Gold Makes New All-Time High, Softens Later

The bulk of gold's gains today were set before regular trading opened. Starting off in the high 1250s, the metal edged up to slightly above $1,260 around 8:45 before pulling back. By 10:00, it had returned to $1,256. Subsequently, it reversed and climbed up to a new record high of $1,261.80. Pulling back, to $1,258, it fluctuated around the $1,259 level. The action was uneven, but there was an overall rise that carried the metal up above the $1,260 level again. As of 11:54 AM ET, the spot price was $1,260.80 for a gain of $15.60 on the day. The Kitco Gold Index attributed +$16.60 to predominant buying and -$1.00 to strength in the greenback.

The U.S. Dollar Index continued fluctuating in a range bracketed by 85.6 and 85.75. After descending to the lower end in mid-morning, the Index drifted to the upper end afterwards. As of 11:55, it was at 85.71.

So far, the metal's gain has not been spectacular but it has been decent. There seem to be no drivers right now, so the price is being determined by anticipation and/or longer-term bullishness. The metal may stay above $1,260 in the afternoon.


Update: It didn't, but instead sunk back to the upper 1250s. That slump was after a new record high of $1,263.50 was made.

That record was clocked in around 12:15 PM ET. After pulling back, the metal tried to get back up but couldn't. Soon after that attempt, right before 12:30, it went into a slump that took it from $1,262 to $1,256 in the next hour. As of the end of the pit session, or 1:30, the spot price has rebounded a little to $1,257.20 for a gain of $12.00 on the day. The Kitco Gold Index assigned +$12.45's worth of change to predominant buying and -$0.45's worth to greenback strength.

The U.S. Dollar Index, after breaking slightly above that range around 11:30 AM, sunk back into it. As of 1:35, it was at 85.69.

Now that the Friday afternoon post-pit electronic trading hitch is here, the gold market is likely to be quiet. Sad to say, but $1,160 now looks out of reach for the close unless something wakes the metal up.


Update 2: It was quiet for the rest of the session. After pulling up a little subsequent to the end of the pit session, gold settled into a range with $1,256 as the floor and $1,258 as the ceiling. The only time the range was broken, to the downside, was the forty-five minutes after the close of equity trading. Although briefly settling below $1,256, the low was less than a dollar below that figure. Getting back into the range as of 4:45, the metal sailed in for a quiet close. As of the end of this week's trading, the spot price was $1,256.50 for a gain of $11.30 on the day. The Kitco Gold Index split the gain into +$10.00 for predominant buying and +$1.30 for a weakening greenback.

For the week, gold ended up with yet another gain. From last week's close of $1,227.50, gold rose $29 or 2.36%. It was the fourth weekly gain in a row.

The U.S. Dollar Index sunk from around 85.7 in later afternoon trading, and got a little below 85.6, but never got to 85.5. As of the end of this week's trading, it closed at 85.56.

Its daily chart, from Stockcharts.com, shows the decline still continuing, but at a much lesser rate:



85.5 has ended up holding rather solidly. For the second day in a row, the interday low has been at about that level. It's been three full points' worth of decline in the last two weeks, driving the Index's RSI level from overbought to below neutral. The turnaround I expected yesterday didn't arrive, but the slowdown has been contained. The RSI line, found at the top of the chart, is in the range where previous turnarounds kicked in.

Should one do so next week, the Index will be in an interesting position. If today marks the low, then it will have bottomed out at a slightly higher level than the previous bottom. The last time this took place, the Index stayed stuck at the same level for about a week but climbed afterwards. The Eurocrisis provided the driver for its run back then. In order for a similar recovery to take place now, the Eurocrisis would have to flare up again. Until or unless such a malignancy develops, the Index doesn't have much going for it in the upward-continuation department.

Gold, on the other hand, seems to. The ascending triangle formation I talked about yesterday was completed today, with a new record high being made that was substantially above the last one. Its own daily chart, also from Stockcharts.com, shows the breakout:



I have to admit to not seeing it would complete itself this soon, but I was right about gold going up as a result. On an interday basis, the ascending triangle's top was made by the three record and near-record interday highs on the chart. Someone preferring to use opening and closing figures would have picked $1,240 for the ceiling and declared it completed yesterday. Either way, gold followed through.

The metal's MACD lines, found at the bottom of its chart, have made a bullish crossover. That crossover took place earlier this month, almost two weeks ago, but the three-day hiatus from a bearish configuration proved to be a fake-out. Buying gold at that point did work out as of today, but there was a long stretch when it didn't. Whether this crossover is a fake-out remains to be seen, even if gold's in a fine position technically. The only point of doubt is with its RSI level, which is close to being overbought.

Last Tuesday, gold had pulled up from its near-$1,220 doldrums to close above $1,235. It was that day that marked the cut-off point for this week's Commitment of Traders data, graphed here. Total open interest rose, but only slightly. Interestingly, the number of contracts owned by non-commercial longs barely budged; the number held by commercial longs increased more. Non-commercial shorts stayed almost flat; commercial shorts rose a bit. The overall picture painted by the graph and the underlying data shows hesitation and lack of surety over the direction the metal would take. As we now know, gold ended up advancing after another day of hesitating.

As for the U.S. Dollar Index, its own CoT data and graph show last week's increase in open interest was not continued this week. As of last Tuesday's close, the Index had fallen hard and was destined to fall further (albeit more gently) for the rest of the week. The number of contracts held by non-commercial longs actually increased, while commercial longs shrunk by 37.6%. Also plummeting was non-commercial shorts, which shrunk by an even larger 42.6%. Commercial shorts shrunk a little. Given how the rest of the week turned out, the nod goes to commercial longs. Interestingly, a lot of the contracts of the non-commercial shorts (a normally savvy bunch) were closed out during Tuesday's declines.

Turning back to gold, a post-pit Reuters report ascribes the record made to continued demand for it as an alternative or hedging asset. Amongst the points made therein, these were included:

* Gold continued its rise on follow-through buying after closing Thursday at a record closing high - traders.

* Investors sought gold as an alternative investment as economic uncertainty continues to muddle the outlook for interest rates and share prices - analysts.

* "I think it is a case of gold's ability to compete with both credit and equity markets for investments. Competing with credit markets has been in play for a long time, because of low interest rates and low opportunity cost of holding gold," said
Tom Pawlicki, precious metals analyst at MF GLOBAL in Chicago....

* "The data yesterday from initial claims and Philadelphia Fed was another thing indicating to investors that the economic recovery will be subpar compared with other recession recoveries. That makes gold more attractive," Pawlicki added.

* Analysts said gold was reverting to its more traditional relationship by rallying with the euro, which tends to happen when the yellow metal is purchased in overseas markets.

The overall picture is of a rally that's taking place on general bullishness and drivers from yesterday. It's as if gold were coasting, or waiting for another driver. There were no headline items from the premier of Spain's meeting with the head of the IMF.

Despite the lack of connection to today's news, the overall bullishness has done a lot for the metal - in contrast to the greenback. While the latter is well below its high of this year, gold has advanced to another record in the same timeframe. There was a time late last month when it looked like gold would be the one to suffer most from the dormancy of the Eurocrisis: no more. As had been the case before, gold benefitted from a post-crisis rally caused by more safe-haven buying.

In closing, I would like to thank you for stopping by and reading what I have to say. May your weekend be restful.

Gold And The Greenback: Mostly Negatively Correlated But Sometimes Positively So

In a Seeking Alpha article, Bespoke Investment Group has produced a chart of the rolling six-month correlation between gold and the U.S. dollar over the last ten years or so. Although normally negative, that correlation has become positive from time to time. The most sustained period of positive six-month correlation was in 2005. There's no attempt to establish a relationship between it and the gold price.

Playing The Mania?

It's up to you to decide whether this report is exciting or scary, but Bengt Saelensminde is openly recommending playing the gold market on the assumption that the third and final stage of the gold bull market is upon us. He says that the final stage is where gold will go nearly vertical, pushed by a ramp-up in investment demand as the general public flocks into gold. He calls that final stage a "trader's paradise." Yep, Saelensminde smells bubble - and he's ready to play it.

In a nutshell, his strategy is to buy a little gold at a round number (like, say, $1,250) and buy more when the metal advances another $100/oz. In essence, he advocates pyramiding. In order to bail out of the collapse, he also recommends a trailing stop loss at 15% below the then-current price.


Needless to say, this is both cynical and risky. Pyramiding always is: there's no guarantee that a stop-loss order will be filled at the stop price. Stop orders become market orders after the stop threshold is crossed; they do not guarantee that the live market order will be filled at the stop-limit price. In a severe crash, the order would be activated at a much lower price. Saelensminde also recommends playing the metal through a "financial spread bet." Believe it or not, the firms who offer those bets are exactly like the bucket shops that young Jesse Livermore cut his teeth in.

