely,"but suggests that global recovery will encourage enough gold holders to get rid of their gold to make investment demand ephemeral again.

So, as of now, there's little belief in a "New Era" for gold in the mainstream press. The author has a point when he notes than many incipient bubbles fail to get off the ground.

I note, though, that gold has not been at $800 since the troubles of 2008. The last time it settled at that price, absent a crisis, was at the end of 2007.

Gold Sinks In Late Night Trading, Fails To Recover

After hovering once again when evening trading got rolling, the metal tumbled once the Hong Kong market opened. By midnight, the metal's price was at $1,210.

Events in Europe provided a boost to gold, as stocks fell in response to Angela Merkel's plan for temporarily banning naked short selling in European government bonds and bank stocks. She called this morning for an EU-wide ban on the same practice. The lift in gold, which started at 3:00 AM ET, carried its price up to $1,221.40 but that run fizzled a little before 5:00. In a little more than an hour, selling pressure had driven the price down to $1,201.20. Following that bottoming, a relief rally brought it up above $1,205 but the price failed to best the $1,210 level. As of 8:00 AM, spot gold was $1,207.80 for a loss of $15.10 on the day. The Kitco Gold Index attributed -$17.70 to predominant selling and +$2.60 to a weakening greenback.

The U.S. Dollar Index, although pulling back a little, basically hovered over the course of the overnight session. Essentially, it was in a trading range bordered by 87.4 on the upside and 87 on the downside. As of 8:06 AM, it was at 87.11.

A Reuters report says that gold was dragged down by other assets in part because it's being used as a piggy bank to meet margin calls for other assets [i.e., Euro longs, oil, possibly stocks.]
"We notice clear signs of nervousness in the gold market, taking into account the overnight developments in euro zone," said Pradeep Unni, senior analyst at Richcomm Global Services.

"Investors seem to be taking their money out of bullion partly to lock profits, but more importantly to pay the margin calls arising out from other markets."...

Gold could correct further before resuming any uptrend, technical analysts at Barclays Capital, who study charts of past price moves to determine the future direction of trade, said.

"Gold has corrected lower as momentum and sentiment unwind from recent extremes," they said in a note. "Having reached our initial $1,210 target, the correction could extend further."

"However, as price approaches the $1,183 May 10 low and the 21 day average at $1,187, we are looking for reasons to reload bullish positions, as the bigger picture still points to significantly higher levels later in the year," they added.
Holdings in the SPDR Gold Shares Trust were unchanged yesterday. Also mentioned was the collateral damage done to the Euro, assuming that a lower Euro is unwanted in Euroland, as a result of Merkel's proposals.

The morning Wall Street Journal report ascribed the drop to a lack of new safe-haven buying.
"There's a little bit of stability in Europe and that's taken the edge off financial markets," said Bill O'Neill, a principal with Logic Advisors in Upper Saddle River, N.J.
Participants sold after gold's recent rise to records approaching $1,250 last week....
In other words, the kind of panic that benefits gold is ebbing; so is the price.

A Bloomberg report says that profit-taking, along with using gold as a piggy bank, drove down the price.
“It could be that some people are taking profits to cover losses” in other markets, said Jesper Dannesboe, a senior commodity strategist at Societe Generale SA in London. “We’ve had a really good run for gold, and it’s a bit of a correction. We’re still expecting some buying on dips. There’s still the perception that gold is a safe haven.”...

“Some investors are taking profits on recent gains, which is exerting a little pressure on gold,” said Park Jong Beom, a trader with Tongyang Futures Co. in Seoul. “Psychologically, gold still remains attractive, as European fiscal woes have yet to ease.”
Also quoted are two optimistic intermediate term forecasts, one for $1,350 gold and another for $1,500.

