Friday, June 25, 2010

Gold Makes New Daily High, Stays Above $1,250

After easing down to $1,250, gold stabilized and then jumped up to above $1,255 after 9:00 AM ET. Pulling back, it turned up again at 9:45. A 2-year high for the University of Michigan consumer sentiment index, whose 76 reading was above expectations for 75.5, coincided with a acceleration of the run that took the metal up to $1,258.10 just after 10:15. Pulling back again, the metal settled around $1,254 and dawdled between there and $1,255. As of 11:50 AM ET, the spot price was $1,254.80 for a gain of $11.40 on the day. The Kitco Gold Index split the gain into +$10.30 for predominant buying and +$1.10 for a weakening greenback.

The U.S. Dollar Index slid a bit downwards, but mostly stayed in a choppy range between 85.7 and 85.85 before breaking through on the downside around 11:45. As of 11:52, it was at 85.61.

Gold has managed to get and stay above the old $1,240 resistance level, although a fifth weekly gain is still out of reach for the metal. It's close enough to have a shot at that gain this afternoon.

Update: The rally that started a little before noon ET continued until a new daily high of $1,259.50 was made. Making it at 12:20, the metal slid back to the $1,254 level before rebounding a little. In so doing, it slimmed the chances for a fifth weekly gain this week. As of the end of the pit session, or 1:30 PM, the spot price was $1,255.70 for a gain of $11.00 on the day. The Kitco Gold Index divided the gain into +$6.80 due to predominant buying and +$4.20 due to greenback weakness.

The U.S. Dollar Index continued sliding down at a fairly rapid rate after breaking below 85.7; the slide continued almost uninterrupted since the breakdown around 11:45. As of 1:35, the Index was still falling at 85.36.

Yesterday's climb in gold is holding, and was even added to this morning. Things are fairly cheery for the metal, even if it slides back in the electronic-trading hitch during the rest of the afternoon.

Update 2: Gold did slide back right after the pit session ended, but recovered at 1:45 PM ET. It traded between $1,254 and $1,255 during mid-afternoon. Dipping slightly below just before 4:00, the metal recovered again and climbed up to $1,256. A brief fluctation between that level and $1,255 left the metal at $1,255.70 at the end of the week's trading. The change on the day was $12.30, which the Kitco Gold Index split into +$6.30 for predominant buying and +$6.00 for weakening in the greenback.

The metal broke the four-week winning streak but only barely. Last Friday's close was $1,256.50, and today's was only eighty cents below that figure. The drop on the week was a miniscule 0.0637%.

The U.S. Dollar Index, after falling in early afternoon, ended that tumble just before 2:00. Since then, until trading closed for the week, the Index was ranging between 85.25 and 85.35. A last-minute blip-up got it to the top of the range as of 5:00, when it closed at exactly 85.35.

Its daily chart, from, shows the pullback continuing for the third day in a row:

Today's was stronger than both yesterday's and Wednesday's. It looks as if the Index will make a run at 85.0 and possibly cross it on the downside.

If so, then the bull run for the greenback might as well be over. The Index's RSI value, found at the top of its chart, is as low or lower than it's been since the bull started running in the beginning of December. It need not drop much before the RSI starts getting close to an oversold level. Reaching that level was not seen since September of last year.

As for now, the Index is still in a range between 85.0 and 86.0 if opening and closing values are used. Given its relative oversoldedness, a bounceback is far from improbable.

Gold's daily chart, also from, shows today's continuation of yesterday's breakout above $1,240:

In retrospect, last week's breakout from the chart's ascending triangle formation was premature but solid. Given that it was pushed down, though, there's reason to doubt the pattern's efficacy. Gold might have gone from one range to a higher one, with a $1,240 floor and $1,260 ceiling.

Last Tuesday, the metal was starting to recover from the previous day's plummet; it was still below $1,240. The end of that day's trading was the cut-off for its Commitment of Traders data, as graphed here. Total open interest rose to a new one-year high, with all reportable categories rising. The rise in each wasn't that far out of line with the others, so no discernible pattern is evident. Fitting for a recovery day, which turned into the first day of a slow but steady short-term rise.

As for the U.S. Dollar Index, its own CoT graph shows the state of the market at the week's closing high before its downturn. Total open interest shrunk slightly, and the reportable categories' changes were slight with one exception. Non-commercial longs and commercial shorts were down from the previous week. Commercial longs were up a little. The exception was non-commerical shorts, which gained by 12.6%. As the action over the next three days indicates, contract holders in this category were again the savviest as a group.

Turning back to gold, a post-pit Wall Street Journal report ascribed the upturn to haven buying prompted by the downward revision of 1st quarter U.S. GDP to 2.7%.
In addition to the GDP-related worry, participants also wanted to park some money in gold versus paper currencies just in case there are some market-moving announcements from the G-20 summit in Toronto over the weekend, said Sterling Smith, an analyst with Country Hedging in Inver Grove Heights, Minn.

"We continue to see investment demand," said Bill O'Neill, a principal with Logic Advisors in Upper Saddle River, N.J....

"Safe-haven buying remains ripe," said Suki Cooper, precious-metals analyst at Barclays Capital in London

Holdings in the 19 physically backed gold exchange-traded funds Barclays Capital tracks have set another record at 2,084 metric tons of gold....
O'Neill added his opinion that the U.S. economy was in a U-shaped recovery.

Despite the miniscule week-over-week drop, gold ended this week in a strong position. It may be in a higher range right now, with little to drive it, but its performance this month has been quite good given the usual seasonality. It's close to a new record, and it may shuck off the current range and try for one next week.

Thanks for reading what I've got here, and I hope your weekend isn't scorching.

About 30% In UBS Survey Say Gold Will Be Best-Performing Asset

According to a Bloomberg report, a survey of central bank reserve managers, multilateral institutions and sovereign wealth funds conducted at a UBS seminar last week yielded about 30% of the 80 participants picking gold. It was the most popular choice, with stock being the second-most popular at about 25%. [h/t: Lear Capital.]

That's quite the result, albeit influenced by the buying panics caused by the Eurocrisis boiling over. The general public is becoming more aware of gold as an option, although there isn't much sign of a pile-in outside of those short-lasting buying panics.

Despite The Word Spreading About Gold...

...sentiment is less bullish than it was in early 2008. This point, Jordan Roy-Byrne makes by citing two statistics: open interest and bullish sentiment among the general public.’s public opinion is simple but effective. It shows what percent of the public is bullish. Their data shows that the public was actually more bullish on Gold from 2005-2008 as public opinion spent a fair amount of time in the range of 75% to 90% bulls. In the last 24 months public opinion has yet to surpass 75% bulls.

COT data is another way to gauge sentiment. Did you know that open interest is about the same as where it was at the 2008 peak? Gold has climbed nearly 25% yet open interest hasn’t accelerated the way it did in late 2007.

Why do we focus so much on sentiment? Sentiment is more important in the precious metals markets as they are emotionally driven. Sentiment helps us predict and measure potential volatility. It helps us gauge short and medium term risk.

Even after 20 months of record gains in the precious metals and related shares, sentiment remains relatively favorable. In fact, it looks better relative to 2006 and 2008. With the collapse of 2008 still fresh in mind, investors are quick to worry and that worry is sustained and enhanced by the sustained advance in the metals and shares.
He marshals these points to counter the claim that gold is at the climax of a bubble. He ascribes those claims to what he calls "bubble fatigue," caused by other bubbles over the last ten years popping.

Indian Gold Buying Damped By High Prices

Although the rupee rose, mitigating the high price in greenbacks somewhat, Indian gold demand was still slack for the second day in a row.
"Demand is slightly low since yesterday due to higher prices, despite a strong rupee," said a dealer with a state-run bullion dealing bank in Mumbai....

The Indian rupee edged higher as domestic shares shed most of their early losses while some weakness in the dollar against major currencies also helped.

Sales Of Gold And Silver Eagles On Track For Record

That's what a report webbed in revealed, with the latest sales figures being added to the year-to-date ones, but the figures also show that collectors are paying more attention to the premium over spot. Sales of silver and gold Eagles are still hot, but the Buffaloes have been relatively disappointing.

100 Kg Maple Leaf Coin Sells For $4.02 Million

The sale of that coin, one of only five made, has captured the imagination of the gold world. Its former owner, busted for fraud, had to sell it. Interestingly, the winner got it for the spot price, which fits with a distress auction. The winning 3.27 million euro bid did not include a fee to the auction house. The winner, Oro Direct Sale S.L.U., is a gold seller from Spain - so the coin might be placed on the market again, with a mark-up.

Opinions Mixed On Gold's Fate Next Week

A Bloomberg survey revealed that ten out of nineteen traders, investors and analysts said that gold would rise next week. Four were bearish and four were neutral.

