Gold Takes A Dive, Recovers

The chart of the spot price for today shows an upside-down bowl, whose peak came about two and a half hours before regular trading began. As has been the case for several days, the metal fell around the time when regular trading began. Unlike those past days, though, there wasn't an upswing later. Instead, the early-morning dip proved to be the first of three that took the metal down to $1,202. The downleg that began at 9:00 and ended an hour later took the price down by more than eight dollars an ounce; it was interrupted by the release of the University of Michigan's consumer sentiment index for May. Rising, the inflation-expectation component showed consumers expect prices to rise at a faster rate than now. The relief rally that began shortly after 10:00 took the price up to $1,209, but it too gave way for the third leg that took the price down to $1,210.40. As of 11:50 AM, after the third leg had exhausted itself, the spot price was $1,206.00 for a loss of $6.00 on the day. The Kitco Gold Index split the loss into -$4.60 for predominant selling and -$1.40 for a strengthening greenback.

The U.S. Dollar Index managed to pull itself up out of its early-morning doldrums. Beginning to rally around 8:30, the Index pushed unevenly up to slightly above 86.5 before stalling there between 10:55 and 11:35. Afterwards, a pullback sent the Index below 86.4. As of 11:51, it had slumped to 86.32.

Gold's momentum evaporated this morning, although $1,200 has held so far. A late-morning recovery did set in, but $1,200 may still be tested in the afternoon.


Update: It wasn't. Instead gold recovered almost all of its morning losses.

The exhaustion of the morning decline at $1,202 ended up being a double bottom as a three-stage rally set in. Initially staggered, the rise turned into a minor rocket-up right before the pit shift ended; it pulled gold up into the plus column. As of 1:30, the spot price was $1,213.20 for a gain of $1.20 on the day. The Kitco Gold Index assigned +$5.70's worth of change to predominant buying and -$4.50's worth to greenback strength.

The U.S. Dollar Index, after slumping down to the 86.2 level, managed to pull up to a new morning high. Breaking above 86.65 in a five-minute rocket-up at 12:40, it stayed comfortably above 86.5. As of 1:31, it was at 86.59.

As it turned out, the later-morning recovery was delayed into the early afternoon. Gold has a chance of closing with a daily gain, although a slight loss on the day is more likely.


Update 2: The driver that caused gold to recover as it did, was Fitch's downgrading of Spanish sovereign debt one notch from AAA to AA+. That ignited the same Eurocontagion fears, which helped reverse the metal's losses earlier this afternoon.

The aftereffect was strong enough to keep gold up for the final stretch of the week's trading. Its early-afternoon run topped at $1,214, after which the metal meandered between that level and a little above $1,212. Demand in the later afternoon was enough to push it up a bit, above the $1,214 level, and the metal ended the week at $1,214.30 for a gain on the day of $2.30. The Kitco Gold Index attributed +$9.40 to predominant buying and -$7.10 to strength in the greenback. The two changes sum up to the raw change on the day.

For the week, gold did reverse the losses suffered during the previous week. From last Friday's close of $1,177.00, this week saw a gain of $37.30 or 3.17%. The five-day rally more than reversed the previous week's decline.

The U.S. Dollar Index also benefitted, to the point where the Fitch announcement could be timed by it. That rocket-up between 12:35 PM ET and 12:40 was followed by a continued drift-up that pulled the Index above 86.75. As of the end of the week, it was at 86.78.

Its daily chart, from Stockcharts.com, shows it still in its range:



Had there not been the downgrade, the Index might have fallen down a bit. Its daily low, as shown in the lower wick of its candlestick for today, got below 86.

Also, the Index 's MACD lines have crossed over into a bearish configuration. As shown on the bottom of the chart, the lines' crossover wasn't that much in magnitude. Given the greenback's overall bullish trend, their bearish crossover likely portends an extended muddle-down rather than an all-out downturn. The fact that the Eurocrisis is still hanging over the markets indicates that, if the Index is destined to fall, it likely won't fall far.

As for gold, its own daily chart shows the morning slide that was reversed by the unexpected Fitch downgrade:



The lower wick on gold's candlestick for today shows, like the Index's does for it, that the downgrade was a game-changer that prevented both from sliding further. This afternoon's jolt may result in further upside momentum carrying through after the U.S. and U.K. markets re-open on Tuesday, but it remains to be seen if it has captured gold traders' imaginations for longer than a day. The prior exhaustion may come back.

Last Tuesday, gold was in the second day of its rally. Although it continued for the rest of the week, its strength was evaporated compared to last Monday and Tuesday's. That dividing line marked the cut-off for this week's Commitment of Traders graph for gold. Total open interest fell from the elevated levels seen the previous two Tuesdays. Both categories of non-commercial contracts, longs and shorts, shrunk: the latter dropped by 13.6%. Given that gold was close to being routed from Wednesday to Friday before last, the net covering made some sense as the market rebounded. Commerical longs shrunk as well, as did commercial shorts.

The Index's CoT graph shows a further shrinkage of open interest over a timeframe which contained volatility but overall range-boundedness. Commercial longs hardly shrunk, while non-commercial longs dropped by 8.63%. Commercial shorts shrunk by 8.09%, while non-commercial shorts increased a little. Based upon the traditionally savvier players in the market, the Index was expected to head into a run of trouble. It actually didn't, but its earlier rises were stymied.

A post-pit Reuters report highlights the driver that kicked up both the Index and gold. According to it, the Fitch cut knocked the Euro down and prompted a category of gold trader we haven't heard much about recently - short sellers - to cover their positions ahead of the holiday weekend. Amongst other points made therein, these were included:

* Gold barely nudged higher in late business and edged up a bit more in after hours when the euro and U.S. share prices extended losses after Fitch downgraded Spain's debt - traders.

* The Fitch rating agency downgraded Spain's credit by one notch late in the session, saying the country's economic recovery will be "more muted" than the government forecast, due to its austerity measures.

* "I think everyone knew this was coming anyway. We all know that Portugal, Spain and Italy are the next weak links in Europe. So, the reaction was already built into (gold) prices," said David Lee, precious metals trader at Heraeus Precious Metals Management in New York.

* With rollovers out of June futures mostly complete, month-end plays sorted out earlier this week, and many players biding their time before the holiday weekend, trade was fairly quiet all day - traders.

The volatility of the day was accentuated by the low volume.

Today was the last trading day of May for the U.S. and U.K. markets. As June approaches, so does the season where gold is likely going to be soft. Although the patten isn't regular enough to be exploited by a mechanical trading rule, there is a tendency to decline when late spring turns into early summer. Should gold buck it this year by moving to the upside, it may be part of a nice rally.

If you celebrate the long weekend, may it be a relaxing one. Again, thanks for reading.

Gold And Deglobalization

Deglobalization as a theme doesn't make for a great fit with gold, given the metal's ties to the libertarian subculture. Globalization, in the sense of expanding global markets, fits well with libertarians' worldview. On the other hand, the deglobalization position has overtones of "Small Is Beautiful," localism, greenism, and skepticism about free (if managed) international trade. Jeffrey Rubin has worked deglobalization into his own work, but he's an oil-watcher. Deglobalization does fit in with the Peak Oil hypothesis, as the former is a foreseeable consequence of the latter.

Nevertheless, Martin Hutchinson has made a case in Money Morning that deglobalization will be good for gold.

He begins by discussing a prior period of deglobalization, after World War 1, and continues by saying that another stretch is before us:

In the 1990s, most countries were open to world trade, with free-price mechanisms and relatively low tariffs. Public and private equity investments in the "emerging markets" soared in popularity, in spite of the "Asian contagion" and Russian financial crises of 1997-98.

These developments were justified by the formerly socialist intellectuals as a new, moderate "Washington consensus," under which governments retained a role in moderating the forces of the market. The Washington consensus tended to fall apart under stress, as it did in Argentina, because of the excessive government spending to which it led. But it didn't hinder globalization in the form of free trade and free movement of capital.

With the 2008 financial-system crash, the "Washington consensus" fell apart. The intellectuals had been getting very bored with free markets and had moved on to "global warming" environmentalism. They seized the opportunity to blame free markets for the crash. That change in philosophy allowed protectionist forces in most countries to raise barriers in the form of subsidies and "anti-dumping" actions....

[Should deglobalization continue,] many of the economic advances that globalization has brought to the United States - and the world as a whole - will be reversed. The world economy will have to adapt to a much lower level of efficiency, with higher manufacturing costs and less outsourcing. Both inflation and unemployment will be high. The result: We'll be looking at a decade of inflationary recession, with declining living standards.

We have already traveled a considerable distance toward de-globalization and should work towards reversing this trend. We should keep trade barriers down and international capital markets open. As protection against the possibility that governments and markets will fail in this attempt, investors should look in one direction - at gold.

