Friday, June 4, 2010

Gold Fluctuates In Morning Trading, Shoots Up Later

It's been a bit of a wild ride for the metal as the $1,200 level held. Starting regular trading in the midst of a decline, gold shot up with the release of the disappointing non-farm payrolls data. Failing to gain traction, the metal floundered around until a decline set in that drove it from above $1,206 down to $1,198. Ending the decline at 10:00 AM ET, the metal recovered the entire loss within the next hour. That recovery was followed by a pullback, as the overall $1,200-$1,207 range had held except for spikes, and then replaced by an up-surge. As of 11:53 AM, the spot price was $1,210.50 for a gain of $2.70 on the day. The Kitco Gold Index attributed +$13.30 to predominant buying and -$10.60 to strength in the greenback.

The U.S. Dollar Index, after flailing about itself, went on a mid-morning run that took it all the way up to above 88. Before doing so, it endured a pullback that brought it down to 87.6. As of 11:56, it was at 88.00.

So far this morning, gold has been put through a tug-of-war. There hasn't been much rallying, but this morning's decline was more than erased all told. There may be more disappointing surprises in store for the metal this afternoon, but gold has acted fairly well so far.

Update: So far, the only surprise has been a pleasant one. The rise that started late morning not only held but also extended. Pausing at 12:10 PM ET, the metal reached $1,216 before pulling back a couple of dollars an ounce. That dip prefaced a renewed rally that pulled the metal up to $1,220.00 before halting. That peak, made at 12:40, preceded a mild pullback that brought the metal down a few dollars an ounce. As of the end of the pit shift, or 1:30 PM, the spot price was $1,217.30 for a gain of $8.40 on the day. The Kitco Gold Index assigned +$18.75's worth of change to predominant buying and -$10.35's worth to greenback strength.

The U.S. Dollar Index peaked as of noon, at 88.17, and then drifted down to the 88 level. Reaching it after 12:50, the Index passed a little below it and then continued drifting. As of 1:40, it was at 87.98.

It took some time, but the weakness in the U.S. equity markets seems to have buoyed gold. The risk-appetite play works both ways.

Update 2: The buoyancy held through the rest of the session. Instead of the usual quiet, there was a wavy up-and-down motion that moved gold between $1,215 and $1,220. The quiet came after 4:00 PM ET, when the metal stayed at the top of the range and drifted there until the close. As of the end, the spot price was exactly $1,220.00 for a gain of $12.20 on the day. The Kitco Gold Index (KGX) attributed +$26.55 to predominant buying and -$14.35 for greenback strength. As for ex-greenback performance, measured by predominant buying/selling, the KGX made a new record today.

Until the noontime shoot-up came along, gold was vering towards a loss on the week. Instead, the metal ended this week with a slight gain, for the second weekly rise in a row. From last Friday's $1,214.30, the weekly gain was $5.70 or 0.469%.

After hanging around 88, the U.S. Dollar Index climbed definitively above it in the later part of the afternoon. Starting at 1:50, the Index's rise was smooth until it stalled at 3:45. Pulling back a little, it fluctuated between 88.2 and 88.35. As of 5 PM, it ended the week at 88.30.

Its daily chart, from, shows the ascending triangle formation being firmly broken through on the upside:

Once it got through 87.5 and stayed there, it hardly looked back. This time, the ascending triangle worked.

I did demur from making an outright prediction yesterday, because I wasn't sure of the timing. Once the 87.5 level was firmly breached, though, the Index didn't pause for much. The main cause was the continued fall in the Euro, which broke through US$1.20 today.

Again, the greenback is back in overbought territory. Its RSI line, found on the top of the chart, is above the overbought level of 70. As it turned out, being near overbought levels yesterday didn't hamper today's rise all that much. Moreover, the MACD lines at the bottom of the chart turned from a bearish configuration to a bullish one. With the exception of the RSI line, which tends to indicate a pullback at overbought levels, the technical position of the Index is pretty good.

That's not to say there won't be a pullback Monday, but I believe the 87.5 hurdle is now cleared. The Index should be in for a bit of a run in the near future.

Turning to gold, its own daily chart shows today's rise undoing most of yesterday's fall:

Most, but not all. As it turned out, the falling of gold's own RSI level to near-neutral territory heralded an upturn. The interday low today was lower than yesterday's, due to gold's early morning spill, but the fear induced by the falling stock market made for enough bullishness to bring it to well above the $1,200 level. Although a driver is needed, sub-$1,200 does approach bargain-hunting territory.

Gold's MACD lines are still in a bearish configuration, and they missed a recent chance to switch into bullish mode. That doesn't mean a serious decline is ahead for the metal. But, it does mean that an upward run has not been foreshadowed; if there is to be one, it'll be a surprise. Gold may continue to muddle along, seeing as how bargain hunting is still around. Yesterday's portent of a Fed Funds rate hike seems to have gone nowhere.

Last Tuesday, gold was at the peak of its six-session upwards run. Although another record was not made, the metal had been approaching it. That day was the cut-off for this week's Commitment of Traders records, as graphed here. Total open interest was virtually the same as the previous week's, and there was an interesting decline in one of the categories on that peak day: non-commercial longs, supposedly the dumb money, actually shrunk a little from the previous week (when gold was lower.) Non-commercial shorts also shrunk a little. Commercial shorts went up by 1.07%, but the category that expanded most definitively was commercial longs. On a contract basis, commercial longs expanded more than commercial shorts. Percentage-wise, they were up 3.44%. Perhaps the commercial money isn't as dumb as it appears in this week CoT info, and that increase signals a resumption of the rally sometime. Or, commercial longs are going up for delivery purposes to satisfy demand for physical bullion. Perhaps it's both.

The U.S. Dollar Index's own CoT graph ends with data from a time when the Index bumped up against 87.5 but failed to follow through. Total open interest shrunk for the fifth week in a row, to a level not seen since early last October (before the Index's bull run began.) Commercial longs hardly budged, while non-commercial longs shrunk. Non-commercial shorts actually increased, which did gibe with the Index's ranging until today. Commercial shorts dropped by a whopping 9.09%, which did show some foresight. It's a little odd that the Index contract would be relatively quiet when the Index itself is shooting up. Perhaps the action's shifted to the dollar-Euro contract instead.

Moving back to gold, a post-pit Wall Street Journal report ascribes the noontime jump to renewed safe-haven buying and concern about the sovereign debt of Hungary.
"It's the continued haven buying and concerns about what new headlines there could be over the weekend," said George Gero, vice president with RBC Capital Markets Global Futures in New York. Investors often turn to the metal as a store of value at times of economic and geopolitical uncertainty.

So-called safety buying of gold let up in recent days when Europe's debt problems did not appear to be worsening. However, investors again sought gold as a store of value when the euro dipped below $1.20 for the first time in four years and comments from an official with Hungary's ruling party indicated the nation may be suffering similar debt problems as Greece.
The report also quotes another expert as saying that yesterday's remarks from FOMC voting member and inflation hawk Thomas Hoenig about the recovering economy also put some pressure on gold and helped push up the greenback.

Overall, it wasn't a great week for gold but today's rise made it a good one. If further good economic data from the U.S. comes, though, there will be some pressure put on the metal. That's the downside of being a safe-haven asset.

Thanks for reading, and enjoy the weekend heat as summer approaches.

Where's The Inflation?

Holdings for the GLD have increased quite a bit over the last month, but it isn't the only inflation-related ETF whose holdings are jumping up. Also increasing is the iShares Barclay's TIPS ETF, as recounted by Paul Amery in a Seeking Alpha article.

Trouble is, as Amery points out further, there's no sign of inflation anticipation heating up in the raw markets for those bonds. He also notes that the inferred M3 money supply is dropping year-over-year right now.

For gold, this is explained by the metal acting as a disaster hedge. The rise in the TIPS ETF, though, suggests that gold is also rising on anticipated inflation. What makes the TIPS more vulnerable is they're tied specifially to U.S.inflation, not world inflation like gold is. If U.S. inflation doesn't rise, while that of other countries does, then the TIPS will be hit more squarely than gold would be.

