Friday, June 11, 2010
The U.S. Dollar Index pulled up from its overnight range of 87.0-87.2 with an upswing early on in regular trading, which was amplified by that retail-sales report. Reaching 87.4, it pulled back in early-mid morning to reach a little below 87.2. It then began to rise in an accelerating motion until it crested at 87.6 as at 11:17. Since then, it drifted downwards. As of 11:59, it was at 87.47.
So far, gold has stabilized at a somewhat higher level than yesterday's closing value. Gold's on track for its first daily gain until Monday, which will be booked if the applecart isn't knocked over this afternoon.
Update: So far, it hasn't; instead, gold's climbed upwards during the rest of the pit shift. Bottoming at $1,224, the metal crept up until just after 12:30 ET when it took a leap up to the $1,230 level. Reached at 12:45, gold spent about 10 minutes near that level and making a new daily high of $1,230.90 in the process. Pulling back to $1,226, it climbed back up to near $1,229 at the end of the pit session. As of 1:31, the spot price was $1,228.80 for a gain of $11.10 on the day. The Kitco Gold Index assigned +$17.90's worth of change to predominant buying and -$6.80's worth to greenback strength.
The U.S. Dollar Index, after sinking below 87.5 just before noon, crawled back up to the 80.6 level and fluctuated in between the two. As of 1:35, it was 87.58.
As the end of the week approaches, the final electronic-trading hitch is likely to be quiet. Gold's almost assured of booking its first gain since Monday.
Update 2: It wasn't exactly quiet, as there were mostly-downward fluctuations later in the afternoon. Despite making a new daily high of $1,213.80 at about 2:15, the metal spent the rest of the session drifting down in counterpoint to the rising U.S. stock market. The decline right after that top lasted until 3:30 PM, and took gold down to $1,226. A spike at 4 PM didn't last, but the metal slowly picked up some ground at the end of the session. The Grecian Prime Minister called for a permanent Eurobailout fund, and ruled out either an exit from the Euro or default. Had the Grecian government's austerity plan not been on track, there would have been some cynical interpretations of his proposition. There may already be regardless.
It had little effect on the gold market today, except to add to the stability. At the close, the spot price was $1,227.50 for a gain of $9.80 on the day. The Kitco Gold Index attributed +$12.70 to predominant buying and -$2.90 to overall strength in the greenback. The two changes sum up to the raw change on the day.
For the week, thanks to Monday and today's run-up (particularly the former day's,) gold finished with another gain. Last Friday's close was exactly $1,220.00, making for a $7.50 gain on the week or 0.615%.
From its height of 87.6, the U.S. Dollar Index spent the rest of the session in decline as the gloom dissipated some more. Faster at the end than at the beginning, it left the Index at 87.27 for the end of the week.
Its daily chart, from Stockcharts.com, shows an unusual amount of interday volatility to the upside that ended up for naught:
Today's interday low was about the same as yesterday's, and the difference between open and close wasn't that much. Interestingly, the interday high was about the same as yesterday's too. Still, today's close to the upside reversed the last three days of declines. The 87 support level still held.
Less cheering is the fact that the Index's MACD lines are still in a bearish configuration. It's only been two days, but the magnitude is enough to suggest that the three days' worth of bullishness was an aberration. The greenback may be in for a tough time next week.
As for gold, its own daily chart shows a more robust recovery from the last three days:
The robustness, though, is compensated by the greater extent of the decline yesterday. Gold's opening level was the same as its interday low, but its interday high was not as high as yesterday's. Still, gold bounced when its RSI line at the top of the graph was above neutral. That's an encouraging sign with respect to overall bullishness.
Still, the metal has weakened after barely making a new record high. The post-May hangover issue is still lurking. Although gold cannot be said to be in any sort of a downtrend, the dip that was reversed today may have some time and length to go.
Last Tuesday, gold made a new record high interday but still closed down. That day's close is the cut-off for the metal's Commitment of Traders data, as graphed here. Total open interest grew a little, as did the total number of contracts held by non-commercial longs. On a percentage basis, commercial longs actually increased more. Non-commercial shorts went up slightly in contract terms, although a fair bit on a percentage basis, and commercial shorts increased too. All of them grew with the open interest, and there was no real outlier among them. No one category seemed to get the jump on the decline over the next two days.
As for the Index, its own CoT graph, for the first time in five weeks, showed an increase in open interest. Last Tuesday saw a decline from a new high, one that came close to matching March of '09's, and the rest of the week saw further declines except for today's tepid rise. Commercial longs shrunk by a large 17.1% from the previous week, and non-commercial shorts increased by 16.5%. Those two categories did anticipate the further declines over the next two days. Non-commercial longs increased, and commercial shorts ticked up somewhat. Unfortunately for tracking purposes, this was the fourth week in a row that non-commerical shorts increased. At the margin, commerical longs anticipated the turndown better as a category.
For gold, a mostly depressing week ended on a better note. Today's rise may carry over into next week, but the markings don't make for a lot of encouragement. Still, it could have been worse this week; there was no plummet, despite optimism returning to the wider investment world. Gold's intermediate-term bull trend is still intact.
Thanks for reading, and may your weekend afford some relaxation.
It's the second factor that's the killer. Since many gold holders are betting on future inflation, there is likely to be a rush to the exits when a banking crisis threatens to take a piece out of the money supply. Gold may rise later due to reflation or other factors, but a banking crisis is provably bad for the metal in the relatively near term.
Flat from 2000 to 2007, investor demand for gold picked up significantly from 2008. And, currently, is the dominant driver behind record prices seen recently....Near the end, there were warnings about what would happen if investment demand reverses and net liquidation emerges. Although not mentioned explicitly, the most likely effect would be gold shooting down below the price at which it should be, given non-investment demand plus current supply constraints, and then veer in on that price. From what I read, that price would be around $800.
GFMS MD, Paul Walker, says the strong demand is a reflection of the broader macro economic malaise....
Walker adds, that in calendar year 2009 roughly 50% of mine production found its way directly into investors' hands as opposed to into fabricated products. And, given the generally still very poor macro-economic backdrop across the world, "you have to start thinking to yourself there are some real legs in this rally and we could see it going beyond the levels we saw in 2009."
To someone who sees gold primarily as an inflation hedge, that concurrence is puzzling. Depending on how post-crisis inflation turns out, one should be rising and the other falling. Instead, both are rising now. Should inflation come back, T-bonds will likely get slaughtered as they were in the 1970s. Should a deflationary financial 2008-style crisis re-emerge, gold would be hit hard as it was in '08. The square can be circled by concluding that both are crisis hedges.
There's another explanantion, although it doesn't gibe with current economic theory. T-bond bulls are deflationists, expecting a Japan-style scenario, while gold bulls are inflationists who expect a return of the '70s. Since no-one knows the future, either scenario could transpire - or neither, through inflationary and deflationary tendencies cancelling each other out. Both asset classes have risen while the stock averages haven't, and their continued rise suggests more malaise in store for U.S. stocks.
One other factor that ties the two together: gold tends to rise when real interest rates are low, and is almost sure to rise when real rates are negative. There was a burst of inflation in '07 that drove CPI-adjusted real rates negative for a time, and the much-fabled bond vigilantes were largely asleep at the switch. They really were back then.
So, the edge may be with the inflationists - even if gold bulls could be chided for overreacting to perceived inflation portents. Whatever the outcome, the current divide evinces a lot of uncertainty nowadays. The system is loose from its moorings, from the bands of predictability that makes rational expectations work.
The investors’ preference towards mining stocks showed a mixed trend with some of them posting losses in the given period, while other maintaining gains. But the overall sentiment was bearish compare to that in gold. However, with gold prices leaving up the bull-run, the investors’ confidence in the gold mining stocks is believed to return soon.
I believe it hinges upon how weak gold is during the upcoming summer season. The gold stocks sometimes forecast gold prices, and in this case it seems to be the widely-recognized summer weakness that's staying hands. If gold doesn't do much dropping this month and next, there could be a nice catch-up rally in major gold stocks.
