Gold Rises Slightly Steady Overall

Gold started off today's regular trading with a dip, which reversed somewhat after the release of the unemployment report for June. By 9:00 AM ET, the metal was fluctuating around $1,204. A run up to $1,209 between 9:15 and 9:30 reversed, and the metal sunk down to exactly $1,200.00 by 10:00. The factory-orders report, which showed a drop of 1.4% in May for the biggest fall since March of '09, didn't affect the gold price at the time of its release. Not until 10:15 did the metal go on another rally, which peaked at $1,207.50. The next dip took it down to a higher low, and it stabilized north of $1,205. As of 11:54, the spot price was $1,205.90 for a gain of $6.50 on the day. The Kitco Gold Index split the gain into +$3.80 for predominant buying and +$2.70 for a weakening greenback.

The U.S. Dollar Index stayed steady in mid-morning trading, hovering around 84.25, but rallied in late morning. Starting just after 11:05 at 84.245, it peaked above 84.4 by 11:45 and then pulled back a little. As of 11:50, it was at 84.37.

This morning has not seen a repeat of yesterday's plummet, nor any real aftershock. Gold has spent the entire day above yesterday's close, and the signs point to it continuing in the plus column in the afternoon.


Update: The upward bias in late morning continued at noon, when gold jumped to above $1,210. Staying between there and $1,211 until 12:25 PM ET, the metal then fluctuated around the $1,210 level until it sunk right at the end of the pit session. As of the end, or 1:30 PM, the spot price was $1,207.10 for a gain of $7.70 on the day. The Kitco Gold Index divided the gain into +$6.50 for predominant buying and +$1.20 for greenback weakness.

The U.S. Dollar Index, after sinking back to about 84.35, rallied all the way to 84.51 before taking a rest. As of 1:30 PM, it was at 84.46.

Although the noontime jump to above $1,210 didn't last, gold is still sporting a solid gain. The rest of the session is likely to be quiet, and gold will likely drift from here. No aftershocks are evident, and it's very unlikely there'll be one during the final electronic-trading hitch of the week.


Update 2: There wasn't one. Instead, the metal drifted back up above $1,210. The recovery started at 2 PM ET and proceeded steadily until it stopped around $1,211. Then, the metal fluctuated between $1,210 and $1,212 for the rest of the day. At the end of the week, the spot price was $1,211.30 for a gain of $11.90 on the day. The Kitco Gold Index apportioned the gain into +$10.90 due to predominant buying and +$1.00 due to overall weakness in the greenback.

The metal incurred its second weekly loss in a row. From last Friday's close of $1,255.70, the loss on the week was $44.40 or 3.54%. Most of the loss was due to Thursday's rout, of which about a quarter was erased today.

The U.S. Dollar Index drifted back down after double topping at 84.54 shortly after the last Update. After doing so, it fell in a two-stage drop that left it at 84.37.

Its daily chart, from Stockcharts.com, shows yesterday's rout continuing today:



[The chart also shows a glitch. The top part of today's candlestick shouldn't be any higher than about 84.75.]

Again, the Index has shown weakness subsequent to breaking through the former 85.0 support level. There wasn't any relief rally for it today, although there might be in the near future. Its RSI value, found at the top of the chart, remains closer to oversold than neutral; its MACD lines, found at the chart's bottom, are still solidly in a bearish configuration. Not much has changed for its gloomy picture, although it might turn around and make a try for 85.

Gold, on the other hand, shows a definite recovery rally. What made this day unusual is, with respect to the spot price, the interday low of today was higher than the close yesterday. Its own daily chart shows today's interday low coinciding with yesterday's close:



That recovery is fairly unusual for gold given how it's behaved after previous plummets, and lends credence to the claim that yesterday's plummet was accentuated by the low volume typical of pre-holidays.

The main reason for the recovery was solid evidence of bargain hunting, of physical gold, from the Indian market. In previous plummets, buyers there held back and waited for further drops. Not this time, or at least not enough did so to stay a rush into the metal. Bargain hunters in other regions acted accordingly. Given the gloom yesterday's plummet induced in gold timers, in contradistinction to bargain hunting from stronger hands, yesterday's bottom looks like it was a buying opportunity.