New Royal Canadian Mint 5-Ounce Coin Out

Limited to a mintage of only 200, the new Royal Canadian Mint 5-ounce coin features a design that's been adapted from the original 1935 $500 bill.

Have a gander:

The list price is pretty steep: C$9,495.95

Gold Jewelry Hallmarking In The U.K. Drops By 11.8%

According to a report in Professional Jeweller, hallmarking of gold jewelry overall has declined 11.8% year-over-year. Higher gold prices were blamed, even though the steepest decline in hallmarking was for 9 karat jewelry.

Presumably, the steep decline in 9 karat pieces was due to them being sold to a more price-sensitive clientele. That group seems to have little crossover with the other categories. The drop in demand for 9-karat category was not compensated for by an increase from people who would otherwise have bought 14 karat.

Controversial Kitco Commentator In Debate This Coming Weekend

Jon Nadler of Kitco is going to be debating Frank Holmes of U.S. Global Investors as part of the Cambridge House World Resource Investment Conference.
Topics covered are expected to include the future of paper money, gold’s utility as a safe haven for wealth, the role of central banks in gold pricing, and the impact of Asian economies on gold. Nadler and Holmes will talk about how high the gold price should go, relative to currencies.

Fitch said he thinks this type of debate is needed because of the widespread view among investors that the U.S. economy is a house of cards and the U.S. dollar is falling down, leaving gold as potentially the only hard asset that can act as a store of value.

He describes the 30-minute debate as a bear versus bull type argument....

It's hard to decide which will be the most interesting part of the debate: the speakers or the audience reaction.

Update: Kitco News has a brief report on who said what, noting that it was "amicable." Video clips are embedded in the report. Those who want to see a video record of the entire thing can go to this page here.

Indian Gold Buying Picks Up A Little After Prices Fall

According to a report by the Economic Times, Indian gold demand picked up from dormancy because of the recent price drop:
India gold buying picked slightly on Friday as prices fell for a second day, with traders waiting for the $1,200 an ounce level to replenish stocks, dealers said.

"There is some movement on buying front after days of slackness," said a dealer with a state-run, bullion dealing bank....

"There are buyers lined up below $1,200 level," said another dealer with a private bank.

Although the second source didn't say how much demand there was below the $1,200 level, the fact that there is some indicates acclimatization to higher prices.

Another Kind Of Gold Recycling

A report from Mineweb discusses another kind of gold recycling: using recovery from old tailings to partially fund a cleanup of Yellowstone Park.

The State of Montana, the U.S. government and Barrick's Golden Sunlight mine are all working together to bring to a close one of the most controversial chapters in U.S. mining history involving gold mining near Yellowstone National Park in Montana.

Ironically, today's high gold price may provide the funding to finally end the historic mine pollution considered a significant source of heavy metals contamination flowing into the park.

The same environmental groups-who, with the personal intervention of then-President Bill Clinton, successfully won a war in the 1980s to ban gold mining in and around Yellowstone-now support a proposal to use the gold from old mine tailings to fund the reclamation of a major mill site near the park.

The Montana Department of Environmental Quality announced Wednesday that it is starting cleanup of the 80-year old, 30-acre McLaren Tailings Site located at the former McLaren Mine mill near Cooke City in Park County....

The tailings are leaching acid into Yellowstone headwaters, so getting rid of them will improve water quality. So will a treatment plant being added on the original mill site. The tailings are going to be moved to a repository near the original site, and some of them will be reclaimed to provide funding. Seed money has been provided by the U.S. government.

Who woulda thunk that a rise in gold prices would facilitate today's mining cleaning up yesterday's...

2010 Proof Gold Buffalo Coin On Sale

As noted by an annoucement post at Coin Update News, this year's Buffalo is going on sale several months earlier than last year's. It's initially being sold for $1,510, making for (approximately) a $300 (close to 25%) premium over melt. Last year's issue sold out in about five months with almost 50,000 sold.

Perth Mint European Sales Ramp Up

Thanks to the Eurocrisis, sales to Europe by the Perth Mint have jacked up to 69% of total output, up from 51% as of a year ago. The main source of the new demand was Germany. The article notes that Germans are not only buying gold but also are loading up on silver.

Perhaps that's because gold is becoming too expensive. Silver tends to take off in the later stages of a gold bull market, when gold has already advanced considerably.

JPMorgan Natural Resources Fund Increases Gold Exposure

According to a report, the JPMorgan Natural Resources Fund now has a higher allocation to gold stocks. The shift began at the end of April.
"We have increased our gold exposure," Ian Henderson said at at a precious metals conference led by ETF Securities on Thursday.

With risk aversion rising, gold stands out as an asset in which people are still prepared to invest, he said.

"Gold and precious metals exposure is currently around 39%, and we have commensurately reduced our base metals and diversified mining exposure."

Figures detailing the fund's holdings as of end-April show its allocation to gold and precious metals at 34.1%, while base metals and diversified mining was at 31.6% and energy at 26.5%....
Since mining stocks have tended to underperform relative to gold, Henderson added, the fund is focussing on companies with growing reserves and/or growing production. No names were given.

Gold Continues Its Slump Overnight

Yesterday saw more talk from the Fed about raising the Fed Funds rate, with Thomas Hoenig again taking the lead. He's the only voting member of the FOMC to suggest it, which he's been doing for some time, but yesterday saw two non-voting members of the FOMC join in. Hoenig also sounds more reasonable than he used to, suggesting that he sees a moment where his views could influence his fellow voting members of the FOMC. The reason given for raising the Fed Funds rate to 1% and/or selling some securities was the improving economy. As of now, Ben Bernanke hasn't indicated any influence this argument has had on him. Based upon yesterday's reports, and performance late yesterday afternoon, what Hoenig and other had to say did not influence the gold market. As yet, anyways.

It does gibe with gold's continued lowering, though. After staying down yesterday afternoon, and closing around $1,208, the gold price drifted downwards but very slowly last night; it stayed above $1,205. A slump below that level had to wait until 1:00 AM ET. Bottoming at $1,203, the price stayed at the sub-$1,205 level for two hours. The rebound didn't last as gold resumed its sink when London trading opened; by the time it was over, the metal had bottomed at $1,196.10. Recovering, it crept above $1,200 and spiked to $1,210.30, but sunk back to below $1,205. As of 8:10, spot gold was at $1,204.90 for a loss of $3.30 on the day. The Kitco Gold Index attributed +$3.20 to predominant buying and -$6.50 to a strengthening greenback.

The U.S. Dollar Index managed to break above 87.5 after drifting for most of the overnight session. Going almost nowhere last night after reaching 87.25 yesterday afternoon, the Index went into a slump early in the morning. The subsequent drop pushed it slightly below 87 before ending a little after 5:00 AM. Then started a rise that turned into a rocket-up around 7:00; peaking a little after 8:00, the Index reached above 87.8 before pausing. As of 8:21, it was at 87.77.

A Reuters report says that gold traders are continuing to shy away as the U.S. non-farm payrolls data is awaited.
"There are compelling reasons to believe that the jobs data today will beat market expectations, and President Obama's comments on this, a day ahead of this release, is forcing the markets to believe that U.S. recovery is on a scheduled path," said Pradeep Unni, senior analyst at Richcomm Global Services.

"Ideally such data should boost the dollar, trigger diversification to riskier assets and sink bullion, but with debt concerns mounting in the euro zone, the degree of sell-off in gold could get limited to $1,195-$1,184."
Despite yesterday's drop, or perhaps because of it, holdings in the SPDR Gold Shares Trust leapt up 21.3 tonnes to a new record of 1,289.84 tonnes.

A hint of the old inverse correlation between the greenback and gold showed up in a Wall Street Journal article, which said gold had paused while traders awaited the payrolls data.
"A number in line with or above expectations is likely to boost the dollar and reduce the fear level and thus put gold under pressure," said Swedish bank SEB in a report Friday.