He has his point, but deglobalization tends to be associated with deflation moreso than inflation. At the very least, deflation accelerates deglobalization because autarchy looks appealing in a threatening world.

Market Beat Takes David Einhorn To Task For...Talking His Book

"Everyone does it." So begins the entry, which invites the question of why Einhorn would be singled out for doing so. After parsing a recent Financial Times editorial penned by Einhorn, Matt Phillips ends with:

Again, we don’t blame Einhorn for using his bully pulpit to talk his gold book. And he might be right. Others are making big bets on the shiny rock. And Gold is up about 11.4% so far this year, as the S&P and Dow have fallen more than 3%. Still, we just wanted to call the book talking what it is.

Again, the question isn't answered. If everyone does it, then why make a big to-do about Einhorn doing it too?


There seems to be a different standard being applied here. Maybe it's because goldbug patter has a deeper root in alternate academia, which is expected to show some disinterestedness. Of course, there's another explanation that's handy. Gold as an alternate investment comes with a perspective which doesn't fit too well with typical Wall Street book-talking, whether real or thinly-disguised. It is harder for an investment firm to keep up a united front when the fellow placed at the desk by the photocopier keeps hammering away about the fiscal troubles of the mighty U.S. economy. Of course, this different perspective fits hand-in-glove with gold's historically low correlation with standard securities; that idiosyncracy is precisely what makes the metal a good hedging tool. Nevertheless, the gold guy doesn't quite fit in. And, of course, real or potential misfits are held to a higher standard because they're instinctively distrusted.

Oh, wait. My theorizing led me to forget one snippet that's a more succint explanation:

As a point of fact, it’s incumbent on us to point out that right now deflation should be the boogie man we fear, not inflation.

There we go. Einhorn isn't just a doomsayer, he's the wrong kind of doomsayer!

Indian Gold Buying Picks Up A Little

According to a report by the Economic Times, falling prices (in rupee terms) called forth a bit of buying:

"There has been a little buying, but I am not seeing big deals at the moment," said a dealer with a state-run bank, adding that the Indian rupee is acting as a support....

Dealers said demand is likely to face the seasonal monsoon slackness for the next two months. "We might have to see little buying in June and July due to monsoons," said another dealer with a private bank.

Another reason, of course, is demand being saturated by the buying for the Akshaya Tritiya festival.

May Indian Gold Imports Expected To Fall To 17-18 Tonnes

According to a report by Reuters India, which pegs April imports at 28.6 tonnes, May's is expcted to fall to 17-18 because of higher prices.

May imports fell to around 17-18 tonnes from 28.6 tonnes in the same month a year ago, the head of Bombay Bullion Association (BBA) Suresh Hundia, told Reuters on Friday.

He said the provisional data indicated that India's demand would remain weak for the rest of the year if prices remain near record levels or scale new highs.

"Imports fell because prices were too high," Suresh Hundia, president of the BBA told Reuters. "If it stays like this, imports in the full year will fall by 50 percent."

He also said, though, that imports for the first five months of this year will exceed those for the first five months of 2009.

Gold Aiding Spread Of The Renminbi

This item is one that a true gold bug will be hard-pressed not to read something into. Wang Zhenying, deputy director-general of the Department of Financial Management at the Shanghai office of the People’s Bank of China, has offered the opinion that offering gold products deniminated in renminbi yuan is a good way to internationalize the PRC's currency.

Pricing commodities in the currency “helps China’s goal to internationalize the yuan,” [he] said today. “Gold is a good choice to have yuan trading.”...

“We agree that yuan-denominated gold trading will help enhance the yuan’s global status,” Chen Shiyong, general manager of financial markets at Industrial Bank Co., said in interview today. “We also would like to be part of the efforts to increase gold investment products available to the public.”

It's nice to think that this push is really the thin edge of the remonetization-of-gold wedge, but it seems to relate more to lifting restrictions on the use of the PRC currency so as to increase the PRC's influence in the world.

I can't say that they're going in the wrong direction, though.

Popularity Of Gold Coins Shoots Up This Decade

According to a report in Commodity Online, demand for gold coins has ramped up by 195% this past decade.

As per the available statistics, investors bought 228.5 tonnes of gold in the form bullion coins, up by over 195% since 2000, when the investors bought 77.4 tonnes of gold coins.

A London-based precious metals consultancy, GFMS has revealed that investors’ preference for gold coins has emerged stronger than ever even when the prices have been shooting up. Similarly, exchange-traded funds (ETFs) have also been high in demand especially for the retail investors.

Interestingly, gold bars seem to have fallen by the wayside. There's a certain irony in the fact that the chief purveyors of bullion coins, which flow into the hands of libertarian-saturated gold bulls, are government-owned mints.

Gold Treads Water In Overnight Session

Other than a night dip when Hong Kong trading opened, which drove gold down to $1,208, there hasn't been that much action in the overnight session. That dip, possibly caused by news that Japan's economy is still mired in deflation, was partially reversed by midnight ET as the metal climbed to above $1,210. A futher advance early in the morning saw the metal climb up to $1,215, after which it stalled. Not making it above the $1,215 level exept briefly, gold didn't fall below $1,213 either. As of 8:03 AM ET, the spot price was $1,214.20 for a gain of $1.40 on the day. The Kitco Gold Index attributed -$2.40 to predominant selling and +$3.80 to a weakening greenback.

The U.S. Dollar Index did decline in early morning, but advanced last night. Peaking at 86.5 around midnight, the Index's drop started slowly and unevenly at first but it accelerated starting at 3:55 AM ET. An hour later, it had bottomed at 85.9. That fall was preceded by a lumbering recovery which got it above 86 again. As of 8:12, it was at 86.11.

A Wall Street Journal report says that gold's momentum has drained away, leaving it to drift in advance of the U.S. and U.K. holiday weekend.

"We still favor an upside bias with gold now above $1,200/oz," said Standard Bank commodity analyst Walter de Wet. "To a large extent, the problems in Europe have been priced in, so there is nothing new to drive the gold price in either direction."

But worries that Europe will have trouble making the budget cuts needed to control its debt will support gold prices, he said. He also said there is the potential later in the year for investors to shift attention back to the U.S. and its large deficit, which could also boost the precious metal.

Also quoted was another analyst who said that gold could pull back at these levels if things continue improving for the Euro and stock markets.

A Bloomberg report, webbed by Business Week, was more optimistic.

Gold may gain for a fifth day in London on speculation the debt crisis in Europe will boost demand for gold as a haven....

“The safe haven concept is still there,” said Afshin Nabavi, a senior vice president at bullion refiner MKS Finance SA in Geneva. “A lot of people are still investing in physical gold. But we need a bit of stability in prices to attract more people” to the precious metal, he said.

The article mentions that Citigroup sees a possible run to $1,500 later this year; it also discusses a People's Bank of China official's suggestion that gold products are an effective way to internationalize the renminbi. It also notes that holdings in the SPDR Gold Shares Trust ETF (GLD) increased slightly to another new record of 1,267.93 tonnes, and that holdings in 10 gold ETFs (including GLD) increased 0.6 tonnes to 1,981.8.

A Reuters report says that gold has stalled because risk appetite has returned.

"The stability in the eurozone is a hold pattern for gold," said Rory McVeigh, trader at Commerzbank.

"The flight to gold has stopped, but people are still holding it, they haven't gotten out. They're going to hold it to wait and see where the price action with euro goes," he said....

"Gold has done its bit and now it's a bit struggling to gain traction," said Nick Moore, global head of metals strategy at RBS. "The tensions are switching away from safe-haven and I think that leaves gold somewhat exposed in the near term."

The personal-income data for the U.S. economy were released, and April's 0.4% increase was in line with expectations. Interestingly, consumer spending was flat during that same period; that left the personal savings rate at a fairly high 3.1%. Gold was already in the middle of another decline coinciding with the opening of regular trading; it pushed the metal from $1,215 to a little below $1,211 before letting up. As of 8:56 AM, spot gold was at $1,212.10 for a miniscule gain of $0.10 on the day. The Kitco Gold Index assigned -$0.10's worth of change to greenback weakness and +$0.20' worth to predominant buying. The U.S. Dollar Index fared better, rallying all the way to 86.34 before turning down somewhat; as of 8:59, it was at 86.24.

So far, gold's action has been tepid. It may see its first decline this week, but a mid-morning rise may kick in once again.

Gold Fluctuates In Morning Trading, Mostly To Upside

After descending to below $1,210 when regular trading began, gold climbed in two stages but failed to make it above $1,217. The first run shot the price up to $1,214 from $1,207; after which, the metal sunk back down to $1,211. The second run bested $1,215, and ended with a spike above $1,216. Subsequently, the price pulled down like it did after the first run-up. As of 11:59 AM ET, spot gold was at $1,214.20 for a gain of $3.60 on the day. The Kitco Gold Index attributed -$12.30 to predominant selling and +$15.90 to a weakening of the greenback.