There was near-unanimity last week, and the gold price didn't gibe with the forecast. Now that there's a mix, with less bullishness, it looks like last week's excitement has faded.

Gold Meanders Around $1,243, Then Climbs

There was little gold-related news overnight, and little overall movement in gold until a few hours before regular trading began. The continued appreciation of the renminbi didn't have much of an effect on the metal's movement. As night turned into morning, the fluctuations around the $1,243 level grew wider but there was no bias either way until after 5 AM ET: then, the metal started rising at a fast clip. As of 8:08 AM, the spot price was $1,251.50 for a gain of $8.20 on the day. The Kitco Gold Index attributed +$8.20 to predominant buying and -$0.90 to strength in the greenback.

The U.S. Dollar Index also meandered last night, until an upward trend starting around 3:00 AM got it up to 86. After peaking there, it pulled back to 87.75 before rising again. As of 8:14, it was at 85.86.

A Reuters report, webbed by NineMSN, says that gold's recent advance is due to worries about financial uncertainty and concerns about currency depreciation.
Markets were watching the cost of protecting Greek government debt against default, which rose to a record high on Friday, raising fears about default and a sell-off of Spanish and Portuguese debt, also seen to be vulnerable.

"Nobody is giving up on gold, there is too much uncertainty in the world," said Andrey Kryuchenkov, analyst VTB Capital.

"Gold is trading like a currency, people are not ready to liquidate their holdings, they are using price dips as buying opportunities -- that was the case at $1,230 support."
The article also mentions that disagreement over austerity and financial reform at the G20 meeting could help the metal.

An earlier Bloomberg report, as webbed by Business Week, mentions the same concerns that the Reuters article started off with.
“With European debt fears at the forefront again and U.S. rates set to remain low for some time gold will likely gain further support,” said James Moore, an analyst at in London....

“It’s normal to see consolidation after such a big move in prices,” Yang Shandan, a trader at Cinda Futures Co., said from Zhejiang today. “There are still many risks out there and gold’s safe-haven status will keep its uptrend intact. We’re still seeing a lot of investor interest in gold.”
Also mentioned is a 3.05 tonne gain in the holdings of the SPDR Gold Shares Trust ETF yesterday, from 1,313.13 tonnes to a record high of 1,316.18 tonnes. Increases in 10 gold ETFs totaled 6.6 tonnes.

A Wall Street Journal report, also webbed before the jump, references analysts as saying the gold pullback seemed to be over.
"The market now seems to have put the latest profit-taking correction behind," SEB analyst Bjarne Schieldrop said. "In addition, it has got renewed bullish ammunition from extended low U.S. interest rates as well as increased economic double-dip concerns."
The article also says gold could benefit from the G20 meeting.

For its final revision, the first quarter U.S. GDP-growth number went downward to 2.7%. One of the factors lowering the number was imputed inflation being notched up by 0.1%. Expectations for this revision had been for 3.0%. Despite the rising GDP deflator, the news has next to no effect on gold. Regular trading starting coincided with a slight pullback, which ended when gold hit $1,250 before blipping up again. As of 8:50, the spot price was $1,251.40 for a gain of $8.00 on the day. The Kitco Gold Index assigned +$8.40's worth of change to predominant buying and -$0.40's worth to greenback strength. The U.S. Dollar Index bobbed around, reaching 85.9 at the time of the GDP revision release but then falling to 85.75 before picking up again. As of 8:56, it was at 85.81.

Having settled around $1,250, gold has confirmed yesterday's breakout above $1,240. That rise, if built on, would actualy make gold come in with another weekly gain. Given how the metal acted yesterday, it might.

Thursday, June 24, 2010

Gold Advances To Gain, Breaks $1,245

Perhaps this time the $1,240 ceiling is history. As the U.S. equity markets declined, and the greenback stumbled, gold went on an advance that more than erased yesterday's plummet. Climbing in waves from 8:30 AM ET, the metal went from below $1,230 to well above $1,245 after hesitating just below that level. The final jump-up did not coincide with either a drop in equities or the U.S. dollar, suggesting momentum buying. As of 11:55 AM ET, the spot price was $1,247.50 for a gain of $10.20 on the day. The Kitco Gold Index split the gain into +$6.40 for predominant buying and +$3.80 for weakening of the greenback.

The U.S. Dollar Index, after churning mostly downwards, took a tumble. From around 85.85 as of 9:00, the Index dropped to 85.65 by 10:26. Pulling upwards to a little above 85.8, the Index underwent a quick drop at 11:42 that brought it down to 85.45 before a rebound kicked in six minutes later. As of 11:57, it was at 85.53.

With this morning's rise, the metal is trying once again to stay above $1,240. This time, it may succeed.

Update: The upwards run didn't continue, but $1,245 held. Gold entered into a trading range with that value as the floor and $1,248 as the ceiling. As of the end of the pit session, or 1:30 PM ET, the spot price was $1,245.10 for a gain of $7.80 on the day. The Kitco Gold Index divided the gain into +$6.20 due to predominant buying and +$2.20 due to weakening in the greenback.

The U.S. Dollar Index continued to recover after bottoming at 11:48 AM. At first drifting around 85.55, the Index managed to surmount 85.6 after 1:20 PM. As of 1:35, it was at 85.61.

With the morning run over, gold won't likely to make a run at $1,250 today. There's a better chance of it sinking, sad to say.

Update 2: After some lassitude along the $1,245 level, that sinking did take place. A two-stage drop starting at 3:15 PM ET got the price down to $1,240, but it slowly rebounded off that level. The drop coincided with interday lows in the major U.S. averages. The metal didn't reach $1,245 at the end, but it still pared off most of the drop and closed well above $1,240. As of the close, the spot price was $1,243.40 for a gain of $6.10 on the day. The Kitco Gold Index apportioned the gain into +$5.40 for predominant buying and +$0.70 to overall weakness in the greenback.

The U.S. Dollar Index continued to rally, reaching above 85.75 by 3:00. Hovering around that level, despite a quickly-erased spill between 5:05 and 5:20, the Index marked time in late-afternoon trading. As of 5:30 PM, it was exactly 85.75.

Its daily chart, from, shows its decline continued for a second day:

Between open and close, today's was almost none. The interday low, though, was well below yesterday's. The Index's RSI level (found at the top of its chart) remains stuck below 50, the zone at which it used to rally.

After its large short-term drop early and mid-month, the Index has been in the doldrums. Simple pattern-guessing suggests that it's going to test the 85 low, although such patterns are broken all the time. It could be argued that its current stagnation is due to it getting way ahead of itself. It got well above its 50-day moving average (the blue line in the middle of the graph) and is still above that line despite the pullback. The last time the Index got into similar doldrums, in mid-April, the 50-day line got above the raw value.

So, the lack of snapback could be a result of the Index getting way ahead of itself. As of now, it looks like it'll continue in its doldrums.

Turning to gold, its own daily chart shows it pulling above the $1,240 resistance level again:

Today's candlestick shows an interday low well below $1,240, but the metal still got above at the end. Although encouraging from a technical standpoint, gold too looks like its in the doldrums for now - the morning run notwithstanding. It'd be better if tomorrow's action confirmed today's: the last breakout was followed by Monday's plummet. Given that volatility, it seems best to be cautious right now.

A post-pit Reuters report ascribed the recovery to short-covering. Amongst the points therein, these were included:
* Short-covering and a slightly lower dollar index triggered light buying in thin trade conditions - analysts....

* Gold's weakness on Wednesday was a reaction to the Fed's statement that inflation to remain subdued for the foreseeable future - Dennis Gartman, publisher of the Gartman Letter.

* Gold may benefit as investors reduce equity holdings, or seek an alternative investment altogether, if fiscal austerity leads to a declining stock market - James Steel at HSBC.
As the week nears its end, gold looks like it will end its weekly winning streak. Still, four weeks in a row has been pretty good for a time of the year when gold is normally soft. Investment demand is still there, and there's no sign of any disinvestment in the ETFs. All told, gold's lack of oomph is fairly heartening.

Seasonal Decline As buying Opportunity

"Analyste de Boston" has dissected gold's seasonality during summertime and found that the median duration of a summer decline was about 18 weeks and the median drop in price was 7.7%; the average drop was 8.8%. Also noted is the fact that, except for one year, the absence of a seasonal decline in the May-September period signals either the beginning of a bull market or the onset of an all-out bubble, with one exception: the 2008 credit crisis, which saw a huge decline in September and October.
WHERE WE ARE (Mid June 2010, after an all-time record high & short term peak-to-date):

Barring a catastrophic deflationary collapse (of greater magnitude than the Summer of 2008) Gold's Seasonality is not likely to factor greatly nor offer buyers any deep discounts this year.

Why? The historic norm for 8-12 weeks (what's left of our 2010 Seasonality) would be a -5% decline off the 'April High' ($1179. > 1120.) But that would entail an unprecedented fast & steep -10% Decline from today's POG: an anomaly.