Gold More Attractive For Wealthy Families

According to a Reuters report, firms that cater to wealthy families are reporting that those people are moving more of their money into gold.

Companies that managing money for the wealthy -- called family offices -- focus more on preserving wealth than chasing large investment gains. When the credit crisis hit, they shifted into safe assets, including treasuries and cash as well as gold.

Speaking at the GAIM hedge funds conference, managers of family offices said they have been building positions in gold via gold-focused hedge funds and mutual funds as well as gold exchange traded funds (ETFs), with some even stocking up on the precious metal.

"Physical gold had not been on anyone's asset allocation for 20 years. That's definitely made a big comeback," said Egon Vorfeld, managing partner at the Forum Finance Group, a Geneva-based wealth manager for a global clientele of wealthy families.

It's an open question as to whether the families being catered to by family offices, not to mention the offices themselves, are smart money or dumb money.

There was a brow-raiser at the end of the report: one of the attendees at the conference said that cabdrivers were beginning to talk about buying gold.

Unanimity On Gold Not Falling Next Week

In a Bloomberg straw poll, conducted yesterday, 18 out of 20 traders, investors and analysts said that gold will rise next week. No a single one of the twenty said that gold would fall.

The metal gained this year amid speculation that debt- cutting measures by European nations will slow growth. World Bank President Robert Zoellick this week said there are “challenges” ahead in Europe even if rescue packages put together by the authorities have “bought time.” Spain’s central bank said June 16 it planned to publish the results of stress tests on the nation’s lenders to counter speculation the country needs international aid.

“Gold is sending the signal that paper money, and the people that control paper money, can’t be trusted,” said Adrian Day, chief executive officer of Adrian Day Asset Management in Annapolis, Maryland. “Gold’s action the past several weeks has been remarkably strong, recovering from declines quickly. All the reasons that caused global investors to buy gold over the past six months remain.”

Naturally, unanimity is going to make a contrarian skittish. So would a 90% consensus for an outright rise. Ironically, gold has already made a new record today - making the consensus forecast more difficult to achieve.

GFMS Says Brazilian Gold Jewelry Demand May Rise 20%

Because Brazilian economic growth was 9 percent in the first quarter of this year, and because the real is strong vis-a-vis the greenback, GMFS Ltd. has forecast that 2010 jewelry demand in Brazil will jump by more than 20%. Last year, demand dropped about 10%.


To the extent that the Brazil forecast can be generalized, resumption of global growth will help push gold up further...

...unless that growth is in the U.S. or Euroland. (I know, but other peoples' demand for gold is more strongly tied to wealth increases.)

Indian Gold Demand Still Dormant, Price Drops Waited For

Despite a strengthening rupee lowering the price for Indian buyers early this morning (ET), demand is still tepid as buyers wait for lower prices still.

"Market is very, very thin as they want lower-priced stocks, the rates have also gone up...," said a dealer with a state-run bullion dealing bank in Mumbai....

"They could buy if prices come down to $1,200 (an ounce)," said another private bullion dealing bank's dealer.

That hope is even further away now, as gold is holding above $1,255, but there's been no bend on that price point as yet.

PRC Official Says PRC Needs More Gold

It was only one member of the National People’s Congress, and what he said wasn't a ringing endorsement of gold, but it's significant in that it shows one high official of the PRC has endorsed moving some of that government's reserves from American T-bills and bonds. Essentially, Yin Zhongqing said that the PRC is underdiversified, and should buy more gold, oil and equities to diversify out of U.S. Treasuries:

[Mainland] China, owner of the world’s largest foreign currency reserves, should increase its holdings of precious metals and oil as part of a diversification strategy, a member of the National People’s Congress said.

The government should also cut overseas debt holdings and increase equity investments, Yin Zhongqing, vice chairman of the finance committee of the congress, said in Shanghai today at a conference. Foreign reserves, at $2.45 trillion as of end March, may reach $2.8 trillion by the end of the year and the country can’t afford to let the level rise higher, he said....

“China should adjust the asset structure of its foreign reserves and achieve the goals of making the investment safe, liquid, and preserving and adding value,” Yin said.

That last statement may rule out a big committment to gold, as the Foreign Exchange Commission said that gold is too illiquid and volatile to make a good investment for PRC reserves.

Gold Soars To New Record

Gold started off the evening session drifting at $1,245. A blip-up just after 8:00 PM ET was not followed through upon; instead, the metal sunk to below $1,242 by 11:00. Recovering to just below $1,245, the metal ambled along in a tight range between it and $1,243 until 7 AM. Then, it rose above $1,245 slowly at first. Accelerating as it reached $1,250, it shot up once that level was breached. There was no fundamental driver accompanying that rise, suggesting that worries about Spain did it. The Spanish Prime Minister is scheduled to meet with the head of the IMF today. Peaking at a new record of $1,260.10, the metal fell back afterwards to settle above $1,255. As of 8:07, the spot price was $1,255.70 for a gain of $10.50 on the day. The Kitco Gold Index attributed +$10.60 to predominant buying and -$0.10 to strengthening of the greenback.

The U.S. Dollar Index sunk a little in the night part of the session, to 85.5 by 12:40 AM. Blipping up to above 85.7 by 3:00 AM, it tailed off and fluctuated at slightly below that level. As of 8:12, it was at 85.66.

A Bloomberg report ascribes the run to a record to wealth protection and concern over the U.S. recovery.

The metal’s “unique property as the ultimate safe-haven currency is making gold an attractive investment,” said Bayram Dincer, a commodity analyst at LGT Capital Management in Pfaeffikon, Switzerland. “Gold’s recent price move is a function of euro-zone debt worries. Investors are looking to substitute assets and currencies with gold.”

An earlier Reuters report said that gold's hovering just below $1,245 was caused by a well-received auction of Spanish sovereign debt allaying fears about the Eurozone somewhat.

"The main driver behind gold is not the currencies; it is the underlying fundamental problems, especially here in Europe," said Commerzbank analyst Daniel Briesemann.

"Gold should rise further. It increased significantly yesterday. On a closing basis, gold in U.S. dollars reached a record high and intraday we were only $1 below the record high."

He said the prospect of publication of European bank stress tests was unsettling some market participants amid fears these could point to deeper problems in the financial sector.

Also mentioned is the SPDR Gold Shares Trust's holdings hitting another record high. The increase wasn't that much, though: 1.82 tonnes, for total holdings of 1,307.96 tonnes.

A pre-record Wall Street Journal report mentions fear of a derailed U.S. recovery as as a driver.

There are no statistical releases of importance to the gold market on Friday. Instead, market participants will be watching government announcements regarding banking stress tests. European Union leaders completed a dramatic about-turn Thursday, promising to carry out stress tests on their banks and publish their findings before the end of July.

But the medium-term outlook for gold remains intact. Fears are growing that the U.S. recovery could be grinding to a halt.

With regular trading open, gold fluctuated between $1,256 and $1,258 before inching above that level just before 8:45. A marginally higher record, $1,260.40, was made in the process. As of 8:51 AM, the spot price was $1,259.10 for a gain of $13.90 on the day. The Kitco Gold Index assigned +$14.25's worth of change to predominant buying and -$0.35's worth to greenback strength. The U.S. Dollar Index, after climbing up to 85.74, slumped back down but stayed in the range that held overnight. As of 8:54, it was at 85.67.

Gold has made another record, and has stayed well above $1,250, but the absence of a new driver may limit the gains next week. Still, it's in uncharted territory and may have further to run today.

Gold Vaults Above $1,245, Pauses,

The range didn't last long, and it was broken on the upside. Propelled in part by news about increasing initial jobless claims and a CPI report that had percentages which matched expectations, gold started rising before those numbers were released but got an added boost from them. Ramping up above $1,244, the metal spent some time wavering between that level and $1,245-6 before undertaking another rise just before 10 AM ET. Again, a less-than-cheery economic report helped boost the rally: at 10:00, the May leading indicator numbers were released. The numbers suggest slower growth. The second upthrust peaked, as of 10:25, at just below record levels: $1,249.90, as close to $1,250 as it's possible to get. Pulling back, the metal fluctuated between $1,246 and $1,248 before taking a dive down to $1,244. Recovering to $1,247, it dipped once again. As of 12:00 PM, the spot price was $1,244.70 for a gain of $14.20 on the day. The Kitco Gold Index split the gain into $7.90 for predominant buying and +$6.30 for a weakening greenback.