The U.S. Dollar Index, after a run that carried it up above 87.1, tumbled all the way down to 86.23 before recovering slightly. The top came at just before 10:00, and the subsequent tumble was largely uninterrupted. Interestingly, gold hasn't really followed the greenback downwards. As of 11:59, the Index had continued downwards at 86.18.

So far, gold is following the script of recent vintage: down near the beginning of regular trading, up later in the morning. If the same script is followed in the afternoon, the metal will eke out a small gain at the end of the day.


Update: After that second run-up, gold dipped back to the $1,211 level as quiet settled into the market. From that point, it bobbed in a trading range between that level and $1,213. Despite the worries that a rebound in equity prices would bring gold down, because of switches from the metal to stocks, that fate hasn't befallen the metal; it still notched up a small gain as of the end of the pit shift. The early-morning drop occured long before the market opened, although it could have been preparative for such a shift. As of 1:30 PM ET, the spot price was $1,212.60 for a gain of $2.00 on the day. The Kitco Gold Index assigned -$15.00's worth of change to predominant selling and +$17.00's worth to weakness in the greenback.

The U.S. Dollar Index's slide halted, and was replaced by near-directionlessness at a level near its bottom. Overall, the range-like behavior showed a slightly downward bias. As of 1:37 PM, it was 86.15.

Trading for the rest of the afternoon is likely to leave gold near unchanged. Overall, for a day when a rise in risk appetite is supposed to dent the metal, it's shows a fair bit of resilience.


Update 2: The close saw gold up on the day, but slightly enough to call it near-unchanged. The rest of the session was again quiet, with the same range holding up except for two stretches, where it was tested on the upside and (later) the downside. The upside test, which didn't push the price above $1,214, coincided with a dip in the U.S. Dollar Index to a new daily low. The downside test didn't coincide with any definite movement in the Index. At the end of the session, spot gold closed in the middle of the range: $1,212.00, for a gain of $1.40 on the day. The Kitco Gold Index attributed -$14.20 to predominant selling and +$15.60 to greenback weakness. The two changes sum up to the raw change on the day.

The U.S. Dollar Index hit a daily low of 86.09 at 2:30. Afterwards, an initially sluggish rally got rolling, carrying it up to 86.47 before peaking. From that peak a decline set in, but one that didn't carry the Index down to its mid-afternoon low. Instead, it churned between 86.2 and 86.3 for the rest of the session. As of 5:30 PM, it was at 86.27.

Its daily chart, from Stockcharts.com, shows its large drop today in the overall framework of a short-term range:



As shown in the lower wick of today's candlestick, the Index came close to brushing 86.0 as the gains of the last two days were wiped out. The euro did have its respite today. The drop pushed the Index's RSI level, found at the top of the chart, to well below the overbought level.

Of interest is the pair of MACD lines at the bottom of the chart. Although the two lines have not switched into a bearish configuration, they came very close to doing so today. This call is much closer than that of two days ago, after which the Index made a run at the top of the current range.

Still, the current range has held despite the Index's wild swings within. In terms of interday movements, that range is between 87.5 and 85. No matter how volatile the Index's action tomorrow, the range is likely to hold.

Regarding gold, its own chart shows today as the fourth day in a row of gains:



As the first day turned into the fourth day, the gains have gotten smaller and smaller. I could say, largely in jest, that the progressively small gains are smooth enough to fool me into thinking there's a pattern that doesn't exist.

From bottom to top, the current upturn went from about $1,165 to $1,220 for a $55 gain. From the $1,250 top, the metal lost $85 earlier. Roughly, there's been about a 65% retracement. There are some models that say an upwards reaction could go to two-thirds of the original drop: with that framework, gold isn't quite out of the woods yet. Still, the retracement is well above the 50% that's typical of a sucker rally. Gold's own MACD lines are still in a bearish configuration, but that doesn't mean very much for an investment in an intermediate uptrend. If the metal does pull down from here, it could be counted as part of the current dip.

A post-pit Bloomberg report says that the nearest gold futues contract, which declined a little on the day, did so because safe-haven buying abated with the rally of the Euro (not to mention stock markets.)

“With the overseas markets up, you might see a pullback in gold,” said Marty McNeill, a trader a R.F. Lafferty Inc. in New York. “There are still too many things going on in the world for the real long-term holders to sell gold, though. You still need to protect yourself.”...

“Gold is steady,” said Dennis Gartman, an economist and the editor of the Suffolk, Virginia-based Gartman Letter. “The only change in gold is derived from the strength in the euro, which shall be fleeting.”

U.S. Secretary of State Hillary Clinton said in Seoul that it’s not too late for North Korea to make amends for sinking a South Korean warship.

“The easing of the tension in Korea might bring in profit- taking,” McNeill said.

That being said, gold didn't rise but it also didn't fall all that much; in spot terms, as noted above, it didn't fall at all. If the metal does decline tomorrow, there's an underlying confidence among market-watchers that it'll be just another dip; there's little expectation of a rout. Gold's on track to end the week with a gain, limiting last week's loss to a streak of one.

What A Value Dichotomy

According to a report webbed by Resource Investor, there's a gold investment company with a current price-earnings ratio of 1.1. Its main holding, of Crew Gold, is worth more than its own market cap.

The company is Endeavour Financial, and it's selling at a huge discount to its net asset value. Since its a merchant bank/closed-end fund that puts its money in exploration juniors, it's a company that's easy to undervalue these days. According to the data on its Website, it's currently selling at a 53.4% discount to its book value per share.

It ain't the only one, either. Aberdeen International, a closed-end fund that gold exploration juniors like Crocodile Gold, is also selling at a 50% discount to its recent NAV.


How's that for a value dichotomy. On the one hand, PHYS is selling at about a 13% premium to its NAV even after that premium took a big hit. On the other, two exploration-junior closed-end funds (effectively) are sporting discounts that would be considered incredible for other industries. Value-oriented players may want to take note.

Someone Might Call Rep. Weiner About This

Gold coins -not semi-numismatic gold coins, but regular sovereigns - have been sold at 40% above spot, and sometimes higher. That's right, they've been sold at the equivalent of $1,700/oz.

The only trouble with informing Rep. Weiner about it is that this premium has shown up outside of Congress' jurisdiction. They sold that high in Greece.

Coinupdate.com reports that prices at which the Greek Central Bank is selling one ounce gold equivalents are as high as $1,700 (40% over spot), and prices on the black markets are even higher. The punchline, as Athens slowly returns to a forced gold standard: "A popular spot for street vendors to sell their coins is near the Athens Stock Exchange. There the traders wait for citizens to bring payments received from unloading their paper assets like stocks and bonds.” That’s good – downtown Manhattan close to the NYSE has some free space for gold vendors to set up shop as well, they just need to push some of the frontrunning/collocation boxes off to the side. And in other rhetorical ruminations, is it safe to say that the last days of the fiat experiment are among us now that people themselves are bypassing the government and enforcing their own gold standard?

This eye-opening item comes courtesy of "Tyler Durden" of Zero Hedge, as rewebbed by Prison Planet. To be fair, it isn't just a matter of a buying panic: the Greek government does impose legal restrictions upon the import and sale of sovereigns. Had the Greek gold market been more free-flowing, as the U.S.' is, then the premiums would never have gotten that high.

It does serve as an object lesson on what supply controls can do.

Gold Has Its Utilitarian Uses Too

It doesn't take an anthropologist from Mars to show that gold has enduring value as a status good; an anthropologist from good ol' Earth will do. There are, of course, more utilitarian uses for the metal. Some of them were highlighted by Richard Holliday of the World Gold Council, according to an article in the Business Report of South Africa. In addition to gold in dentistry, which was used as far back as the 6th century by the Etruscans, there's also use in electronics. More noteworthy, although unlikely to be a significant source of demand, is the use of gold nanoparticles in medial treatments.

Holliday argued that in the coming years, a whole host of new industrial and medical uses for gold will emerge from research laboratories, based on gold's unique technical properties.

"Overall medical use is never going to be a driver or a mainstay of gold demand. But it's going to punch above its weight because of the stories it can tell," he said.

"I think people want to hear those stories: when they are investing in gold or buying a piece of jewelry, the magic of gold isn't just about its value and beauty and history in those area, it's also about its elemental qualities, amazing properties as well."...

You don't have to be a Zone head to imagine the possibility of gold being manufactured cheaply at some point in the distant future. The realization of that possibility, I aver, is the only development that would make a gold standard obsolete. Gold would no longer be valuable enough to serve as money.

Here's the funny part: if gold becomes as cheap as copper, it's so-called "intrinsic value" would increase markedly. A lot of uses for gold, impossible now because of gold's expensiveness, would become economical.