The April CPI numbers were released, and the core number showed a lower value than what was expected. The raw number dropped 0.1%, while the core number was unchanged. It didn't have that much of an effect on gold, which pulled up from $1,204 when regular trading began. The run took the metal up around $1,210 before abating. As of 8:55 AM, the spot price was $1,208.90 for a drop of $15.20 on the day. The Kitco Gold Index assigned -$21.25's worth of change to predominant selling and +$6.15's worth to a weakening greenback. The U.S. Dollar Index broke through the 87 support level, sharply, around 8:10. A relief rally that brought it back to 87.05 was followed by a further decline to similar levels reached by the initial break. As of 8:58, it was at 86.75.

For the last few days, regular trading has provided relief from declines in overnight trading, leaving gold stuck around $1,225. Today's session will show if the same tendency exerts itself.

Tuesday, May 18, 2010

Gold Mostly Recovers From Early-Morning Drop

Although gold in late morning trading was well below the levels it had been around midnight ET, it recovered most of the drop it had suffered early in the morning. As the early European session turns from good to bad, the regular trading session on this continent is turning for the better.

When regular trading began, gold was below $1,210. An aborted move starting at 8:30 gave way to a more sustained uptrend. Although interrupted, it lasted for almost two hours and carried the gold price above $1,218. From 10:30 AM, the metal was fluctuating in a trading range centered just above that same $1,218. As of 11:43, the spot price was $1,219.90 for a loss of $4.20 on the day. The Kitco Gold Index split the loss into -$2.60 for predominant selling and -$1.60 for strengthening of the greenback.

The U.S. Dollar Index, after stumbling down to below 85.95, managed to rally later. Initially hesitant, the rally got rolling around 9:55 and ended up carrying the Index to 86.38 by 11:22. The subsequent pullback was well on its way to reversing. As of 11:45, the Index was at 86.36.

If there's any bearishness lurking around the gold pit, it's been well hidden. Longs were still stepping up to the plate. Although halted in late morning, that recovery play may continue in the rest of the pit session.

Update: It didn't. An attempt to get above $1,220 was thwarted a little before noon ET, and the metal descended to $1,212. Having reached that level as of 1:15 PM, the metal recovered somewhat as the pit shift ended. As of that ending, 1:30, the spot price was $1,214.70 for a loss of $9.40 on the day. The Kitco Gold Index divided the loss into -$6.20 for a strengthening greenback and -$3.20 for predominant selling.

The U.S. Dollar Index continued to recover from its droop earlier. After hovering just below 86.35 until 12:55, the Index climbed rapidly to 86.72 before pulling back to around the 86.6 level prior to a recovery. As of 1:42 PM, it was at 86.77.

Yesterday, after drifting along, gold took a tumble in mid-afternoon before partially recovering; a similar drop, although starting later, visited the gold market today. Yesterday's post-pit decline may continue in post-pit trading today. As far as the number I pick out of my hat, it'll be $1,210 for today's close.

Update 2: Once again, I was flummoxed. Instead of turning down, gold recovered in the later-afternoon session; for a time, it was in the plus column. That gain was erased later in the day, but enough was left to whittle down the loss on the day to a miniscule amount.

[As an aside: if you're interested in playing along, please feel free to leave a guess of your own in the comments.]

The decline that started at 11:30 AM ET continued until 1:45, bottoming at $1,211. When 2:00 came along, what was a period of lassitude turned into a strong rally that didn't quit until gold reached $1,224 right after 2:20. The announcement that the German government would ban naked short selling of certain bonds, bond CDOs and bank shares sent the stock market in a tailspin, and took away the return-of-normalcy sentiment that was pulling gold down and equities up. It brought back the panic, as it was reminiscent of the SEC's ban on short-selling certain financial stocks back in the TARP days.

With fear returning, gold made a leap to a new daily high after spiking up to $1,228. Although the peak of $1,230.40 proved to be another spike, presaging a decline that went all the way down to $1,220 when it finally ended, it spoke to the fear returning. Once bottoming, as of 4:00, the metal turned back and spent the last hour climbing before a final sell-off pushed it back into the loss column. As of the end of regular trading, the spot price was $1,223.00 for a loss of $1.10 on the day. The Kitco Gold Index (KGX) attributed -$15.10 to a strengthening greenback and +$14.00 to predominant buying. Thanks to the latter attribution, the KGX had ex-greenback gold making another record high today.