The U.S. Dollar Index had continued slumping, reaching a smidgen above 85.5 as of 10:11. Recovering to nearly 85.9, the Index sunk back to hover around 85.75. As of 12:01 PM, it was at 85.77.

With the $1,240 barrier reached, gold is very close to a new interday record. Its current softness suggests that it won't set another one this afternoon, but its valting above the top of its former range is enough.


Update: As it turned out, the rally had a bit of gas left in early afternoon. The new daily high of $1,252.50 was in fact a new record, making that suggestion nugatory. The new record was exactly a dollar above the previous one.

After sinking back to $1,244 as of noon ET, gold started to run again. In the next half-hour, it put on more than eight dollars an ounce to make that new record. Falling back after meeting resistance, the metal then fluctuated between $1,246.50 and $1,248. As of the end of the pit session, or 1:30, the spot price was $1,247.80 for a gain of $17.30 on the day. The Kitco Gold Index divided the gain into +$11.20 for predominant buying and +$6.10 for greenback weakness.

The U.S. Dollar Index stayed steady during early afternoon. Staying in a range between 85.7 and 85.85, it trundled along directionlessly above its earlier low. As of 1:35, it was 85.76.

The break-through from its former range had enough momentum behind it to set that new record, but not enough for gold to stay above $1,250 for more than a blip. There may be enough gas left to roll it above $1,250 sustainably, but the afternoon session is more likely to result in quiet or a backtrack.


Update 2: This time, it ran out of gas. After coasting along at $1,247, gold slowed to $1,244 and stayed between there and $1,246 except for a slight blip upwards around 4:35 PM ET. That blip, which failed to get above $1,248 for any appreciable length of time, exhausted itself as gold fell back to that same old range. As of the close, the spot price was $1,245.20 for a still-sizable gain of $14.70 on the day. The Kitco Gold Index divvied up the gain into +$7.40 for predominant buying and +$7.30 for the greenback weakening.

The U.S. Dollar index took another early-mid afternoon spill, which ended just after 2:00. Turning around at just below 85.6, the Index rallied to above 85.75 before it pulled back a little and settled into a range bordered by 85.65 below and 85.7 above. As of 5:30 PM, it was at 85.66.
Its daily chart, from Stockcharts.com, shows yesterday's recovery did not continue to today:



In other words, the short-term decline is not over despite the Index's RSI level (found at the top of the chart) being below neutral. That's not good for the Index. Although today's closing level is slightly above May 21st's short-term bottom, and the interday low is somewhat higher than May 21st's low of 85, the Index's current level is close enough to justify pegging its movement since May 13th as a potential head-and-shoulders top. For reasons of neatness, an interday drop to 85 would make the pattern clearer.

Justifying this interpretation is the fact that the Index has lost three whole points in less than two weeks, after a high carved out in an atmosphere of crisis that benefitted it. The subsequent letdown pulled the Index down to a level near where it was as of the time of the run-up to its peak of 88.5. The loss since then is too much to shrug off as a just another pullback.

The Index could halt at this point, pull up, and continue its run; that head-and-shoulders reversal is only a potentiality as of yet. But, it bears watching. A continuation of the short-term drop to 85 or below would add further credibility to the pattern. What will determine it will be the subsequent short-term rise after the current decline is over. At some point, such an advance will kick in.

Turning to gold, its own daily chart shows today's upside breakout from its $1,220-$1,240 range:



Because this chart is of the nearest futures contract, rather than of the spot price, it doesn't show a new all-time interday high being made today. The spot market did, but the nearest futures didn't. Nonetheless, the metal put on an impressive performance. Today's opening price on the chart above was equal to the interday low. Although the closing value was less than the interday high, the metal still showed a fair bit of strength.

Incongruously, gold's MACD lines are still (albeit barely) in a bearish configuration. Those lines, found at the bottom of the chart, suggest that gold is still in a wider range. The trouble with that interpretation is the short-term bottoms between May 20th and now are successively higher. The triple topping at near the same level is consistent with a range, but the ascending bottoms aren't.

What it is consistent with, is an ascending triangle. That pattern, bullish during an uptrend, features the same kind of action that gold has shown over the last month. The interpretation of it isn't that exotic or surprising: what it means is, if gold stays above $1,250 and holds there, the metal'll go for a further run into new-record territory. It's easy to imagine the internals, should gold do so: momentum traders would make it happen. A reversion of the old negative correlation between gold and the greenback, to gold's benefit, would be the market-specific motor that could make it happen. So could further troubles in stock markets. So could more warning clouds from Spain. So could anticipation of the last two.

The trouble with these patterns is, because they're based on internals, they may go to completion but reverse when the driver disappears or is counteracted. That was the case with an ascending triangle whose end foretold the Index's final drive from 87.5 to 88.5. Subsequently, the Index fell three whole points as the Euro began to recover. That ascending triangle did not foresee that later reversal.

So, even if it works, there's no guarantee that gold will motor up all that much. It would make a new record high; that's implied by breaking above the ceiling, which is formed by at least two record highs already made. How far it goes after that, depends upon bullish sentiment and any drivers that accompany it. If gold does vault well above $1,250 without any driver, like the Index did, the subsequent advance may not last all that long.

As of now, breaking solidly into $1,250 is only a potentiality. It may not come to pass in the near future. In that case, gold will look more range-bound.

A post-pit Reuters report credits gold with a new record closing high, due to worries about Spain and recent disappointing U.S. economic data. Amongst the points made therein, these were included:

* Gold held its early advance as investors kept seeking safety in the yellow metal as a tangible asset -traders.

* COMEX floor brokers reported talk some players were taking delivery of the physical metal.

* Though a Spanish bond auction went reasonably well, some investors still wanted gold to hedge against other possible sovereign debt problems in Europe - analysts.

* "There's no consistency right now in terms of good news coming out of the euro zone. And, because of that, it's making investors feel a bit uncertain about going into riskier assets. Gold is obviously a safe-haven asset to offset that," said Fred
Jheon, managing director of U.S. product development at ETF Securities in San Francisco.

Also mentioned was the Philadelphia Fed's mid-Atlantic factory activity survey's Diffusion Index tumbling from robustly positive to weakly positive, and the new closing high taking place with quite robust volume.

It seems only a matter of time before "Sell in May and go away" becomes joked about, perhaps with the embarrassment shown by former believers in it. Spot gold did make another record today, and the nearest futures contract made a new closing record. More unambiguous records may be made soon; tomorrow still has a shot at doing so.

Gold During Deflation: Better Than Some May Expect

"The Pragmatic Capitalist" has excerpted a JP Morgan report sketching out how gold would do in a deflation. Since gold's price was fixed during the last deflationary bout, JP Morgan used the price of silver as a proxy. What they found was that silver fell along with stocks in 1929-33, but not as far; by 1934, unlike stocks, silver was higher than in 1929. Base metals fared worse.


The intimation is that gold would fall in a deflation, but would snap back and recover during reflation. Shades of '08-'09.

A Portent At A Buying Roadshow

Recently, the Global Estate Merchandisers Co. hosted a week-long buying roadshow near Denver, and found something odd: sellers were amenable to letting their silver go, but are hanging on to their gold.

Several sellers interviewed Wednesday shared the expectation that gold still has more bullish days ahead.

One Aurora man turned down a $1,100 offer for a 19th-century gold coin because he expects the price of gold to rise even higher. He acknowledged that the seller's market won't last forever but said he would keep waiting for now.

"I wish I had gold and I'd bought it at $300," said Bob Green, 60, a Littleton sporting-goods retailer. He came to trade old coins and other items.

This report makes for a portent. Not only is their greater public awareness of gold, but also there's more bullishness among would-be sellers. Gold first came into public awareness through gold buyers, not vendors, but it looks like the bull case has spread enough to make would-be seller start hoarding what they've got.

It's only a matter of time before that bullishness translates into more public buying of gold...

Junior Exploration M&A Expected To Pick Up

The CEO of Lake Shore Gold, which has been engaging in some takeover activity itself recently, said that takeovers of junior exploration companies are likely to increase this year.

Higher gold prices of the last few years had led to an influx of juniors trying to get their mines built, such as Lake Shore Gold. Many of these projects were now coming on stream, and the market was beginning to understand the various companies 'relative worths, according to Makuch.

"We are starting to see a lot more requests for confidentiality agreements. We are also getting a lot of people asking us to sign confidentiality agreements with them."

When companies ask to perform a due diligence on a potential takeover target, the two will generally sign a confidentiality agreement.

So far, there's been no mania I can see. I haven't bumped into any junior flying upwards based upon takeover rumours, nor have I seen any significant rumour mill developing. It's almost inevitable that both will settle in to penny-stock land if the trend keeps waxing.