I'll leave that supposed paradox of intrinsic value hanging, as it's long been solved.

Admittedly, Things Did Get A Little Exuberent

In a Barron's column, Randall W. Forsyth uses Eric Sprott's new Physical Gold Trust closed-end fund (PHYS) as an example of a bit of exuberance creeping in to the gold market. Formerly trading more than 20% above its net asset value, PHYS dropped a fair bit when Sprott executed a secondary offering. Even after, the premium is still around 13%.


One of the reasons why PHYS is selling above intrinsic value is a certain misapprehension. The fund can't go much below its intrinsic value because of the redemption feature. Its closed-end nature seems to have people believing that it can go well above its intrinsic value, however, because it can't issue shares like an ETF can. The fact is, PHYS can issue more shares to take advantage of any premiums. The process is more labourious than an ETF share issuance, as well as more expensive, but it can be done. There are no limits to how many secondary offerings a closed-end fund can undertake, except for the time factor. PHYS could continue to issue more shares in other secondary issuances until its premium has been whittled down to effectively zero.

Brett Arends Reveals He Doesn't Think Much Of Gold

In the second part of his series on gold, Brett Arends reveals that he's a gold skeptic. He and his crowd evidently don't find much use for gold, one item which the relativism custom seems to have missed. [For some reason, I can hear the echoes of Bill Buckley's ghost telling us pornography has no intrinsic value. I'll leave it to you to guess who would tell us television "has no intrinsic value."] He makes the point that investment demand, which he inevitably calls "hoarding," is the main factor behind gold's rise. In his capstone, perhaps inevitably, he compares gold's rise to a Ponzi scheme.


What to say? According to the reports I've read, gold would go down to $800 or so if the investment demand winds up being ephemeral. Last I checked, a Ponzi scheme's securities goes down to $000 once the buying stops. The cheques bounce, in other words. Gold isn't a liability, so it's hard to see why a one-ounce gold coin would bounce except physically.

Gold Rises During Night, Dips In Early Morning

Things were relatively quiet in Euroland, except for relief at the PRC government's decision to stick with its Euro holdings, and there was no immediate driver to push the metal up in late-night trading. Nevertheless, it rose late last night when Sydney and Hong Kong trading were open. Initially blipping up, it fell to $1,210 before running up to $1,217 by midnight ET. A final blip-up around 1:30 AM pushed the price up to $1,219.80, after which it pulled back to just above $1,210. The rest of early morning trading took place in a range between that price and $1,215. As of 8:03 AM ET, spot gold was at $1,211.20 for a gain of $0.60 on the day. The Kitco Gold Index attributed -$8.30 to predominant selling and +$8.90 to a weakening greenback.

The U.S. Dollar Index fell well below 87 as the Euro recovered from its latest hammering; the PRC's decision caused the other currency's spring-back. The greenback's decline started right after regular trading began, and continued until 3:15 AM when the Index bottomed at below 86.4. Throughout that entire decline, it sunk more than a full point. Recovering afterwards, it fluctuated between 86.4 and 86.8 in an unusually wide trading range. As of 8:09, it was at 86.71.

A Bloomberg report, as webbed by Business Week, says that gold was little changed despite a general increase in commodities like copper and crude oil.

“Investors are shifting their portfolio into commodities,” said Bernard Sin, head of currency and metals trading at bullion refiner MKS Finance SA in Geneva. “The financial situation in Europe is still not resolved yet.”...

“Investors are still concerned about” European debt, said Hwang Il Doo, a Seoul-based trader with Korea Exchange Bank Futures Co. “Gold will continue to be bullish.”

The article also mentions Deutsche Bank raising its estimates of gold's price for every year up to 2015. The forecast for this year's average was upped to $1,215. Also noted is a slight increase in the SPDR Gold Shares Trust holdings, which put the total up to a new record high.

Although concerns remain about sovereign debt, particularly Europe's, a Wall Street Journal report says gold didn't gain all that much because of a shift in risk appetite.

Lately, gold has tended to rise on euro weakness and fall on euro strength, the reverse of how it behaved for most of last year, said strategist Filip Petersson at SEB Commodity Research.

"Today the euro is trending higher together with global equities...thus gold is under pressure," Mr. Petersson said. "Reduced risk aversion during equity market rallies have also influenced gold negatively."

SEB said the underlying level of fear remains very high in the markets, with worries lurking over European sovereign debt and concern that governments' efforts to control the problems will crimp growth in the region....

A Reuters report pegged continued safe-haven demand as the reason for the the slight rise in gold.

Gains in gold were capped on Thursday, however, as the euro rose versus the dollar after Chinese officials denied a report the country may be distancing itself from euro zone debt holdings.

But bullion remained underpinned by expectations of further euro weakness as investors fretted the euro zone crisis might damage the region's banking sector.

Bullion dropped to a two-week low last week as investors sold the metal to cover losses in equities but analysts said the subsequent recovery showed sentiment was still bullish.

Interestingly, none of the reports mentioned tensions between the two Koreas, even though gold's rise last night took place with the Hong Kong and Sydney markets open.

U.S. first-quarter GDP growth was revised downwards to 3.0%, from 3.2%, and weekly first-time jobless claims fell to 460,000. To the extent to which these data had an influence, they aided a partial recovery from a downturn that started earlier in the hour. Starting at 8:10, gold fell from around $1,212 to below $1,207 by 8:30. Bobbing up a little, it reached $1,208.80 by 8:52 AM for a drop of $1.70 on the day. The Kitco Gold Index assigned -$9.00's worth of change to predominant selling and +$7.30's worth to greenback weakness. Despite that overall weakness, the U.S. Dollar Index was a clear beneficiary of the economic data. Rallying strongly starting at 8:30, it broke above the 86.8 top of its recent range to peak at 86.92. As of 8:54, it was still above that earlier ceiling at 86.85.

As sentiment improves for equities, gold is beginning to be left in the dust. In recent days, any drop at or just before the start of regular trading is made up for later in the morning; that trend may continue today. Still, there was hardly any base of gains to build on this morning unlike in the previous three sessions.

Gold Fluctuates Up In Morning Trading

After going nowhere when regular trading started, gold slumped to the $1,210 level and stayed there until just before 10 AM ET. The news that April U.S. housing starts jumped 14.8%, on the heels of a 29.8% surge in March, helped push gold up again. The peak of the rise wasn't reached until 10:45, when gold made a new daily high of $1,217.80. Since then, though, the metal backed off by falling to just above the $1,210 level. As of 11:52 AM, the spot price was $1,211.00 for a gain of $9.80 on the day. The Kitco Gold Index attributed +$19.20 to predominant buying and -$9.40 to a strengthening greenback.

The U.S. Dollar Index, after some trying, made it above 87. Breaking through that level in mid-morning, in the latest stretch of a rally that began before 8 AM, the Index managed to make it to 87.18 before falling back. Since 9:00, the Index's rise has been fairly ragged. As of 11:53 AM, it was at 87.08.

Gold's mid-morning sell-off was both stronger and earlier than yesterday's. Although the metal is solidly in the gain column, its sledding is tougher now. Afternoon trading will show if $1,210 holds.


Update: That mid-morning decline was not followed by a further drop. During the rest of the pit shift, gold rose a little.

Its drop to a little above $1,210 proved to be the bottom. After hovering just above $1,211 until noon ET, the metal climbed up to $1,214 before settling in to a trading range bound by that price on the upside and $1,212 on the downside. As of the end of the pit shift, or 1:30, the spot price was $1,213.80 for a gain of $12.60 on the day. The Kitco Gold Index assigned +$21.10's worth of change to predominant buying and -$8.50's worth to greenback strength.

The U.S. Dollar Index pulled back from its morning run to the 87 level. Settling around 87 by noon, the Index stayed there in a trading range centered around that same level. As of 1:36, it was 86.96.

Again, gold is on track towards logging in another solid gain. The rest of afternoon trading will show how much it will be.


Update 2: Due to a pullback, the gain was lessened to less than ten dollars an ounce. The later-afternoon doldrums were accompanied by a pullback to the $1,210-1,211 level.

The above-mentioned trading range held until 2:40 PM ET, although it was tested on the downside at 2:00. Once $1,212 was broken through, the descent wasn't all that much; $1,210 wasn't tested. Before a recovery uptick, the price meandered between $1,210.50 and $1,211.75. That uptick pulled the price up above $1,212, but it ended up dissipating as regular trading came to an end. As of the close, the spot price was $1,210.60 for a gain of $9.40 on the day. The Kitco Gold Index attributed +$22.40 to predominant buying and -$13.00 to a strengthening greenback.

The U.S. Dollar Index did strengthen more in later afternoon. A fairly consistent rally took it from 86.9 as of 1:50 PM to 87.345 as of 5:30, leaving it near a fifteen month high.