If gold does drop, of course, the expectations for summer weakness would be fulfilled. Then, the gold stock would likely be considered on their merits.
At seminars, investors were told they could earn 18 to 36 percent annual returns by investing in various companies, with their investments fully collateralized by gold. The companies, the SEC said, were shells owned or controlled by [Milowe Allen] Brost or [Gary Allen] Sorenson.
Investor funds often were transferred through numerous bank accounts as far away as Asia, Europe and South America, before returning as “interest payments” to investors -- and personally enrich Brost, Sorenson and others involved in the scheme.
“Brost and Sorenson orchestrated a complex, far-reaching fraud disguised by a labyrinth of companies and foreign bank accounts they used to hide their misconduct from investors and law enforcement,” said Donald M. Hoerl, Director of the SEC’s Denver Regional Office.
It's best to always remember the Markopolos rule: if an investment strategy can't be reverse-engineered, then there's something wrong; avoid.
The U.S. Dollar Index spent the overnight session virtualy flat as well. Staying above 87 except for brief dips, the Index hardly got above 87.2. Except for slight periods, it stayed in that range for the entire session. As of 8:08, it was at 87.07.
A Reuters report ascribes gold stabilizing to "price-sensitive" buyers coming in to the market.
"Concerns that the recovery would be derailed by the sovereign debt crisis and China slowing seem to have lessened -- not gone away, but lessened," said Credit Agricole analyst Robin Bhar. "In that sort of environment, gold will struggle.The snap-back rise in the Euro helped push down gold earlier this week, as a lessening of fear also pushed up European shares. Also mentioned in the article is the holdings of the SPDR Gold Shares Trust rising to above 1,300 metric tonnes. Increasing by 7.61 tonnes yesterday, they're now 1,306.14 tonnes. Recently, rises have been less momentum-driven and more price-driven. Except for minor cutbacks, holdings have not been dropping.
"It probably needs to consolidate around the $1,200-1,220 range and secure a foothold there," he added. "Demand for gold as a safe haven and an alternative currency remains, though maybe not in the heightened way is was a few weeks ago."
Lower prices inducing more buying was the reason given by the morning Bloomberg report, as webbed by Business Week.
“Yesterday’s drop was seen as another opportunity to buy gold,” said Bayram Dincer, a commodity analyst at LGT Capital Management in Pfaeffikon, Switzerland. “Persistent high holdings and new inflows into ETFs at current prices are supporting” bullion, he said....As the last paragraph indicates, another analyst has settled upon $1,200 as a bargain point.
“What gold is telling you is that the currency system, the debt system, is stretched to its limit, and it doesn’t matter which Western currencies you choose,” Juerg Kiener, Singapore- based chief investment officer of Swiss Asia Capital Pte, said in a Bloomberg Television interview. Gold has a “long way to go” before reaching “bubble territory,” he said....
“There may be more downside risks for gold,” said Wong Eng Soon, Singapore-based analyst with Phillip Futures Pte. Still, “considering that gold was at $1,250 mere days ago, gold at $1,200 will be attractive to investors who will be tempted to take up long positions on bargain-hunting.”
A Wall Street Journal report ascribes gold marking time to ETF-driven demand balancing off a reduction in safe-haven demand.
While the euro's recovery against the dollar should help gold in dollar terms, the rebound in risk appetite is weakening demand for gold as a protection against volatile currency and equity markets.Also quoted is a note from TheBullionDesk.com, which sees support for gold at $1,200.
"Gold is holding its own, but I wouldn't be surprised if it came back," said a senior precious metals trader in London. "There's obviously been some positive tone [in markets] in the past few days."
Gold may initially retreat to $1,215/oz and could dip as low as $1,200/oz, he said.
Analysts said the steady flow of money into gold exchange-traded funds should prevent gold from experiencing a deep correction.
The recent "phew" rally in U.S. stocks reversed a little as some bad news came through the pipe: retail sales fell a surprisingly large 1.2% in May, with sales at hardware stores, auto dealers, gas stations, department stores and clothing stores being especially hit. The expectation was for a gain of 0.2%. April's sales gains were upwardsly revised from 0.4% to 0.6%, which made May's decline a little worse than otherwise. Although gold was already rising when the news was released, the disappointment added to its jump; the metal managed to leap up to $1,230.20 before its rally ran out of steam. As of 8:52 AM ET, the spot price was $1,226.00 for a gain of $8.30 on the day. The Kitco Gold Index attributed +$10.30 to predominant buying and -$2.00 to greenback strength. As the latter category indicates, the U.S. Dollar Index also gained strength from the news. Spiking up to 87.35 after the release, it pulled back to its former resistance high and then turned upwards. As of 8:55, it was at 87.28.
So far, the signs point to gold's recent spate of declines ending. How far the reversal will go, or how long it will last, remains to be seen - but the bad news has made for a good start. Business as usual for a "bad news bull" asset.
Thursday, June 10, 2010
The U.S. Dollar Index did weaken further, breaking below its early-morning low to sink down to just above 87.0. After its low as of 10:00, the Index rebounded a little to reach 87.2. Since then, it fluctuated in a range bordered by those two values. As of 11:53 AM, it was at 87.14.
As optimism returns, gold has continued to fall. Still well above the bargain level, the metal is nonetheless approaching it. Afternoon trading will show if the late-morning rebound has put an end to the declines.
Update: Although there was a continuation of the recovery rally at 12:15, the declines didn't end; another one hit an hour later. After reaching an early-afternoon peak of a little above $1,226, the metal spent the rest of the pit shift declining. The 1:15 spill left the metal at just above $1,220, after which it sunk a little more. At the end of the pit shift, or 1:30, the spot price was $1,220.00 for a drop of $13.10 on the day. The Kitco Gold Index assigned -$22.50's worth of change to predominant selling and +$9.40's worth to greenback weakness.
The U.S. Dollar Index managed to rise above its morning range, but only a little. A gentle rally got the Index up to 87.27, after which it slowly drifted downwards. As of 1:35, it was at 87.21.
Evidently, the late-morning relief rally didn't have staying power. As the good times come back, for the nonce, gold continues to lose some of its immediate appeal. There may be an arrest to its current decline in the electronic-trading hitch.
Update 2: As things turned out, there wasn't. The U.S. equity markets resumed their climb, making the safe-haven trade even less attractive. Although the post-pit decline was uneven, with a mid-afternoon relief rally, it was there.
The decline that started late in the pit shift continued when the electronic-trading hitch began; it didn't end until 2:00 PM ET, when gold touched $1,216. A reaction rally that lasted an hour took the metal up to $1,220, but it gave way to another stage in the decline that almost made another daily low. Stopping at $1,215 just before equity trading ended, the metal then entered into a range between $1,216 and $1,218. Ending near the top of that range, gold closed at $1,217.70 for a drop of $15.40 on the day. The Kitco Gold Index attributed -$26.80 to predominant selling and +$11.40 to greenback weakness. The two changes sum up to the raw change on the day.
As for the U.S. Dollar Index, it slumped as well in an uneven decline that ended right at closing time for U.S. equities. Managing to sink below 87 as of 4:00, after a drop that was rather ragged, the Index inched up above 87 but failed to make 87.15. As of 5:30 PM, it was 87.095.
Its daily chart, from Stockcharts.com, shows today's decline as being more serious than that of the last two days:
The Index made short work of the 87.5 support level. I have to say that I had no inkling of the decline in advance. It pushed the Index's RSI value, found on the top of the chart, to well below overbought levels - and it also pushed the MACD lines at the bottom into a bearish configuration. The switch-over from bearish to bullish lasted three sessions.
The current short-term decline has not threatened the overall bull trend, as the Index was fairly overextended recently. It does, however, make the last run look like a panic top. The recent ascending-triangle formation that pushed the Index up above 88.5 after completion looks like something of a blow-off top, because the greenback-enhancing pressure on the system has come off.
That said, the Index may not have much farther to go. Its RSI value is approaching neutral, a level where the declines tend to stop. All it would take is another fear-based driver to see it move up again.