Far more likely and only repeating last year's anomaly, there will be a very slight or no Seasonal Decline at all. As mentioned above, the absence of a typical pullback signals the alarming possibility that Gold now has a solid base, to launch towards $3,500/oz. (and beyond?) within 2 years and perhaps without any more Seasonal buying opportunities.

If there's any chance left this Summer, Gold Buyers should hope (pray?) for a low historical average- or median decline of ~8% from the Current Peak: that's a Target Price to BUY @ $USD 1,150./oz. sometime around/before Late September. Anything lower & sooner will be gifting you a golden opportunity you won't want to miss!
The late-May drop to $1,155 might have been the only buying opportunity during the slow season, in other words.

Mainland Chinese Gold Spot Market Becomes World's Largest

According to a brief report in the China Post, the turnover in the mainland Chinese spot market rose 22.6% last year to make it the largest in the world.
Total turnover of spot gold traded on the Shanghai Gold Exchange in 2009 was 1.1 trillion yuan (US$162 billion), [] said, citing Fang Xinghai, director general at the government financial services offices in Shanghai.

Gold in A Bubble?

Allen at "Everything Gold" considers the question of whether or not gold's in a bubble, and (unsurprisingly) says it's not in one. What prompted him to ask is the attention the metal's getting from the mainstream media now. He says that it's not evidence of a bubble for three reasons: one, there's a lag time between people being exposed to the idea and following through on it; two, there's no gold-at-any-price mania evident; three, people are not borrowing to obtain gold: bubbles need leverage, and there isn't any to speak of.

As is often the case, "bubble" is used to mean the climax of a bubble. The housing bubble didn't get rolling in 2005; it got going in 2002. Internet stocks were hot long before the bubble burst in 2000; in fact, it appeared as if the bubble had burst in 1998 before the sector got rolling once again.

Of course, indications of a bubble's climax are useful for pulling out before the bursting strikes. I agree with Allen that we're far from that point.

Gold During Deflation: Not That Bad If Mild

An Erste Bank report, excerpted by Mineweb, has a graph that breaks monthly CPI increases into deciles. The lowest decile's average is a slight fall in the CPI - and corresponding gold performance is a slight gain. The only decile whose periods correspond to a fall in gold, overall, is the third lowest.

A study of deflationary periods shows that gold performs better once deflation is replaced by reflation, which is happening now. The report forecasts gold going to its CPI-adjusted high of 1980, which would amount to $2,300.

[The full report, in PDF form, is here, courtesy of Zero Hedge. Thanks to an anonymous commenter for the link.]

It's an interesting finding. That third decile, in which the monthly CPI increases by about 0.2% on average, is largely composed of disinflationary periods. Disinflation is hellish for gold.

Some Indian Gold Buying, But Not Much

According to a report, Indian gold buying sunk after a pick-up yesterday because more price drops are being awaited. A weaker rupee also had an influence.
"There is not much business today as market is very steady and everyone wants a fall," said a dealer with a state-run bullion dealing bank....

"There were deals yesterday, we booked about 150 kgs in between USD 1,227/1,229 (an ounce)," said another dealer with a private bank.

Bank dealers said a weaker rupee kept the downside in gold prices restricted.

After Meandering, Gold Sinks

With little news from the pipe, the price of gold stayed virtually unchanged in the first two hours of overnight trading. Slumping down to $1,235 between 8 and 9 PM ET, it stayed at that level until shortly before midnight. Climbing back up, it reversed and sunk to a little below $1,230; $1,227.00 was reached around 3:30. Pulling back up to $1,235, the metal sunk again starting at 7:00. In the absence of any drivers, gold stayed in its re-established $1,220-$1,240 range; a break above was not to be. As of 8:04 AM, the spot price was $1,231.10 for a loss of $5.90 on the day. The Kitco Gold Index split the loss into -$4.10 for predominant selling and -$1.80 for strength in the greenback.

The U.S. Dollar Index slumped in late night trading, down to below 85.6 before reversing. Making a double bottom after rising to 85.7, the Index rose all the way to 86.0 before pulling back to the 85.80 level. Another rise pulled it above 85.9. As of 8:10, it was at 85.96.

A Wall Street Journal report said that gold pulled back in the absence of a driver to push it up.
"With both the dollar and the euro stronger today, gold is under pressure. However the European sovereign-debt situation keeps deteriorating slowly and thus the underlying fundamentals keep strengthening," SEB analyst Filip Petersson said. "We believe that the bulk of the selloff after Monday's high is over and that investors are using the current weakness to position themselves for the next move higher."
Also quoted is James Moore of, who noted that increased risk appetite is putting pressure on gold in the short term.

The morning Bloomberg report, as webbed by Business Week, ascribed the morning fall to taking gains.
“There could be a bit of profit-taking,” said Afshin Nabavi, a senior vice president at bullion refiner MKS Finance SA in Geneva. “After making new highs early this week, it’s probable we could see a correction down to about the $1,220- $1,225 area. But with all the mess going on in the economy, one has to buy on dips.”...

Gold has “reduced upside potential” as investors seek riskier assets such as steel, Goldman Sachs Group Inc. analyst Vasily Nikolaev wrote in a report dated today. China’s steps to possibly loosen the yuan’s peg to the dollar “could see investors adopt a higher risk appetite, thus putting pressure on defensive gold equities. We see a significantly improved risk- reward in steel after the selloff.”
Also mentioned in the report is the SPDR Gold Shares Trust's holdings remaining where they were, with total holdings of 10 gold ETFs increasing slightly.

Two releases on the U.S. economy came down the pipe at 8:30. Durable-goods orders fell for the first time in six months, by 1.1%, although the drop was not as severe as expected. The big hit came from sliding aircraft sales. Last week's first-time jobless claims number was 457,000, down 19,000 from the previous week's figure. Both gave gold a boost when released. When regular trading opened, the metal had slumped to $1,228 but recovered slightly. At 8:30, it jumped up to above $1,232. As of 8:51, the metal was at $1,233.30 for a loss of $4.00 on the day. The Kitco Gold Index divided the loss into -$3.30 due to predominant selling and -$0.70 due to a strengthening greenback. The U.S. Dollar Index pulled back to just above 85.8 in a decline that started before the releases but was accentuated by them. It then fluctuated in the 85.8-.9 area. As of 8:55, it was at 85.84.

The inverse correlation between gold and the greenback became diffuse last night, but reasserted itself this morning. Due in part to some strength in the latter, the former has been held back. There may be some encouraging action later today, but gold looks like it'll stay in the $1,220-$1,240 zone.

Wednesday, June 23, 2010

Gold Plummets In Morning Trading, Almost Completely Recovers

Gold's successful surmounting of $1,240 early this morning did not carry over into the pit session. At $1,241 as of 8:20 AM ET, the metal underwent an hour-long four-stage plummet that started just before 9:00. At the end, around 9:55, the metal had bottomed at $1,223.60. From 8 AM, twenty dollars was shaved off the price. The old $1,220-$1,240 range is back.

Although the huge drop in new-home sales may have been discounted, the announcement of the record 33% drop coincided with gold stabilizing. If there was any driver, it was a rise in the U.S. dollar; it went on a run at about the same time the metal plummeted. The traditional negative correlation has returned.

Subsequent to that bottom, gold crawled back up to make it above $1,230 in late-morning trading. As of 11:49 AM ET, the spot price was $1,234.60 for a much-reduced loss of $4.00 on the day. The Kitco Gold Index split the loss into -$2.30 due to predominant selling and -$1.70 due to a strengthening greenback.

The U.S. Dollar Index, as mentioned above, climbed up for an hour betweeen 9 and 10 AM. Reaching 86.4, it first pulled back a little to the 86.3 level and then stalled. As of 11:52, after a further dip to around 86.25, it sprung back to reach 86.29.

Gold took quite a tumble in the 9 o'clock hour, but that tumble has been mostly reversed. Given this recovery, the loss may be erased outright in the afternoon - but it might require the co-operation of a sinking greenback.

Update: The greenback did co-operate somewhat, but gold didn't continue to rise. Instead, it stayed stuck in the low 1230s.

A pullback from above $1,234, reached around 11:45 AM ET, took the metal down to $1,230 within a half an hour. After bumping against $1,230 once more, it climbed back up to the $1,234 level as the pit session neared the end. As of 1:30, the spot price was $1,233.80 for a loss of $4.20 on the day. The Kitco Gold Index attributed the entire decline to the predominant-selling category.

The U.S. Dollar Index continued its pullback that started at 11:30. Drifting down, it got to just below 86.1 before pausing around that level. As of 1:35, it was at 86.115.

Despite recovering most of this morning's loss, it looks as if gold won't recover the rest. A rally could get rolling after the Fed releases the right kind of no-change decision, but the market mostly expects a favorable stay-the-course release. Gold is likely to stay stuck in the low 1230s.