As indicated above, the U.S. Dollar Index spent the rest of the afternoon on a bit of a tear. Continuing ahead in a rise that started about 10 AM, it spike to about 87.35 just before 3 PM. Pulling back to a little below 87.1, it continued rallying around 4:45 and rallied until 5:30. As of that time, it hit 87.38.

Its daily chart (from shows that the one-day reversal I thought was there yesterday, wasn't:

Despite my short-term timing being off, I have to reiterate that the Index is dangerously overbought. It did get to a new fifteen-month high, but that erasure left its RSI number in even more of an overbought position than it was yesterday. The last time the RSI value was this high was during mid-September of '08, and its rocketing upsurge turned almost on a dime when it finally stumbled. The Index's current momentum may leave me yammering in the wind for some time, but it's only a matter of time before the wind shifts. Until then, it's in the hands of the chaos god.

With respect to the U.S. government, the greenback's rocket-up is both bad news and good news. It's bad news because President Obama stuck his neck out with an export-oriented growth strategy, which a high greenback is going to make more difficult. It's also good news, though, because a higher U.S. dollar makes imports cheaper. The lifeboat import needed by the United States is, of course, capital - and the biggest importer is the United States Treasury. As long as the greenback keeps going up, there'll be more demand for U.S. securities and fewer qualms about tying up funds in U.S. Treasury securities. Demand for them by foreigners is already turning up. As long as that demand is rising, the U.S. will enjoy relatively low interest rates and no fiscal hell will break loose in America.

I have to conclude that, perhaps after a sub rosa tussle, the current Adminstration is complaisant with a strong-greenback policy. Granted that exports will suffer, but import prices - not just the price of renting capital, but all import prices - will tend to drop. That'll make the U.S. inflation figures lower than they otherwise would have been. Lower inflation figures, ceteris paribus, mean lower nominal rates for the U.S. Treasury, refinancers, and other U.S. borrowers. Perhaps this is why President Obama pinned his hopes on a productivity miracle in export industries.

The reason why gold and the greenback are moving in concert, other than they being the two beneficiaries of the fear trade, is because the Euro and pound are doing worse. Competitive devaluation is coming back. I know I'm speculating, but I have a suspicion that the economic powers that be in the U.S. know it and want to 'lose.' In other words, they want the other currencies to depreciate faster than the greenback. Why? Because it makes too much fiscal sense - regardless of the net cost to GDP - for the greenback not to rise. Not only will inflation numbers be lower, but also global demand for U.S. Treasuries will help keep U.S. rates low. The Treasury, I need hardly elaborate, needs low rates. If GDP has to suffer a little on account of it, there's the "new normal" narrative to fall back on.

With respect to gold, its own chart shows a daily gain because of the earlier cut-off time:

Despite the early-morning spill, as shown by the long lower wick on today's candlestick, the chart has gold eking out that gain. Since gold is also in the hands of the chaos god, I have little to say about the metal in this section except for a longer-term speculation tied in to the strong-greenback one above:

The last time that gold and the greenback rose in tandem for some time was in 1979, at the cresting of the late-'70s bubble. There may be warning cries raised now as a result, but I think the concurrency can last longer now than then. I can't claim that Treasury officials have thought of it, but the U.S. dollar deteriorating more slowly than other currencies does give the extend-and-pretend game a lot more breathing room. Moreover, a rise in U.S. inflation will be relatively safe as long as the inflation rates of other major currency zones [except Japan, of course] are higher. This round of the game won't come a cropper until all fiat currencies are widely discredited, which may take a long time.

As long as extend and pretend works by 'losing' the competitive-devaluation race, there will be a tendency for gold and the greenback to rise together. Not for months, but for longer. It may be for several years unless things get out of hand sooner.

Returning to a more immediate focus, gold may continue to recover tomorrow morning or revert to the recently-established decline pattern in the wee hours. May's still got some way to go.