Slackening demand for gold bars and bullion over the past week has removed one recent leg of support for gold. UBS said demand has fallen "from its frenzied level in May" as investors are unsure whether risk appetite is due for a recovery.
A Bloomberg report, as webbed by Business Week, starts off like the Journal article by describing gold as little changed.
Gold, little changed in New York today, may fall for a third day as some investors sell the metal to lock in gains after a rally....

“Gold was pretty much on a one-way street, and it is only natural that we see a bit of a correction,” said Afshin Nabavi, a senior vice president at bullion refiner MKS Finance SA in Geneva. “In the medium to long term, this may be an opportunity to buy into dips.”...

“Gold feels jaded for now,” Edel Tully, an analyst at UBS AG in London, said today in a report. “There’s a general lack of conviction as investors appear to be struggling to make up their minds about risk appetite.”
The article also quotes other analysts to the effect that the current slump is a pause in a longer-term uptrend.

That long-awaited non-farm payrolls data were released, and the number was actually below expectations. 431,000 jobs were added, and 411,000 of them were temporary census-worker positions. The unemployment rate did drop to 9.7%, but that was mostly due to people dropping out of the labour force. After slumping from $1,207 to $1,202, gold spiked up again to a little below $1,208 right after the news was released. That spike-up didn't last as the metal fell further to touch $1,200, but another one drove it back up above $1,205. As of 8:53 AM, the spot price was $1,205.30 for a loss of $2.50 on the day. The Kitco Gold Index assigned $5.40's worth of change to predominant buying and -$7.90's worth to greenback strength. As for the U.S. Dollar Index, it flailed about on the news but ended up advancing overall. As of 8:56, it was at 87.81.

So far, gold looks on track for another drop on the day. Although the payrolls report was a dud with respect to the equity markets, the metal wasn't helped all that much by the disappointment. Whether gold will end up rallying in consequence remains to be seen. Hoenig's moment may have been lost.

Thursday, June 3, 2010

Gold See-Saws, Then Tumbles

Regular trading opened with a rise in gold to $1,219, which was followed by a wavering and then a descent back to $1,215. A further rise brought the metal up to almost $1,220, but the run melted away with another drop to $1,215. The see-sawing continued to the middle of the $1,215-$1219 range, until the support was finally exhausted. Starting at 11:25 AM ET, the metal tumbled down to $1,211 before pausing. As of 11:45 AM, the spot price was $1,211.80 for a loss of $12.20 on the day. The Kitco Gold Index split the loss into -$8.50 for predominant selling and -$3.70 for a strengthening greenback.

The U.S. Dollar Index, after some hesitation, climbed up to around the 87 level. Positive U.S. economic data, like the ISM service-sector report that showed both continued expansion and job growth for the first time in 28 months, helped boost the Index is its run to 87. After reaching that level as of 10:30, the Index fluctuated in a trading range bordered by 86.9 on the downside and 87.05 on the upside. As of 11:46 AM, the Index was at 86.97.

Unless there's a real recovery later in the day, gold will have notched up its second loss in a row. $1,200 has easily held so far, and is likely to continue to do so later, but the safe-haven demand has evidently drained from the market. Short sellers may be picking up on it now.

Update: After the bounceback, which lasted until 12:15 PM ET, the plummet continued. In the next fifteen minutes, ten dollars was sliced off the price; gold ended up testing $1,200 after all. Having bottomed at $1,200.10, the metal bounced back up fairly steadily in the next hour but not enough to reach $1,210. As of the end of the pit shift, the spot price was $1,208.10 for a loss of $15.90 on the day. The Kitco Gold Index divided the overall loss into -$9.20 for predominant selling and -$6.70 for greenback strength.

The U.S. Dollar Index managed to make it well above 87 as it built on the rally that regained steam at 9 AM. Initially bumping against 87.05, the Index forded above at 12:05 PM. Making it to 87.25, it paused and consolidated around the 87.15-87.2 level. As of 1:38, it was at 87.16.

Due to those two plummets, my call for a gain today turned out to be wrong. The gold market day showed a vulnerability that's reminiscent of the declines late last month. How far it goes today will be shown by the electronic-trading hitch of the regular session.

Update 2: The metal never recovered from its drop. After spending some time between $1,206 and $1,208, it dropped briefly below right after 4:00 PM ET. Staying a little below for an hour, the metal recovered to the top of the range and ended up closing at $1,207.80 for a loss on the day of $16.20. The Kitco Gold Index divided the loss into -$9.30 for predominant selling and -$6.90 for strength in the greenback.

The U.S. Dollar Index held on to its gains made earlier in the day, but didn't add to them all that much. Dipping down to 87.05 as of mid-afternoon, the Index recovered to sail up a little above 87.25 only to be stalled there. After a slight dip, it ended up at 87.21 as of 5:30.

Its daily chart, from, shows today's candlestick hugging the top of its range:

So far, the Index is sticking to the ascending triangle pattern. If that formation plays out, it'll rise above 87.5 and go for a nice run upwards. Further troubles in the Eurozone, or elsewhere, would likely be the driver for it.

That's what might happen. Despite a lull, and a return of risk appetite that took a bite out of the gold price, the Index keeps inching up. It'll face a bit of a battle to get and stay above 87.5, but that's the way it appears to be going. I could be wrong on this one, so I have to hold a demur in reserve. If the Index gets and stays above 87.5, then it's in for a nice continued run. The only point of doubt on this picture is the RSI line, which is close to being at an overbought level. Being near-overbought doesn't prevent a run of that sort, but does limit it in the near term.

As for gold, its decline today put the x-mark on my prediction yesterday that it would rise. Instead, it had a fairly large decline, as its own daily chart shows:

Needless to say, the approach of its MACD lines to a bullish crossover was aborted today; both lines are now solidly in a bearish configuration. Gold's own RSI level is now only a little above neutral. Short term, the top at the beginning of this month was lower than the one for the middle of last month.

It's possible that this lower high may foreshadow a lower low, but it's unlikely. Sharp declines do scatter bargain hunters, but they tend to come back. The current intermediate-term rise has been accompanied by acclimatization to higher prices. Bargain hunting now tends to click in only a little below $1,200. As of now, even if the decline continues, it looks like a short-term dip not unlike the one late last month. There's little evidence of a turn-away from gold.

Still, the metal could slump down to below $1,180 or even below $1,175 in the near future. I can't make any recommendations on this blog, but I note that the last short-term decline ended largely because of bargain-hunting. It would take quite an air pocket to make bargain hunters ratchet down their entry points; the Eurocrisis still echoes.

The post-pit Reuters report ascribed the fall to anticipation of U.S. economic improvement, to be shown in the payrolls data tomorrow; it prompted an exit from the metal. Amongst other points in the article, these were made:
* After a robust U.S. factory orders report, and several readings on Thursday indicating that employers have been adding jobs, some gold investors sold off positions in anticipation of a surge in the monthly payrolls data on Friday -analysts.

* In response to the robust U.S. economic news, the dollar was up against the euro, also pressuring gold.

* An absence of renewed concerns over the euro zone debt crisis also dulled gold's edge as a safe haven -- traders.
So, the negative correlation between gold and the greenback was felt today as the Eurocrisis lulled. The influence of a recovering U.S. economy does explain why gold was driven down more strongly during the lull than the greenback. The article does not mention any short-seller influence, leaving the impression that today's plummets were caused by selling cascades by longs. Such a cascade may have been caused by tight stops, or by quick-fingered momentum sales; either would be an invitation for short sellers to step into the breach had it not been for the bargain-hunting factor. Perhaps the shorts are weighing in, despite shorting becoming more dangerous in April and May.

The metal could continue to soften tomorrow, but underlying physical demand still seems robust. This factor might kick in and give gold a breather on its last session of the week.

Mines' Cash Costs Hit Record High

As reported on in Mineweb, global cash costs are rising; as of the first quarter of this year, they were at a new record high.
According to the report, "the average cash cost of gold mine production was $544/oz in Q1 10, the highest average cash cost yet in our data series, and $29/oz higher than the previous high last quarter."

The report shows that over the past 12 months average cash costs have risen 20%, or $91/oz, from $453/oz in Q1 09. And, while this is comfortably below an average gold price for the period of $1,109 an ounce, the range between the low and high cost producers has grown. And, for the first time since Q2 2009, the spread between the two has narrowed....