Fed Update: As widely expected, the Fed has decided to keep the near-zero rate policy intact for an "extended period" of time. The FOMC's assessment of the economy turned gloomier. Gold, after inching back to $1,234, blipped up on the announcement but fell back to below $1,234. The U.S. Dollar kept falling, and got below 86 just before the announcement. It actually blipped up too before falling back into its downturn.

Update 2: There was a dip shortly after the spurt-up, but it exhausted itself at $1,232. Then, the buying came back in and pushed the metal up to the high 1230s. Slowing down after reaching $1,236, the metal nevertheless inched up again and managed to shave off almost all the daily loss by the end of regular trading. As of the close, the spot price was $1,237.30 for a loss of $1.30. The Kitco Gold Index assigned -$6.25's worth of change to predominant selling and +$4.95's worth to a weakening greenback. The changes in the two categories sum up to the raw change on the day.

The U.S. Dollar index co-operated further by lowering, which provided some impetus for gold to keep rising. Its fall in early afternoon was complete a little after the Fed announcement, after which it rebounded to around 85.8 and stayed near that level As of 5:30, it was 85.775.

Its daily chart, from, shows the pullback as fairly modest given the last two days' rise:

It did, however, more than erase yesterday's slight gain. The Index's RSI level, found at the top of the chart, is still below the neutral 50 level.

So far, the Index's performance looks like a pullback. The wind is still gone from its sails, but a further short-term advance shouldn't be ruled out. Of note, though, is the RSI's two-week drag at the 50 level. This is the longest time that the RSI has been stuck around 50 since its bull run began in early December, further showing how much bullishness is gone from the Index.

Gold's action today was a little more "exciting," as its own daily chart shows:

After poking above $1,240, which took place before regular trading began, the metal's plummet is shown by the lower wick of today's candlestick. The small distance between opening and closing, shown by the body, indicates the extent of the recovery. Despite that, gold is still below $1,240. The recovery may have deterred short sellers from taking advantage of any run-up in the greenback, but it didn't get the metal back above the $1,240 resistance level which was so difficult to surmount yesterday and last night.

Gold's MACD lines have crossed over into a bearish configuration, but it's so slight, and so near two other crossovers, the last week might as well be pegged as neutral territory. Perhaps the last two weeks can be categorized as such.

The absence of any new drivers is showing, seeing as how the Fed announcement was widely expected, but so is the latent strength. Right now, gold's in a neutral holding pattern.

A post-pit Reuers report ascribed the plummet to profit-taking on a stronger U.S. dollar plus weaker commodity and equity markets. Amongst the points made therein, these were included:
* Gold prices turn lower as buyers stay on the sidelines ahead of a closely watched Fed policy statement, which is expected to reiterate a commitment to keep interest rates exceptionally low - traders.

* Sharp decline of crude oil and a rising dollar against the euro prompted profit-taking in the gold market....

* Gold's ability to hold firm despite a plunge in the global stock markets was impressive, as the metal had been pressured by margin-related liquidation in the past - Dennis Gartman, publisher of the Gartman Letter.
He makes a point that's telling given that gold's been almost a month into the traditionally slow season. The metal may try to get above $1,240 again tonight or tomorrow, and it may succeed.

Guide To Evaluating A Gold Company

From Michael Moretto, and published at Seeking Alpha, this guide goes through some of the factors that make a certain gold company a better pick than others. First is size and production, with large mines being evaluated as better than small ones. Second is juridisction: the better companies have mines in low-risk jurisdictions. Thirdly is grade: at a minimum, an open-pit mine should have 0.8 g/t; an underground mine, 4-5 g/t or better. Fourthly is byproducts. Gold companies that aren't pure plays tend to be rated less highly than those that are.

It's a useful guide for beginners, but the market has a way of discounting these factors. Suffice it to say, though, that a gold company that appears 'cheap' from a strict quantitative comparison often has some wrinkle in its deposit(s) that make it a false bargain.

Bank Of America Bulling Longer Term, But...

...isn't so in the nearer term. The institution's gold research arm expects the revaluation of the renminbi to soften gold prices in the near term.
"We have always worked under the assumption that a CNY revaluation would be gold negative, as it could result in a reversal in FX reserve accumulation flows," says Bank of America.

However, given the backdrop of growing sovereign risks in Europe and further EM FX stock rotation into gold, Bank of America believe the near-term downside risks to gold prices are small at this stage.

"Thus, we maintain our $1500/oz target by the end of 2011. Moreover, a gradual appreciation of the CNY and other EM currencies could exacerbate capital inflows into EMs, supporting gold accumulation over the coming months and dampening the effects of declining trade imbalances," reads the research note.

Sketch Of World Class Gold Deposits

From Melissa Pistilli comes a brief sketch of what makes for a world-class deposit and a list of several of them. The largest gold mine in the world is the Grasberg in Paupa, Indonesia. That mine opened twenty years ago and has 38.5 million ounces of proven and probable gold reserves remaining.

World-class deposits tend to be found in greenstone, which contains gold-copper porphyries. The most easily extractable deposits have oxide skins, which make heap leaching easier. One statistic of note: good-quality underground mines have grades of 8-10 g/t gold. Good-quality open-pit mines tend to have 1-4 g/t. It's possible to mine a less concentrated deposit, but the economics become iffier.

Central Bank Survery Reveals Gold Second-Most Important Asset Overall

More specifically, about 22% of central banks believe that gold will be the most important reserve asset over the next quarter century. Approximately half said the U.S. dollar. Gold was rated "most important" by more central banks than for the Euro or any other currency.
Despite their bullish sentiment towards gold, sovereigns are unlikely to start making large-scale purchases, said Terrence Keeley, global head of sovereign client services at UBS.

"Reserve managers operate at one speed above reverse," he said. "Decisions to change their investment practices will be taken after great consideration over a long period."...

Philip Klapwijk, chairman of GFMS, said central banks were more likely to be buyers than sellers for the first time in two decades. But he said: "I will be surprised if we see multi-hundred tonnes purchases."

There has not been a sustained period of significant central bank gold purchases since the 1960s.
The turn of the tide seems to be coming from developing-economy central banks, since the cultures in those regions still rate gold highly as a store of value.

Indian Wholesale Demand Still Dormant

Although the strengthening rupee helped, traders still stayed away from buying because of the risk of being stuck with high-priced stock during the slow season.
"There were a few stray deals in the morning and rupee is in supporting mode," said a dealer with state-run bullion dealing bank....

"Imports are not happening, most scrap is used to meet demand in the current slack season," said another dealer with a private bank, adding "any corrections to Rs 18,200-18,500 would be bought."
That might be the case tomorrow.

Mark Hulbert Says Gold Timers Cautious

In a Marketwatch commentary, Hulbert points out that sentiment amongst gold timers hardly budged when gold made its record high on Monday. Current readings are fairly low.
It's really quite amazing that the gold timers today aren't more bullish. During last Friday's trading session, when bullion broke out to a new all-time high, the HGNSI didn't budge. And it rose only 7 percentage points as gold briefly traded at an even higher level on Monday.

Just imagine how euphoric stock market investors would become if the Dow Jones Industrial Average were to have just traded above its previous all-time high of 14,165. There'd be dancing in the streets.
Earlier, he noted that some technicians saw Monday's plummet as a one-day reversal: a pattern that's supposed to bode ill for the asset in question. So far this morning, gold has co-operated with that pattern: it not only fell below $1,240 in early regular trading but also dropped below $1,230. The $1,220-$1,240 range has been re-established.

Gold Breaks Above $1,240

The recent strict austerity budget helped the U.K. pound rise, as did the Bank of England's minutes showing one member pushing for a rate hike. Although the BoE rate was left at 0.5%, that dissent heartened the pound because it's the first break from unanimity in two years. In that timeframe, gold rose above a level it had been stuck around from late yesterday morning to early this morning. Not until about 3:00 AM ET did an uptrend develop that has sufficient impetus to push the metal well above $1,240. After getting stuck around $1,242.50 between 3:30 and 6:00, a second push upwards got it to the $1,245 level. As of 8:00 AM ET, the spot price was $1,244.40 for a gain of $5.70 on the day. The Kitco Gold Index split the gain into +$4.00 due to predominant buying and +$1.70 due to weakness in the greenback.

The U.S. Dollar Index, after getting as high as 86.2 last evening, slid back early this morning after marking time. Since just after 3:00, it's been trending sideways around the 86 level. As of 8:13, it was at 85.99.

A Bloomberg report, as webbed by Business Week, ascribed the rise to fears of global slowdown.
“The market is still jittery,” said Bernard Sin, head of currency and metals trading at bullion refiner MKS Finance SA in Geneva. “Weakness in equities may continue to support gold. Gold will continue to be bullish.”...