Its daily chart, from Stockcharts.com, shows today's rally putting it back into overbought territory:



For the third day in a row, it advanced. The vulnerability I saw in the chart yesterday has yet to make an appearance, as today's action shows. Again, a weakening Euro kept the Index on a rising track.

I have to admit that the Index seems unstoppable. Although its continued rise may simply limn my talents as a forecaster, it does show the danger in expecting a technically overbought situation to reverse itself. I've certainly learned that a trend can extend for longer than I would expect it to.

The MACD lines at the bottom of the chart did approach a bearish crossover yesterday, but they're farther away from doing so today. Overboughtedness, although only slight, is indicated by the RSI line at the top: it's a little above the overbought level of 70. The Index has not made a new high, as it did yesterday, indicating resistance around the 87.5 level. More significant resistance is at the 88 level: that's where the late '08 part of the Index's run topped out.

Right now, the Index is still in a short-term holding pattern. Saying that the current rally marks the resumption of its uptrend would have to wait for a definitive advance above 87.5 or even 88. Should it go past the latter level, the Index is close to being in uncharted territory. The chaos god still rules.

As for gold, it too advanced for the third day in a row:



It turned out that gold's RSI dipping below the 50 (neutral) level did signal an end to the dip. Yesterday's besting of the $1,200 level held today, while gold's MACD lines are still in a bearish configuration. Actually, the metal's closing value on the day that the MACD lines crossed over into bearish territory was slighly lower than today's. That's a fairly good sign.

Unlike the U.S. dollar index, there's no sign of gold's rally being overextended. Its near-correction took a fair bit of froth out of the market, and has laid the ground for a reaction that's stronger and longer than would have been the case had gold corrected outright. The advance has gone past sucker-rally levels. That said, there's still the possibility of a downturn in the near future carrying the metal down below $1,200. A new short-term low is unlikely.

A post-pit Wall Street Journal report notes that the demand for gold is also being fueled by expectation of Eurozone inflation:

"People [once] thought the euro was a safe haven from the dollar, but obviously it's not a safe haven from anything," said John Hathaway, portfolio manager of the Tocqueville Gold Fund in New York.

Debt issues initially surfaced in Greece, and this became the "tail that wagged the dog for the whole European community," Hathaway said. Investors are now also worried about deficits in other nations such as Portugal and Spain.

"It's made a travesty of the idea of the fiscal discipline that the euro was supposed to bring to its constituent member states," Hathaway said.

Several analysts said potential for eventual inflation also is supporting gold due to factors such as fiscal stimulus, loose monetary policy and a European bailout of financially strapped nations less than two years after the U.S. bailed financial firms.

It does look like the dip has passed. There's a certain wisdom in the value-investor stance, which advocates selecting a price zone, buying in when it's reached, and sitting out any further decline. Gold may continue to go up tomorrow or it may backtrack, but the intermediate-term bull run is still intact. There'll be no reason to question it unless the metal tops out at a lower level than it did earlier this month.

Frothy Prediction From South African Gold Exchange

A target price of $1,500 is quite optimistic, but those who've stuck their necks out in that way have been one-upped by the executive chair of the SA Gold Exchange, Alan Denby.

GOLD might have been hitting all-time highs in terms of dollars and rands, but it is still at only half the peak set in 1980 after adjusting for inflation, the SA Gold Coin Exchange said yesterday.

“Then, prices rose to 850 an ounce, equal to 2266 today,” said its executive chairperson, Alan Demby.

This phenomenon alone justified a doubling of the gold price from current levels in the next couple of years, he said....

A double in two years is pretty wild. In order to do so, gold would have to go up more than 41% this year and next. I don't think I'll brook much controversy by saying that a 41% rate of return is unrealistic.

Nevertheless, the call was made. As gold continues up, there'll be even wilder predictions - especially if the fellow proves to be right. If so, then we're in all-out bubble territory.

Gold As Medicine

Exotic right now, this use may not be if the technique passes muster. According to PhysOrg.com, self-assembling gold particles have real potential to zap tumors with the aid of light.

A variety of studies by numerous investigators are demonstrating that gold nanoparticles have real promise as anticancer agents. When irradiated with light, gold nanoparticles become hot quickly, hot enough to generate explosive microbubbles that will kill nearby cancer cells, a physical process known as the photothermal effect.

A paper has shown that an artificially created gold nanoparticle compex, if attached to a molecule that seeks out tumour cells, can zap them without zapping cells that lack the target marker.


All I can say is, "wow."

The Glenn Beck/Goldline Story Won't Go Away

Rep. Weiner is in crusade mode against Beck and Goldline. When on Bill O'Reilly's show, according to Front Page Magazine, he brushed aside O'Reilly's point that there are worse gold companies to go after.

Last night, Weiner came on the ”O’Reilly Factor” to defend his charges against Beck and Goldline. He called Beck Goldline’s “shill” for promoting its sale of the heavily marked-up gold coins. O’Reilly pointed out that Goldline was rated A+ by the Better Business Bureau and was free to charge whatever it wanted for its coins. O’Reilly also said that Weiner was being unfairly selective in going after Beck’s sponsor and not other gold companies with far worse Better Business Bureau ratings. Weiner’s response was to attack the credibility of the Better Business Bureau and O’Reilly himself.

Yep, that's crusade mode...

Chinese Gold Buyer Still Busy

According to a report from the Daily Reckoning, webbed by Before It's News, mainland Chinese gold buying is still going strong. The reporter, Chris Meyer, saw a busy gold market with his own eyes - and pointed out a new source of demand there:

The surging demand may be the result of Chinese investors shifting their focus from real estate to gold. This is a snippet from CCTV’s report, which gives you a peek into what is starting to happen:

“Housing speculators from Wenzhou City in southeastern China are switching their money from property into gold following government restrictions on the real estate market.

“Tao Xingyi, president of Beijing-based Jinding Group, a company specializing in high-end gold trading and investment, said the company’s customers have increased by 300-400% recently…

“Tao said that within one month, three groups of Wenzhou investors made purchases of gold from his company worth more than 10 million yuan (about $1.5 million).”

If housing speculators end up rolling their gains into gold en masse, then the demand will get frenetic. Housing dropping would give the ones who already have done so a real brag, which would spread across the land. More evidence that gold is coming into its own.

Indian Gold Demand Still Weak In Face Of Rising Prices

The price of gold in rupees hit another record. Given that prices are high, it's not too surprising that Indian gold demand is weak for the second day in a row.

"There is no demand today as prices are at a high, even yesterday was equally bad," said a dealer with a state-run bullion dealing bank in Mumbai....

"Markets could get re-activated if prices fall to 17,000 rupees," [a drop of more than 8% in rupee terms,] said another private bank dealer. However a strong rupee, which made the dollar-quoted asset cheaper, aided sentiment, they added.

Unless the rupee shows some strength, it's not very likely that the price will fall that far. At least, not as far as I can see.

U.S. Mint In Clover

It isn't just the European mints that are doing a land-office business during the sovereign-debt crisis. The U.S. Mint is selling coins at levels not seen since December '08, according to a Wall Street Journal report.

So far in May, the U.S. Mint has sold 158,000 one-ounce 2010 American Eagle bullion coins, according to the agency's website. This is already more than double the full-month total of 65,000 for May 2009....

"We've seen a tremendous uptick in investors looking toward gold for their portfolio," said David Beahm, vice president for marketing and economic research with New Orleans-based coin dealer Blanchard and Co. "It's been like that for a couple of years now. But just over the last two or three weeks, it has exploded."...

"May has turned out to be quite a surprise," said Scott Thomas, president and chief executive of American Precious Metals Exchange in Oklahoma City. "The stock market has declined, and people are continually looking at gold and silver as alternative asset classes."

Some of that demand has come from Western Europe, of course, but there is also evidence of strengthening American demand. Also contributing to the rocket-up in sales is the fact that people who buy them, hold them; the secondary market has not seen a similar jump-up.


The tide may be turning. As veteran gold-watchers know, the public was first "turned on" to gold by being blanketed by ads urging them to sell their gold. It seems only a matter of time before the Cash-For-Gold companies are elbowed out by firms urging people to buy gold. The pre-existing demand is already bubbling up.

World Gold Council Reports Gold Demand Fell 11%

For the first quarter of this year, according to the World Gold Council, total demand for gold dropped 11% from the fourth quarter of '09.

Global consumption fell to 760.2 metric tons in the quarter as exchange-traded fund investment and jewelry demand slowed, the London-based industry group said in a report today. Jewelry usage will likely rebound this year as Western manufacturers restock, Indian buyers become more accustomed to higher prices and China’s economy continues to expand, it said.

Given the fears about investment demand, it was interesting that the category slumped 22% in the same time period. Since then, it's rebounded. Jewelry demand fell only 9%. Since the same quarter last year, jewelry demand was up 43% while investment demand was down 69%.