Last Tuesday, gold had recovered from a much milder tumble on Monday; it had climbed back to above $1,240 at the close. That close was the cut-off point for this week's Commitment of Traders data, as graphed here. Total open interest increased by 5.05% to another year's record. All reportable categories showed increases, and the percentage range of those increases was fairly narrow. No single reportable category stood out, which suggests yesterday' plummet was a surprise.

The U.S. Dollar Index last Tuesday had rallied back above 86, near the top of its then-range. Its own Commitment of Traders data, as graphed here, shows another decline in open interest as of that point. All categories shrunk with the exception of non-commercial shorts, which increased by a smidgen. Again, that group of holders showed a little sagacity as a group.

Turning back to gold, a post-pit Reuters report concurs with the bargain-hunting explanation, and adds short-covering. Amongst the points therein, these were included:

* Gold investors avoid opening new positions ahead of a three-day U.S. Independence Day weekend, and major moves largely absent with steadier foreign exchange and U.S. equity markets - traders.

* Bullion largely ignored a government report showing U.S. private payrolls rose only modestly in June and overall employment fell for the first time this year....

* Gold's weakness [yesterday] was due to aggressive unwinding of the previously popular "long gold, short euro" trade - Bill O'Neill at LOGIC Advisors.

* Gold supported [today] as the dollar slipped against the euro, extending the previous day's steep losses on concerns over the U.S. economic recovery after disappointing U.S. jobs data.

This week was hairy, but it ended better than what would be expected given normal recent post-plummet behavior. The signs indicate that gold fell out of bed yesterday, and its intermediate-term bull run is still intact.

Thanks for stopping by and reading what I've got here, and enjoy the holiday weekend if you celebrate it; I hope the crowds aren't too bad where you are.

Gold And Double Dip Recession

Kevin McElroy, over at Seeking Alpha, has gone out on a limb and said the U.S. economy is going in to a double-dip recession. He bases his forecast on the performance of the S&P 500 over the last two months.

His recommendation on how to cope with it is gold stocks, as proxied by the Market Vectors Gold Miners ETF (GDX.) Although GDX was slaughtered in late 2008, that rout made for a great buying opportunity.

Now, I don’t know for sure if gold stocks will get slaughtered along with the broad market like they were in late 2008/early 2009 - but it’s something to look for.

In the meantime, you should be averaging into these gold stocks - and the GDX ETF is one great way to do so.

That’s because while gold sells near its all time highs, gold stocks are still playing catch-up. That increased profit capacity from higher priced gold hasn’t hit their bottom lines - yet.

Gold mining stocks typically magnify gains made in gold’s price, and right now they’re still cheap on that basis. Even if we don’t get another great buying opportunity, I still expect many gold stocks to double in the next 12-18 months. Buying these companies today gives you exposure to the increased earnings power of companies that can mine gold for much less than the spot price.

Of course, the main reason why gold stocks got slaughtered is gold itself did. So far, there's no sign of any corresponding slaughter even though stocks have been hammered. Gold peaked in February of '08, with a slightly lower top coming in July of that year. There hasn't been the same action so far.

Hedge-Fund Explanantion For Gold's Plummet

Over at Motley Fool, "goldminingXpert" offers this cause for gold's plummet: hedge funds had levered up to buy gold earlier, as well as the U.S. dollar, as a way to play the Eurocrisis. Both were dumped so as to meet margin calls when stocks and the greenback tanked.

When large margin calls (or something) were unleashed last night and the dollar fell 3 cents against the Euro (the biggest move in awhile), it's only natural that the same margin calls also rocked the precious metals world. The fast-moving hedge funds who gorged themselves on dollars, gold and other "safer" assets ... often as a hedge for their declining US equity positions ... were forced to unload. Thus the harrowing decline in the dollar, gold, and miners today. Many junior miners are down 8 or more percent, and this is on top of steep declines in the past few days. While a lot of these miners that are getting killed (Nadagold, Seabridge, Allied Nevada and others deserve their loses), there's some genuine bargains starting to emerge.