“Gold is still looking well bid on its unique safe-haven status,” said Peter Tse, head of precious metals with Bank of Nova Scotia in Hong Kong. “However, the market is heavily long and we could see some profit-taking,” he said, referring to bets that prices will rise.
The article also mentions that the holdings of the SPDR Gold Trust ETF (GLD) increased by 5.17 tonnes yesterday to a new record of 1,313.13 tonnes. That increase made up almost all of a 6.2-tonne increase in the total holdings of 10 global bullion ETFs yesterday.

A Wall Street Journal report said that gold is inching higher in anticipation of the results from the FOMC meeting that ends today.
As in other markets, traders and analysts aren't expecting any surprises from the U.S. Federal Reserve Open Market Committee meeting result. Commerzbank analyst Daniel Briesemann said the market would be "looking very closely at the strength of the wording."

The Federal Reserve began its two-day policy meeting Tuesday. The central bank is widely expected to announce that interest rates will remain low for an extended period.

Mr. Briesemann said this could put the dollar under pressure, with a positive impact likely on gold prices....
Also mentioned as a factor by the same analyst was the most recent increase in GLD's holdings.

The opening of regular trading added to a decline that started around 8:00, which pushed gold down to $1,241. Halting at 8:30, the metal hovered around that level for the next twenty minutes. As of 8:54, the spot price was $1,240.90 for a gain of $2.30 on the day. The Kitco Gold Index attributed -$0.80 to predominant selling and +$3.10 to greenback weakness. The U.S. Dollar Index continued to drift around the 86 level; as of 8:56, it was at 86.01.

Gold did manage to break above $1,240, but the extent of the rise wasn't that great. Still, overcoming the resistance at that level was something. The metal may well have entered a new and higher range as a result.

Tuesday, June 22, 2010

Gold Crawls Back Up Above $1,240

Not by much, but the metal managed to climb up well above the sub-$1,235 level at which it started regular trading. Rising fairly smoothly up until 9:50 AM ET, the metal stumbled after failing to break through $1,240. Ending its sudden decline at a little below $1,236, it climbed back up and surmounted the $1,240 level but not by that much. The new U.K. government unveiled a strict austerity budget, which aimed to reduce the the U.K. goverment budget deficit to 1% of GDP by 2015.

After peaking right after 11:00 at $1,243.70, the metal fell back to below $1,240 and then hovered around that level. As of 11:52 AM ET, the spot price was $1,239.10 for a gain of $6.50 on the day. The Kitco Gold Index split the gain into +$4.40 due to predominant buying and +$2.10 due to weakness in the greenback.

The U.S. Dollar Index fell below 86 after muddling around that level. Getting up to 86.1 as of 10:36, it dropped fairly steadily afterwards. As of 11:56, it was at 85.86.

Gold did recover to above $1,140, but resistance at that level still hampers the metal from rising further. Afternoon trading may see its advance still blocked.

Update: Gold still had trouble staying above $1,240. After a pre-noon (ET) spill that took it down to $1,237, the metal climbed up to $1,241 before sinking again and bobbing around $1,240. Again, the surmounting proved to be temporary. As of 1:30 PM, the end of the pit session, the spot price was $1,239.80 for a gain of $7.20 on the day. The Kitco Gold Index divided the gain into +$6.40 for predominant buying and +$0.80 for greenback weakness.

The U.S. Dollar Index, after spending some time crawling at just above 85.8, turned upwards a little. Although still in its sub-86 range, it did show a little recovery. As of 1:30, it was at 85.91.

The $1,240 level is still putting up some resistance, although spongily. There might be another try during the rest of the afternoon, but it would take an outside jolt to do so lastingly. The market internals don't look too favourable for such an advance.

Update 2: Gold spent the rest of regular trading stuck, in a fairly wide range that spanned $1,237 and $1,241. Despite spending some time above $1,240, the metal never got that much above that number. So, it can't really be considered to have broken out of the $1,220-$1,240 range it fell back into yesterday - not as of yet, anyway. While gold churned, the major stock market averages dropped from near-even to losses of more than 1%. That decline didn't affect the gold price all that appreciably, except to help pull it from the bottom of the narrower range to the top. As of the close, the metal was at $1,238.60 for a gain of $6.00 on the day. The Kitco Gold Index attributed +$8.20 to predominant buying and -$2.20 to strength in the greenback. The two figures sum up to the raw change on the day.

The U.S. Dollar Index continued on its mildly upward path, although most of the gain was made in mid-afternoon. Moving above 86.1 as of 3:00, the Index declined a little and spent the rest of the afternoon gently rising. As of 5:30, it was at 86.14.

Its daily chart, from, shows its recovery extending for a second day:

Today's gain wasn't much of one, but the Index is now further from its near-term low. Its MACD lines, found at the bottom of its chart, are still solidly in a bearish configuration - the most bearish the associated histogram has been in the last six months. Its RSI line, found at the top of the chart, shows a value that's a smidgen below neutral. There hasn't been a breakdown in the latter that would be associated with an outright bear market, but such a breakdown would have made it oversold. It hasn't been below the 30 oversold level since early June of last year.

The Index's drop is associated - partially caused by - the recovery in the Euro. There is a chance that the Eurocrisis will flare up again, which would likely give a large boost to the Index and propel it above its earlier high of 88.5, but there's no sign of that eventuality as of yet. Given the dynamics of the Eurocrisis, gold would likely benefit as well.

The metal did recover somewhat from yesterday's drop, but not enough to put it back on the rising track:

Gold's own MACD lines are still in a bullish configuration, although barely. As noted above, it had trouble getting above $1,240 and staying there; as of now, it's still at the top of that $1,220-$1,240 range. There's a chance it might break out on the upside tomorrow: if so, then it might make another run up to record territory. So far, no driver exists that would push it much higher. To sum up, today was a day of marking time once the recovery from yesterday's tumble is factored in.

A post-pit Wall Street Journal report says that gold tumbled yesterday due to hurried selling in order to buy riskier commodity assets to play the renminbi revaluation trade. That's what turned the metal's initial run-up into a plummet. Today, the market stabilized as a result of assimilating the revaluation news.

An afternoon Reuters report ascribed today's bounceback to technical buying and hope that gold will recover:
Standard Bank analyst Walter de Wet said gold has an upward bias in the next couple of weeks due to lingering worries about Europe's overhanging debt

"After yesterday's sell-off, people thought it's worth buying on the dip. Obviously with equity markets under pressure people are more risk averse and that's supporting gold," said de Wet....

[On the other hand,] Rick Bensignor, chief market strategist at investment banking group Execution Noble LLC, noted there was no follow-through selling after Monday's bearish reversal, but a technical indicator showed the market could be overbought.

"The bullish consensus is still very high in gold. It's just universally agreed that gold's the investment to be in, so there is always a concern to some level," he said.

There is a chance that gold will continue to rebound later in the week, as some players are seeing the drop as an aberration. One reason for the quiet is the wait for the Fed Open Market Committee's Fed Funds rate decision tomorrow, and the wording that will accompany it. Gold might get a boost from ZIRP as usual, but the players seem to have already anticipated it. We'll find out tomorrow.

Niall Ferguson Warns Of Precipitating U.S. Debt Crisis

As summarized by "The Housing Time Bomb," Niall Ferguson has warned about a real risk of high Treasury debt levels precipitating an all-out debt crisis because of the bloated interest-payment component of the U.S. federal budget. Ferguson predicts trouble within two years.

The video, along with "The Housing Time Bomb"'s comments, is here.

Hazards Of Investing In Gold Stocks

Using a lengthy ad for a gold stock as a take-off, "Hard Assets Investor" looks at the risk of owning gold stocks (as proxied by the Market Vectors Gold Miners ETF) versus bullion (as proxied by GLD.) As it turns out, the former not only had less of an overall return over the last four years but also was more volatile. On a statistical basis, GLD was the better investment in two categories: raw return and risk.

Conditions change, of course, and the relative doldrums faced by gold stocks could reverse. Determining such a reversal is the province of fundamental analysis, though. "Hard Assets Investor" makes the now-obvious point that the time to get into gold stocks was in late '08. The GLD:GDX is still high, suggesting some underpricing of gold stocks, but not by that much.

Step-Watching In The Junior Exploration Sector

Putting money into gold exploration stocks is hazardous, particularly since more than 90% of them will never result in a mine. Kevin McElroy suggests this simple metal sieve to keep from being burned: instead of making a list of reasons why a particular exploration stock should be owned, try coming up with points itemizing why it shouldn't be.
As a resource investor especially, you shouldn’t just fear the unknown, you should avoid it. It’s vital to do your due-diligence when it comes to gold miners, especially. You’ve heard me say it before, and Mark Twain says it best: a gold mine is “a hole in the ground owned by a liar."

So if you can’t find easily verifiable information about a gold company’s deposit location, or if you find information that gives you pause, then you have the easy decision to keep your powder dry for another day.