As for gold, its own daily chart shows a similar decline:
Like the U.S. Dollar Index, gold has endured a third down day in a row; gold's MACD line has also gone from a bullish configuration to a bearish one today. Unlike the Index's, gold's barely entered into a bearish crossover. Its RSI value is close to neutral.
Also, like the Index, gold is now showing some technical weakness for this reason: divergences in both the MACD and RSI levels. When the metal's last record high was made last Monday, both its RSI lines and MACD lines peaked at lower levels than they were as of the last record high. I admit to not interpreting this divergence properly when it cropped up earlier this week; in hindsight, it did indicate that gold was due for a bit of a tumble (as did a similar divergence for the Index.) If the current decline pulls gold down to $1,200, then there'll be some reason to believe that the intermediate-term uptrend is coming to an end.
What would provide a floor, unless sights are lowered, would be bargain-hunting. If the short-term decline is not arrested, then that force will kick in should $1,200 be reached.
A post-pit Wall Street Journal report ascribes today's decline as prompted by renewed optimism for global growth.
"The risk trade [is] unwinding a little bit," said Michael Gross, broker and futures analyst with OptionSellers.com....That thumbs-down, coming overnight, had a carry-over effect in the regular trading session.
Also hurting gold, Chinese foreign-exchange regulators said Thursday that the metal's market is too small, illiquid and volatile to be considered suitable for asset allocation for the nation's nearly $2.5 trillion foreign-exchange stockpile, according to a Reuters report.
The news "helps to set aside discussions on China being an imminent buyer," said Jim Steel, a metals analyst with HSBC in New York.
It could be that the regulators in question are talking gold down prior to a move into the metal, but the comments can be taken at face value. Gold is volatile, and the market for it is much smaller than that for the Euro - let alone T-bonds. If there is a talking-down motive, then its aim is to get the price down. At any rate, the PRC government has shown a preference for buying up domestic production.
As the week nears its end, the signs for gold don't look all that great. In retrospect, last week's buying panic fit the template: pushing prices up in a frenzy, it pushed them up too far too fast. Should the decline continue tomorrow, though, it'll get the metal close to bargain levels.
This one's going for way above melt...
recounted conversations with some of the U.S.'s top asset managers controlling massive amounts of capital asking if HSBC had the capacity in its vaults to store major gold purchases. On being told that the bank's U.S. vaults had sufficient space available he was told that they did not want their gold stored in the U.S.A. but preferably in Europe because they feared that at some stage the U.S. Administration might follow the path set by Franklin D. Roosevelt in 1933 and confiscate all U.S. gold holdings as part of the country's strategy in dealing with the nation's economic problems.Maybe they're required to out of due-diligence duty, but reading top fund managers taking seriously a worry that used to be associated with the stereotypcial tin-foil hat says something about how America is changing. It's as if some mainstream-media pundits were on CNN discussing the possibility of President Obama launching a coup to forestall the 2010 elections, a fringe belief debunked in this article.
"I have been doing stray deals since 2-3 days," said dealer with a state-run bullion dealing bank in Mumbai....
"Buying can come in only if gold breaches USD 1,200 level," said another dealer with a private bank.
Rural India, which accounts for 65% of the total demand, divert their savings to buy seeds and fertlizers for their kharif crops, leading to limited demand for the metal during the sowing season.
India has also been witnessing slackness in gold buying since the start of May as record high prices dented demand.
Sub-$1,200 prices seem to be the bargain point in other buying areas too.
I'd like to throw something out that's been eating at me: if the gold standard is to blame for the Great Depression, then why are we seeing conditions similar to "Great Depression II" when on a pure fiat standard? Keynesian deflationists don't seem to be aware how they're biting their own tails with respect to their barbarous-relic narrative.
Another question: if minimal government was to blame for the Great Depression, then why are we seeing Great Depression II-like conditions in an era of provably Big Government? The old narratives have developed some rather large holes in them.
Operators in South Africa, Australia and Canada have benefited in the last year as their currencies weakened against the greenback, in which gold is priced. And as long as the recovery remains uncertain, the dollar will continue to strengthen alongside gold.
Further, miners have been preparing for an anticipated jump in gold prices by increasing their sensitivity to the market. Traditionally, gold miners have hedged against gold to protect themselves from the commodity’s high volatility, but in the past year major producers have been eliminating hedges, with Barrick Gold planning to get rid of $1.9bn worth of gold hedges altogether by September 2010.
Added to this is the low marginal cost of increasing production – once a mine is built, it costs little to speed up extraction – and gold miners look set to win big from the fear gripping global markets....
High costs, plus gold stock being stocks, were two reasons why the gold miners were slaughtered in '08 while gold itself only fell 30%. Earnings for the majors are coming in better than expected; if costs stay contained, that earnings improvement will continue. It may only be me, but the stocks seem to have been slow to rise even though the earnings situation is improving; that says "overlooked."
"It's difficult to buy gold after its strength and close to record highs. However, we feel it's more difficult not to have a gold position in these highly uncertain times. Even at these levels we'd encourage investors who haven't yet entered the gold sector to open a starter position," the analysts told clients in a research note.J.P. Morgan analysts' long-term price target for gold is a now-raised $950/oz. "The analysts said they expected gold had a 25% chance to go as high as $1,500 an ounce should inflation spike."
Speaking of $1,500 gold, a UBS AG note has economist Dirk Faltin saying flatly that gold will go to that level.
“The price of gold has yet further to rise,” Dirk Faltin, economist with UBS AG, and other analysts wrote in a monthly report. “Any sharp intensification of the sovereign-debt crisis in Europe could propel the gold price even higher, but downside risks should not be discarded lightly either.”The reason given is the Eurocrisis.
Prices at less than $1,200 an ounce represent buying opportunities, the bank said....
I have to admit to being a little stymied at seeing a recommendation to get into an asset class whose long-term price target is much lower than the current price. It looks to me like someone forgot to tie a few strings together somewhere. Consider this pair of statements: "It's now time for a starter position in oil. Our long-term price target is $55/bbl, raised from $50."
The author, Paul Sullivan, notes that "there is a commonly held view that in the next 12 months, gold could crack the $2,000 mark." That would mean more than a 64% gain from current prices.
As the pessimism earlier in the week fades, gold continued to slump. Before midnight ET, the metal stayed in a range bordered by $1,233 on the upside and $1,230 on the downside. Shortly afterwards, though, it went on a slow but extended decline that took its price all the way down to $1,219.00 before a recovery rally set in. Reversing around 5:30, the gold market evidently took some heart from the Bank of England decision. As of 8:08 AM ET, the spot price was $1,223.90 for a drop of $9.20 on the day. The Kitco Gold Index attributed -$14.15 to predominant selling and +$4.95 to weakness in the greenback.
The U.S. Dollar Index, after continuing to rally in the evening, took a tumble just before midnight. In two hours starting at 11 PM, the Index dropped from about 87.9 to about 87.5. After mounting a recovery rally that took it up to 87.7, it fell further to as low as 87.32 before pulling back up as of 5:30. The rebound took it above 87.5, and left it hovering between that level and 87.6. As of 8:14, the Index was at 87.52.
A Wall Street Journal report pegs gold's drop as caused by easing of worries about the global economy leading to profit-taking.
"We've seen such a huge move that traders are just booking profits," said Larry Young, senior portfolio manager with Covenant Trading in Chicago.The morning Bloomberg report, as webbed by Business Week, also points to easing of fears and profit-taking; the former was reflected in the rise of the Euro.
Because much of gold's run-up recently has been exacerbated by speculators, that leaves the market more vulnerable to quick pullbacks, Mr. Young said. He said market participants remain bullish on the metal.
“The resulting increase in risk appetite has led to further pockets of profit-taking in gold,” said James Moore, an analyst at TheBullionDesk.com in London. Gold is likely “to move more in line with the dollar as a result of risk trades, while dips will continue to be viewed favourably by investment bargain hunters.”...Also mentioned is mainland China’s State Administration of Foreign Exchange panning gold as an asset class, saying that price volatility and high transaction costs limit its use.