Gold Bullish Sentiment Bumping Up To Extremes

After discussing Euro sentiment, which is near an all-time low by the indicator he uses, "Babak" turns to several gold indicators and finds one of them at an extreme: the Daily Sentiment Index, from It clocked in at 98%: virtual unanimity.

The others, though, don't show extremes although they're all solidly bullish. It looks like some caution is still around, including amongst investors in gold stocks.

On a related subject, George Soros has reduced his exposure to GLD. The blogger who points it out argues that Soros likely made a mistake.

Inflation Ranpant In The UK

David Stevenson notes that inflation is already rolling upwards in the U.K.: the new-style CPI is up 3.7%, while the old-style Retail Priice Index is up 5.3% (5.4% ex-mortgage payments.) He makes fun of Bank of England governor Mervyn King for dismissing its significance, but King's words bear noting to see if his narrative gets exported across the pond:
Looking to the future, says King, all the spare capacity in the economy – unused resources that could be cranked into action if demand picks up – will bring CPI down again. So there are no interest-rate rises on the agenda....

"The pace and the extent of the prospective fall in inflation are highly uncertain", it says. Inflation should fall back to target within a year only if there are no "further price level surprises". Indeed, "there's a risk inflation may be raised by further commodity price increases or other price level surprises"....

Prices have already risen much higher than Mr King was forecasting. If people start to get back into an inflationary mindset, cost of living increases could really get out of hand. What's more - as we've pointed out before - inflation is the friend of the debtor, who can repay his loans out of devalued cash. And there's no bigger borrower in Britain than the government. So a bit more inflation would, arguably, be quite handy for it.

There's already a call amongst certain monetary outposts for a higher inflation rate, most notably from the head of research of the San Francisco branch of the Fed. The soon-to-be former head of that branch, Janet Yellen, is going to become deputy Chair of the Fed's Board of Governors.

I have a sneaky suspicion that one of the main reasons for the extended period of the near-zero Fed funds rate, along with the bulk of the QE firepower being directed at the MBS market, is because the Fed is trying to hold off the coming option ARM reset bulge that's slated to peak next year. If I'm right, then the Fed's hands are effectively tied. Should inflation ramp up in the U.S., we'll likely hear Ben Bernanke saying much the same thing as Mervyn King is now.

Or, for that matter, Janet Yellen, or both. Certainly, U.S. Treasury officials have an interest in talking down inflation expectations because they want borrowing rates to be as low as possible. For reasons of their own, the bulk of the Fed governors may share that desire.

The Coins Keep Getting Bigger

The record is held by the Royal Canadian Mint, which some time ago issued a Maple Leaf coin with a legal-tender value of $1 million; it contains 100 kg of gold. The Russian central bank, though, is getting in to the high end of the bullion coin market by issuing a 5 kg coin to commemorate its 150th anniversary; it carries a face value of 50,000 rubles. The largest one previously from the same source was 3 kg.

With a 53 cm (21-inch) diameter and 3 cm (1.2 inches) thickness, the monster Maple Leaf is about the size of an extra-large pizza. That 'pizza', though, would take two strong men to move it some distance: 50 kg (110 pounds) apiece. One strong-legged man could hoist it up, but he wouldn't get very far with it unless he was very strong.

Have a gander at the million-loonie coin:

Abu Dhabi Gold Vending Machine A Hit

According to a piece in The National of India, the now-famous gold vending machine in the Emirates Palace lobby sold out of gold in a day.
Four kinds of gold bars (in varying weights) and six kinds of coin were gone so fast that they had to restock before more tourists (and residents) besieged the machine. They had stumbled upon a trend that has been in place for thousands of years. In the West, gold is seen as an investment. In the East, it is much more. It helps you assert your status in society and usually translates into gold jewellery that adorns the necks, fingers and wrists of blushing brides. Especially in India.
[And they say gold has no intrinsic value.]
A few years ago, my mother bought her first gold bar – one given to her at a discount by her bank for being a loyal customer – and she was hooked. Every month, I get a rundown of the gold market from her. She has become an amateur investor in a commodity whose price has soared in the past few weeks, thanks to shaky European politics.