It seems that the worries about investment demand imploding, and the price of gold along with it, were extensions of already-existing trends. The worries may prove to be little more than sound and fury for now, as the trend has clearly reversed.

Gold Continues To Rally

The OECD issued a report saying that global recovery is in place, although it expects growth to be relatively tepid, but the cost in terms of sovereign debt is going to dog the OECD economies unless stimulus is withdrawn. The Euro fell after Ben Bernanke said that Fed-provided dollar swap line won't last forever, and an issue of German bonds was received badly by the market. [Given how bunds have performed recently, that reception was a bit odd.] For most of the overnight session, gold rose.

The rally started slowly; for the night part of the overnight session, it might as well have been a trading range between $1,200 and $1,205. The latter level was scaled just after midnight ET, but the metal hung around it until just after London trading opened at 3:30 AM. The ensuing rally lasted for more than two hours; as of just before 6:00, the metal hit its high of $1,216.00. Pulling back below $1,215, it hovered around $1,213 as its approached the opening of the pit shift. As of 7:58 AM, the spot price was $1,212.80 for a rise of $11.60. The Kitco Gold Index attributed +$15.30 to predominant buying and -$3.70 to a strengthening greenback.

The U.S. Dollar Index did rally overnight, with most of the gain being made in the evening, but it didn't climb above 87. From the late-afternoon low of 86.34, the Index rallied to almost 86.9 by 10:00 PM. A pullback that lasted until 12:25 AM gave way to another rally that topped out at a little below 87. Afterwards, a larger pullback ensued; the Index didn't regain its old highs despite a subsequent rally that faded. As of 8:07, it was at 86.62.

A Wall Street Journal report ascribed gold's latest rise to continued qualms over the Eurozone's debt problems.

The renaissance of riskier assets seen since the global economic downturn has come to an abrupt end, putting assets like gold, Treasurys and the dollar firmly on the map in an increasingly risk-averse environment....

But the fact that gold hasn't soared to a record, as many had expected, reveals that investors are opting to choose the dollar, not gold, as a safer alternative during the current flight to safety, industry players said.

"The global flight for safety didn't spare gold prices...over the past week, investors have been choosing the dollar above all as euro-zone jitters continue to haunt markets," said Andrey Kryuchenkov of VTB Capital.

Gold has joined the list of assets investors have been reportedly selling to cover losses in equity markets, according to Mark Pervan, head of commodities research at ANZ. At the same time, Mr. Pervan noted investors are taking profits in gold as they seek cash to shore up losses on other positions, keeping a lid on the precious metal's gains, for now at least.

Also mentioned is rising fears that the European sovereign-debt meltdown is acquiring undertones of the subprime mortgage crisis. Demand for physical gold continues to be high.

A Reuters report also says safe-haven buying is behind the rise. Near the top, it mentions that the dip-buying through the SPDR Gold Shares Trust continues with the ETF adding 30.43 tonnes to its holdings yesterday. Those holdings are now at 1,267.32 tonnes, another new record.

Prices are recovering after falling 4.5 percent last week as concern over the euro zone's sovereign debt crisis sparked selling of assets seen as higher risk, like stocks and commodities.

"Same old story for gold -- initially lower on commodity liquidation as people need cash, and then up on (the view of) gold as a currency investment," said Simon Weeks, head of precious metals at the Bank of Nova Scotia.

"With strong ETF demand and the man on the street buying gold coins in northern Europe, it's not surprising that we are now higher."

Tensions between the two Koreas were also mentioned as supportive of gold.

A Bloomberg report, as webbed by Business Week, concurs with the above two about the cause.

“Markets fear that the crisis in the banking sector in Europe could re-emerge,” said Peter Fertig, owner of Quantitative Commodity Research Ltd. in Hainburg, Germany. Investors may be taking money out of assets such as Treasuries and buying equities and commodities like gold, he said....

“Gold is again benefiting from safe-haven flows as uncertainty and risk aversion across markets persist,” said Stefan Graber, a Singapore-based analyst with Credit Suisse AG. “We expect gold to continue to attract fresh flows in the near term. Even a test of the previous high is possible.”

Also mentioned is Bloomberg's tracking of ten gold ETFs; the total adds yesterday was 33.3 tonnes.

The April durable-goods data for the U.S. economy are out, and the raw number beat expectations: a 2.9% gain instead of the expected 2.5%. Ex-transportation goods, orders fell 1.0%. The release of the number had no immediate effect on gold, which fluctuated around $1,213 until 8:45. Then, it dipped quickly below $1,210 before stalling. As of 8:52, the spot price was $1,210.10 for a gain of $8.90 on the day. The Kitco Gold Index assigned +$16.10's worth of change to predominant buying and -$7.20's worth to greenback strength. The U.S. Dollar Index was the prime beneficiary of the release, to the extent it had any influence on either. From below 86.7, the Index rallied smoothly to almost 87; as of 8:55, it was at 86.95.

So far, gold has been performing better than I had expected it to. Physical demand is still strong, and the newfound trend of dip-buying through the ETFs is continuing. The quoted experts above range from sanguine to outright optimistic. Perhaps the dip is over this 'time round; if today's action follows recent patterns, then the sanguinity will be justified.

Gold Rallies Again In Morning Trading, Breaks Above $1,200

Although the advance was ragged, gold poked up above $1,200 in mid-morning trading before falling back. The rally started at 8:40 AM ET, when the metal had bottomed at a little below $1,190. After lumbering up for the next two hours, it reached a morning high of $1,201.40 at 10:40 AM. Since then, it pulled back to the $1,198 level; a further dip was all-but reversed. As of 11:42 AM, the spot price was $1,197.90 for a gain of $5.60 on the day. The Kitco Gold Index attributed +$12.70 to predominant buying and -$7.10 to strength in the greenback.

The U.S. Dollar Index remained below its early morning high of 87.445 despite a later attempt to best it: that try topped out at just below 87.4 as of 9:10. Bottoming at just below 87.0, the Index fluctuated around the 87.05 level after that bottom was reached. As of 11:44, it was right at 87.05.

Again, the morning part of the pit shift has been pretty good for gold. Although the $1,200 barrier was not scaled, the metal appears headed for a second gain in a row. Whether it does will be determined by the action of the afternoon session.


Update: As the pit shift closed, gold continued to meander around the $1,198 level. There was another challenge of $1,200, but it came to naught without making a new daily high. No serious dip took place, either; overall, gold fluctuated. As of 1:29 PM, the spot price was $1,198.10 for a gain of $5.80 on the day. The Kitco Gold Index assigned +$10.50's worth of change to predominant buying and -$4.70's worth to greenback strength.

Despite that overall strength, the U.S. Dollar Index fell as the 87 barrier was broken through once again. Unlike mid-morning's dip below, this one proved to be more sustainable. Dropping to almost 86.9 as of just before noon, the Index recovered only to just below 87; a trading range ensued that was centered at about 86.9. As of 1:38, it had recovered to the upper end by hitting 86.98.

Another pit shift ended with gold higher than it was at the beginning, and with an overall gain on the day besides. There's a good chance the metal will hold its gains, leaving gold with a second daily advance in a row.


Update 2: Not only did it hold on to its gains, but also it closed above $1,200. Gold tested the $1,200 level a third time at 2:45 PM ET subsequent to slumping in a post-pit letdown. Falling back to a little below $1,198, the metal slowly advanced back up to $1,200. The level itself was broken at 4:15. After some time hesitating around it, gold climbed slightly over before dipping back down to it. A last-minute spurt at 5:00 notched up a new high of the day, $1,205.50. Although descending again afterwards, the metal still managed to end regular trading above $1,200. At the close, the spot price was $1,201.20 for a gain of $8.90 on the day. Unusually for the recent period, the Kitco Gold Index partitioned the daily gain into two sub-gains. It was split into +$7.80 for predominant buying and +$1.10 for a weakening greenback.

That overall weakening resulted from the U.S. Dollar Index taking a tumble in the later afternoon. Right after 1:30, the Index inched up to around 87. Starting at 2:05, it dropped; although broken up into stages, the tumble took the Index all the way down to 86.34 when 5:30 rolled around. From its high at 6 AM, it lost about a hundred and ten basis points.

Its daily chart, from Stockcharts.com, shows how volatile the day was:



Since the cut-off time for the chart was earlier than 5:30, the day's candlestick shows a slight gain instead of a loss. It also shows the Index touching a new fourteen-month interday high, as well as it falling as low as 85.5. All told, it had one of its most volatile days: the total spread was about two full points.

Coming near the top of a large run, its action isn't very cheering. Volatility combined with overall directionlessness at the top of an extended run suggests distribution; it's more consistent with a reversal than a continuation. At this level, the Index is very close to being overbought.