Part of the reason for the jump in costs is the report explains is the type of data collected. The report is based on 226 gold mines (for the period Q1 10), which collectively produced 10.8 Moz of gold.

This, the report says, is higher than the measured costed production in Q1 09 of 10.3 Moz, but lower than that seen in Q4 09 of 11.6 Moz.
Cash costs are, of course, only one component of overall costs. They rising suggests that the ore being brought into production is more expensive than the ore already mined, although a rise in ancillary costs could have contributed to the jump.

David Einhorn: Buy Gold Now, Adapt Later

In a recent speech, as reported on in Bullion Vault, David Einhorn recommends buying gold for yourself and worrying about the grandkids later. He argued that the current U.S. entitlement regime is unsustainable, and that the salary-and-benefits differential between U.S. government employees and private-sector workers is reminiscent of Greece. He expects a Grecian-style fiscal crisis to visit the U.S. in the near future. The reason he gave for putting aside the worries about the grandkids' future is that most people are adaptive, and are capable of adapting to the changing circumstances. Presumably, the grandkids will too.

A Case For Gold Stocks

In an interview with the U.K.-based Jutia Group, founder and CEO of CD Private Equity Natural Resources Fund Carmel Daniele predicts that gold will go to $2,000 within twelve months. No doomsayer, she's pinning her forecast on the commodity super-cycle which she expects to continue for 20 years all told. That cycle, she expects to be concurrent with continued high growth in the PRC. She also points out that urbanization and high-growth waves typically last about 30 years, citing America and Japan as examples. Mainland China's, she claims, has only been rolling for ten years.

Unlike many other gold bulls, her interest is in juniors. Most of the names she discusses will be familiar to veteran gold-stock watchers: they're juniors with huge deposits, like International Tower Hill and Ventana.

Krugerrand Production At 25 Year High

According to a Bloomberg report, webbed by Business Week, the output of South African Krugerrands is at its highest level since 1985.
Output last week jumped 50 percent to 30,000 ounces of blank coins for minting by SA Mint, Debra Thomson, Rand Refinery’s treasurer, said by telephone from Johannesburg today....

“We’re seeing higher demand for gold because of the sovereign-debt crisis in Europe and the depreciation of the euro,” said Thomson. “People are looking for gold as a safe haven.”
One interesting fact from the article: new demand for the Krugerrands is coming mostly from Germany. The Weimar experience may make them quick on the trigger, but many Germans evidently see the Eurobailout as heralding inflation.

On the related subject of Euroinflation, Juliet Samuel of City A.M. highlights the role that ETFs are now playing. She points out that the prime customer base for the gold ETFs are institutional investors, many of which are barred from holding gold directly. She ends by noting that the current gold rise, unlike the late '09 spike, is seeing physical demand as a large component. '09's was largely in the futures market.

That physical demand is obviously exerting an influence in Germany, where the ETF story is evidently less compelling than in the U.K. or North America.

Why The PRC Turned Down The IMF's Gold

In a report for Commodity Online, three reasons are given for the PRC government not buying the IMF gold currently being sold on the open market. First of all, they doing so would drive the price up to what would likely be an unsustainable level. Secondly, the PRC seems inclined to buy gold directly from mines instead of from other governmental organizations. Thirdly, and significantly, adding gold to reserves would put some pressure on the renminbi to appreciate: that, the PRC government does not want. These reasons came from David Lew.

None of these reasons means the PRC is anti-gold; far from it. An IMF purchase just doesn't make sense to the rulership.

It's a thin reed, but the People's Bank of China could buy some (more) gold as a renminbi-raising measure if it follows through on U.S. governmental demands to raise the renminbi's value with respect to the greenback.

Indian Demand Picture Mixed

Although there was some stocking up by some jewelers, the overall demand picture in India remains clouded.
Although quite limited, Indian jewellers have been showing buying interest whenever the gold price drops during the wedding season in the world's largest consumer.

Gold jewellery forms an essential part of the dowry basket and Indian parents give it to their daughters at weddings for security, but fewer weddings could take place during the June-September monsoon.

Demand for gold in India hinges on a good monsoon, which boosts farm output and rural incomes. July is usually a lean month in India because farmers, who account for 65 per cent of the country's gold demand, spend their money on sowing crops....
There's a little net buying in India, but not in other East Asian countries.

Gold Continues To Slump Overnight

As it turned out, yesterday's close marked a high that was barely surmounted in overnight trading. Instead, gold slumped to the $1,222 level after dawdling slightly below the $1,224 close. Rising a little early in the morning, the overnight close was briefly bested around 3:00 AM ET as the metal spiked up to $1,225.60. Lasting only briefly, the metal ended up falling back down to $1,222 and further: two hours later, it lost a quick four dollars an ounce. Hovering between $1,216 and $1,218 subsequently, the metal failed to recover as it dipped further. As of 8:03 AM ET, the spot price was $1,215.60 for a loss of $8.80 on the day. The Kitco Gold Index attributed +$0.30 to a weakening greenback and -$9.10 to predominant selling.

The U.S. Dollar Index, after an early evening rally, went on a decline that stretched over night and early morning and didn't end until the Index reached 86.35 as of 2:00. Subsequently, it rallied all the way back up to the level it had reached as of 7:15 PM more than twelve hours later. Peaking at just below 86.85, the Index slumped back a little and settled near the 86.7 range. As of 8:10, it was at 86.69.

A Bloomberg report, webbed by Business Week, ascribed gold's fall to increased risk appetite as equity markets look more appealing.
“In the short term, strength in equities could suppress gold prices,” said Bayram Dincer, a commodity analyst at LGT Capital Management in Pfaeffikon, Switzerland. “If risk aversion is declining, this will not attract new buyers in gold.”...

“Gold is in a unique position” to benefit from declining currency values, said Edel Tully, precious metals strategist at UBS AG in London. “We would need more heightened risk aversion to move significantly higher.”
There was also some speculation about the central bank of Iran buying gold with some of the proceeds it will receive for getting rid of $45 billion' worth of Euros. Rather than being a political statement, the central bank is interested because the gold price is trending up. The article notes that the Russian, Indian, Mauritian and Sri Lankan central banks have all bought gold recently.

A Reuters report notes that declining risk aversion was largely balanced off by physical demand, limiting gold's overnight losses.
"Better macro sentiment, equity markets higher and the euro is off its lows -- all of this is contributing to some risk appetite coming back," said analyst Robin Bhar at Credit Agricole.

"In that sort of environment, you'd expect gold to be slightly less attractive," he added....

But the underlying interest in gold remained intact, Bhar said. "The retail appetite is definitely there ... Maybe more dip demand as prices come back."...

In India, the world's top physical gold market, some jewelers stocked up as bullion prices dropped from a two-week high, while selling from other consumers in Asia also slowed, keeping premiums for gold bars steady.

"I think we need some news to push up gold. Otherwise we'll get stuck in a range of $1,200 to $1,225," said a bullion dealer in Hong Kong.
The article also mentioned that holdings for the SPDR Gold Shares Trust increased, marginally, to a new record high of 1,268.54 tonnes.

A Wall Street Journal report concurred with the others regarding an increase in risk appetite.
"As the euro has gone into a more stable phase versus the dollar, and rebounding equity markets stimulate risk-taking, the environment has become less favorable for gold," said Swedish bank SEB commodity analyst Filip Petersson.

However, support for physical gold investments remains, and sentiment is fickle and could reverse in the coming days to again spur gold buying depending on data releases, traders and analysts said.
Also quoted was's James Moore, who cited the Iranian central bank as a possible driver of higher gold prices.

Two U.S. jobs metrics were released at 8:30: the ADP private-sector jobs figure and the weekly new-jobless-claims number. The former showed a gain of 55,000 jobs in May, making last month's figure the fourth in a row with an increase. Nevertheless, it was below expectations of a 100,000 gain. The latter figure showed 453,000 new claims in the latest week, down 10,000 from the previous week; that number was slightly better than expected. The data came on the heels of a slight recovery in gold as regular trading began: from a low of $1,215, it inched up above $1,218. As of 8:53 AM, the spot price was $1,218.30 for a loss of $5.90 on the day. The Kitco Gold Index assigned +$0.40's worth of change to greenback weakness and -$6.30's worth to predominant selling. After an attempt to get above 86.8, which fizzled, the U.S. Dollar Index slumped to below 86.7; as of 8:55, it was at 86.67.