I hesitate to talk askance at the author's enthusiasm, but there are hints in his mother's behavior of something that cynical market players will pick up on.

Indian Retail Gold Demand Still Low

According to a Reuters India report, Indian demand for gold is still low because prices are too high.
India's price-sensitive customers, who drive the global gold demand, stayed away from gold buying festival of Akshaya Tritiya on Sunday, an indication demand may remain subdued through the rest of the year if global prices continue to stay firm.

International gold edged up on Tuesday but held around $20 below a lifetime high struck last week, while another increase in holdings in the world's largest gold-backed ETF showed investors were keeping faith with the metal.
A quote from a dealer held up hope that demand will come back if prices fall further.

Another piece on the subject, webbed by, contrasts the fall-off in demand during the Akshaya Tritiya festival with the rise in demand for gold ETFs.
Overall, it seems demand for gold at Akshaya Tritiya across the country was around 20-25 tonnes down on last year's 45-tonne sales, because of the high and volatile prices. Traders say many Indians are responding by buying smaller quantities to maintain the same expenditure, or recycling old jewelry. Those who can afford to spend more may wait for prices to stabilize before they Buy Gold.

After all, it was considered an auspicious day to buy gold...but how much gold isn't specified.

Gold Tumbles Below $1,210 Overnight

There's been some relief for the Euro after it sunk to a four-year low yesterday. A decline in pessimism also pushed up European stocks and sunk German government bonds as their safe-haven appeal diminished. A similar decline in the safety trade pushed down the greenback and pummeled gold in the European stretch of overnight trading. Needless to say, gold is no longer overbought.

When the overnight session began, gold stayed steady. Pulling up slightly in the evening, it hovered around $1,225 until edging slightly upwards after midnight ET. As of just before 2 AM, it had hit $1,227.60. The tumble didn't start until a little after 2:00. Initially pushing gold down five dollars an ounce, after which a relief rally took off half that decline, the drop continued a little after 3:00. When it was finished, within a half-hour, gold was around $1,213. Hovering around $1,215 after another relief rally, the metal dropped a third time just before 5 AM, reaching $1,205.80 before pulling back up to the $1,210 level. As of 8:06, the spot price was $1,210.80 for a drop of $13.30 on the day. The Kitco Gold Index attributed -$15.80 to predominant selling and +$2.50 to weakness in the greenback.

The U.S. Dollar Index didn't tumble in the same timeframe that gold did, but it did decline after failing to break through 86.5. It tried to do so three times in the overnight session as its evening rise was blocked; the last two attempts saw it reach 86.55 before falling. The last attempt gave way to a decline starting at 1:30 AM, which carried it down to 86.1 before a relief rally set in. After that rally, the Index drifted lower again; it dipped below 86 around 8:00 AM. As of 8:14, it was at 85.99.

A Wall Street Journal report ascribes the tumble to profit-taking.
[M]arket observers say the price is likely to remain well supported due to continued concerns about the debt woes among many European countries....

"Expect a slightly bearish day on [momentary] easing fear" about the Greek debt crisis and a bit of profit taking, said commodity Strategist Filip Petersson of SEB Commodity research. "This is driving investors over to more risky assets like equities," he added.

"The recent [debt] crisis has changed the game a little bit. This is a fiscal crisis. Investors don't really believe that governments have incentive to hold down inflation at time of rising debt," metals analyst Peter Dixon said.

Mr. Dixon expects gold to remain well supported above $1,200 an ounce until uncertainty about the current debt crisis in Europe clears.
The article mentions, though, that the ECB is going to sterilize the euro-zone bonds from troubled governments it bought last week. Also brought up is further EU talks to bring national budgets under control.

A Reuters article takes up the increasing risk appetite theme.
Concerns that the fiscal problems of debt-laden Greece would occur elsewhere in the euro zone drove gold to a record $1,248.95 an ounce last week and knocked other assets. That situation has since reversed, analysts said.

"Gold was definitely in overbought territory, because people were afraid," said Commerzbank analyst Eugen Weinberg. "Fears were fueled by problems surrounding the Greece crisis. (But) at the moment risk appetite is coming back to the market a little."