As a gold investor in particular, you have to be skeptical. You should be looking for reasons NOT to own a company, rather than clinging to reasons for owning it. It’s easy to get wrapped up in fancy graphics and exciting press releases from gold companies that appear to be on the up-and-up. But that’s the whole point of those graphics and press releases - to build excitement about the company. Most gold mining executives make their bread and butter from stock options and share appreciation, not gold mining.
Later, he focuses on location and political risk by panning a stock whose property is in Laos. The government there is too authoritarian and corrupt, McElroy concludes, for the deposit to be safe.

Merrill Lynch Forecasts For Gold Raised

Mineweb reports that Merill Lynch has raised its forecast for average gold prices from $1110/oz in this year, $1179/oz in 2011 and $1109/oz in 2012, to $1,200, $1,350 and $1,400 respectively. The main reason given was increasing investor demand, as prompted in part by recent hedging against sovereign risk. Also, Asian demand is strong and (Merrill believes) will continue to be so.
"Our positive view on gold and silver prices is heavily influenced by the current macroeconomic environment and we believe that the following three developments will have a significant impact on these metals:
  • "Central banks have eased monetary policy reflected in sharp rises of money supply;
  • "Government debt has soared to make up for the private sector consumption short-fall;
  • "Potential GDP growth rates have come under pressure."...
"It is also worth noting that investment demand in emerging markets like China has remained at very high levels," the analysts said. "This is partially influenced by growing real incomes, the launch of gold investment products and some apprehension over the value of other investment alternatives, such as equity and property."
Also mentioned is the risk that strapped governments will try to ease their fiscal burdens by inflating (or by lobbying for more inflation.)

Indian Gold Demand Still Weak, But Price Points Rising

A Reuters India report says Indian gold demand remains tepid, in large part because of a weakening rupee.
"A little booking is there, but not much to write home about," said a dealer with a state-run, bullion dealing bank....

"Orders are lying in the range of $1,230-1,235 (an ounce)," said a dealer with a private bank in Mumbai.

That's a step up from $1,200. Price acclimatization is beginning to set in.

Bond Markets Not Signalling Rise In U.S. Inflation

According to a Bloomberg report, as webbed by Business Week, bond market inflation expectations are lowering. Those expectations, measured by the yield gap between five-year Treasuries and TIPS, comp out at 1.69%. This number is significantly lower than the result gleaned by the Thomson Reuters/University of Michigan confidence survey; that number is 2.7% inflation in five years. Both have lowered in the last two months.

As a result, it's unlikely that the Fed will even hint at raising the Fed Funds rate when the FOMC meeting ends tomorrow. Ben Bernanke, in his puzzlement remark, suggested he's not taking gold into consideration as much as other commodities. The lowering of expectations is going to dampen the credibility of the FOMC's inflation hawks.

The article mentions that gold is acting more as a hedge against currency instability. Of course, gold is also acting as a safe haven against sovereign default. The question continues to be, is gold also anticipating future inflation that the bond market isn't?

It's a tough call. The supposed bond vigilantes have been asleep; had they been the force to be reckoned with which they were in the 1980s, real rates would have never gone negative. Short rates are negative now. The sub-1-year rates that have already been booked have been below the rate of inflation in the same timeframe, leading to realized negative real rates of return. So, it can't be said that fixed-income investors are leaning on the U.S. Treasury.

The current 5-year T-note rate is 2.00%. Given expectations and inflation norms, that rate offers about a zero real return. Whatever is exciting the bond vigilantes - if anything - it's not future inflation. Perhaps they've disbanded.

On the other hand, gold's continued advance is compatible with rising inflation, even though other commodities aren't following through right now. In part, that's because commodities outpaced gold last year in percentage terms. Also, industrial metals aren't just geared towards inflation; they won't act as if they were unless inflation becomes serious enough to overwhelm demand droppage due to slowdown expectations. The excess reserves are still out there, even if they're not acting to increase the money supply.

It's hard to see what the inflation picture is going to be. Taking a compromise approach says that inflation wil be dormant in the near term but will pick up later.

Indian Gold Imports For May Come In At 17 Tonnes

The amount of gold imports dropped more than 50 percent from April to May as higher gold prices combined with anticipation of the slack season took their toll.
According to an analyst of brokerage firm SMC Global, the prices of the yellow metal sharply appreciated in the domestic market more so because of depreciation of Rupee against the US dollar couple with the Euro-zone crisis, hence, impacting the imports. Rupee fell from 44 to 47.5 against the American greenback in May....

"In April the imports went up mainly due to stockist buying for the marriage season in May. However, the buying declined in May as the prices surged," Bombay Bullion Association Director Suresh Hundia told PTI here.
The decline was roughly in line with expectations.

Gold Takes Overnight Round Trip

Shortly after the overnight session began, gold began climbing up. Rolling with the widespread anticipation yesterday, the PRC foreign exchange authorities allowed the renminbi's value to appreciate by 0.4%. Early this morning, that gain halved as renminbi were sold for U.S. dollars. The pullback was interpreted as meaning the PRC government will not allow a one-way smooth upvaluation.

Gold peaked around midnight ET, at just above $1,240. Then, it slid down to $1,235 briefly before recovering to the high 1230s. Recovering to $1,240, and peaking at $1,241.40 around 5:00, the metal dropped back to $1,235 and continued to slide lower. As of 8:05 AM, the spot price was $1,233.30 for a gain of $0.80 on the day. The Kitco Gold Index attributed +$3.20 to predominant buying and -$2.40 to a strengthening greenback.

The U.S. Dollar Index, except for some brief backtracks, advanced overnight. Touching 86.1 both late last night and early this morning, it advanced well above that level by 5:50 AM; it entered into a range bordered by that same 86.1 on the downside and 86.2 on the upside. As of 8:12, it had risen slightly above the top end to reach 86.21.

A Bloomberg report, as webbed by Business Week, holds out hope that gold will increase as European banks funding troubles are seen.
“Some banks have started facing increasing funding problems,” the ECB [Governing Council's Christian] Noyer said yesterday. “The situation reflects a general state of uncertainty which, left unchecked, could have significant consequences on financial stability.”...

Gold “is profiting from its status as a safe haven and is likely to remain in strong demand as long as doubts persist about the chances of successfully resolving the debt crisis in Europe,” Eugen Weinberg, head of commodity research with Commerzbank AG, wrote in a report. “Investors are therefore still trying to protect their investments with gold.”...

“Gold may come under additional pressure if greater renminbi flexibility is seen as an indication that the Chinese authorities envisage a more stable global economic climate,” HSBC Securities analyst James Steel said in a report.
The article also mentions that the holdings of the SPDR Gold Shares Trust ETF were unchanged yesterday, but holdings for 10 gold ETFs collectively dropped by 0.5 tons. Also noted is that decline is the first one in two weeks.

The morning Wall Street Journal article characterizes overnight action as gold stabilizing after its tumble yesterday.
Concerns over the euro-zone's sovereign debt load and a poor outlook for currency yields will continue to support gold prices, analysts said.

"Overall, the prospects for monetary tightening and an improving yield on major currencies, like the U.S. dollar and the euro, are becoming ever more distant which is supportive for the bullion as an alternative asset to currencies," said VTB Capital analyst Andrey Kryuchenkov.
A Reuters report characterizes the night turnaround as an expression of continued confidence in gold's protective efficacy as a safe-haven asset.
"This is a rebound after the sell-off last night," said VTB Capital analyst Andrey Kryuchenkov. "We should consolidate here. The uptrend is still intact."

He said in the medium term, gold was supported by safe-haven related buying and uncertainty escalated by the euro zone debt crisis, as well as a slowdown in the U.S. economic recovery.

"Improving sentiment and a lower dollar would also support gold in the short term, though to a lesser extent," he added.
Also quoted is UBS analyst Edel Tully, who wrote that lingering fears over sovereign debt should continue to support gold.

With regular trading open, gold's decline reversed somewhat. After dawdling around $1,233, it rose to $1,237 before pulling back a bit. As of 8:51 AM, the spot price was $1,235.70 for a gain of $3.10 on the day. The Kitco Gold Index assigned +$3.90's worth of change to predominant buying and -$0.80's worth to greenback strength. The U.S. Dollar Index, after blipping up above the top of the above-mentioned range, fell below it. As of 8:56 AM, it was 85.99.

The decline has halted, leaving reason to hope for a recovery that may pan out. As of now, though, gold's still back in a range with a $1,240 ceiling. The overnight attempt to break through didn't pan out, and that resistance may defeat any such attempt today.