So far, my call yesterday evening for a gain on the day has not matched up with gold's real performance. Although declining, the drop was limited by continuing buying interest. The regular session may contain a rebound, but it would be a surprise.

Wednesday, June 2, 2010

Gold Muddles Along, Stays Lower

After muddling along subsequent to regular trading getting underway, gold took a fifteen-minute tumble that drove it down about nine dollars an ounce. The price went to $1,212.90 before the downturn relented at 10:00 AM ET. That was about the time that pending home-sales data were released; the overall number showed a greater-than-expected increase of 6% for April.

That drop was recovered from as gold made its way back to the $1,219 level. A slump to $1,218 was reversed, and the metal managed to make it above $1,220 in late morning trading. A late-morning kicker clicked in, mkoving the price near unchanged levels As of 11:56 AM, the spot price was $1,123.90 for a loss of $1.20 on the day. The Kitco Gold Index split the loss into -$0.70 for predominant selling and -$0.50 for strength in the greenback.

The U.S. Dollar Index, although up on the day, continued on its own muddle-along slightly above the 87 level. Dipping below that level somewhat at times, the Index's early-morning gains slowly evaporated. As of 11:58, it was at 86.95.

Gold still looks like it might come in with a loss on the day, although the late-morning kicker might continue during the afternoon. The picture has improved from the near-sure-loss one earlier in the morning.

Update: That rally didn't last very long, and it tailed off starting at noon. Sinking to $1,223 by 1:00 PM ET, gold sunk down below the $1,221 level as the pit shift wound to a close. As of 1:30 PM, the spot price was $1,220.60 for a loss of $4.50 on the day. The Kitco Gold Index attributed +$1.40 to greenback weakness and -$5.90 to predominant selling.

The U.S. Dollar Index continued sinking, albeit slowly all told. A plop just after noon drove it down from around 86.95 to below 86.7. After continuing to decline, although more gently, it bottomed at 86.62 and began climbing back up. As of 1:31 PM, it was at 86.76.

Gold had its chance at jumping up enough to notch a daily gain, but it looks like the chance was blown. Although we won't know for sure until the close, it's likely that the gain streak will be broken today.

Update 2: It was, but a later-afternoon rally made it much closer than had appeared at the end of the pit shift. Gold hovered slightly above $1,220 until 2:45 PM ET, when a miniscule dip foreshadowed a two-stage rise that pulled it up to a $1,233-$1,244 range. A final upthrust put the metal right at the top of the range: at the close, the spot price was $1,224.00 for a loss of $1.10 on the day. The Kitco Gold Index assigned +$2.50's worth of change to weakness in the greenback and -$3.60's worth to predominant selling. The two components add up to the overall change for the day.

The U.S. Dollar Index mounted a rally that started at 1:10 and lasted until 2:25 with the Index at 86.95. Partially fizzling, it gave way to a decline that brought it to just below 86.75. A pause preceded a further decline, which partially righted and left the Index at 86.71 as of 5:30.

Its daily chart, from, shows the Index still in its range:

Although nestled in the upper part of the range, today's candlestick is still inside. The difference between today's opening and closing was slight, and the interday activity was on the high side. Still, the period of indecisiveness continues.

The Index's MACD lines are still in a bearish configuration, and have been so for the last three days. As is often the case with an asset still in an overall bull trend, the decay of the lines coexists with sideways movement in the price of the asset itself. The Index's RSI line is still stuck in an elevated but sub-overbought position.

So far, the indications point to continued drift. The Index is still in an incipient ascending triangle formation, but that potential may not be realized. Nor will it unless the Index climbs above 87.5 and stays there. Today's action was less close to that breakthrough than yesterday's, but the low today was higher than yesterday's. It's possible that the ascending triangle will not be completed, an outcome that's consistent with the picture given by the MACD lines.

As for gold, its own daily chart shows that the daily winning streaks have indeed come to an end:

Before I go on, I have to make a correction. As shown in the above chart, the number of up days in the now-broken streak were not seven but six. Sad to say, I miscounted earlier.

The six-day streak now blown, gold actually dropped little overall. The lower wick on today's candlestick is much longer than the higher one. The overall candlestick looks a lot like a tack.

Previously, this kind of pattern tended to herald another up day. It seems too much to ask given gold's recent streak, but I note the fact that such a tack-day does tend to lead at least one day of gains. Gold's own MACD lines are close to ending their bearish-configuration streak and flipping over to the bull side. So far, June hasn't been that bad for the metal.

The post-pit Reuters report ascribes today's drop to profit-taking and a shift in risk allocation as the equity markets recovered. Amongst other points therein, these were included:
* Some investors decided it was time to grab quick profits off the previous day's high, achieved after gold's runup from a
two-week low on May 21 - traders.

* The flight-to-safety bid eased with a lack of news regarding the European sovereign debt crisis - traders.

* Strong U.S. pending home sales data, which rose 6.0 percent in April to a six-month high, gave speculators who bought gold as a hedge against economic downturn reason to sell - traders.

* As some investors unwound precious metals holdings, they also joined in on the stock market gains after the housing figures - traders.

* Robust home sales boosted the dollar against the euro, adding to pressure on gold, though the euro squeezed out small gains in late New York trading - traders.
Given what's above, a continued recovery in equities and the economy would not be good for the metal. Unfortunately for those traders who got back in yesterday, today's action made for somewhat of a whipsaw.

Gold might decline tomorrow, but the above-mentioned tack pattern indicates that it may be good for a rise. As is always the case, the market will do whatever it'll do.

Three Factors Supporting Gold Move Upwards

As spelled out in a Seeking Alpha article by Kevin Grewal, those three factors are: continued financial troubles in the Eurozone; geopolitical turmoil between the Koreas and in the Middle East; and, a slowdown in mainland Chinese and Indian growth that heralds the end of tight-money policies in those regions.

Almost certainly, there are whispers about the European banks facing a U.S.-style capital-evaporation crisis because of the losses they might have to take due to sovereign debt issues falling in price. There's already a solid link in the public mind between European financial flare-ups and gold, so any such event is likely to prop gold up instead of knock it down. The latter was more the case in '08.

For Quant Geeks...

It was only a matter of time before research-level quants got their hands on the bubble question. Econophysicist Didier Sornette, at the Swiss Federal Institute of Technology in Zurich, has put together a model that tries to identify when an asset is in a bubble. The key, for him, is an asset or asset class exhibiting super-exponential growth: a rate of growth that's larger than an exponential rise. (On a a semi-logarithmic chart, this pattern would show as a line whose upwards slope increases over time) Once in that phase, it's only a matter of time before it changes into some other pattern - not necessarily a crash, but some other.

Sornette made four predictions six months ago, and gold was one of the asset class he identified as being in a bubble. He counted that prediction as a hit, because gold corrected. Two of his predictions were misses.

There's already criticism of the model, relating to the hindsight factor. Another, which popped up in a comment to the article, relates to "something else" being rather thin. Superexponential growth is a fragile pattern anyway, so it shouln't be much of a surprise to see it transform into something (anything) else.

A side note: Perhaps because there's less interest in the question, neither Sornette nor anyone else has devoted any attention to super-exponential decay or even regular exponential decay. At what point does capitulation end and the price trend reverse?...

Rothschilds Ups Overweighting In Gold

According to a summary report from Citywire, Rothschilds Private Banking & Trust's head of investments Dirk Wiedmann has increased his overweighting of gold in his recommended portfolio. Although noting that base metals have deflated to the point where they're trading near their fundamental values, he has little to say for any other asset class besides gold. His case for gold, in a nutshell, is
short-term fixes for long term problems as a key headwind facing the global economy.