"The dollar is weaker, and the gold price as well, because they were both seen as safe havens and until recently profited from this status. With the return of risk appetite, it's logical that they are both under pressure."
Despite the weakness yesterday, the holding of the SPDR Gold Shares Trust increased 3.05 tonnes yesterday to 1,217.11 tonnes.

The morning Bloomberg report, as webbed by Business Week, tied the drop in gold to a rise in European equities.
Gold “could be at risk to a correction as risk appetite begins to improve,” James Moore, an analyst at in London, said in a report. Still, the increase in ETF holdings and bar and coin demand suggests “investors are still looking to diversify from fiat currencies and as a result we expect dips in gold and silver to be viewed as buying opportunities.”
Also mentioned in the report is an analyst saying that demand in Asia is draining away, due to high prices; Dennis Gartman is quoted as saying that the long-gold trade has become too crowded to make him confortable.

The April PPI data for the U.S. economy were released, and they showed a 0.1% drop due to food and energy costs dropping; the core rate was up 0.2%. April housing starts were up 5.8% to an 18-month high, but building permits fell 11.5%. Both sets of data were good for gold, which rose a few dollars after their release subsequent to dropping a couple just before regular trading opened. As of 8:53, the spot price was $1,211.80 for a change of -$12.30 on the day. The Kitco Gold Index assigned -$14.40's worth of change to predominant selling and +$2.10's worth to a weakening greenback. The U.S. Dollar Index had mounted a recovery that took it up to 86.16 by 8:34, after getting a boost from the data, but that recovery tailed off. As of 8:56, it was back to 86.00.

Gold may mount a recovery effort after its early morning drop, but the declines are continuing in timeframes that normally saw advances. It looks like the metal's previous overboughtedness has caught up with it.

Monday, May 17, 2010

Gold Recovers From Early-Morning Spill, Turns Down Again

When regular trading began, gold had come off an early-morning decline which climaxed just after 8:00 AM ET at $1,123.00. The opening of regular trading at 8:20 saw a rise, initially laboured but solid. After getting up above $1,236 as of 10:00, the metal stalled and then pulled back to $1,230. Ending its drop a little below that level, it then pushed back up to $1,135 before falling again. As of 11:43 AM ET, the spot price was $1,230.00 for a loss of $1.80 on the day. The Kitco Gold Index attributed +$1.60 to predominant buying and -$3.40 to a strengthening greenback.

The U.S. Dollar Index, after slumping between 8:30 and 9:40, recovered to pull up to above 86.5 again. That slump took it down to just above 86.0, after which the Index turned up with about the same speed at which it had dropped. As of 11:38, it had pulled back to 86.49 subsequent to peaking at a little below 86.6.

So far, gold's been steady with its overall directionlessness holding up. That may change as the pit shift nears its end; its performance in early afternoon will show.

Update: The pullback that began at 11:30 AM ET, when gold was at $1,234, pulled the metal down to a new daily low by noon. At the end of that drop, before the price partially recovered, gold had sunk more than twelve dollars an ounce to $1,221.60.

The recovery was fairly rapid, if not long-lasting; by 12:10, the metal jumped to above $1,229. Dropping down again, it turned up once reaching $1,224. Subsequently, it fluctuated around $1,127 as the pit shift came to a close. As of 1:30 PM, the spot price was $1,127.80 for a drop of $3.60 on the day. The Kitco Gold Index split the loss into -$1.30 due to predominant selling and -$2.30 due to strength in the greenback.

The U.S. Dollar Index managed a rally just before noon, to 86.7, before pulling back to the 86.55 level. The top of the rally was made just after noon, and the hovering took place until a little after 1:00. Sinking below 86.5 afterwards, the Index was at 86.44 as of 1:46.

Despite that spill around noon, the overall directionlessness was still in place. Gold is likely to close around $1,230.

Update 2: Wrong I was with that guess, as the weakness in late morning returned instead of abating. Instead, gold closed close to $1,225.