“It’s likely the safe haven trade will not be a strong feature” with stronger equities and better-than-expected economic data, Edel Tully, an analyst at UBS AG in London, said in a note. Physical demand “is now overshadowed by increased scrap supply out of Asia.”
A Reuters report, in addition to the standard causes, highlighted that thumbs-down on gold:
Gold eased below $1,225 an ounce in Europe on Thursday as stock markets rose and the euro climbed against the dollar, reflecting sharper appetite for assets seen as higher risk, at bullion's expense.Also mentioned in the report was a well-received auction of Spanish sovereign debt, allaying fears that the Eurocrisis is still malignant. Ms. Tully was noted as saying that demand for bars and coins has shrunk back to more normal levels recently.
The precious metal briefly extended losses after China's State Administration of Foreign Exchange (SAFE) said in an annual report that the gold market is too small, illiquid and volatile to be suitable for asset allocation.
The weekly jobless-claims number for the U.S. economy fell slightly, to 456,000; it was well above the expectations for a drop to 445,000. Continuing claims dropped unaccountably to a level not seen since the end of 2008. Given the recent strength of the greenback, a widening of the U.S. trade deficit wasn't that much of a surprise: April's figure of $40.3 billion was actually a little better than what was expected. Exports fell more than imports. In a post-decision press conference, European Central Bank president Jean-Claude Trichet said he sees slow growth and dormant inflation ahead for the EU. He praised recent efforts by high-deficit national governments to get those deficits under control. The announcement of this data coincided with a halt in gold's recovery rally, as the metal fluctuated between $1,225 and $1,227 with the opening of regular trading. As of 8:49, the spot price was $1,226.00 for a loss of $7.10 on the day. The Kitco Gold Index assigned -$11.30's worth of change to predominant selling and +$4.20's worth to greenback weakness. The U.S. Dollar Index slumped to just above 87.4, but its pullback ended right after the release of the above data. Turning upwards to 87.6, the Index later settled back to around the 87.5 level. As of 8:54, it was at 87.53.
In the absence of any new driver, gold is continuing to slump. In a way, it's not that surprising because the metal is well above bargain-hunter targets. We may be seeing, in attenuated form, the influence of post-May price weakness.
Wednesday, June 9, 2010
After dawdling in a ragged range centered around $1,233, the metal endured a decline that started at 10:50 AM ET and took twelve dollars an ounce off the price. Bottoming at $1,222 as of 11:10, the metal then rebounded above $1,225. Profit-taking was one reason, but the upbeatedness of the day was another: U.S. equities got on a roll shortly before gold dropped. Bernanke's encouraging words for the U.S. economy took their toll on gold.
As of 11:48 AM, after the metal finished rebounding to the $1,226 level, the spot price was $1,226.20 for a drop of $8.60 on the day. The Kitco Gold Index attributed -$16.30 to predominant selling pressure and +$7.70 to a weakening greenback.
The U.S. Dollar Index, after recovering somewhat just before 9:00, continued to drop. Initially hesitent, the drop accelerated at 10:45 as greenback bulls also lost heart because of Bernanke's words. Bottoming at 87.42 as of 11:08, in a near-contemporaneous drop alongside gold, the Index churned just above that level and then began a small recovery rally. As of 11:53, it was at 87.57.
Gold's "bad-news bull" status is currently getting the better of it as hope and optimism are returning to the equity markets. That counterpoint might continue this afternoon if equities keep on rolling upwards.
Update: The recovery from the mid-morning drop continued, although slowly. After pulling back just before noon, gold slogged up to reach $1,230 before pulling back a little again. At the end of the pit shift, or 1:30 PM ET, the spot price was $1,228.50 for a loss of $6.30 on the day. The Kitco Gold Index assigned -$12.40's worth of change to predominant selling and +$6.10's worth due to overall greenback weakness.
After bottoming at 87.45, the U.S. Dollar Index pulled back up in a two-stage rally that got it up to 87.7 at its early-afternoon peak. Slumping back down a little, the Index was at 87.68 as of 1:31 PM.
The Bernanke boost has faded from the U.S. stock markets, and that fade has aided gold's recovery. The release of the Beige Book is coming at 2:15, which may throw the gold market for a loop...or it may not. (The last release didn't.)
Update 2: The Beige Book did have an influence, albeit indirectly through the U.S. stock market. Ben Bernanke testified that economic activity was stronger in all twelve Fed districts, although growth has been "modest." He said that growth wasn't strong enough to change course for the time being: the near-zero interest rate policy (ZIRP) will continue in place for "an extended period." Despite the growth story, the markets interpreted his words badly: from strong gains, the averages all moved into losses. Added worries over the Euro amplified the drop. The gold market interpreted Bernanke's remarks favorably, as the continued ZIRP means there's near-zero opportunity cost to hold gold. There's also an inflation kicker, as the period may be extended enough to ramp inflation up. However, these factors are largely priced in. More directly, gold benefitted from increasing safe-haven demand: trouble in the stock market, and renewed Euro-related concerns, made the metal look more attractive.
Hence the recovery in mid- and later afternoon trading from the high 1220s, where gold had dawdled before the release of the Beige Book. Veering in to $1,228 until 2:45 PM ET, the metal rallied to $1,234 in a three-stage climb that ended just before equity markets closed. A pullback prefaced a final run that ended at $1,235, leaving the metal in the gain column very briefly. Another pullback at the end of regular trading left it with a small loss. As of the close, the spot price was $1,233.10 for a decline of $1.70 on the day. The Kitco Gold Index attributed -$4.10 to predominant selling and +$2.40 to overall weakness in the greenback. The two changes sum up to the raw change on the day.
The U.S. Dollar Index also benefitted from the reversal in stocks as it continued to recover in mid-afternoon. Its advance turned into a crawl-and-stall at 3:00, though. By that time, it had reach 87.9. Subsequently, it tried to break above 88 but topped out just below that level; after that try, it sunk back to the 87.9 level. As of 5:30, the Index was exactly 87.9.
Its daily chart, from Stockcharts.com, shows a decline that touched 87.5 before attenuating:
As its RSI line at the top of the chart shows, it's no longer overbought. Despite today's decline, the Index's MACD lines are still in a bullish configuration. The latter suggest that today's decline was a dip, and that the current uptrend is still rolling. The greenback's latest boost has come from trouble signs for the U.S. economy, not the Euromess, so a renewed uptake of optimism may cause it to dip further. However, the later-afternoon fretting over the Euro might get its rally rolling again if the worry continues and spreads.
Gold, as shown by its own daily chart, is going through a dip of its own:
After making a new record high in the midst of a buying panic, it's not that much of a surprise. Panics abate, and cannier players assume (rightly, for the most part) that the panic-driven buying drove the price up to higher than what it should be. So, the interday decline to almost $1,220 isn't all that much of a surprise. Gold's MACD lines stayed in a bullish configuration for a third day in a row, suggesting that the current short-term decline is more of a pause than a foretaste. Unlike the U.S. Dollar Index's, the metal's RSI hasn't ramped up to overbought levels - even when the latest interday record was made. Buying panic there has been in European bullion-coin markets, but the panic has not spread into the overall spot market.
Given the skepticism this latest phase of the rally has called forth, gold's in a fairly good position. As has been the case during the entire intermediate-term bull run since April, the metal has rallied when its RSI level approaches neutral. The last record-topping short-term rally was more sedate than the last one. I can't forecast turns, but there is a good chance that gold will forge ahead into new record territory soon.
As for the decline earlier in the day, today's post-pit Reuters report ascribes it to profit-taking and Bernanke's earlier, more optimistic comments. Amongst other points made therein, these were included:
* Gold pressured as safe-haven demand dissipates after U.S. Dow Jones industrial average briefly recoups the 10,000 level - traders.That last point made by Gartman fingers one of the reasons why gold timers have been so skittish lately.
* Comments by Bernanke about gold's sending a different signal in response to inflation when compared with other assets prompted bullion investors to lighten positions - traders.