Nanogilding

Two scientists at Rensselaer Polytechnic Institute have managed to infuse toulene [benzene with a methane group in place of a hydrogen atom in the six-atom ring] with gold nanoparticles, and found that a droplet of the mixture leaves a single-atom sheet of gold on the surface once the toulene evaporates. That's as thin a gild as can be got. This method beats earlier ones, which took longer and left behind residue that had to be removed by dropping the air pressure to zero.

One of the surfaces was a three-inch silicon wafer, suggesting a use for the process.

When The Real One Isn't Enough

Three 16:1 scale models of the Bugatti Veyron sports car are being made and put up for sale; the going price is going to be 2 million pounds (about US$3 million.) That's because they're being made out of solid gold, with some platinum. 7.2 carat single cut flawless diamonds are being added for decoration.

Take a gander:


Photos and item gotten from WorldCarFans.com, through Speedlux.com. The designers of the model, Robert Gulpen and Stuart Hughes, are already well known for bespoke luxury designs.

And The Survey Says...

...69% for $1,500 gold. That's the result of a Gold Investing News brain-pick:

Perhaps most telling was that nearly 69 percent of respondents said they believe the price of gold will reach $1500 before the end of 2010. This bullish sentiment is most likely supported by the increasing flight-to-safety climate currently taking shape in Europe and North America as investors contemplate the likelihood of a slow economic recovery and the possibility of a double-dip recession.

Lengthily quoted is an expert, Managing Director of Casimir Capital LLP Wayne Atwell, who disagrees with that number in the near term. A longer-term bull, who sees gold reaching $1,500-$2,000 in one to three years, he demurs for now because he thinks the next driver will be U.S. inflation which hasn't heated up yet. Also, he noted that new records call forth a lot of selling that makes further rises an upwards slog. Gold is easy to tap when other losses intrude upon the portfolio. So, he sees gold ranging between $1,100 and $1,300 this year.


Of course, a bullish near-consensus should be treated skeptically. Most likely, the respondants who think $1,500 gold is coming have already loaded up on it. In order for the forecast to come true, many others have to pile into the market.

Inain Gold Buying Remains Weak, Despite Discounts

As explained in a report in the Economic Times, high prices combined with seasonal weakness has weakened demand to the point where some sellers are offering discounts on bars:

"At the retail level, they are offering discounts of Rs 200-300 rupees (per 10 grams) [about 1 to 1 1/2%] ... but no one is interested," said a dealer with a state-run bank in Mumbai....

"We are selling, but in very minimal quantity, like we did only 50 grams since morning at 1,233/1,234 (an ounce)," said another dealer with a private bank.

Rupee strength has held the price down for Indian buyers, and continued strength may entice some buyers back in, but the slow season has definitely arrived.

Small Town Gold Fund

Introducing it as a business he wishes he had invented, the Globe and Mail's Andrew Wills notes that Central Gold Trust has some of the lowest fees around:

The trust charges investors 0.3 per cent per annum for the first $100-million of bars that it holds. The fee falls to 0.225 per cent for the next $100-million, and over $200-million, the fee drops to 0.15 per cent.

It's located in Ancaster, Ontario. The Trust is not an ETF; it's closed-end. As of now, it's selling at a slight premium.

Gold Sneaks Up In Overnight Trading

Gold was little changed in the overnight session overall, but the metal did manage a slight gain. News that a record number of mainland Chinese households think inflation and real estate prices are too high didn't affect the metal much one way or another; not did a drop in the banker's confidence index. After climbing to above $1,233 in evening trading, the metal drifted around that level until early morning when Hong Kong trading was nearly closed: from $1,234, it dropped to below $1,232. That decline reversed around 5:00 AM ET, pulling the metal's price up a little above $1,235. As of 8:02 AM, the spot price was $1,235.20 for a gain of $4.70 on the day. The Kitco Gold Index attributed -$1.80 to predominant selling and +$6.50 to weakening in the greenback.

The U.S. Dollar Index, after a drift-like rise that pushed it up to 86.5 at the end, started tumbling down at 3:20 AM. When the drop ended at 6 AM, the Index was below 85.7. Exhausted afterwards, it drifted slightly upwards since then. As of 8:09 AM, it was at 85.76.

A Wall Street Journal report says gold is in a range between $1,220 and $1,240, which it's currently struggling to break.

Analysts said gold's likely to remain range bound between $1,220-$1,240 a troy ounce, underpinned by strong safe-haven demand, given the concerns about euro-zone finances and the potential impact on economic growth, but capped by sales of scrap gold and a lack of new bullish factors

The article also quotes Standard Bank precious metals analyst Walter de Wet as saying physical buying kicks in when gold hits the bottom of the range, which is capped by sales of scrap gold.

A Reuters report says gold rose as the Euro stalled.

"Even though some of the apprehension about Europe's fiscal issues and so on has faded, I believe there's still a core of investors that are concerned about that," said David Moore, commodity strategist at Commonwealth Bank of Australia in Sydney.

"But I think the gold price has risen so much. At these very high levels, you're getting a lot of caution," said Moore.

The report also notes that holdings in the SPDR Gold Shares Trust are still steady, suggesting that would-be investors are waiting for another driver before putting money into the ETF. (Given the timing of recent additions, the reason could be that gold prices are still too high.)

A Bloomberg report, as webbed by Business Week, ascribed the rise above $1,235 to renewed concerns about Europe - specifically, Spain.

Spain’s central bank said yesterday it planned to publish the results of stress tests to counter speculation it needs international aid. European Union leaders meet today in Brussels to discuss the region’s economies and the so-called stability and growth pact....

“The metal continues to be seen as a safe haven by investors,” said James Moore, an analyst at TheBullionDesk.com in London. Prices should “remain supported by investment dip buying and could trade to a fresh record high should broader risk appetite decline again.”...

“Gold’s trading more as the preferred currency,” David Baker, a managing partner of Baker Steel Capital Managers, said today in a Bloomberg Television interview. People are “seeing what’s happening in Europe with the issues in Greece and now Spain and potentially Portugal and they’re looking for an alternative. Gold’s the safest port of call,” he said.

That same analyst called for a a possible peak for this year between $1,450 and $1,470.

The two main releases gauging the U.S. economy were enough to warm a deflationist's heart. First-time jobless claims were up 12,000 to 472,000 seasonally adjusted, although total claims fell. Also, the May CPI fell 0.2% after falling 0.1% in April; the core rate rose by 0.1%. Those declines put the twelve-month rate down to 2%; the corresponding core rate is 0.9%. Perhaps surprisingly, gold rallied before and after the start of regular trading. The bulk of the rally occurred before the data were released, pushing gold slightly above $1,240, but an additional four dollars was put on afterwards - enough to push the metal well above $1,240. As of 8:50 AM, after the rally exhausted itself, the spot price was $1,243.60 for a gain of $13.10 on the day. The Kitco Gold Index split the gain into +$7.00 due to predominant buying and +$6.10 due to U.S. dollar weakness. As for the U.S. Dollar Index, it reacted little to the news. In the midst of ragged trading, a slight upward bias turned into a slight downwards bias. As of 8:54, it was at 85.77.

Although the correlation isn't tight, gold is still moving in opposition to the greenback. The break above $1,240 may not hold; if it does, then today will end up heartening.

After Strong Start, Gold Lurches Downwards And Then Stabilizes

The start of regular trading saw gold blip up to above $1,237, but a letdown after 8:45 saw the price slide down to $1,232 within a half an hour. The release of the U.S. PPI and housing-start data was implicated for the fall, even though it started fifteen minutes after the data were released. Having a more immediate impact was the industrial-production number, released at 9:15 AM ET. May's increase was 1.2%, a stronger showing than April's 0.7%. After climbing up to $1,235 in a two-stage recovery right after that number was released, the metal started falling again at 10:00. After twenty-five minutes, gold briefly hit $1,229.00 before pulling back up again to above $1,134. A much slighter slump followed. As of 12:00 PM ET, the spot price was $1,231.90 for a loss of $2.50 on the day. The Kitco Gold Index attributed -$2.85 to predominant selling and +$0.35 to weakness in the greenback.

The U.S. Dollar Index did weaken throughout the morning, sinking from above 86.3 down to 86 by a little after 10:00. Subsequently, it drifted mostly sideways although with a slight downwards bias. The industrial-production data seemed to have little effect on the Index. As of 12:01, it was at 85.96.

So far, today hasn't been that good for gold. The pullback, though, is consistent with it being in a range. The metal may continue to be soft this afternoon, but any softness will be in the context of that range.