The drift around $1,227 continued until 2:45 PM ET. Shortly afterwards, the metal went on a rolling but fairly steady decline that didn't end until a new daily low of $1,218.20 was made around 4:00. From that low, a relief rally first nudged the price up to $1,222 and then pushed it up to its closing value of $1,224.10; the loss since Friday's close was $7.30. The Kitco Gold Index attributed -$9.20 to predominant selling and +$1.90 to a weakening greenbak.

The U.S. Dollar Index, as indicated by the Kitco Gold Index, fell from the 86.55 level it has paused at around 1:00. The decline was fairly steady until it decelerated near the 86.15 level around 4:15. The rest of the day saw it gently descend to 86.1 before slowly recovering to drift above 86.15. As of 5:30 PM , it was at 86.16.

Its daily chart, from, shows it reaching, interday, a level that it hasn't seen since March of '09:

Today's candlestick shows a far less encouraging pattern, though: a one-day reversal. This pattern shows up when an important interday high is made, but the asset in question closes down on the day. Some versions require a outright exhaustion gap, which did not occur today for the Index. Nevertheless its fifteen-month interday high combined with its lower close today makes for a pretty good fit. The Index is also quite overbought, as shown by the above-70 RSI level seen at the top of its chart. Arguably, today's action is close enough to a one-day reversal to act like one.

That pattern foreshadows a short-term decline, and maybe one that'll last longer. Given its overboughtedness, and the continuing rally with no new crisis driver to accompany it, I believe that the Index is not going to shrug that reversal off. Unless a new driver appears, like the Portugese or Spanish government getting into a mess of its own, the Index is going to go into at least a short-term decline. I'm not calling an end to its bull market, but I am suggesting to watch out below. Its intermediate-term uptrend will not be called into question unless it goes down to 83 or below interday.

Any short-term decline in the Index is not likely to bode well for gold, whose own daily chart shows its decline extending for a third day in a row:

Although a falling greenback would cushion a decline in gold somewhat, the recent concurrency on the way up is likely to be repeated on the way down. Unlike the U.S. Dollar Index, gold's RSI is no longer in overbought territory. Its rally was less manic in U.S. dollar terms, although in Euro terms it was in the throes of a buying frenzy. Gold did make four digits in Euros, but it has since fallen back. That rise is reminiscent of the time gold first climbed into four digits in U.S. dollars back in late February of '08. Whether rightly or wrongly, a crossover into a new 1000+ record tends to motivate selling. Given that the same Eurocrisis driver is presently absent for gold as well, the concurrence between it and the greenback might well be felt by both going down.

In addition, we're in mid-May; it looks like sell-in-May rule is kicking in. Although the February-March period has seen the seasonal high in '08 and last year, with May being a rather good month, that's because May saw the end of all-out corrections in the gold price. This time, February saw an end-of-correction low and March a higher intermediate low. Unlike in February-March of one and two years ago, there was no froth this year. The froth came this month, with gold getting overbought for the first time since the end of its last rally at the beginning of December.

In '07 and '06, May did see a seasonal top after some good gains were made. Any May whose start was part of a good run in the last nine years did see a seasonal peak. If this month proves to be the exception, if gold continues to ascend in the summer, then I'll be tempted to say that it's crossed over into the bubble threshold - that it's entered the third and final stage of its long-term bull market.

To sum up, gold right now is a risky buy. The seasonality pattern suggest strongly that another correction is coming over the summer, which would make for a substantial dip for anyone wishing to buy. The Eurocrisis is currently dormant, and the buying frenzy in Europe seems to be ebbing. From the long-term perspective, such a correction would be healthy: corrections tend to drain manias before they become all-out frenzies. If such a correction does visit, and gold stays dormant afterwards, then the next long-term driver will be the big one: resurgent inflation.

Again, I concede the possibility of being wrong. If I am, and gold continues its upsurge during the summer, then we're off to the races. Another possibiility is one last burst of bullishness confounding a post-May drop starting now, but turning into one late in the month. As May turns into June, the picture will become clearer.