That said, as long as the hedge funds remain overlevered and are long commodities with hot money, expect gold to take further losses. They will unload the assets that are showing gains (US dollars and precious metals) rather than the ones showing losses (mortgage equities, real estate, US equities, European debt, etc.) Live by the hot money, die by the hot money.

When the US$ index and gold decouple, we'll know the hot money has moved on to a different trade. But for now, be cautious. We're at an interesting crossroad in gold and mining shares.

There were no recommendations as to which mining shares were bargains now.

Dennis Gartman Says Gold On Verge Of Going Parabolic

Drawing on his experience watching markets, Gartman says gold has the signs of going in to a parabolic move - a bubble, to put it less sanguinely.

Gartman gave two main reasons why it has plenty of room to run even higher. He noted that gold seems to be the "anti-trade", that is, anti-US dollar, anti-Euro, and anti-British pound. While European financial markets continue to face significant challenges from the ongoing debt crisis, the US dollar is beginning to show weakness as poor economic data and worries of global slowdown pile on in droves.

Using his 35 years of experience to his advantage, Gartman also suggested that gold is on the brink of a "parabolic" move, noting that commodities tend to follow certain patterns before such moves. "The market [for a particular commodity] starts slowly and takes several years to build. Then, in the last 10% of the time frame you get 50% of the price movement. I've seen it time after time… And I get the sense that gold is about to do that same thing."

He also said gold shows no sign of investor frenzy characteristic of a full-blown bubble as yet.

Mainland China's Gold Output Falls By 5.9% In May

Although well up from May of 2009, gold production in mainland China has dropped by 5.9% from April's figure.

Reuters calculations from the official data, which is released sporadically by the ministry, showed that primary gold production slowed while secondary production, a much smaller source of gold, surged after a slow couple of months.

The volume produced as a by-product of other metals rose 6.9 percent from April to 5.215 tonnes, 20 percent higher than a year before, while the volume from gold mining slid 3.7 percent from April but remained higher than in May 2009.

China has raised gold production every year since 2004, producing a total of 313.980 tonnes last year, an average of 26.165 tonnes per month.

There was no explanation why, which might get the rumour mill going. May's prices were typically higher than April's.

Good News For Contrarians

Mark Hulbert notes the lack of stubborn optimism among gold timers after yesterday's plummet, which he interprets as a good sign for the metal. The drop in bullishness means that gold has not engendered a bullish extreme of the kind that signals a major top.

Consider the average recommended gold market exposure among a subset of short-term gold market timers tracked by the Hulbert Financial Digest (as represented by the Hulbert Gold Newsletter Sentiment Index, or HGNSI). In the wake of Thursday's 3.2% decline in gold bullion's price, the HGNSI dropped 14.3 percentage points to 23.5%.

This not only is a big drop for just one day, which would, in and of itself, be a bullish omen, according to contrarian analysis. It's also bullish that the HGNSI level that prevailed going into Thursday's session was already surprisingly low, given how close gold bullion was to its all-time high reached earlier in June.

To put the current HGNSI level in context, consider that the HGNSI's all-time high is 89.6%. So by no stretch of the imagination can current sentiment levels be described as excessively high....

He also compares recent data to that of six months ago, in the middle of gold's correction. Sentiment back then was much higher than it is now. Instead of clinging to optimism, gold timers are clinging to a skeptical stance.

That skepticism means there's still a reservoir of bullishness that hasn't been tapped as of yet.

Indian Gold Buying Picks Up On Bargain Hunting

Yesterday's rout didn't lead to massive pulling of bids on hopes that prices would fall even further. According to a Reuters India report, buying kicked in as the lowered price was seen as a bargain.

"We priced in more than 300 kgs of gold since yesterday evening..., everybody is coming, be it domestic trader, exporter," said a official with a state-run bank bullion dealing bank....

India's gold imports in June are likely to fall, for the third straight month, by 75 percent from 29.9 tonnes a year ago as record prices dented demand in the world's largest market for the metal, the head of Bombay Bullion Association said.

However, a series of festivals starting from August could revive demand for the yellow metal, traders said.