* The metal's inability to hold the important $1,250 level on Tuesday sparked a great deal of concern - Dennis Gartman, publisher of the Gartman Letter.
* Underperforming gold equities seen bearish as bull markets in the precious metal eventually lead to bull markets in gold mining stocks, but that has not happened - Gartman.
Speaking of gold and Ben Bernanke, the Wall Street Journal blog "Real Time Economics" references him as saying he's somewhat perplexed by the recent gold rally:
Federal Reserve Chairman Ben Bernanke says he’s a bit puzzled by surging gold prices. The 30% rally from a year ago, on top of gains in previous years, might be interpreted as a loud signal from markets that big inflation pressures are building in the U.S. Gold is seen by many investors as a hedge against inflation risk....
Inflation expectations as measured in Treasury Inflation Protected Securities (TIPS) markets remain low. And other commodity prices are falling. Gold is breaking records, but copper prices are down 17% so far this year.
“I don’t fully understand movements in the gold price,” Mr. Bernanke admitted. But he suggested it might be another example of investors fleeing risky assets and flocking to assets that are perceived as less risky, not only Treasury bonds, but also ones like gold.
That's one interpretation. Another is that the gold market is more perceptive than the bond market at spotting inflation down the road. A third is that gold is reacting to future global inflation, not just the U.S.'s. Of course, a fourth is that gold players are kidding themselves and the bond players are right about inflation dormancy. There are others, such as gold acting as a crisis hedge despite U.S. inflation being dormant right now.
Whatever the reason, Bernanke has signalled that he doesn't consider the gold price to be that relevant a time series in rate decisions. Rather than seeing a portent, he sees a puzzle. In this case, ignorance is better for gold than knowledge: a central banker casting the rally as irrational means (s)he doesn't see any warning about too-extended periods of low rates being flashed. All told, it's better for gold if Bernanke and others see a deflationist bond market. If inflationists turn out to be right, as they were with respect to Greenspan's now-infamous 1%, the bond market is in for a surprise.
More immediately, gold's recovery may not continue in the overnight session. Another driver is needed, as gold seems tired out right now.
Right now the situation in Europe is pretty bad. The EU is essentially in complete disarray as new problems seem to surface every couple of weeks. Everyone but the EU knew that the PIIGS had problems but now Hungary, Belgium, and even France are coming up in the news as problem areas. We are seeing currency issues, debt issues, liquidity issues, structural issues, etc. The EU right now is like the Lindsay Lohan of regimes with all of its issues. All of this adds up to what is the largest fear, a sovereign default. If this were to happen, or when it happens, we will see some major turmoil across all markets.
Since his article concentrates upon bullish gold charts in three European currencies, his reasoning's a bit thin but his emphasis is pretty plain. Gold is competitive with fiat currencies now.
Another brief commentary from Frank Holmes features a chart that compares gold's rise in four major currencies since January of 1999: far and away, gold has gained the most in terms of the British pound (believe it or not.) He notes that disenchantment with fiat currencies is encouraging ordinary people to get into gold.
Demand for gold coins is tightening supplies and boosting premiums as mounting concern over Europe’s debt crisis and a proposed increase in U.K. capital-gains tax spur purchases, according to GoldCore Ltd.
Wholesale premiums on British sovereigns, added to the price of immediate-delivery bullion, have jumped to about 7 percent from as little as 2.5 percent in early May, the broker and dealer said. For the more popular Krugerrands, they have risen between 1 percent and 1.5 percent in the past month. May bullion sales almost tripled from a year earlier, GoldCore said....
“We’re finding it difficult to get sovereigns in large volumes,” Mark O’Byrne, executive director of GoldCore in Dublin, said yesterday by phone. “People see the crisis getting worse, not better, and demand is increasing. There’s still a bit of doubt in the market about the capital-gains tax, and sovereigns are exempt” from the levy, he said.
Although prompted in part by an exemption from capital-gains tax for U.K. legal-tender bullion coins, the current buying frenzy is concurrent with others in Europe - particularly, Greece and Germany.
A puckish point: the U.S. government seems eager to copy the U.K.'s National Health service, but is quite uninterested in lifting the cap-gains-tax exemption from U.K. shores. Hmm...
A weaker rupee, which made the dollar-quoted asset expensive, also weighed on sentiment, they added. "Nothing much... buying is absolutely dull at the moment, even the rupee is not acting in support," said a dealer with a private bullion dealing bank in Mumbai....
Rural India, which accounts for 65 per cent of the total demand, divert their savings to buy seeds and fertlizers for their kharif crops, leading to limited demand for the metal during the sowing season. India has also been witnessing slackness in gold buying since the start of May as record high prices dented demand....
[But, "s]ellers are not there despite of prices reaching Rs 19,000... good scrap flow was seen last when prices were at Rs 18,000," said Jitendra Kantilal, partner with Jugraj Kantilal and co, a scrap dealer in Mumbai.
The fact that sellers are not anxious to take advantage of near-record prices is a good sign for the metal.
The other article, written by Nathan Vardi, highlights the travails of an exploration company that's been trying to get a Venezuelan project up off the ground (so to speak) since the late 1990s. Crystallex has found a large gold deposit, but permitting delays have impeded its development. Crystallex finally threw in the towel, in a way, by signing over about two-thirds of the project to state-owned biggie China Railway Resources Group. It's hoped that having CRRG in Crystallex's corner will finally end the roadblocks that the project has had to endure. Presumably, the PRC has the clout with Chavez et. al. to get it through.
The Crystallex story says something about political risk, but the fate of its stock on the day the deal was announced (down 15.15% from Friday's close, as of yesterday's, after leaping up 37% on Monday's open) also says something about the difficulty of getting funding for juniors except for those with spectacular deposits. A much lesser-known company, Abacus Mining and Exploration, saw its stock got slaughtered by about 50% after a deal was announced with Polish copper-silver giant KGHM. Although the deal means that a mine will almost certainly be made out of Abacus' flagship Afton project, KGHM managed to get 80% of the deal if they meet all their commitments. The terms, and shareholder reaction to them, pummeled Abacus' stock from 37 cents to 18.5 cents.
That's why exploration stocks with minable deposits, even ones with bankable feasibility studies, are selling at such huge discounts to their worth as mines: thanks to financing difficulties, the odds and terms are stacked against them. The only ones that have discounted a sure mine are those with easily minable multi-million ounce deposits that are almost sure to get either bank financing or an all-out takeover bid from a major producer. The others have to go down the joint-venture alley, where most of the project winds up being taken out of their hands - hence the large discounts. This chat board has a lot of complaints about the Abacus deal, and even serious attempts to rally shareholders to vote it down.
The U.S. Dollar Index rallied for the most part last night, peaking at 88.39 as of 1:35 AM, but reversed in a choppy downturn subsequently. Bottoming at just below 88 between 6:25 and 6:55, it advanced slightly from that level until dropping definitively below 88 just before 8 AM. As of 8:11, it had sunk further to 87.83.
A Bloomberg report, as webbed by Business Week, ascribed gold's relative steadiness to continued safe-haven demand.
Bullion’s gains were capped as European stocks climbed today on increased confidence that the global economy can withstand the effects of the region’s sovereign-debt crisis, as Reuters reported that China’s exports surged.Also quoted is a Royal Bank of Scotland report that supplies a reason for gold's seasonal weakness at this time: summer is usually weak for jewelry demand. The article also mentions an increase of 12.17 tonnes in the holdings of the SPDR Gold Shares Trust, to 1,298.53 tonnes.
“In the long run, the trend is still bullish and investors will be keen to throw everything at gold in case matters escalate from here,” said Andrey Kryuchenkov, an analyst at VTB Capital in London. Short-term, “provided we still do not breach $1,250 on a second attempt today, then gold could pull back toward $1,200.”...
“Equity markets are positive, and that’s weighing a little on gold,” said Peter Fertig, owner of Quantitative Commodity Research Ltd. in Hainburg, Germany. Investor sales to lock in gains from the advance to a record “may also be the case for lower prices,” he said.
Recovering equities is the reason given for gold's weakness by a Reuters report.