Update: The price continued deteriorating as morning turned into afternoon. Reaching below $1,231 around 12:15 PM ET, gold partially recovered but dropped further starting at 12:30. Stopping at $1,228, it fluctuated just above that level until a relief spike turned into a renewed decline that hit a new daily low of $1,226.50. The rebound just before the pit session ended put it only to $1,229. As of the end, or 1:30 PM, the spot price was $1,229.40 for loss of $5.00 on the day. The Kitco Gold Index split the loss into -$4.30 for predominant selling and -$0.70 for a strengthening greenback.

After sinking to 85.92 at noon, the U.S. Dollar Index recovered somewhat although choppily. Creeping up to just above 86.1, the Index fluctuated around that level. As of 1:36, it was 86.06.

What I thought would be an okay day for gold has turned into something less. Still, the declines so far have been mild. That softening may continue in the rest of the afternoon.


Update 2: The softening let up enough in the electronic-trading hitch to limit the metal's losses on the day. A hop of a few dollars an ounce between 2:05 and 2:20 PM ET kept the price above $1,230 until near the end, when it sunk to $1,229. A last-minute reversal got the price up above $1,230 at the end. So, the closing price was $1,230.50 for a drop of $3.90 on the day. The Kitco Gold Index divided the loss into -$2.10 for predominant selling and -$1.80 for strengthening of the greenback.

The U.S. Dollar Index, after dipping back below 86, recovered and spent some time churning around 86.15. A hop up at 5:15 PM got it near 86.2, the level at which it was at as of 5:30.

Its daily chart, from Stockcharts.com, shows a slight recovery from yesterday's drop:



Although the change between open and close was miniscule, the range of today's trading was close to that of yesterday. It's too early to say outright that the short-term decline has ended, but the 86 support level did hold despite the bending it took. The Index's RSI level, found at the top of the chart, is still slightly below neutral; that's the point where a turnaround tends to occur when it's in a bull phase. Right now, it still is. So, there's some grounds for believing that the large short-term drop ended yesterday.

As for gold, its own daily chart shows a topping at just below $1,240:



Today's mild pullback has left its current range intact on the upside. The interday high was only slightly higher than yesterday's; both are slightly below the $1,240 level that gold couldn't get past this month except on an interday basis. The lower part of the range, just below $1,220, has only been tested once. It may be tested again soon.

Both gold's RSI and MACD lines have stabilized. The former is only a little above neutral. The latter pair of lines, found at the bottom of the chart, are still in a bearish configuration but only barely so. Both indicate range-like behaviour. Gold hasn't been able to keep its rallies, but there's no immediate indication that it's ripe for a serious fall. Appearances suggest it will continue in its range; the only visible risk is the negative correlation between the greenback and the metal reasserting itself to the former's benefit.

A post-pit Wall Street Journal report says that some money went off the gold table because some risk appetite is returning, but Euro-related fears are limiting declines. The gold market's been quiet lately.

"In all honesty, what I think is really going on here is the World Cup," said Kevin Grady, gold trader on Comex floor with MF Global. Many traders were more focused on the international soccer event in South Africa, particularly those in Europe, he said. "A lot of these people are out of the market," he said.

Despite the modest retreat, Grady said he still views gold's trend as higher. "On dips, there are people under the market waiting to buy it," he said.

This is in large part due to ongoing concerns about whether some European nations can pay back their debt, he said.

"The only way to do that is print money. And by printing money, you're going to devalue currencies," Grady said. "That is the underlying point as to why people are buying gold."

Traders are also mindful of the large U.S. deficit, he added.

Also mentioned was one of the sources behind the early-morning spike: the Spanish Prime Minister had announced a meeting with the head of the IMF, to take place Friday or nearabouts; that announcement got the rumour mill going about the Spanish government's finances.

It has been quiet lately, which has cushioned any drops that gold has taken but advances less so. That said, near-term movement is still neutral. Unless a surprise intrudes, or the U.S. Dollar Index recovers while keeping its newly-reasserted negative correlation with gold, the $1,220-$1,240 range should hold.

Matthew Green Weighs In On Biflation

Yesterday, Dian L. Chu argued that the U.S. was going in to "biflation," which some commentators assumed was stagflation in disguise. Today, Matthew Green argues that both are possible. After pointing out the difference between the two, Green points out that the tilt seems to be towards inflation. The chief impetus to biflation is the residential real estate sector, where bulging inventories are expected to hold prices down for some years to come. Also contributing to biflation is consumers being strapped, largely a result of stagnant wages.

So what’s the verdict? I think it is reasonable to say that our economy is showing both ingredients of biflation, regardless of a universally-accepted definition, and preliminary signs of stagflation as well. The prices of oil and food staples are rising, so despite marginally positive CPI readings, inflation is higher within the sector of essential items. Simultaneously, the relative lack of credit is still a thorn in the economy’s side, and with the first-time homebuyer tax credit coming to an end there is potentially another down leg coming up in real estate. If figures begin to tilt to the deflationary side, central banks may increase their intervention once again, propping up sectors of the economy that are experiencing deflation but having the inverse effect on the inflationary sectors. Along with rising worldwide demand for food and commodities, it could become a vicious cycle of biflation, and indeed stagflation, until real estate begins to rise on a sustained basis, and rates are raised to the point that prices can be contained without impeding economic growth. Needless to say, the issue of raising rates with the situation at hand is, and will be, a heated debate topic if inflation does take over. Until then, the tug-of-war will continue in more than one way.

Ian McAvity Sketches Out The Dark Side Of $3000 Gold

McAvity expects $3,000 gold in the next two years, but he doesn't see it as cause for any real celebration. He basically says that such an eventuality is a forecast for stagflation, which will not be good for stocks.

"I have very little confidence of what I would call the outcome of quantitative easing as is being pursued by both the US and Europe. So we've got in a sense, the second half of the bear market that started three years ago - we're only just starting the second half of that now and you might say that the first half of it was arrested by the central bankers bailing things out. The problem that we've got now is the central bankers are wielding a bailing can that has holes in it. It's the bailers that have now run out of credibility."

He also said that the current bull market is far more orderly than the one in the 1970s, even though there are parallels between now and 1978. To him, the key to gold's rise is a negative real risk-free interest rate. In addition, he points out that a demise of the Euro would cause a lot more chaos than the forecasters of such a crack-up seem to expect.

Lull In Indian Demand Forecasted To Not Affect Gold Prices

According to a brief note at Bullion Vault, the summer lull is not expected to affect gold prices all that much.

"Because of uncertainties in the Eurozone, investors are shifting their portfolios to safe havens like gold," says SMC Global vice-president Rajesh Jain, quoted by Commodity Online in Mumbai.

"Global uncertainties will continue to bear on [global] gold demand, and thereby the near-term Gold Price," agrees Manoj Soni, director of AB Jewels in Ahmedabad.

Nearly 60% of India's private gold demand – which totaled some 700 tonnes in the peak year of 2007 – comes from smaller towns and villages, reports the Financial Times today, "highlighting how strong rural demand has emerged as an important driver of the economy and corporate sales."

Back-Of-Envelope Calculation Yields Five-Digit Gold Price

Dr. Alex Cowie of Diggers & Drillers has come up with a number that he calls the "centre of gravity" for the gold price. Dividing the U.S. public debt by the amount of gold held by all central banks, he comes up with a figure of US$27,163 per ounce.


If figures like these keep popping up, the ones that peg gold's restored-standard value at $5,000-$5,500 will look conservative. Cowie didn't explain why he used the public debt figure; the ones in the 5000 range tend to use M1 or the monetary base as the numerator.

Further Reaction To Ben Bernanke's Puzzlement

Bernanke admitting that he was puzzled by gold's rise has had legs. It's also let loose some complaints about his performance as Fed chair so far. One of many examples is an opinion piece in Commodity Online. Its author takes some time to rake over Bernanke's overall record:

First off, I have to applaud Chairman Bernanke for admitting he doesn’t understand something in public. The only problem is that he reserved this admission to Gold’s performance, instead of applying it to the entire US economy, financial system, derivatives, inflation, human behavior, investor psychology, and a slew of other topics.

Indeed, so far the guy’s record has been 100% accurate… if you basically interpreted what he said as the exact opposite of reality. In the past three years he’s told us that the sub-prime mortgage Crisis was contained, that there would be no spillover into the US economy, that the financial markets were sound, and that the US economy was stronger than ever… right up until the entire financial world imploded.

Regardless, at least he’s finally admitting he doesn’t understand some things. Hopefully, this is the beginning of a new pattern in his speeches: admitting his mistakes....