'The cracks in the financial system have been papered over and may not become critical for some time. Crucially, central banks will do all they can to prevent another recession. Policymakers will focus on short-term fixes and try to muddle through,' Wiedmann said.
Rothschilds is the only major wealth-management institution I know of that's recommending an overweight in gold. The others seem content with a 5-10% portfolio-insurance allocation.

Premiums On U.K. Bullion Coins Rising

Formerly 3%, the premium for a U.K. sovereign has risen to above 7% over the last month and may rise further. There seems to be a supply squeeze developing.

In the U.S., sales fo American Eagles for May have beaten all months since January of 1999. "Tyler Durden" comments:
As the US Treasury will gladly tell you, there are some products for which demand increases proprtionally with price. While Tim Geithner would like you to believe this means Treasuries, gold is rapidly replacing Treasuries in this regard. As to questions about whether gold is in a bubble, we can’t claim to know the answer at this point. Please ask us again when gold trades at $5,000.

IMF Sells 14.4 Tonnes Of Gold In April

According to a report from Reuters Africa, the IMF has confirmed it sold 14.4 tonnes of the metal in the month of April.
The IMF has now sold 38.5 tonnes of the total 191.3 tonnes of gold it announced it would sell on the open market earlier this year, the spokesperson said. The sale brings the fund's total gold holdings to 2,966.8 tonnes.
So, the institution is about a fifth of the way through its allocation. The figures for May will be interesting because of the record made a few weeks ago. Certainly, April sales didn't hurt gold's run-up all that much.

Big Numbers Unveiled For Gold

As reported by the Financial Post's Jonathan Ratner, Peter Schiff is calling for $5,000-$10,000 gold in the next five to ten years. Glusken Sheff's David Rosenberg is calling for $2,500 gold, and notes that gold fever is on the verge of kicking in. The CPI and money supply figures will push gold up, and supply is constrained as the easy gold has been found.

Contrarians might get skittish seeing these numbers in the popular press, but (as noted by Rosenberg) the gold trade is far from being one-sided now.

South African 1Q Gold Production Down 12.4%

The production drop in South Africa continues, as output in volume terms declined 12.4% in the first quarter from the same quarter a year earlier.
Gold production in South Africa declined 12.4 percent in the first quarter from a year earlier, the Chamber of Mines of South Africa said.

Output was 43,927.8 kilograms (1.4 million troy ounces), down 15 percent from the fourth quarter, the industry group said in an e-mailed statement today....
For last year, output declined 5.8%. Since South Africa is the heart of the peak-gold case, this latest decline should attract interest and speculation about dry-ups in other regions.

Another country reporting declining gold output is Russia; that country's production sunk 7.8% over the first four month of the year from the same period a year ago.

Indian Gold Demand Remains Soft As Prices Make New Record

According to a report by the Economic Times, Indian gold buying has remained weak as the price comes off a new record high in rupees.
"It is very dull today, even rupee is not in a supporting mode," said a dealer with a state-run bank in Mumbai. A weak rupee makes the dollar-quoted asset expensive....

"I have advanced orders below $1,205 (an ounce)," said another dealer with a private bank.

Iranian Government Moving Out Of Euros

There may be a geopolitical irony in the fact that the Iranian govenment is moving $45 billion' worth of reserves from Euros to U.S. dollars, but that's what they doing in part. They're also moving some reserve money into gold.

The story doesn't specify the ratio, but the fact that the U.S. dollar is being put in the mix suggests that the Iranian officials don't anticipate war with the United States anytime soon.

Gold Pulls Back Overnight On Euro Recovery

The recent six-day winning streak was on its way to coming to an end last night, as gold fell slightly in overnight trading. A drop from above $1,225 to $1,222 between 8:30 PM ET and 9:45 set the stage for another drop after the metal recovered to $1,225 just after 1:00 AM. The second stage started from that level and had the same extent, lowering the price to $1,218.40 by 5:00. A halt in the Euro's decline, in part prompted by statements from three central bank officials affirming their decisions to stick with the Euro, added to the downward pressure. Pulling up to the $1,222 level, gold slumped back to $1,220 around 7:30. As of 7:59, the spot price was $1,220.20 for a drop of $4.90 on the day. The Kitco Gold Index split the loss into -$4.00 for predominant selling and -$0.90 for a strengthening greenback.

The U.S. Dollar Index spent the overnight session in a trading range, trying to make it above 87 but not succeeding on a sustainable basis. The bottom of the range was 86.65. As of 8:05, the Index was at 86.92.

A Bloomberg report, as webbed by Business Week, ascribed the drop to some investors selling after the metal's seven-day run.
“In the last two weeks gold has seen a really significant rebound” and that may spur some investor sales, said Peter Fertig, owner of Quantitative Commodity Research Ltd. in Hainburg, Germany. “The stability of the euro against the dollar is of course not supporting gold.”...

“The gold rally has been driven by risk aversion and safe- haven buying and this is not going to go away anytime soon,” Zhou Li, an analyst at Changjiang Futures Co., said from Hubei, China. “We’ll see some profit-taking on the way up but the rally remains intact.”
The article also notes that the holdings of the SPDR Gold Shares Trust rose marginally yesterday, by 0.3 tonnes, to 1,268.23 tonnes.

A Reuters report described the pullback as a consolidation of recent gains.
"Things are definitely pointing to high risk aversion at the moment," said Commerzbank analyst Eugen Weinberg. "There is an uneasy feeling on the markets, and risk assets like industrial metals are being depressed by this."
It also said that the above-linked pledge to continue investment in the Euro did not lead to a sustained bout of strength in the currency.

Before regular trading opened, gold sunk; the decline, which took four dollars off the price, continued when regular trading opened but halted at 8:30. A partial rebound followed. As of 8:48 AM, the spot price was $1,219.70 for a drop of $5.40 on the day. The Kitco Gold Index divided the loss into -$3.00 due to predominant selling and -$2.40 due to strength in the greenback. As for the U.S. Dollar Index, it managed to break above 87 in a run that began shortly after 8:00. Lasting until 8:41, it peaked at 87.155. As of 8:51, it had pulled back a little to 87.08.

There's a possibility of gold pulling up in the upcoming session, enough to make the six-day winning streak last seven days, but there aren't any indications of such as of yet. So far, the decline has been mild on little news, which says that there likely isn't any air pocket in gold's near future.

Tuesday, June 1, 2010

Gold Churns Around $1,225

After rising before regular trading opened, gold did not suffer a major letdown after the pit shift began; nor did it see any sustained rise later in the morning. Instead, the metal has been range-bound. Fluctuating between $1,224 and $1,228, it tested the range both on the downside and later on the upside. As of 11:46 AM ET, the spot price was $1,224.70 for a gain of $8.20 on the day. The Kitco Gold Index attributed +$8.90 for predominant buying and -$0.70 for a weakening greenback.

Gold hasn't moved all that much, but the U.S. Dollar Index did; it dropped like a stone. Initially falling below 87 in the early part of regular trading, it hovered just below that level until 10 AM. Then, due in large part to the May ISM data, which was higher than expected but still down a little from April's level, the Index dropped. Within twenty minutes, that drop turned into a plummet that slammed it down below 86.2 before finally relenting. The ensuing recovery rally took the Index up to 86.5 before it paused, then higher. As of 11:47, it was at 86.58.

So far, gold has managed to keep its gains from yesterday and early this morning. Given its rise last week, that's a good sign. So far, June's been in like a lamb.

Update: Things calmed down considerably after a dip that bottomed just after noon ET. After cresting at $1,229.90 a little before 11:30 AM, gold fell to about $1,225. That noon dip carried it down to a little below $1,223, after which the metal recovered somewhat and fluctuated around $1,225. As of 1:31 PM ET, the spot price was $1,225.30 for a gain of $9.00 on the day. The Kitco Gold Index split the gain into +$7.60 for predominant buying and +$1.40 for weakness in the greenback.

After that rebound, the U.S. Dollar Index sunk back to below 86.5. Spending more than an hour after noon right around that level, it sunk below as of 1:20 PM. As of 1:38, it was at 86.35.