Despite an early rebound, risk appetite remains fragile amid widespread sovereign risk concerns in the euro zone, firmly underpinning gold, analysts said.The article also mentions that European shares firmed on news of an approximately 50% increase in PRC exports during May.
"As nervous as investors currently are, panicking very easily, it is not to be ruled out that we will move higher again in gold," said Peter Fertig, a consultant at Quantitative Commodity Research....
The medium-term environment for gold looks set to stay positive, with interest rates -- which represent the opportunity cost of holding non-interest bearing bullion -- expected to remain low. A hike in U.S. rates is not widely seen before 2011.
"Although gold is trading at nominal highs, we are staying long, as real rates are unlikely to move higher anytime soon, and macro concerns are likely to linger," said Morgan Stanley in a note.
Rather than characterizing gold as dipping, the morning Wall Street Journal report characterizes prices as being essentially steady.
Gold is trading quietly in a range between $1,230 to $1,240 an ounce, said Afshin Nabavi, head of trading at Swiss precious metals trading house MKS Finance. "I think people are just waiting to seem some kind of direction," he said.Also mentioned is forecasts of a rise to $1,275-$1,300, although not quickly.
Tuesday's sharp jump to a record $1,251.80 an ounce reinvigorated sentiment after two weeks of range trading. Some market participants speculated a large fund may have bought gold, and whether or not that was true the rally raised hopes that more funds would buy gold.
"I think the fund community is probably not as long as they can be," said Mr. Nabavi.
With regular trading open, gold has continued drifting downwards. A spike-up above $1,235 greeted the start of the pit shift, which evaporated with a decline to $1,231. Recovering somewhat, the metal poked up to $1,233. As of 8:52 AM, the spot price was $1,232.70 for a loss of $2.10 on the day. The Kitco Gold Index assigned -$6.30's worth of change to predominant selling and +$4.20's worth to greenback weakness. The U.S. Dollar Index continued downwards until 8:41, reaching 87.7 at its morning nadir. A recovery to the 87.8 level followed. As of 8:55, it was at 87.81.
The short-term malaise in gold is continuing as things look better on the economic front, but a resumption of the decline late last month doesn't seem in the offing despite some expectations for another one. Gold may continue muddling along today.
Tuesday, June 8, 2010
The sharp drop in equities helped spur the rally in gold, which started at 10 AM or around the time the U.S. averages began caving in. Within a half an hour, the metal had jumped from $1,242 to $1,251. Double-topping at that level, gold pulled back to $1,246 by 11:00; in so doing, the metal anticipated a later-morning recovery in U.S. equities. The pullback, reignited by the stock rally, managed to erase all of the earlier-morning gain as it sent the price back to $1,242. As of 11:53 AM, the spot price was $1,243.20 for a gain of $2.10 on the day. The Kitco Gold Index attributed -$4.90 to predominant selling and +$ to weakening in the greenback.
The U.S. Dollar Index, after drifting in a range earlier in the morning, did weaken just before gold began dropping back. Reaching 88.5 at 10:10, it hung just below that level before dropping to below 88.1. As of 11:57 AM ET, after recovering slightly, it turned back downwards to drop below 88: it was at 87.99.
The new record set early this morning has, so far, not been duplicated. If the stock-market picture keeps clearing at it has, the metal likely won't today. It looks like afternoon trading might get stuck at the 1240s.
Update: So far, the metal has been stuck in the mid-1240s. Ben Bernanke said that unemployment would take its time getting down, which paradoxically helped stabilize the stock market. The Euro also rose in that timeframe, making for a more plausible explanation for the stock rebound.
After sinking to $1,242, the metal rebounded choppily but fairly quickly just after noon while the U.S. stock market churned. By 12:20 PM ET, gold had spiked up to $1,248. Turning back down, it managed to bottom at a higher level than in late morning: $1,243. Another attempt at a rise petered out, leaving gold at that same level when the pit shift ended. As of 1:30 PM, the spot price was $1,243.10 for a gain of $2.80 on the day. The Kitco Gold Index assigned -$0.60's worth of change to predominant selling and +$3.40's worth to greenback weakness.
The U.S. Dollar Index showed overall weakness, but less than at noon; its afternoon recovery was substantial. Bottoming at 87.96, it managed to rally well above 88.25 in two stages. As of 1:35 PM, it was at 88.34.
Unless something bobbles it one way or another, gold is heading for near-unchanged levels for the close. It's still holding in the 1240s, and is likely to stay there for the rest of the afternoon.
Update 2: The bobble came, and it was a downward one. After drifting just above the $1,242 level, gold took a tumble around 2:30 PM ET. In about ten minutes, it had fallen to $1,234. At about that time, U.S. stocks began taking off. Rebounding to $1,238, the metal ranged between those two values until the session was over. At the close, spot gold was at $1,234.80 for a loss of $5.50 on the day. The Kitco Gold Index attributed -$11.40 to predominant selling and +$5.90 for U.S. dollar weakness; the two figures sum up to the raw change on the day.
The U.S. Dollar Index, after sinking to just above 88 by 1:00, rallied up to 88.4. Exceeding that level at 3:00, the Index shed all of its mid-afternoon gain in later afternoon. At the end of that round trip, as of 5:30, it was at 88.10.
Its daily chart, from Stockcharts.com, shows that the Index is no longer overbought:
Just barely, though, as measured by its RSI line at the top of its chart. As shown by today's candlestick, the Index pulled back a little today but stayed above 88. Its MACD lines are still in a bullish configuration for the second day in a row. Because of the Index's recent overboughtedness, a pullback isn't that unexpected - and today's was fairly slight. It might continue pulling back to 87.5, but there's nothing in today's action to indicate its bull trend is even threatened. The Index is way above both moving averages, which is indicative of a solid bull run.
I wonder how the Fed officials are taking this strength. The orthodox Keynesian theory of exchange rate movement, which I learned from my textbooks when still in university, claims that exchange rates follow short-term interest-rate differentials. The bear market of '09 could be held up as an example of that theory, as the U.S. dollar was dropping when the zero interest rate policy was in force. The trouble is, rates were also near-zero in the other major currency zones. Now that rates are being put up in some jurisdictions, like Canada recently, the U.S. dollar has managed to almost completely erase that entire '09 bear market with short rates still at near-zero. Yes, the Index is above where it was in October of '08, and is close to exceeding March '09 levels. Interest-rate differentials seems to have had little to do with it. To the extent to which Fed officials think in such terms, though, there'll be added pressure to stay the neart-zero-rate course.
Turning to gold, its new interday record is shown in the metal's own daily chart:
Although the metal did not reach an overbought level, it still took that tumble this afternoon. Despite today's drop, gold's MACD lines have stayed in a bullish configuration for the second day in a row. As pullbacks go, this one wasn't that bad.
Interestingly, from a contrarian point of view, is a gold-timer report by Mark Hulbert. During this recent run-up, gold timers have actually shied off; according to his data, timers are recommending 30.5% gold, 69.5% cash. He notes that this unusually low level "suggests that they are profoundly skeptical of gold's recent strength." From a contrarian standpoint, this says there's a wall of worry that gold's currently climbing.
A post-pit Reuters report, which was written before the mid-afternoon decline, ascribed the earlier record high to worries about the Eurocrisis stunting global growth by going malignant. Amongst other points made therin, these were included:
* Gold boosted by heightened investor risk aversion, steadily sinking euro and EU sovereign risk, which appears to be spreading to non-EU nations - James Steel at HSBC.Presumably, gold dropped in mid-afternoon because thay risk aversion vanished. It could be that gold players moved money into U.S. equities.
* Fitch credit rating agency said Britain faced a formidable challenge to cut government debt.
* Significant demand for gold was seen coming from Europe, and euro zone's problems highlighted structural credit issues elsewhere - Brian Hicks, co-manager of Global Resources Fund at U.S. Global Investors.