After reviewing what the Fed has done over the last three years, the author points out that other commodities are falling because they advanced on hopes of a recovery that isn't panning out as expected.


In other words, the commodity market as a whole is forecasting stagflation ahead.

Inain Gold Buying Held Off By Rising Gold Price

According to a report by the Economic Times, Indian gold buying has gone dormant again because of rising gold prices.

Gold extended gains on Wednesday afternoon, deterring physical buyers from making fresh purchases, even though the rupee acted in support, dealers said. "There are no buyers... it was the same yesterday," said a dealer with a state-run bullion dealing bank....

"We saw good buying below $1,220 (an ounce) levels... probably that's when they will think of buying," said another dealer with a private bank.

The price that the second dealer quoted has crept up recently: it used to be $1,200. It looks like price acclimatization is taking place again.

Gold To Gold Stock Correlation Not That Large

According to a report by Hard Assets Investor, which looks at four major gold stocks' correlation to gold, Barrick and GoldCorp have a fairly good link (R-squareds of 0.598 and 0.791 respectively) but Newmont and AngloGold Ashanti have hardly any correlation at all (R-squareds of 0.043 and 0.026 respectively.) Conclusion? Gold stocks sometimes move to the beat of their own drum, and some gold stocks do so almost completely. The last two have substantial interest in other metals, which does a lot to explain the near-zero correlation.


Mining companies are businesses, which also explains the partial disconnect overall. Revenues are affected by the price of gold, but costs are less affected. Meandering costs do help explain why the correlations for even pure gold stocks aren't that high. Also, stock-market-specific events, like the '08 financial crisis, further reduce the correlation.

If Gold Hits $3,000...

...the Dow will hit 5,000, according to David Rosenberg:

In his Tuesday morning report, Mr. Rosenberg plugged the value of gold versus the level of the Dow Jones over a period stretching from 1900 to the present day, and found two historical low points: just after 1930, and 1980.

The current decline in markets coupled with the run-up in gold is approaching the same nadir, but is not quite there yet.

“If this ratio ends up retesting the two fundamental lows that it has achieved in the past … what we would be talking about here is a Dow 5,000 trough at some point down the road,” he said.

That's quite a forecast. For trivia's sake: when the gold bull market ended in January of '80, the Dow and the gold price briefly crossed.

Gold Drifts Down In Overnight Session

May inflation numbers for the Eurozone came in, and the number was up slightly: 1.6% year-over-year, from 1.5% last month. The Euro dropping had an influence on the number; the core rate was only 0.9%. Wages, the bugaboo of the cost-push people, were up 2.0% in the same timeframe. The number didn't have much of an effect on gold, but induced a blip upwards when released. In other related Euronews, the government of France has lifted the retirement age to 62 and plans to tax investment income more.

The metal drifted downwards last night, but stayed well above $1,230. Getting a little below $1,232 by 9:00 PM ET, it reversed course afterwards and crawled back up to $1,234. Hovering between there and $1,235 until 4:00, it blipped up with the reception of the Euroinflation news. The resultant jolt pushed gold to $1,238.30 before it pulled back to $1,235. Starting at 6 AM, it sunk but remained above $1,230 still. As of 8:05 AM ET, the spot price has rebounded somewhat to reach $1,234.70 for a gain of $0.30 on the day. The Kitco Gold Index attributed +$4.50 to predominant buying and -$4.20 to strengthening of the greenback.

The U.S. Dollar Index managed to climb well above 86 in a morning recovery after a slow rise failed to hold last night. Reaching slightly above 86.1 around 10:00, the Index fell back to a little below 86 by 3:00 AM. Then taking off, it climed to 86.33 within an hour. Pulling back to just above 86.1, it lumbered up once again to above 86.3. As of 8:12 AM, it was at 86.32.

A Wall Street Journal report says that gold is holding steady because players are becoming used to Eurozone deteriorations.

Support is coming from a weak U.S. dollar and continued concerns over Europe's sovereign debt load, but a "more sober" approach towards the broader economic situation has put the metals' ascent on pause, traders said....

"Even though markets in general seem to have adapted to the flow of bad news coming out of Europe and tend to have a more sober approach to it, the situation continues to deteriorate, thereby limiting the downside risk in the gold market," SEB commodity strategist Filip Petersson said.

Mr. Petersson said the sluggish U.S. dollar had regained some importance in boosting gold prices after a period when investors seeking an alternative to a declining euro had been in focus. "A weakening dollar appeared to support the gold market yesterday. However, both factors are likely to be important influences going forward," he added.

An earlier Reuters report, covering the Asian shift, ascribed last night's turnaround to bargain hunting. Physical buying in Thailand increased, which one dealer expressed surprise at, but Indian gold buying only kicked in during price drops.

"I think the upside for gold is still very strong in terms of safe haven flows," said Wong Eng Soon, investment analyst at Phillip Futures in Singapore.

"There seems to be a preference for large funds to be long on volatility, take on more downside protection and be less correlated with wider markets. This suggests risk aversion is still prevalent."

Also mentioned is the holdings of the SPDR Gold Shares Trust; it remained unchanged.

Thanks in part to the rising greenback, but also to steep falls in fresh vegetable prices, U.S. producer prices fell 0.3% in May. The core rate, which excludes food and energy, rose 0.2%. Both numbers were higher than consensus expectations. Thanks to that drop, overall producer prices are up 5.3% year-over-year and core producer prices are up 1.3%. No longer supported by the tax credit, housing starts plunged 10%; building permits plummeted too. The release of these items didn't move gold that much, but that's because the metal advanced just prior to the releases. Vaulting up to $1,238.70 just before and right after the opening of the pit session, the metal pulled back to near $1,236. As of 8:51, the spot price was $1,236.10 for a gain of $1.70 on the day. The Kitco Gold Index assigned +$5.30's worth of change to predominant buying and -$4.10's worth to greenback strength. The U.S. Dollar Index continued to move upwards until right after 8:30, but sunk back afterwards and started declining a little later. As of 8:55, it was at 86.26.

Gold hasn't moved all that much, suggesting that the recent rally is becoming tired. So far, there has only been hints of declines, which augurs for an okay day today. Any sustained trends are likely to come from surprises during the day.

Gold Climbs Up In Morning Trading, Advances Futher In Afternoon

The beginning of regular trading saw gold at $1,224, but the start of the pit session saw the metal gain a few dollars. Backing off, it centered around $1,225.50 until a decline starting at 9:15 AM ET brought it down to $1,221. A five-point drop in the U.S. home builders index for June, due to the tax credit expiring, got the metal on a roll again. The subsequent rally, starting right at the release time of 10:00, took the metal above $1,227 again. A pullback preceded a new drive upwards that took it up to $1,229.50 before another pullback kicked in, which in turn preceded a new upthrust. As of 11:46, the spot price was $1,228.80 for a gain of $7.40 on the day. The Kitco Gold Index attributed -$2.20 to predominant selling and +$9.60 to a weakening greenback.

The U.S. Dollar Index gave up yesterday afternoon's gains in a morning drop that took the Index down to slightly below 86. From almost 86.5, the Index first declined for an hour starting at 8:20. Enjoying a relief rally, which took it from 86.15 to almost 86.35, it declined anew before bottoming at 85.96. The 86 level held, even though the Index may be in a second relief rally. As of 11:48 AM, it was at exactly 86.00.

Despite the greenback's continued travails, gold is doing fairly well. Bad news on the economic front managed to add to the metal's gains, as it portends continued ease in monetary policy. Gold may be thrown for a loop this afternoon, but so far it's on track for a daily gain.


Update: It was even more on track when the pit session ended. The rally that began just after 11:30 AM ET continued until noon, but not before pushing gold up above $1,234. A backtrack to $1,232 preceded another run upwards that put the metal at a new day's high of $1,236.40. After another pullback to the $1,232-$1,234 area, gold slipped a little but was in that range at the end of the pit session. As of 1:30, the spot price was $1,232.20 for a gain of $10.80 on the day. The Kitco Gold Index split the gain into +$0.40 for predominant buying and +$10.40 for greenback weakness.

The U.S. Dollar Index's decline all-but halted. Instead of staying at 86, the Index tracked along just below that level. As of 1:35, it was at 85.96.

The only gold-related item of significance around the time of the rally was the Fed's auctioning of $1 billion in 14-day term deposits. A device to sop up some excess reserves, it was a success with a bid-to-cover ratio of 6.14 at an interest rate of 0.27% annualized. This pre-tightening measure, long anticipated by the markets, did not have an adverse effect on gold; so, the metal's in fairly good shape. It has a shot at staying above $1,230 by the close.