"Both jewellers and investors, who were waiting for gold to fall are buying in good quantity for upcoming festivals," said Harshad Ajmera, proprietor of Kolkata-based wholesaler JJ Gold House, which offered to sell gold at 18,400 rupees.

So, some of the demand was from stockists preparing for the festivals.

Gold Recovers Somewhat After Yesterday's Rout

After closing a little below $1,200 yesterday, gold climbed up above that figure and didn't look back. With little news overnight to affect it, the metal still bounced back to the tune of more than ten dollars an ounce. After a steady rise during the night, and stalling at just below $1,210 in early morning, it resumed the climb a little after 3 AM ET. Making it to $1,214.40 around 4:00, the metal slid back to $1,210. A climb to $1,212 a couple of hours later failed to last, and the metal fell down below $1,210 again. As of 8:06 AM ET, the spot price was $1,215.50 for a gain of $6.10 on the day. The Kitco Gold Index split the gain into +$4.20 for predominant buying and +$1.90 for a weakening greenback.

The U.S. Dollar Index also recovered a bit last night and early this morning, but those gains did not hold. Peaking at just above 84.75 around 2:30, the Index dropped but recovered shorly afterwards only to slide down below 84.5. As of 8:13, it was at 84.37.

A Wall Street Journal report ascribed the recovery to physical buying.

"In early London [trade], we've seen a lot of demand for physical [gold], so that's putting a bottom on the market for the time being," said Afshin Nabavi, head of physical trading and sales at Swiss trading house MKS Finance.

Gold's heavy losses Thursday took some by surprise, even though many analysts have been warning the market was overly long and vulnerable to a correction.

Nabavi said he expected gold will rebound to $1,220 an ounce, but others were less willing to take a position, saying further selling could trigger heavy stop-loss selling. "If it carries on running, it will be a huge slide," a London-based trader said.

The article also cites another analyst who said the jobs numbers would have to be significantly worse than expected for gold to be routed again.

A Reuters report concurs with the WSJ one regarding physical buying.

Afshin Nabavi, head of trading at MKS Finance, said demand for physical gold at lower prices had been "very, very good."

"We had a big correction, but there has been no change of the fundamentals, political or economic," he said. "It's a good opportunity to take up some gold."

The report also said that physical buying in India picked up smartly as a result of yesterday's fall, but part of the reason for the drop was the diminished appeal of gold as a safe haven now that the Eurozone appears to have overcome its troubles.

A Bloomberg report ascribes the rebound to buyers coming in because they thought the drop went too far.

“We’re seeing a lot of physical demand coming in at these levels,” said Bernard Sin, head of currency and metals trading at bullion refiner MKS Finance SA in Geneva. “People are still considering gold as a safe haven. Europe is still not in a good shape and the U.S. is still not in a good shape.”...

“Gold has on occasion been caught in the crossfire of steep liquidation actions in other markets, with the need to raise cash for margin calls sending gold into a tailspin,” Edel Tully, an analyst at UBS AG in London, said in a report. “The positive for gold right now is that physical demand is starting to perk up in regions that have been quiet for some time.”...

“Comparing the Comex turnover volume with the ETF outflow suggest that rational investors were not big sellers,” said Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland. Some of the sales may have been automatic based on “technical signals,” he said.

The article also notes the holdings of the SPDR Gold Shares Trust fell 1.22 tonnes to 1,319.22 tonnes.

The jobs report was released, and it showed private-sector employment went up by 83,000; expectations were for 115,000. The unemployment rate, which was expected to remain steady at 9.7%, dropped to 9.5%. Gold fell to $1,200.90 just before the number was released, but rebounded to above $1,205 once the report came through. The metal fell back down to a little above $1,202 before pulling up again. As of 8:55, the spot price was $1,205.30 for a gain of $5.90 on the day. The Kitco Gold Index divided the gain into +$1.10 for predominant buying and +$4.80 for greenback weakness. The U.S. Dollar Index did not take to the news all that well. Falling below 84.25 right after the news, it continued to fall before fluctuating between 84.2 and 84.3. As of 8:59, it was at 84.25.