If so, and if markets keep healing, the metal will continue to have some rough sledding. Still, as the Hulbert report indicated, the gold timers he surveyed are far from enthusiastic at a stage when they normally get excited. They could be right this time, because of the seasonality factor, but the contrarian odds say that gold is going to fool to the upside during June. Today's decline may carry through 'til tomorrow, but it doesn't look like it will go that far overall.
The latest weekly reading on the K-Ratio shows a very bullish reading of .96 (Barron’s Gold Mining Index of 1158.99 divided by the Handy and Harmon Gold Price of $1203.50). Since 1975, readings at or below 1.15 on the K-Ratio have resulted in gold stock gains 90% of the time over the next 12 months with an average gain of 40%. [Emphasis his.] Lending anecdotal support to a large rally in the gold stocks is the overwhelming number of bearish articles on gold by the mainstream press. From a fundamental perspective, of course, it does not hurt that logical minds are beginning to question the value of paper currencies of numerous sovereign nations.
Accumulation of high quality gold stocks such as Newmont (NEM), Randgold (GOLD), Goldcorp (GG), Kinross (KGC) and Yamana (AUY) seems warranted, especially on price pullbacks. Based on the technical and fundamental factors, the bull market in gold stocks has a long way to run.
The relative lack of follow-through on the bullion rally is a bit of a puzzle, and there is a risk that the gold shares are discounting future weakness in gold. That discounting seems to be based on seasonality factors, and a post-May drop hasn't shown up as of yet.
At any rate, it isn't much of a mania if the gold stocks aren't participating.
Were you smart enough to sell your tech stocks in March 2000? Or your house in July 2006? If so, you should seriously consider buying some gold. A lot of it.Note how he conflated buying and sellling, as both are popular right now. The article points out that any purchase of physical gold is likely to entail a short-term loss because of mark-ups and the spread. He doesn't say so explicitly, but he seems to suggest going into a gold ETF so as to minimize the spreads. Unlike the typical MSM commentator, who ridicules the end-game scenario, Schoen dispenses some common sense about it:
But if — like most people — you don't have the gift for knowing when a financial bubble is about to burst, you may want to take a deep breath before calling the 800-number on that infomercial, selling your jewelry at your friend's "gold party" or converting 5 percent of your hard-earned savings into shiny Maple Leaf gold coins.
Some gold investors say owning the precious metal gives them peace of mind. Still, if you're worried that your community is headed for a period of social unrest worthy of a Cormac McCarthy novel, you might be better off investing in firearms.
“I don't think anyone is going to go into a store and exchange an American Eagle worth $1,300 for a bottle of water,” Tom Pawlicki, a gold analyst at MF Global.
Junk silver is another matter, of course.
Dealers are reporting a backlog of orders for bullion coins recognised as UK legal tender, which are exempt from CGT.Another dealer quoted suggests that the supply squeeze is just as bad (if not worse) in Europe.
Anthony Baird, managing director of gold dealer Baird & Co, says the company cannot deliver any Britannia coins until August due to lack of supply.
"We buy directly from the public," said Linda Warner, sales manager at bullion merchant ATS Bullion. "In the last couple of weeks, supply has been drying up because people hold on to what they've got in a situation like this."
The supply situation is worse from overseas sources, with European sales onto the market of coins and other forms of investment bullion particularly slack....
There's a veritable buying panic in place. Such panics are not the best time to buy, but the lack of supply is indicative of prices going higher. Not mentioned is any increase in premiums for those coins.
The sharp increase in production would be enabled by the Biox treatment process, which was developed by Gencor (now BHP Billiton) two decades ago but has been relatively little used to date in SA, though it has been used on a smaller scale at Agnes.
Biox enables the extraction of gold from sulphide-rich ores through bacterial action. Previously, the difficulty of processing the sulphides meant mining in the Barberton area was limited to relatively small-scale operations. But Mr Skeat saw the potential to produce large volumes, achieving economies of scale while saving on operating costs due to the shallow mines' low energy requirements.
"The biggest difference is in hoisting - we can bring up the ore for a fraction of the cost faced by a typical gold mine in SA. Our cash costs will be equal to or less than 500/oz - they should fall as our tonnage goes up."
It's a neat idea, especially if the bacteria can cut down on pollutants. Because its reach was so limited, Biox has enjoyed a de-facto monopoly. (So does a grocer eking out a living in a hamlet if (s)he's the only one around, by the way.) If its use spreads, there may be competitive bacterial products coming into the market.
Long live bacteria.
India has taken a rain-check on gold. Premiums for gold bars slipped in Asia on Tuesday after bullion raced towards a lifetime high, while purchases from Indian jewellers slowed to a trickle as the monsoon progressed in the world's largest consumer....
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 make up 65 percent of the country's gold demand, spend their money on sowing crops.
No one is buying, however there are a few sellers, said Harshad Ajmera, proprietor, JJ Gold House, a wholesaler in the eastern city of Kolkata.
Although dealers in India offered gold at a discount of up to 1 percent below international prices, demand remained slow. Premiums for gold bars slipped to 50 cents to the spot London prices in Singapore from as high as 80 cents last week....
“What’s happening in Europe at the moment increases the probability that we will see a double dip,” Walker, who joined the independent, London-based research company in 1995, said yesterday. “The investment case for gold is going to remain robust for the rest of this year.”The kicker that would push gold up that high would be a spread of the Eurocontagion to other regions. Given that platinum demand is more tied to economic strength, a reneweed spell of trouble could push gold above platinum.
If gold does ascend to those levels, then a full-fledged mania will be underway. Already, at current prices, the metal's sporting a double-digit gain.
A note: GFMS is the same firm that, earlier, was predicting that gold would go to $1,300 and then collapse. They've changed their tune quite a bit.
With that news as the backdrop, and with the greenback also moving up, gold reversed a late-night slump to spike above $1,250 and make a new record high. The earlier sag carried the price down to $1,236.50, reached around 2 AM ET. $1,240 was climbed above an hour later; a two-stage rally followed. It was the second stage, climaxing just before 6:00, that put gold at its new record high of $1,253.30. After its higher low made on May 21st, gold has now made a higher high. Subsequent to making that record, the metal slumped back but stayed above $1,245. As of 8:02, the spot price was $1,246.50 for a gain of $6.20 on the day. The Kitco Gold Index split the gain into +$4.20 due to predominant buying and +$2.00 due to weakening of the greenback.
The U.S. Dollar Index spent the night slumping, getting down close to 88.1 before halting and fluctuating between that level and 88.3. An early-morning rally, beginning a little before 4 AM, carried the Index up to 88.58 before it ended at 5:25. The subsequent slump dragged it down to just above 88.3. As of 8:13, it was at 88.33.
A Wall Street Journal report characterizes the record high as being generated by refuge buying. The metal hit another record high in Euros.
"The persistence of EU sovereign risk, which appears to be spreading to non-EU nations, combined with heightened investor risk aversion and a steadily sinking euro, makes gold attractive," said HSBC analyst James Steel.As the article also suggests, Hungary's troubles, turmoil in Spain, expected difficulties in Germany as the German government prepares cuts of its own, and double-dip fears for the U.S. economy all contributed to a positive climate for the metal.
Investor demand is the driving force right now, traders and investors said, noting a quiet physical market from jewelry buyers in India, the Middle East and China....
"Given the momentum this morning in Europe, gold just wants to follow one path and that path leads north," said UBS analyst Edel Tully.
The above-noted Fitch warning serves as the focal point of this morning's Reuters article, which ascribes the new record high to worries over the Eurocrisis.
The precious metal is benefiting from fears the euro zone's sovereign debt crisis may spread, weighing on global economic recovery, analysts said.The article also notes that holdings in the SPDR Gold Shares Trust were unchanged yesterday, but physical demand in India slowed to dormancy.
"It is mainly the fear of another slide into recession which is seeing demand for gold as a safe haven," said Commerzbank analyst Daniel Briesemann.
"Gold is currently rising in dollars and in euros," he added. "There is a lack of confidence, given the uncoordinated measures against the sovereign debt crisis, which is obviously (affecting) both currencies."
Core euro zone debt futures hit a contract high and the premium investors demand to hold 10-year French, Italian and Spanish government bonds rather than German benchmarks rose on Tuesday in risk-averse trading.