Update 2: Even at its lowest in the electronic-trading hitch, it never came close to $1,230. After descending a little to $1,232, gold entered into a range with that value the floor and $1,235 the ceiling. The range held until just before the equity markets closed; starting at 3:40 PM ET, it went on another upwards run that put the metal up to $1,237.90 before it slumped back to the $1,235 level. A slight drop just before regular trading ended put the metal back in the earlier range. As of the close, the spot price was $1,234.40 for a gain of $13.00 on the day. The Kitco Gold Index divided the day's gain into +$3.60 for predominant buying and +$9.40 for greenback weakness.

The U.S. Dollar Index spent the rest of the afternoon in a range bordered by 85.9 on the downside and 86.05 on the upside. Directionless overall, it closed near the high end of the range after unsuccessfully testing 86.05 on the upside. As of 5:30 PM, it was at 86.02.

Its daily chart, from Stockcharts.com, shows the short-term decline still running strong:



Earlier, when the Index kept running up even though overbought, I said that it was in the hands of the chaos god. No more. With the exception of a relief rally in the middle, the last six sessions have been down - and the total descent has had unexpectedly large reach. From 88.5, the Index has gone to around 86. This stretch has been the most serious, and extended, decline in the last six months.

Evidently, the Eurocrisis kicker is gone. Even Moody's downgrading Grecian sovereign debt four notches didn't provide any pick-up for the Index. The last short-term bottom of significance, in late May, was around 85.5. Now, the Index is close to that same bottom. All it would take would be another serious decline day to put it at that level.

For the first time since mid-April, its RSI level (found at the top of the chart) is below the 50 neutral level. It hasn't been this low since mid April's, mid-March's and mid-January's short-term lows. Given that previous upturns occurred at sub-50, although not immediately, the current downtrend should be close to ending. This drop, though, may be different in character from the other three. The closest analog would be mid-April's, in which the Index bottomed at slightly above the previous short-term bottom and spent close to a week churning in a range. It then began taking off again, albeit slowly at first.

Its MACD lines, found at the bottom of its chart, are not only in a bearish configuration but are solidly so. There's not a lot to be said for the Index right now, except for its low RSI value. Given that relative oversoldness, although not real oversoldness, it might have a relief rally tomorrow. If not, then it's in potential reversal mode.

Gold's performance today, as shown by its own daily chart, was quite different from the Index's:



Given the recent Eurocrisis-fueled positive correlation between the greenback and gold, seeing gold strongly up with the Index falling is a bit of an aberration. It's too early to say now, but that aberration could be the start of a return to the more normal inverse correlation between the two. Or, it could be the result of gold taking its post-Eurocrisis licks earlier and the Index later.

As far as gold's action is concerned, its current slump is quite different from the one in late May. Instead of plummeting, and then pulling back up, it's pulled back and stabilized. Currently, the metal's in a short-term range between $1,218 and $1,238. For a month that's supposed to be a post-May hangover month, the metal is doing fairly well. It seems, as of now, that it would have been sensible to buy in May - provided that the buying was done in the late-May low. So far, the metal's on the way to fooling those watchers who expected the normal seasonality to kick in (like I have.)

Gold recovering in that way with its RSI line still above neutral doesn't speak to much upward potential, but it does say something about the metal's intermediate-term uptrend. That run is still intact. Interestingly, gold's MACD lines are still in a bearish configuration despite that ranging.

A post-pit Reuters report ascribed today's jump to the post-downgrade fear trade. Amongst other points made therein, these were included:

* Late in Monday's session, Moody's Investors Service downgraded Greece government bond ratings into junk territory, citing risks in the euro zone/IMF rescue package for the debt-laden country.

* Some players viewed the ratings downgrade as a reminder for investors that sovereign debt problems in Europe are far from over.

* Firmer euro also helped prop up gold sales - traders.

* The euro rose as solid demand at European debt auctions soothed worries about the debt crisis, prompting investors to cover short positions in the single currency on increased risk appetite.

The downgrade being the cause will limit gold's appreciation in the near future, unless another driver come in, but it shows that the fear trade is still ticking over. Gold may not rise in tomorrow's session, but that's part of being in a range. $1,220 is still solid, which says something for the pre-summer gold market.

Motley Fool Users Weigh In On Gold Bubble Question

In an installment of "Ask The Fool," the question dealt with is, has gold entered a bubble? The answers given by the various experts tend to square with their own views on gold: the only people who answered "yes" are those who think gold isn't worth much anyways - with one exception:

Morgan Housel, Fool contributor
Buying gold should make sense as the global economy rots. I just question whether the timing is right, given the massive run-up.

Frankly, the confidence of the gold bulls scares me. They don't think they're onto something; they know they're right, and naysayers are wrong, and stupid you for thinking otherwise. I'm not a mining expert, nor do I follow the gold industry or even particularly care about it. I just know that this behavior more often leads to disappointment than riches.

Here's why I'm wary:

1. Retrospective back-patting: Gold has essentially gone vertical for 10 years, which bulls somehow find bullish. Really? All it means is you should have bought 10 years ago.
2. There's also a sense that gold must go higher because it hasn't hit the record highs reached in the early '80s. Count me out. I don't think a level that in hindsight was clearly overvalued and set up a devastating collapse should be strived for.
3. Celebrity endorsement: Forget Glenn Beck. There's a great commercial where G. Gordon Liddy (of Watergate fame, now apparently a respected gold analyst) says, "Gold is the time-tested currency that goes up, not down!" No further comment needed.

Gold bulls are quick to point out that this is tabloid economics and doesn't matter. Like hell it doesn't. Name an asset that had celebrity endorsement and didn't collapse.

The scarcity fallacy: Gold can't be a bubble, some say, because it's finite. But so is land, and look what happened. No asset is immune to overvaluation, and all assets can become disconnected from reality.

I don't know whether gold is a bubble. I just know that it's giving off the aroma of something that smells like one. Buying a little bit as a disaster hedge might make some sense. Buying a lot in an attempt to make money seems dangerous.

Interestingly, even the confirmed gold skeptics warned against shorting gold.

Gold Stocks Now Moving With Gold

As explained by Toby Connor at Daily Markets, gold stocks (as represented by the HUI) are beginning to move with gold instead of the stock market.

During the first two weeks of the [recent] correction while the market was in crash mode miners actually rallied over 14%. Miners, like gold had completely decoupled from the stock market. It wasn’t until gold put in its smaller daily cycle correction that the miners pulled back at all and even then it was only a mild 16% pullback.

Pretty impressive action considering the stock market was still experiencing severe selling pressure at the time.

It’s apparent that miners have now moved into strong hands. Hands that aren’t going to sell at every little wiggle in the market. Hands that are going to scoop up the shares that flighty retail investors are dumb enough to let go of.

This picture gibes with gold miner earnings coming in above expectations, as higher gold prices are not euchred out by a correspondingly higher cost structure that squeezes margins.

Dennis Gartman Says Gold Not In Bubble, Yet

As reported by the Business Insider, Dennis Gartman has disputed the claim that gold is in a bubble as of now:

We find it interesting that amidst the talk of a “Bubble” in gold, Market Vane’s bullish consensus figures are… and have been… hovering at 70%. Bubbles occur when the bullish consensus gets to 90% and above, and even then it must be there and stay there for several weeks before corrections of consequence develop.

Bubbles don’t occur at 70%. 70% bullish enthusiasm for gold is really quite normal. Certainly it is not “Bubble-y.”

He may be referring to the climax of a bubble, but I agree with him on his call. There isn't the kind of auto-catalytic rise that's characteristic of a bubble yet.

Indian Gold Buying Remains Tepid

According to a report by the Economic Times, Indian gold buying has remained near-dormant.

"Nothing much... there were a few stray deals yesterday at about $1,216 (an ounce), but nothing to write home about," said a dealer with a state-run bullion dealing bank in Mumbai....

"There might be buyers below $1,200," said another dealer with a private bank.

Again, price consciousness plus the onset of monsoon season have kept demand low. During that season, rural consumers have other uses for their money.

Afghan Minerals Long Time Coming

Yesterday afternoon, Marketwatch commentator Nick Godt noted that the metals market shrugged off the report about the possible extent of mineral wealth in Afghanistan. Instead of dropping, which would be the result of an anticipated flood of new supply coming in to the market, the metals rose a little.

An article by one of the geologists involved with the report, Antony Benham, explains why. After illustrating why Afghanistan is geologically interesting, he says that any large-scale mining operation is going to be a long time coming:

Of course, the security situation has made it very difficult for any mining company to get involved, and so there's not really any mining industry at present – and little infrastructure, either. The only exception to that is at the Aynak copper deposit south of Kabul, an undeveloped deposit almost untouched since the Russians left. A Chinese company won the contract to develop it in 2008, and that was the biggest prospect that's been pushed by the Afghan government so far. But there's still investigation to be done on the feasibility of extracting the copper ore, and exactly how much of it there is in the ground.