Monday, June 21, 2010

Gold Slides Down, Then Tumbles

Gold's latest record was made well before regular trading began. Starting at 8:00 PM, the metal sunk from the low 1260s to the low 1250s. At first tumbling, gold's decline was slower and more punctuated by rests as the pit session continued. The $1,251.30 low on the day was made just before 10:30, making the subsequent action a possible recovery. As of 11:54 PM ET, the spot price was $1,252.70 for a loss of $3.50 on the day. The Kitco Gold Index split the loss into -$2.95 for predominant selling and -$0.55 for strengthening in the greenback.

The U.S. Dollar Index, after rallying to 85.75, stopped its climbing and settled into a range between 85.53 and 85.65. Given its tumble early this morning, the Index has been left in a fairly strong position. As of 11:56 AM, it was 85.61.

So far, the gold market has seen a bit of a letdown from its recent highs. Becuse there haven't been any flare-ups, or other drivers that would push the price up, the pullback isn't that surprising. All told, it's been fairly mild and it may be ending. Afternoon trading will show if it will.

Update: It didn't; instead the decline intensified. The metal's relief rally ended shortly after noon ET. Resuming its slide, it got to just above $1,250 by 12:45. Then, it underwent a tumble that drove its price down more then ten dollars in the space of five minutes. Pausing, the metal bobbed between $1,240 and $1,242 before the decline resumed once again. As of the close of the pit shift, or 1:30, the spot price was $1,238.90 for a loss of $17.60 on the day. The Kitco Gold Index split the loss into -$13.35 for predominant selling and -$4.25 for greenback strength.

The U.S. Dollar Index underwent a small but solid rally that started at 11:40. After getting ahead of itself by rising up to 85.90, it pulled back but then climbed up to about the same level. As of 1:35 PM, it was at 85.85.

Gold's early-afternoon decline was unexpected, with the only immediate explanation being an air pocket engendered by the rise of the greenback. The decline may be shaved now that the electronic-trading hitch has begun, but indications suggest a relief rally for now.

Update 2: As it turned out, the indications were not to bear fruit. There proved to be more dropping in store for gold: the $1,229.80 bottom wasn't reached until 4:00 PM ET. Unusually, gold fell with the U.S. stock market today as the latter descended from its elevated open.

The earlier tumble turned into a more regular drop after the pit session ended, with the first significant relief rally coming a little before 3:00. Moving up almost five dollars an ounce, the metal then fell to its low as the relief-rally gain vanished. The second bottom, though, proved to be close enough to a double bottom to act like one. In subsequent trading, the metal stayed within a $1,230-$1,235 range; the end of the day saw gold in the middle. As of the close, the spot price was $1,232.60 for a loss of $23.90 on the day. The Kitco Gold Index divided the loss into -$17.30 due to predominant selling and -$6.60 due to a strengthening greenback.

Continuing its ascent, the U.S. Dollar Index managed to climb above 86 in a two-stage rally during early-mid afternoon. Reaching a peak of 86.04 around 3:45, it then fluctuated between that level and 85.925. As of 5:30, it was at 85.96.

Its daily chart, from, shows a nice rally today:

It came, though, at the end of a downtrend that took the Index down to 85.0. That's slightly below the level at which it bottomed back on May 21st. The Index has not exactly been oversold, but its RSI line has dipped to a level at which other short-term bottoms have been made. That line, found at the top of the chart, is now almost exactly at the neutral level.

Assuming that today's low marks the end of the recent short-term decline, as I am, the next rise bears close watching. If the Index can't get above 88, let alone 87.5 or so, then it's in the midst of carving out a head-and-shoulders reversal that should lead to a further drop below 85. Not yet, as there's some scope for a relief rally, but in time if it can't rally above 88. The clime seems right for a drop of that sort, as the Eurocrisis storm winds have faded for now. The next rally has a good chance of being a relief rally.

As for gold, its own daily chart shows today's large tumble coming on the heels of another new record:

I didn't expect a tumble of this sort, but I did warn on Friday that the completion pattern should be interpreted cautiously because there was no driver behind it. What can be made by market internals can be unmade by market internals.

Surprisingly, gold's MACD lines (found at the bottom of its chart) still show a bullish configuration. The metal bottomed near its short-term low as of June 10th, but it's still above that low. These facts don't mean that gold is going to shake off today's decline and keep rolling upwards. Jewelery demand is seasonally weak around this time, backing up the summer-weakness rule of thumb. That weakness hasn't prevailed so far, but it still has its influence.

More to the point, both the Index and gold have seen the same bullish chart formation - an ascending triangle - fizzle not long after each's completion. The Index's started to fizzle on June 8th, and gold's fizzled today. The two had this in common: there was no driver, like there was earlier in each's fear driven runs, to keep pushing each higher. The lack of follow-through is an indication that the Eurocrisis has gone into a slow burn. It looks like the same fear that pushed both up will not flare again anytime soon. Sad to say, but the Eurocrisis trade looks like it's over for now.

That said, gold looks like it's going to flounder around at this level. Essentially, it's back in its range.

A post-pit Reuters report, ascribing the earlier rally to euphoria over the PRC moving to an upvaluation of the renminbi, said gold was driven down by heavy profit-taking. Amongst the points therein, these were included:
* China's vow to allow a flexible yuan stirred economic optimism, lessening gold's safe-haven appeal.

* Gold's dramatic rally to China's news seems overdone, triggering heavy profit-taking - Bill O'Neill at LOGIC Advisors.

* Euro's 0.5 percent losses against the dollar prompted a pullback in crude oil, pressuring gold prices.

* Sentiment positive as global central bank gold reserves rose 276.3 tonnes in the first quarter of 2010 to 30,462.8 tonnes, with Saudi Arabia more than doubling its reported reserves - World Gold Council.
So, the profit-taking ball got rolling and turned into a snowball. Presumably, there was selling on the news that cascaded when it became apparent that there was no new driver and little buying enthusiasm. The momentum changed, leading momentum traders to bail out. The recovery of the greenback may have had an influence on the snowballing, seeing as how the traditional negative correlation between the two has reappeared.

If profit-taking is all that's behind the tumble, then gold should be calmer tomorrow - in which case it's likely to remain range-bound. Bargain hunters are still there, and should cushion any fall that isn't an all-out rout. In fact, bargain seekers may show up in the overnight session if they're convinced that today's tumble was just a spill.

Volatility In Gold Suspiciously Low

David Goldman, in a Seeking Alpha article, notes that gold's historical volatility is much lower than the S&P's. He concludes that the reason for it is central-bank purchases, and the risk of higher interest rates driving up stock volatility.

Key To Restoring A Gold Standard

Paul Nathan notes that grafting a gold standard on to the current money-and-banking system will result in a mess, because the gold standard only works in a climate of fiscal and credit rectitude. Instead, he suggests a reform that would lead to gold being used as money all over the place: repeal of the legal-tender laws. He says that a future gold standard will be quite different from the gold standard of the past because of advances in technology. Instead of gold coins and gold-backed notes, a new gold standard will be digitized and electronic. Through digital gold, it's feasible to shell out 0.1 g of the metal to (say) buy a burger and fries.

Even if the legal-tender laws are not repealed, there still can be barter with gold. Given the way barter works, physical gold (and silver) would likely be at the centre of any bartering networks.

USA Today Guide To Gold

The article's fairly descriptive, adding a gold skeptic near the end for balance. Essentially, it say gold is a fear trade. It makes a good point about the current outreach of gold beyond the usual haunts: other people are seeing the fragility of the financial system as extending to fiat currency itself.
Debt isn't the only thing that has people worried: The staggering losses of the past decade are hard to fathom, as well. More than a trillion dollars vanished in the dot-com boom of the early 2000s; trillions more went up in smoke in the credit crisis.

Because of the meltdowns — and the speculation that led up to them — people don't associate stocks with companies and products and streams of income any more, says Markman. "These days, stocks are just numbers on a piece of paper or a PDF from your broker," Markman says. "And when you think about folks like (Bernie) Madoff, where numbers were just numbers, you realize it's not so clear what the source of monetary value is."

Realizing that your currency is simply worth whatever people think it's worth can be a difficult experience. "When things go sour, even if you thought you knew how things worked, suddenly, you don't know. In the financial markets, you have that in spades," Markman says. "No one likes instability. People will latch onto anything that gives a foundation to their lives and reduces their anxiety."
Lack of confidence in paper assets: that's the current ticket.

I have only one thing to say: if USA Today is treating the new wave of gold buying as newsworthy, then gold really is coming in to its own.

Gold: Less Inflation Hedge Than Crisis Hedge

That's the diagnosis of Ambrose Evans-Pritchard, who says "Gold reflects fears." Surveying the Euro landscape, Evans-Pritchard points to the risk of a deflationary spiral and consequent populiast politics bubbling up.
It is not inflation as such that is worrying big investors, though inflation may ultimately be the response before this is all over. The core consumer price index in the US has fallen to its lowest level since the mid-1960s.