With the fear factor still dominating the financial markets, gold is set for further gains, analysts said. "Right now it's too difficult to stand in front of a moving train," said UBS analyst Edel Tully in a note.
Essentially the same reason was at the head of the morning Bloomberg report, as webbed by Business Week.
“It shows low confidence in the euro zone,” said Bernard Sin, head of currency and metals trading at bullion refiner MKS Finance SA in Geneva. “There’s no confidence in euros, dollars and no confidence in other currencies. The only solution is to be on the safer side, which is gold.”...Ms. Tully was also quoted as noting that scrap sales have likely picked up given the rise.
The euro steadied against the dollar as Federal Reserve Chairman Ben S. Bernanke said Europe’s leaders are committed to avoiding a default and their bailout plan covers the obligations of Greece, Portugal and Spain “for a number of years.” The U.S. recovery is moving at a “moderate” pace, Bernanke said....
“The gold price continues to be supported by safe-haven inflows, linked to Europe’s debt crisis and uncertainty about returns from alternative investment assets,” David Moore, a commodity strategist at Commonwealth Bank of Australia, wrote in an e-mail today.
The metal may trade at $1,050 to $1,300 an ounce for the rest of this year and may climb as high as $2,000 if the debt crisis spreads beyond Europe, possibly to the U.S., GFMS Chief Executive Officer Paul Walker said in an interview.
With regular trading open, the metal continued its slump by sinking below $1,245. The decline started at 8:00, halting at $1,243 when the pit shift opened. A further slump below $1,242 was reversed. As of 8:50 AM, the spot price was $1,242.80 for a gain of $2.50 on the day. The Kitco Gold Index divided the gain into +$0.70 for predominant buying and +$1.80 for greenback weakness. The U.S. Dollar Index, after sinking below 88.3 on the way to 88.25, reversed course and began climbing at 8:20. As of 8:54, it was at 88.43.
Forging a new record did call forth some selling and a consequent downturn, but the record was still made. So far, gold is still sporting a gain on the day. There isn't any sign that the metal is going to break through the $1,250 level and surge higher, but it also hasn't fallen below $1,240. Today's action, if it parallels yesterday's, would see another record made.
Monday, June 7, 2010
Within thirty minutes, the metal had touched $1,235. Its run-up coincided with a drop in U.S. equities, which started on a downwards slide a little before gold took off. The Dow is well below 10,000 now, and the S&P is only a few lousy days away from 1,000. An AP report pegs stocks as falling to their lowest level in seven months.
Gold benefitted, but the gains came mostly in the mid-part of the pit shift. After drifting around $1,235 for an hour, the metal ramped up to the $1,240 level and stayed just below there until the pit shift ended. A slight blip upwards got the metal a little above $1,240, where it stayed until just before 3:15 when it spiked up to the day's high of $1,246.20. Barely missing a new record high, the metal descended down to the $1,240 level again. Stocks were dumped in the final hour, but gold did not benefit except for that spike. The only U.S. economic news came out at 3:00, which revealed that consumer borrowings rose slightly in April; for the previous month, it was revised downwards, which didn't help the markets. As already noted, any benefit for gold post-release was temporary.
When the stock markets had closed, gold spent the rest of the regular session drifting. At the close of regular trading, spot gold was at $1,240.30 for a gain of $20.30 since Friday's close. The Kitco Gold Index (KGX) attributed +$23.20 to predominant buying and -$2.90 to a strengthening greenback. Ex-greenback, the KGX had gold at another record high today. Fittingly, the metal made another record in Euro terms.
After an continued rally last night that took it up to 88.68, the U.S. Dollar Index floundered around, mostly downwards, in early morning and regular trading. Reaching a low of just below 88.15 as of 7:00 AM, the Index gyrated around with a slight upwards bias subsequently. The upwards tendency became less diffuse in the afternoon; by 4:05 PM, it managed to inch up to a little above 88.5. Pulling back down a little, it saucered back up by the time regular trading was over. As of 5:25 PM, it was at 88.49.
Its daily chart, from Stockcharts.com, shows Friday's gains continuing today in attenuated form:
Today's candlestick shows that today's flailing around took place in a much narrower range than yesterday's leap-up. The Index's RSI line remained in overbought territory, although to a lesser extent than two-to-three weeks ago. Perhaps more portentously, the MACD lines (found at the bottom of the chart) crossed over today from a bearish configuration to a bullish one. In so doing, they endorsed the ascending triangle formation that was completed last Friday.
There's still the matter of the Index's overboughtedness, but the other signs point to a continued rise in the greenback. So does the current fate of the Euro, which may end up going to parity with the U.S. buck. Add to that an all-out correction in the making which U.S. stocks are suffering through, and the macro backdrop makes for a continued rise. In a way, it's a blessing for exporters in the Eurozone like Germany. Given widespread disgruntlement at the Eurobailout, the effect on that country will be mollified somewhat by their exports becoming more competitive.
The Index benefitted hardly at all from today's turmoil, but gold benefitted quite a lot as its own daily chart shows:
After its sink late last week, and Friday's recovery from Thursday's drop, today's jump in gold came as a welcome relief. Despite today's gain, gold's RSI level is not in overbought territory. Like the Index's, its MACD lines crossed over today from a bearish configuration to a bullish one, at a lower RSI level than the other's.
The metal is now close to making a higher high. The dip which ended late last month made for a higher low, although one that wasn't much higher than the previous one. Consequently, gold's intermediate term uptrend is intact. In a month that's supposed to herald seasonal weakness, the metal's performance has been fairly good.
A post-pit Reuters report ascribes gold's rocket-up this morning to safe-haven buying prompted in large part by more fears about the Eurocrisis. Amongst other points therein, these were included:
* Gold's safe-haven appeal increased as U.S. stock markets dropped 1 percent on top of heavy losses on Friday due to disappointing payrolls data and lingering credit fears.Earlier, Marketwatch's Peter Brimelow's Monday column explored the dichotomy between gold's encouraging performance and the less-encouraging performance of major gold stocks as measured by the HUI.
* Euro zone credit contagion fears and worries about a Hungarian debt crisis prompted investors to buy the metal as an insurance against economic turmoil - traders.
* Investors initially took profits on better economic sentiment as the euro recovered after it fell below $1.19 for the first time in four years earlier.
The yellow metal bounced off the ropes ferociously on Friday. After two weak days, the metal slipped below $1,200 spot as New York was opening. Then, as it became clear how ghastly the day was going to be in the financial markets generally, a powerful $20+ rally set in.It's a good question right now. I'm far from being the only one to point out the summer seasonal weakness that gold typically goes through; the expectation of same, plus the malaise the stock market as a whole is going through, explains why gold stocks aren't participating all that much. From what I've seen of the nether regions of the gold-stock universe, the junior exploration stocks as a whole have largely ignored gold's spring rally. If gold ends up bucking that weakness this coming summer, the major gold stocks should wake up. As of now, the exploration juniors are moving to their own beat.
From a relative strength point of view, this was a spectacular performance. Everything else was down horrifically, except U.S. Treasurys, and the U.S. dollar -- usually gold's adversary.
Gold in other currencies did even better. In fact, gold in euros closed at a record high. This will greatly delight The Gartman Letter, which can claim to have pioneered trading gold in this way, and which was expanding its positions this week....
[But, no-]one seems to understand gold shares' malaise. Unlike gold, they have yet to approach, let alone exceed, their last December highs. Some blame the rise of the gold ETFs like SPDR Gold Trust ETF (which expanded its bullion holdings to a record this week) and the closed end Gold Funds like Central Fund of Canada Limited and Sprott Physical Gold Trust. But these are not leveraged to gold, which has been the gold shares' traditional appeal.
Could gold shares just be the last train to leave the station?
To conclude with a blog note, this all-in-one report for the day is due to Blogger experiencing technical difficulties all this morning and some of this afternoon. The notice I posted two hours earlier, which is right before this entry, was all I could post earlier today. Apologies, and thanks for your patience.