Now that the pit shift has ended, gold seems almost assured of another daily gain. It has slowed down, but any significant dips have basically been recovered from. The rest of the afternoon shouldn't hold that much fluctuation.

Update 2: There was something of a downturn in mid-afternoon, but it reversed. Gold slid down to $1,223 again by 2:20 PM ET, staying there until just before 3:00, but climbed over the next hour and a quarter to reach a trading range bordered by $1,225 and $1,226. It ended regular trading near the bottom of that range. As of the close, spot gold was at $1,225.10 for a gain of $8.90 on the day. The Kitco Gold Index assigned -$3.80's worth of change to a strengthening greenback and +$12.70's worth to predominant buying.

The U.S. Dollar Index managed to recover almost all the ground it lost after the 10 AM spill. After dipping down to 86.34, it rallied fairly steadily for the rest of the afternoon. As of 5:30, it was 86.88.

Its daily chart, from, shows a net gain on the day in the midst of some wide fluctuations:

Despite that morning drop, the top wick of today's candlestick was longer than the bottom part. Again, the Index bumped against the 87.5 level interday. The interday low was well above 86. Clearly, the Index is still in its current range.

There are, however, two signals that make for a mixed message when put together. In terms of raw chart action, its movement over the last two weeks looks like an ascending triangle. That kind of formation indicates that the rise is going to continue upwards. The Index's short term bottoms, interday, have been higher; the tops have topped at the 87.5 level, making for action that's consistent with that pattern.

On the other hand, the Index's MACD lines, as shown on the bottom of the chart, have crossed over into a bearish configuration. There have been times when this crossover has heralded a continuation of a trading range, so the signal in and of itself doesn't say that the Index is going for a tumble or even a fall of much magnitude. Given the upward pressure on it, and the lack of any air pocket that it hasn't recovered from, this trading-range scenario seems the likeliest interpretation. Nevertheless, this crossover is fairly free of fake-outs.

Put together, it looks like the Index is going to keep muddling along in its current trading range. However, the continued overhang of the Eurocrisis and resultant weakness in the Euro suggests that the ascending triangle is of more informational value. Although a blooming pattern is no guarantee, I conclude that the Index is not ripe for a fall. It'll either go higher or stay in its range. There would have to be some Euromiracle, or item that's lastingly damaging to the greenback, for the Index to break the range by sinking below 85.5.

Turning to gold, its own daily chart shows its streak has extended to six days:

That's almost as good as the streak that kicked the intermediate bull run into action at the beginning of April. Gold has not advanced into record territory as a result, but it's close. Needless to say, the intermediate-term rise has survived the mid-May drop. As it turned out, the falling of the RSI line to sub-50 did indicate the end of that short-term downtrend.

The question now is, will gold take a breather? Six days could turn into seven, and tie the year-long record, but it's unlikely that the metal will do so. Another dip may be in the near future. Although gold's MACD lines have improved, they're still in a bearish configuration. It would be a sight to see the rally continuing to a bullish crossover, which would make for a bear phase that would have led to an all-out loss for anyone going short on it, but that eventuality seems too much to hope for. More likely is another dip, which would be another buying opportunity if it scares.

A Reuters report ascribed gold's rise to continued safety-haven buying linked to fears about Eurozone debt. Amongst other points made therein, these were included:
* Flight-to-safety was the primary driver sending gold to its 2-week highs - traders.

* Renewed euro zone debt worries caused other investors to flock back into the gold as a tangible asset - traders....

* "What you're seeing once again is investors focusing on gold as that safe-haven asset or currency hedge," said Vision Financial Markets' director of metals trading David Meger in Chicago.

* Some investors who took profits last Friday were putting money back into gold at the start of a new month - traders.
That last item suggests that there was an expectation of a dip that was thwarted by gold's continued rise. Whether or not that'll lead to a whipsaw remains to be seen.

So far, as noted above, June has come in like a lamb. There's still the risk of it going out like a lion, but the mid-May drop looks like an anticipation of seasonal June-August weakness that hasn't really panned out. There may well be another dip in the near future, but the metal has held up well so far. As of now, the intermediate-term bull run is not at risk.

Making Fun Of Niall Ferguson

Since Niall Ferguson mentioned gold, although demurring from recommending it because it's gone up a lot, Adrian Ash took the opportunity to make fun of him. It turns out that Ferguson predicted the twilight of gold in 1999, except as jewelry, and he shied away from gold in late 2008. Ash concludes:
Now he says early summer 2010 is not the time to Buy Gold either. So, given what happened when he rejected the idea in mid-1999 and then in late 2008, expect another $400-or-so on the price before the Laurence A.Tisch Professor of History next weighs in with his forecast.

And meantime, the man whose last TV-and-book blockbuster, The Ascent of Money, concluded that "the state-owned bank [was] now close to extinction"...just as the UK nationalized one-third of its finance sector, and the US Fed bought $2 trillion of failing bank advises that "There are other ways to protect yourself, and maybe somewhat smarter ways."

Missing the point entirely again, Ferguson recommends – instead of gold – buying Norwegian and Swiss government debt as protection against...ummm...the sovereign debt crisis.

Of course, in Ferguson's defense, he isn't an investment analyst.

Gold Held Up By Alternate-Currency Demand

Commentators are settling on the reason why gold keeps going up: the source of the added investment demand is the metal acting like an alternate currency. Sanlam Investment Management equity analyst Shoaib Vayej concurs with this explanation, according to an article in the Business Report. Although not agreeing that the gold standard is to be restored, he did say that it's "increasingly being viewed as a viable currency alternative."
A retrospective look at the gold price in real terms suggests that the price is still 40 percent below the peak it reached at the beginning of 1980.

So the gold price could continue to rise by another 67 percent before it surpasses its historical peak in real terms but when it reaches that peak, the reversal from those levels is likely to be quite swift and dramatic....
Vayej also pointed out that, if a comparison of the standard ratio of gold to cash costs in used, gold should be around $800. The difference, he intimates, is explained by that added source of demand.

He comes across as a tradition-bound analyst who's getting used to gold prices much higher than what traditional analysis says they should be. He's not a bear at this time, as he also said that gold has not gone into a manic phase that heralds the end of a long-term bull market.

Australian 1Q Gold Production Drops 2%

Peak gold wasn't mentioned; a more immediate reason was cited for the 2% drop.
Total gold production in Australia fell by around 2% in the first quarter of the year, according to the latest data of mining consultants Surbiton Associates. Surbiton blamed the latest resource super profits tax for the declined gold output in the quarter.

The gold industry also warned that the super profit tax could encourage many junior gold explorers to look overseas rather than remain in Australia. Surbiton report showed that total gold production in Australia was reported of 1.96 million ounces in the quarter ended March this year, decreasing by 2% while it was reported of 1.92 million ounces in the previous quarter ended December 2009. However, the gold production was reported up by 13% comparing to the same quarter last year....

Gold At 1600?

A trader at Deutche Bank, which was bearish on gold, has said on CNBC that gold will go to $1,600 by 2012:
Michael Blumenroth, a precious metal trader at Deutsche Bank, said on CNBC that the price of gold will continue its bullish trend, and it will eventually peak at $1,600 in 2012.

He explained that Deutsche Bank's research team was at first bearish on gold, because they thought that this bull market in gold will be over soon, but after the problems in the euro-zone they changed their opinion. Now, Deutsche Bank believes that gold will continue to be a safe heaven.
He also made it clear that Deutsche Bank does not recommend any higher holding than the standard 5-10% of portfolio for insurance purposes.

On the wilder side, a guest on CNBC last Wednesday said that it's conceivable that gold could go to $36,000/oz.
Gold has reached record highs in recent weeks, but it will continue to rise, Ben Davies, CEO of Hinde Capital told CNBC Wednesday....

I could be really obtuse and say $36,000,” he said. “But actually it’s not as ridiculous as it might sound.”

If all the reported Fort Knox gold was re-valued at $36,000 per ounce, it would pay off all the debt in the US, he said....

Gold Makes New Record High In Rupees

According to an NDTV report, the price of gold jumped above 19,000 rupees per 10g; that makes for a new all-time high in that currency.