Also, and more significantly, its MACD lines are very close to a bearish crossover. Found at the bottom of the chart, the black line and the red line are almost on top of each other. So far this year, a bearish crossover hasn't signalled a rout but has signalled a decline of some note. Most typically for the current bull run, it's signalled a lumbering downturn that lasts for some time even though such downturns haven't sliced an awful lot off the Index. I may be jumping the gun, but the action between the chart's end and 5:30 suggests that the lines are going to cross over soon. If precedent is followed, any decline will be orderly. The only reason to not expect an orderly downturn is the Index's present overextendedness.

The day was better for gold, as its own daily chart shows:



For such an extended decline, one that nearly was an all-out correction, gold's rally these past two days has been fairly robust. Although gold's own MACD lines are still in a bearish configuration, an all-out rout would not have seen a two-day stretch as strong as the one the last two days have shown. In retrospect, it looks like the dip that everyone was supposed to buy on ended last Friday.

That's not to say that gold will not go lower, but it does speak to bargain hunting around the $1,175 level. Without a plummet shooting the metal down well below that price point, there was no incentive to lower it significantly. Should gold turn down without that kind of a plummet occurring, bargain hunting is likely to kick it around $1,175 again. Unusually for the ETF, the SPDR Gold Shares Trust's holdings have shown large buying on the dip recently.

One interesting facet of today's action is the breaking of the recent concurrency, to gold's benefit. The gold-greenback relationship has not gone back to an inverse correlation, but there are hints of the more standard pattern reasserting itself. Gold suffered more of a post-Eurocrisis letdown, after it getting less overbought than the U.S. Dollar Index did, so it's fitting in a way that the metal would fare relatively better today. During previous let-ups, the Index would sink after reaching new plateaus and gold would rise because the cost of the bailouts began to sink in. This iteration, it was different because both rose even though the Index had the stronger run. With gold's recovery, we may be seeing the same hangover effect reassert itself.

The end-of-pit Reuters report ascribed gold's rise to continued safe-haven buying, and contrasted the metal's performance to platinum and palladium's plummets. Amongst other points therein, these were included:

* Gold pushed higher in flight-to-safety buying as investors worried about wider financial market health - traders.

* Gold's relative strength when compared with steep losses in industrial metals, including platinum and palladium, made its moderate gains seem even stronger - traders....

* Gold's upside was limited as the euro fell to a near four-year low against the dollar and as many investors' need for cash outweighed their desire to stash that cash in a safe asset like the precious metal - traders.

In and of itself, this last item may explain why gold rose above $1,200 in later afternoon: the stock markets recovered, as did the Euro.

To sum up, the metal put on a good show today despite some headwinds remaining. There may be another pullback as June approaches, but recent action suggests that it'll be met by bargain hunting. The traditional slow season for gold may not be that bad after all; certainly, its recent fate has been much better than platinum's and palladium's.


Special Note/Thanks: Mid-afternoon, this blog's visitor count reached 10,000. [It's located on the left just below the "About Me" section.] I'd like to thank everyone who's stopped by, especially the regulars, for making it happen. I couldn't have done it myself...they check.

WSJ Columnist Asks If Gold Is In A Bubble

Although some sections in the mainstream business media are still wondering if gold's in the climax of a bubble, or in the throes of a bubble bursting, ROI's Brett Arends asks if gold's on the verge of one. The graph that accompanies his story paints an eye-opening picture:



Arends is sensible enough to point out that a lot of gold's rise over the last decade was from a really undervalued level, before he returns to the incipient-bubble question.

So far gold has followed the same path as the previous two bubbles. And if it continues along the same trajectory—a big if—gold today is only where the Nasdaq was in 1998 and housing in 2003.

In other words, just before those markets went into orbit.

Maybe the smart money is out of gold today. But how easily we forget that the smart money got out of these past bubbles way too early. The really smart money knows you make the most money in a bubble right at the end, when it goes manic....

Arends lays out the case for gold going in to an all-out mania by noting that analyst coverage, general buzz and the contango on the futures market are all far from mania levels. In other words, gold has none of the earmarks of manic buying right now. His case for gold going into a mania rests on these four points:

1. There's likely to be another mania somewhere, since we live in a bubble economy.
2. The floods of liquidity pumped in by central banks has laid down fodder for a New Era story, or a "This Time It's Different" narrative. (Arends' term.)
3. There are a lot of gold believers who are quite willing to spread word around about gold. This transmission belt of sort will likely generate a lot of demand once the public's ears are ready for the message.
4. Gold is hard to value, giveing a large zone of indeterminancy (from the quant perspective) that can be filled by bullish imaginations.

Arends also passes along this fact from Dylan Grice: the value of gold in Fort Knox is near an all-time low as percentage of the M1 money supply's. Grice also said that the 1970s gold bubble ended with M1 coverage hitting 100%; it's currently 15%. [The bull market in gold began at a time when gold's purchasing power was at a low not seen for centuries.] Arends ends by saying that these reasons suggest that gold might enter into a bubble, but anyone getting genned up should realize that gold is very volatile and sometimes dangerous.


What can I say? He lays the case out more meticulously than I have, but his position squares with my own.

If gold does go into an all-out mania, the signal question is when to get out. If gold is fated to be popped when only a bubble in the making, then the question is moot. The only way it could be pre-popped is if the deflationists and Japan-comparers are essentially right. Unfortunately, U.S. Treasury securities have a low yield right now: using T-bonds as a hedge is pretty expensive. The last decade, unlike the 1990s, was one where inflation grew with growth. Thus, the most realistic alternative would be deflationary stagnation. Stocks really won't cut it as a hedge.

Using Grice's note about the 1970s peak and his current figure gives a price of about $6,000 as a potential top. Another one like it was the gold/DJIA cross: very briefly, at the top, an ounce of gold could buy one unit of the Dow Jones Industrials. That seems unlikely at this point, as it would imply a gold price well above $6,500 unless the Dow worsens its March '09 low. The graph above suggests a triple from the current price before the mania comes to a crashing halt: that says $3500 or so. Note the wide variance in plausible tops.

The fact is, the ultimate top should a mania ensue is unpredictable. Market karma being what it is, the monthly returns will be hottest right at the end. The people who stay to squeeze a little more of those returns will be the ones caught in the ensuing crash, which will look like a mere dip to be bought at the time.

The only suggestion I have would be to stop buying gold entirely if it gets above $3,000/oz. No matter how compelling the returns, no matter how permanent the rise looks, not matter if cash is trash and other investment ideas look rotten - even if it looks like we're careening into global hyperinflation. In the throes of a gold mania, there will be some plausible, hard-to-ignore, even compelling cases that hyperinflation is "imminent." They'll feed the mania.

When to sell is a decision that, I can almost guarantee, will come with loads of regret if followed through upon. Given bubble karma, that's inevitable. It seems best to get mentally prepared for doing so.

One alternative, that's not often explored, is to ride the bubble to its top and pull out when the sucker's rally gets started. This decision is less regret-laden, but it's very tricky. It could be pegged as the contrarian's finest moment: switching to bearishness when all around are seeing another buying opportunity. What makes this approach very hard is that the earlier in-bubble scare will look a lot like the sucker rally. People will remember the new highs after the 'scaredy cats' exited, like the ones who sold out of Internet stocks in 1998. 2000 looked an awful lot like '98 until the bottom fell out again. By that point, of course, it was too late.

Playing the bubble requires a permabullish attitude. Getting out means shaking it off. Very few people can do that.

Thanks to good old market karma, there really are no good choices. The standard advice is to sell too soon and live with the regret.

Indian Spot Gold Reaches New Record

Chalk up another new record high for gold in another currency. According to The Press Trust of India, gold hit an all-time high of 18,660 rupees per 10g "on aggressive buying by stockists and jewellers for the ongoing marriage season amid a firming global trend." The last record was made on December 3rd of last year - about the same time that the previous record was made in U.S. funds.

Indian Gold Imports Soar To 34.2 Tonnes

The real figure for April was much higher than the expected 27-30 tonnes. According to a report from the Economic Times, the true figure was 34.2 tonnes as compared with 20 tonnes in April of '09.

Gold Muddles Along In Overnight Session

Despite more fear-related dives in the stock markets, the Euro and crude oil, gold didn't move all that much in the overnight session. Although the metal did not participate all that much in the lastest fear-driven run-up of safety assets, it didn't get driven down like so many other asset classes last night. It dropped for a time in the evening, but recovered later in the night.

That drop, starting around 9 PM ET, took the metal down about five dollars an ounce. Reversing shortly afterwards, gold climbed up to $1,196.50 around midnight ET. That price marked the high of the day so far. After making it there, the metal slid down to the high 1180s before London trading opened. Since then, it was fluctuating between $1,187 and $1,192 before breaking through on the upside around 7:30. As of 8:01 AM, the spot price was $1,192.90 for a gain of $0.60 on the day. The Kitco Gold Index attributed +$9.60 to predominant buying and -$9.00 to strengthening in the greenback.