If there is any theme to the bullion rush, it is the fear that the global currency system is unravelling. Unlike the gold spike of the late 1970s, this rally has echoes of the 1930s. It is a harbinger of deflation stress.

Capital Economics calculates that the M3 money supply (M3 is the broadest measure) in the US has been contracting over the past three months at an annualised rate of 7.6 per cent. The yield on two-year US Treasury notes is 0.71 per cent.

This is an economy in the grip of debt destruction. Albert Edwards, of Societe Generale, says the Atlantic region is one accident away from outright deflation. That accident may be coming. The Economic Cycle Research Institute's leading indicator for the US economy has fallen at the most precipitous rate for half a century, dropping to a 45-week low, now reading minus 5.70, the level it reached in late 2007 just as Wall Street began to roll over and then crash.
He also notes that Fitch said the total Eurobond purchases needed to right the monetary system is hundreds of billions of Euros' worth. The Bundesbank president has already said that the first purchases, in a much smaller amount, is potentially destabilizing.

It's an open question whether gold is discounting future inflation or responding to fears. Would gold rise in a deflationary crisis? The experience of '08 says "no," so it looks as if the metal is discounting future (or hoped-for) inflation.

Donald Coxe Says Gold Is Taking Centre Stage Again

Noting that individual-investor gold demand has ramped up, Coxe predicted that gold is now assuming its place as a store of value. The three major currencies in the world won't recover from that shift.
"This month, we advance the thesis that none of the three major tradable currencies will regain its role as a prized store of value. Gold is moving from the shadows, where economists and politicians had consigned it, to center stage" Coxe counseled.

"What we believe is unfolding is a rush into gold by individual investors who look at the astronomic growth in financial derivatives-particularly collateralized debt swaps-and government deficits at a time when the effects of demographic collapse are finally being understood."

Some financial experts estimate the supply of outstanding financial derivatives could be in the $70 trillion range, dwarfing the combined value of money supplies and debts. Because the total value of gold is so miniscule, it cannot be any real help in stabilizing global finances. Nevertheless, Coxe observed "it can be a haven for investors seeking to protect themselves against an implosion of majestic proportions."

‘We believed gold should be a significant component in most high net worth wealth preservation programs, and in most endowment and pensions funds," he advised.
He pointed particularly to European individual demand.

Record Gold Price Not Engendering Record Optimism

In his latest Marketwatch column, Peter Brimelow points out that the record high made last week did not encourage a large increase in bullishness. MarketVane's Bullish Consensus only increased by 3% last week. In addition, some gold watchers are becoming skittish. One of them is Dr. Edith Tully, who notes that absence of any drivers for the current run-up. Another is a writer at Bill Murphy's LeMetropoleCafe, who notes that the open interest for gold contracts has increased quite a bit. Such increases tend to accompany short-term tops.

Indian Gold Buying Picks Up Somewhat

According to a report by the Economic Times, gold buying in India increased a little due to the stronger rupee.
"There is buying going around below $1,260 and at current levels," said a dealer with a state-run bullion dealing bank in Mumbai....

The rupee plays a pivotal role in determining the landed cost of the yellow metal, which is quoted in dollars. "Rupee is in supporting mode, that's why these deals," said another dealer with a private bullion dealing bank.

There was no mention of price acclimatization taking place, although it might be a factor.

Gold Makes Another Record Overnight

The forward market for the renminbi shot up last night, as a statement by PRC monetary authorities "'to proceed further with reform'" was interpreted as preparing for an upvaluation. The averages for both Shanghai and Hong Kong stocks were also up, by more than 2%. In Euroland, the European Central Bank called for a new agency to monitor national budgets and administer what were called "'quasi-automatic sanctions'." Explusion from the Eurozone was not one of them; instead, the ECB discussed more "'intrusive" monitoring of national government budgets, suspension of voting rights on Euro-wide decisions, and fines. This announcement has an effect on pulling the greenback up from its previous doldrums.

Gold got off to a running start in the first session of the week; it leapt up to the $1,260 level right after trading began. Pulling back to a little above $1,255 shortly after Hong Kong trading opened, the metal started to advance at 11 PM ET. The rally ended at 4 AM with gold touching a new record high of $1,266.30. A pullback lasting a little less than two hours brought the price back down to the high 1250s; it reversed at $1,255.80, and the metal ascended to above $1,260 again. As of 8:09, the spot price was $1,261.60 for a gain of $5.10 since Friday's close. The Kitco Gold Index attributed all of the gain to predominant buying.

The U.S. Dollar Index started off this week with a tumble down to 85.0. Recovering, it briefly leapt up above 85.6 on the yuan-revaluation news. That spike-up failing to hold, the Index slumped down to the 85.1 level before rallying again between 2 AM and 6:45. Again, it managed to pull up above 85.6. Slumping down to a much lesser degree, it bested 85.5 once more. As of 8:15 AM, it was at 85.55.

A Bloomberg report, as webbed by Business Week, says gold increased along with other commodities on anticipation that a strengthening renminbi will increase demand from mainland China. If upvalued, a renminbi will go farther when buying commodities.
“The impact on China in the short term will be neutral for gold prices,” Wallace Ng, executive director with Fortis Nederland NV in Hong Kong, said in an interview with Bloomberg Television. A stronger yuan will benefit gold prices in the longer term because it will increase the purchasing power of Chinese investors, he said.
The article also notes that the central banks of Russia, Saudi Arabia and the Philippines increased their holdings; that's prompted speculation of further Asian and Middle Eastern central bank buying. The SPDR Gold Shares Trust's holdings were unchanged on Friday.

A Wall Street Journal article ascribes gold's latest record to softening in the greenback, with the upvaluation providing little boost at this time.
VTB Capital analyst Andrey Kryuchenkov said China's decision to drop its nearly two-year-old peg to the dollar, and gradually strengthen the yuan, could prove positive for gold demand, but noted there is still a lot of uncertainty around the rate of appreciation China—a net gold importer—will allow. Many commentators are suggesting the announcement is more of a political gesture ahead of the June 26-27 Group of 20 summit in Toronto than a signal of any big changes in policy.

"Sentiment is positive this morning following through from that announcement, but the problem is that we don't know yet exactly what will happen," Mr. Kryuchenkov said.
Another analyst quoted was more optimistic about the news, arguing that a weaker greenback will add to inflationary pressure.

Renewed strength in the greenback, which pushed the U.S. Dollar Index up to 85.75, added to downward pressure that pushed gold down to the $1,255 level again. Regular trading opening added to a decline that got gold from $1,263 to $1,257. A brief recovery rally prefaced the metal falling further. As of 8:53 AM, the spot price was $1,256.20 for a loss of $0.30 on the day. The Kitco Gold Index attributed +$1.15 to predominant buying and -$1.45 to a strengthening greenback. After that run-up above 85.75, the U.S. Dollar Index slid back somewhat. As of 8:55 AM, it was at 85.62.

Another record was made, but the metal's trading action has been choppy since. It's too early to say whether there'll be more softening later, but the clime doesn't look very favorable for another run at another record.

Sunday, June 20, 2010

Financial Sense Has Special Guest Bob Prechter

The second hour of this week's Financial Sense Newshour podcast was devoted to an interview with Bob Prechter, the man behind the resuscitation of the Elliott Wave and noted deflationist. [.mp3 file] He returned to the deflation theme again, recommending that cash was the only safe investment for the times. He even recommended shying away from T-bonds. As for gold, he pointed to the fact that the gold stocks had not confirmed the new highs in gold itself; nor has silver. These non-confirmations, he pointed to as a reason why gold is vulnerable to a pullback.

Of course, Prechter has missed the gold bull market for most of it. He's been bearish on gold since about 2002. A note: he first broke into fame in the investment world by correctly predicting gold's top in 1980.

As a counterpoint, David Morgan in the third segment [.mp3 file] pointed out that one major gold stock, Newmont, has made an all-time high along with gold. He also noted that many investors prefer the pure play in bullion itself, leading to relative lack of demand for gold mining stocks. Jim Puplava pointed out that the gold stocks were squeezed a few years ago because of margin compression: the costs of inputs such as steel, oil and labour has gone up a fair bit too. Nowadays, that squeeze is absent. Morgan also said that the juniors are a place to find some great stocks, but only by being very selective. The only ones worth investing in are the lucky few that already show they'll eventually be mines.

Unfortunately, the best returns from that approach come when gold has been hammered and the stock market is in the doldrums. Late 2008 would have been the best time to get in to the best juniors. If there's any Warren Buffet principle that's transferrable to gold exploratrion juniors, it would be: buy the companies with the best projects when the market's fear-ridden and distressed. (Buffett got into the Washington Post in 1974.) Should gold collapse by 40%, as Precher recently forecast, and the stock market collapse too, as he also said, there would be another huge buying opportunity for the few juniors that have huge deposits. The market for them now, sad to say, is them having a market cap that's close to what it would be had they been producing already.