Also from India, a brief interview with Ajay Mitra in which he explains that Indian gold demand is likely to drop during this quarter.
What is the impact of monsoon on gold demand?

The biggest risk at this point of time as we see in India would be the monsoon. If we are able to get a good monsoon i.e. a normal monsoon, demand would continue to be upbeat. However, the contrary view is if monsoons were to taper off and the levels of last year is what were to be seen, demand would slow down. Anywhere between 15-20% drop in demand would be seen.
Mitra also pointed out that second quarter demand is normally soft. He expects there won't be an unusually large drop in demand, given current trends.

Gold Starts Week On The Uptrack

After a truncated day which saw gold drift upwards, last night's overnight session saw gold climb some more. Manufacturing in mainland China slowed in May, and the Euro continues to tumble. Gold shot up more than five dollars an ounce to $1,220 between 8:00 PM ET and 9:00. Pulling back below $1,220 after midnight, the metal then advanced in a stop-and-go fashion to reach $1,124 before stalling. As of 8:00 AM ET, the spot price was $1,223.70 for a gain of $7.50 on the day. The Kitco Gold Index attributed +$16.60 to predominant buying and -$9.10 to a strengthening greenback.

The U.S. Dollar Index spent most of yesterday drifting, but it lifted off from the 86.5 level last night and stayed above 86.7. After an early-morning pullback to 86.55, which ended at 2 AM, it took off in a strong rally to almost 87.5 before hovering just below that level for more than an hour. Later, starting at 6:45, it pulled back but still stayed well above 87. As of 8:10, it was 87.14.

A Wall Street Journal report ascribed gold's latest gain to worries about loan losses in European banks and the dip in mainland Chinese manufacturing.
The European Central Bank Tuesday said euro-zone banks may have to write off loans totaling €195 billion this year and next, raising concerns that tighter credit markets may hamper the region's growth....

The ECB's comments triggered a flurry of safe-haven demand for gold, said Afshin Nabavi, head of trading and physical sales at Swiss trading house MKS Finance. "We continue to see some investment type of buying in gold."

Data showing that China's manufacturing sector slowed in May also strengthened demand for gold, as the data added to worries that the global economy's recovery is slowing, said Swedish bank SEB.
The article also mentions that scrap gold sales are likely to increase along with increasing prices, which could dampen further gains.

An earlier Reuters article mentions worries over the mainland Chinese economy, despite it still being in growth mode, and concerns about Europe. Also noted was warnings from the PRC economic authorities about Europe, which added to the pressure on the Euro.

"Since the start of the problems in Greece and Spain, gold's become ultra-sensitive to unfavourable economic news," a metals dealer in Sydney said."This should keep up the support today."...

The European Central Bank warned Monday that euro zone banks face potential loan losses of up to 195 billion euros over the next 18 months due to the financial crisis, and disclosed it had increased purchases of euro zone government

The warnings came after China had cautioned that the global economy remained vulnerable to sovereign debt risks.

Also, despite Monday's market holidays in the United States and Britain, bullion found some added support as it became evident that global market turbulence over the euro zone debt crisis had hit Argentine bond prices, which fell 5.4 percent on
average in May.

Argentinian government bonds sinking represents something new on the horizon.

A Bloomberg report, as webbed by Business Week, pointed to declining equity prices as well as the worries over the Eurozone.
“The fear factor is still in the marketplace and fleeing to gold is due to its safe-haven properties,” said Bayram Dincer, a commodity analyst at LGT Capital Management in Pfaeffikon, Switzerland. “Investors will likely reduce equity exposure which makes gold investment a reasonable alternative.”...

Europe’s “got some deep structural issues that aren’t going to be solved any time in the near-term,” said Toby Hassall, a commodity analyst at CWA Global Markets Pty in Sydney. “So you’ll have a camp of investors out there that believe that things might get worse and they’re continuing to put a bid under gold.”
Also mentioned in the story are two new records: gold made a new high in Swiss francs, and surpassed $1 billion in holdings.

Just before regular trading opened, gold surmounted $1,225 and almost made $1,230 at the peak before pulling back with regular trading's opening. That decline pushed it down about four dollars, but $1,225 held. As of 8:53 AM, the spot price was $1,225.50 for a gain of $9.30 on the day. The Kitco Gold Index assigned +$16.80's worth of change to predominant buying and -$7.50's worth to strength in the greenback. The U.S. Dollar Index, after an initial rise, slumped down to 87.0 before bouncing back a little; as of 8:57, it was at 87.03.

If gold stays up, it'll be on track for a seventh daily gain in a row. Quite a way, a fairly unusual way, to begin June.

Monday, May 31, 2010

Junior Mining Investing: A Daunting Task

I've finished going through a short anthology-format guide to junior exploration stocks, called Junior Mining Investor, and what was in there made the chore look pretty daunting. If there's any theme that was emphasized by several of the authors, it would be the "resume approach." The best junior exploration company to invest in is one where experienced geologists and mine developers are on board, with track records of bringing mines into production. As is made clear, very few projects become mines.

There was some discussion of what makes a great deposit, but just enough to indicate what's going on when encountering one that's claimed to be. The consensus advice in this area was to look for a huge deposit with the potential for several million ounces. Unfortunately, the market being what it is, the best deposits among exploration stocks have already been bid up to near-production values. Several have already been taken over. The best time to have used this approach - I say in hindsight, and with some regret - would have been in late 2008, when the credit crisis combined with the drop in gold to $700 drove down the price of juniors meeting this criterion to fractions of what they are today. Now that gold is flying, the cheap ones are also the ones without that assurance.

The above lament ties in with one of the minor considerations in the book: buying at the right time. One approach discussed is to swoop in when excitement over previous drill results has faded. The trouble is, the best deposits often don't have that extended drop working for them.

Unfortunately, this leaves the would-be speculator in a quandary. The best risks have already been bid up, and the ones that are cheap aren't likely to produce anything. Evaluating a property takes a pretty keen eye, and a knowledge of mining geology helps a lot. Given this barrier, most people either rely upon the scuttlebutt or a paid advisory service. As for the former, the most extensive Website for scuttlebutt is, whose "Bullboards" are quite active when news arises. The boards are full of pumpers and bashers, but there are enough knowledgable and thoughtful posters to make up for the dross.

If you're interested in an example, I've gotten a name that does qualify on the resume front but not on the deposit-size front. It's called Eagle Hills Exploration Corp., V.EAG , and it just closed a C$3.75 million private placement to explore its Windfall property more thoroughly. A spin-off from Noront, it has two of the movers behind that company on its board of directors: Richard Nemis and John Harvey. Both, particularly the latter, have cut-above track records in mine development. In addition, after a spectacular drill result, the company's stock fell to close to where it was before the result after quadrupling on it. [Graph here.] This company makes a good one to sink the teeth into, for practice if anything.

Disclosure: None; I don't own a single share in Eagle Hills.

Sunday, May 30, 2010

Happy Memorial Day

If you celebrate it, Happy Memorial Day; please take some time to remember the soldiers in harm's way now, as well as those who have died in the service of their country.

Just to let you know: this blog will not be returning to the usual schedule until Tuesday.

Gold At 5000?

The third segment of this week's Financial Sense Newshour podcast contained an interview with Brian Pretti [.mp3 file], in which he played around with some numbers that inclined him to think that gold could go much higher. One interesting fact he dug up related to total funded debt in the U.S. economy: its peak, in the 20th century, was at the depths of the Great Depression. The same level was broken, however, in 2001 - the same year that gold started on its bull market. He also disclosed that the real value of gold as adjusted by the (presumably core) CPI was the same as the value adjusted by the average wage. [The figure he got was around $1,800, which is a lot lower than the figure others have gotten. One interesting implication was the official CPI tracks the average wage. If the former is understated, then real wages have been eroding over the course of the last three decades.]

The $5,000 figure, he got using a calculation familiar to many veteran goldbugs: it's the value at which gold could completely cover M1.

If gold ever got that high, a restoration of the gold standard would be thinkable in the popular press. Stories of that sort make for a good addition to the cocktail-party indicator of a top.