The U.S. Dollar Index continued its rally, which started in early afternoon, until 6 AM. Although there were stalls and a couple of minor pullbacks, its climb was fairly steady until its high of 87.44 was reached. That made for a more than a hundred and thirty basis points added over the course of seventeen hours. Since the top, a minor but sustained pullback turned into a drop that carried the Index down well below 87.2. As of 8:09, it was at 87.13.

A Bloomberg report, as webbed by Business Week, began by speculating that gold may fall as it continues to be used as a piggy bank to cover losses in other assets.

The euro slid against the dollar after the International Monetary Fund urged Spain to do more to overhaul its ailing banks, adding to speculation that European financial institutions may face greater losses....

Gold is “vulnerable to further cash-generating selling in the short-term given the volatile swings across the broader financial markets,” James Moore, an analyst at TheBullionDesk.com in London, wrote in a report. Increasing ETF holdings and coin and bar purchases continue to “highlight investor diversification towards safe-haven asset types and should limit the impact of long liquidation in gold.”

The report also quotes Dennis Gartman colourfully explaining why falls in other assets can drag down gold:

“We fear that commodity prices are about to come under very real pressure as a result” of a stronger dollar and falling equity markets, said Dennis Gartman, an economist and editor of the Suffolk, Virgina-based Gartman Letter. “This shall be especially true if the margin clerks begin to sharpen their knives as share prices weaken, for they will begin to look for any and all places from which to get liquidity.”

And yet, as also mentioned in the same report, holdings in the SPDR Gold Shares Trust (GLD) jumped up by a more-than-usual amount to a new record of 1,236.89 tonnes. The 16.74-tonne jump was much more than a more normal single-digit increase, suggesting that enough players big enough to rate issuance of more GLD shares are seeing the current dip as a buying opportunity. The report also notes that tensions between the Koreas are escalating.

An earlier Reuters report ascribes gold's fall last night to safety-trade players favouring the greenback for now.

"The pull from the dollar's just been too strong for some today so they're selling into it, but that doesn't mean gold's had it," said a bullion trader in Sydney.

"There's plenty of support for gold left out there."

The mounting war of words on the Korean peninsula as South Korea announced steps to tighten the vice on the North's economy in punishment for sinking one of its navy ships was also triggering some buy orders, the trader said.

Gold briefly staged a recovery above $1,195.00 an ounce after reports North Korean leader Kim-Jong-il had told his military it may have to go to war if the South attacks first, but the price quickly retreated.

So, the escalation did have an effect on gold albeit temporarily. Also mentioned in the report is a Citibank note that expected "scale-in" buying at $1,165.

A Wall Street Journal report contrasted gold's steadiness with drops in other precious metals.

Tension between North and South Korea and worries over Europe's sovereign debt issues with Spain now in the spotlight could propel investors to gold as they seek assets deemed safer over the likes of equities....

Flight-to-quality buying has been the main driver of gold prices this year, said HSBC analyst James Steel. Traders said this trend could continue to benefit gold due to geopolitical nervousness in Korea and risks that sovereign debt in Europe may not only crimp growth in the region but globally.

Also mentioned in the report is UBS sticking to its forecast of $1,300 gold.

A blip-up carried gold close to $1,197 before it pulled back into a decline that continued when regular trading opened. Bottoming at below $1,190, the metal partially recovered after 8:40. As of 8:55 AM, the spot price was $1,192.60 for a gain of $0.30 on the day. The Kitco Gold Index assigned $10.15's worth of change to predominant buying and -$9.85's worth to greenback strength. The U.S. Dollar Index's decline ended at the 87.1 level, and it started to rally around 8:40. As of 8:57, it was at 87.29.

So far, gold's action in today's regular trading has been like the overnight session in miniature: a dip, a rise, but not much change overall. Still, the metal may rally later in the morning.

Gold Leaps In Two-Stage Rally, Continues Up

After starting off near the lows of the day, gold leapt upwards in two stages during the morning part of regular trading. Coming out of the gate, the price jacked up six dollars an ounce to reach above $1,189 by 8:50 AM ET. Pulling back, the metal fluctuated around the $1,187.50 level until just after 11:00. Then, the second stage of the rally kicked in. Starting below $1,188, the second leap took the price to $1,194.80 before sinking back starting at 11:15. As of 11:45, the spot price was $1,192.40 for a gain of $15.40 since last Friday's close. The Kitco Gold Index attributed +$26.20 to predominant buying and -$10.80 to strength in the greenback.

The U.S. Dollar Index fluctuated between 86.5 and 86.25, with a downward bias near the later part of the morning, until breaking through the lower end of the range. After an early-morning run peaked at 86.51 as of 8:20, the Index drifted back downwards to just above 86.25. A quick recovery to almost 86.5 presaged another downtrend, which took it down to a little below that same 86.25 by 11:30. As of 11:45, it was at 86.17.

So far, the metal's recovery is fairly solid. The greenback rallied when gold didn't early this morning. The regular-trading rally gold's enjoying, without the U.S. dollar participating, could be seen as gold catching up to the greenback. How sustainable gold's rally is, will be seen in the afternoon part of the session.


Update: There wasn't a third leap-up, but gold crept up after its pullback ended at about 11:30 AM ET. Its climb took it up to a new daily high of $1,196.90 before it slumped back again. As of the end of the pit shift, 1:30 PM, the spot price was $1,193.90 for a gain of $16.90. The Kitco Gold Index assigned +$26.40's worth of change to predominant buying and -$9.50's worth to greenback strength.

The U.S. Dollar Index continued to slump down, although slowly and hesitently. After poking at 86.15 from the upside, it fell through that level at 1:00. Pulling back up, it again sunk below that level temporarily. As of 1:38, it was 86.15.

So far, there's been a real recovery in place for gold. It may not last during the rest of the week, but it's likely to last today. There's almost a certainty of gold closing with a solid gain.


Update 2: It did, although at a slightly lower price than the one at the end of the pit shift. When the electronic-trading hitch began, gold continued to rise a little. A new daily high of $1,198.00 was made around 2:30 PM ET. From that peak, the metal started sliding down: at first very slowly, the tempo of the decline picked up as the close approached. At the end of the day, the spot price was $1192.30 for a solid gain of $15.30 since Friday's close. The Kitco Gold Index attributed +$29.40 to predominant buying and -$14.10 to strength in the greenback. The two figures sum up to the raw change.

The U.S. Dollar Index's sinking ended when it bottomed at just below 86.1 right after 1:30. Subsequent to that bottom, the Index advanced fairly steadily to 86.47 by 4:40. After a pullback, it managed to rally to above the 86.5 level that had been a top for advances earlier in the day. As of 5:30 PM, the Index was 86.525.

Its daily chart, from Stockcharts.com, shows the decline of the previous three sessions being reversed today:



Averted was a switch of the MACD lines, found at the bottom of the chart, into a bearish configuration. It was close, but the lines are still in a bullish cross. Despite the Index's close upwards, those lines were closer today than they were yesterday.

Although not back into oversold territory, the RSI line at the top of the chart is close to that plus-70 zone. The Index's recovery from its drops in the last half of last week show that its pullback has been fairly orderly. There have been no real air pockets that have shot it down. The Euro, of course, is still under a cloud.

Turning to gold, its fortunes improved today as its own daily chart shows:



Unlike the U.S Dollar Index's, the short-term decline in gold has been fairly serious. Its own RSI line dropped to a little below the 50 level, indicating neutrality, and its own MACD lines are firmly in a bearish configuration. Today's rally does resemble a relief rally.

It did move up today, though, and part of the reason is bargain hunting. Despite the daunting action over the last two weeks, the fact that bargain hunting kicked in shows that gold's decline has limits. It too is bolstered by continued troubles in the Eurozone.

Was last Friday's drop the end of a short-term dip? It's impossible to say at this point, but I have read of $1,175 being thought of as a bargain level. Interday, Friday's decline got below that price point.

The post-pit Reuters report pegs gold's advance as caused by flight-to-quality buying. Amongst the points made therein, these were included:

* In this environment, gold up despite weaker euro as a sign of increased risk - James Steel, metals analyst at HSBC....

* Sovereign risk crisis in Europe far from over. Should continue to bode well for gold through summer - Bill O'Neill, managing partner with LOGIC Advisors.

* Money managers increased their net long positions in U.S. gold futures by more than 2,000 lots in week ended May 18 - U.S. Commodity Futures Trading Commission.

The metal may make it above $1,200 if Eurotroubles continue, but the momentum of two weeks agon has clearly gone. We may see a muddle tomorrow.