The wider picture is that the mineral potential of the country is still comparatively unknown. A mining law was recently published, which is progress, but with no history of large-scale operations it may take the Afghan government and any mining companies some time to establish how to work together.

In theory, if the security situation did stabilise, there would be a lot of opportunities for mining companies to get involved in looking for these new resources. But this isn't going to be an overnight, quick-win situation. It's going to take a long time for Afghanistan's mineral deposits to be developed to their full potential.

Something to remember for more quotidian mining ventures, even in safer climes: getting a mine up and running is a lot harder, and takes a lot longer, than it looks.

After Drifting, Gold Advances Slightly

After jumping up a little, gold drifted downwards to the $1,220 level last night. Reaching it around midnight, the metal began climbing up until it established a range between $1,222 and $1,224. U.K. inflation for May came in at 0.2% above April, but the year-over year rate remained at an above-target 3.4%; that number was slightly below expectations, and was lower than April's year-over-year. The Bank of England's target rate is 2%. Another central bank, the Bank of Japan, announced it's injecting up to 3 trillion yen by loans to financial institutions, although the impression is that it's pushing on a string. Through all the news, gold hardly budged overall. As of 8:07 AM ET, the spot price was $1,223.40 for a gain of $2.00 on the day. The Kitco Gold Index attributed -$1.75 to predominant selling and +$3.65 to weakening in the greenback.

The U.S. Dollar Index spent last night and some of early this morning drifting upwards, reaching 86.85 just after 3:00 AM. Turning down after an aborted spike upwards, its dive took it down below 86.5 by 6:00. Spending some time in a range centered around 86.45, the Index failed to make it above 86.5 again. As of 8:17, it was at 86.44.

A Reuters report ascribes gold's stabilization to the aftereffects of the Moody's downgrade of Grecian sovereign debt.

While analysts said Moody's downgrade of Greece's government bond ratings into junk territory was expected, it reminded investors that Europe's debt crisis was not over.

"There is every reason to think gold is going to continue to be supported by this general nervousness over Europe and, much further out, the issue of dislocation created by fiscal stimulus plans," said Societe Generale analyst David Wilson.

The article also notes that Asian physical demand firmed, and Indian scrap sales moderated.

A brief Wall Street Journal report highlights the same cause.

Traders said any selloff would likely be shallow as previous corrections this week have stopped around $1,216/oz, where strong buying has emerged.

"It feels like there are people who are waiting for lower prices to get long again," said Afshin Nabavi, head of trading and physical sales at MKS Finance in Geneva.

Gold managed to ford above $1,225 briefly, spiking up to $1,228.20 before pulling back below $1,225 when the run-up ended. The metal recovered later after turning at $1,224.50. As of 8:53 AM, the spot price was exactly $1,226.30 for a gain of $4.90 on the day. The Kitco Gold Index assigned +$4.90's worth of change to greenback weakness and none to predominant buying/selling. The U.S. Dollar Index fell below 86.4, and almost to 86.3, before settling in around 86.35. As of 8:57, it was at 86.34.

The gold market has been quiet so far, but the metal's still pulling up. Its rallying may continue through the rest of the day if the returning optimism stays.

Attempted Midmorning Recovery Fizzles, Gold Continues Slump

Gold began regular trading with a dive, which took it down to below $1,222. Pausing and churning between that level and $1,224, the metal spiked up above $1,228 in the fifteen minutes after the stock markets opened. Perhaps because the averages continued to climb, perhaps because the spike was caused by short covering that didn't last, or perhaps because it tracked the U.S. dollar, gold reversed and sunk down to $1,220. After pausing at that level, the metal sunk further to bottom at $1,215.30. That downwards spike didn't last, and the metal rose back up to settle in a range bordered by $1,218 and $1,221. As of 11:54 AM, the spot price was $1,219.00 for a loss of $8.50 on the day. The Kitco Gold Index attributed -$22.60 to predominant selling and +$14.10 to weakness in the greenback.

The U.S. Dollar Index recovered a little early in the session, to almost 87.6, but continued sinking after 9:45. In an uneven decline, the Index was driven down below 87.2 before reversing somewhat in late morning. As of 11:56, it was 86.32.

Again, a renewal of optimism has taken its toll on gold. Although still well above $1,200, the metal has lost its Friday gains. The afternoon part of regular trading will show how much more of a toll is taken.


Update: A Moody's downgrade of Grecian sovereign debt from A3 to Ba1 gave a boost to gold, although it had already bottomed before the announcement was disseminated. The morning decline stalled around the $1,218 level, and stayed there until the rally kicked off at 12:45 PM ET. Peaking at $1,225, the metal fell back to $1,222 before sneaking up again. As of 1:30 PM ET, the end of the pit session, spot gold was at $1,223.50 for a drop of $4.00 on the day. The Kitco Gold Index assigned -$14.80's worth of change to predominant selling and +$10.80's worth to overall weakness in the greenback.

The U.S. Dollar Index also bottomed in late morning; its recovery rally was stronger than gold's. Making 86.35 by just before noon, the Index settled back into a 86.25-86.3 range. It was in the middle of that range when the Moody's news hit. The ensuing rally took the Index up to 86.6 before it settled down and slid sideways at a little above 86.5. As of 1:30, it was at 86.53.

Moody's downgrade didn't have a spectacular effect on both safety assets, suggesting that it wasn't that much of a surprise, but it did aid in reversing their declines. Gold is now well above $1,220, and is on track to ending the day with only a small loss.


Update 2: The electronic-trading hitch was more wobbly than usual, and the end loss could be pegged as more than small, but gold ended up closing in the low 1220s. After peaking again at $1,225 right after the pit session ended, the metal fell for the next hour to bottom out at a little more than $1,218. Pulling back up, it reached $1,224 by the time the equity markets closed. Moving downwards again, it bottomed this time above $1,220. A slight rise at the end put it at its closing price of $1,221.40 for a loss of $6.10 since Friday's close. The Kitco Gold Index attributed -$15.00 to predominant selling and +$8.90 to greenback weakness. Those two components sum up to the raw change on the day.

That weakness was for the day as a whole, but the U.S. Dollar Index showed some more strength in the rest of the afternoon. Peaking at around 86.7, the Index spent mid-afternoon descending to below 86.5; it reached 86.435 around 3:20 PM ET. Then reversing, it climbed at first quickly but later slowly as it reached just below 86.7 again. As of 5:30, it was at 86.68.

Its daily chart, from Stockcharts.com, shows a large decline that broke right through the 87 support level:



Although the decline was partially halted this afternoon, it was still large enough to add to the Index's current short-term downtrend. The Euro, after being pummeled until recently, is recovering; that recovery is taking its toll on the Index. Its RSI, now at a level not seen since mid-April, is just above neutral territory. The RSI line at the top of the charts has shown a similar deterioration as the Index itself in the last week. For the third day, its MACD lines are in a bearish configuration; today's is fairly substantial. Last week's switch to bullish was indeed an aberration.

The extent of this short-term decline depends upon how much of a respite the Euro is going to enjoy. Short-covering, perhaps a short squeeze, in that currency has been the main force dragging the Index down. As the Moody's downgrade shows, the Europroblems are not over. That item, however, didn't have the same oomph that it might have had when the Eurocrisis was still brewing and the Index was lower. It came close to 86.0 today, after reversing, but the level to watch is 85.5. It getting down there would signal a possible end to the bull run it's enjoyed since mid-April.

As for gold, its own daily chart shows a decline that did not erase Friday's recovery gains:



Unlike last week's, gold's fall today was not as bad as the Index's. The former's own RSI line is in similar territory as the latter's, but gold's never got to the same overbought levels that the Index's did. The metal's MACD lines, found on the bottom of the chart, are still in a bearish configuration.

That said, the metal's performance hasn't been that bad. It could have bottomed at $1,200, as it did on its last short-term downtrend, but instead it's bottomed at the $1,216-$1,218 level. Had it gone all the way down to $1,200, there would likely have been bargain hunters stepping in. So, a decline to that level is not as bad as a raw reading of the chart would indicate. Although stalled, and not showing much strength, it hasn't shown much post-May weakness in the first half of this month. The let-up in the Eurocrisis had the most damaging effect on the metal in mid-to-late May, from which it largely recovered. There may be further weakness ahead, but it's likely to be muffled by that bargain-hunting.