Gold has managed to hold on to some of its gains from the overnight session, but the start of regualr trading did shave off a fair bit. There may be an echo of yesterday's rout today, but any such aftereffect is likely to reverse.

Gold Plummets Below $1,200

It's been a bad morning for at least three asset classes, all driven down by the same cause. The three major U.S. stock averages were down about 1%, the U.S. Dollar Index fell well below 85.0, and gold plummeted down to almost $1,215. U.S. pending home sales shot down by about 30% in May, and the Institute for Supply Management's manufacturing index dropped from 59.7% for May to 56.2% for June - way below expectations for 59%. The first-time jobless-claims number, released at 8:30 AM ET, showed an unexpected increase.

Gold fell since regular trading opened, and its fall accelerated after the first two items were released as of 10:00. At first dropping below $1,235 by 9:15, the metal recovered to $1,135 and stayed there until 10:15. Then, it dropped in a steady rout that ended when it reached $1,215.10 at 11:15. The plummet over, the metal bounced up to hover around $1,220. As of 11:53 AM, the spot price was $1,218.90 for a loss of $23.50 on the day. The Kitco Gold Index attributed an unusually large -$41.80 to predominant selling and an also large +$18.30 to weakening of the greenback.

The U.S. Dollar Index also declined fairly steadily, although there were a couple of mini-routs that were recovered from later. Overall, though, the trend was solidly down. As of 11:54, the Index had recovered from its nadir of 84.71 to 84.82.

Gold and the greenback are once again positively correlated - to neither's benefit. Although the volatility on the former has been accentuated by near-holiday quietness, the plummet was still a bad one. The afternoon may see a respite.


Update: So far, it hasn't. The relief rally to $1,220 proved to be a rest stop for a continuation of the plummet. The next downleg started around 11:50 AM ET and ended as of 12:30 PM at $1,204.40. Another relief rally pulled the metal above $1,210; after it ran out of steam, the metal continued to decline. As of the end of the pit session, or 1:30, the spot price was $1,205.90 for a loss of $36.50 on the day. The Kitco Gold Index assigned -$54.80's worth of change to predominant selling and +$18.30's worth to greenback weakness.

The U.S. Dollar Index, after its own rout, managed to inch back to 84.9 in a recovery rally before sliding back once again. As of 1:35 PM, it was at 84.76.

In raw dollar terms, today's rout in gold has been the worst since February 4th's. Since a few floors collapsed today, gold could continue to tumble even though the electronic-trading hitch is usually calmer. The rest of the afternoon will show whether or not today's plummet comes to an end.


Update 2: As the later part of the afternoon showed, gold had a little drop left in it. After stabilizing around $1,207, the metal fell to slightly below the $1,200 level in mid-afternoon. Another attempted recovery turned into a deeper drop that saw the metal reach a new low of the day at $1,195.40. Another relief rally, this one slow, didn't pull it up above the $1,200 level but almost did. As of the close, the spot price was $1,199.40 for a loss of $43.00 on the day. The Kitco Gold Index attributed a huge -$65.70 to predominant selling and a very large +$22.70 to a weakening greenback.

The U.S. Dollar Index, after stabilizing earlier in the afternoon, showed that it had some more decline left in it too. From 84.9, a two-wave decline took the Index down to 84.42 by 3:50. After that bottom was reached, the dropping stopped and it managed to crawl up subsequent to a period of flat trading around 84.5. As of 5:30 PM, the Index was at 84.54.

Its daily chart, from Stockcharts.com, shows that the 85 floor previously holding was sliced through definitively:



I have to say that I expected more of a rise after June 21st's dip to 85.0, but the drop below it didn't surprise me all that much. Today's plummet means that a head-and-shoulders top, whose neckline was 85.0, is now complete. With that completion, the Index's bull run is over. I can't say it's gone into an all-out bear market, but I can say that it is in an intermediate-term decline. The Spanish government bond auction going fairly well early this morning, despite warnings of a downgrade by Moody's, proved to be the tipping point that put the Euro on the recovery track. That currency is now more than US$1.25.

Going back to the Index, its RSI level (found at the top of the chart) is lower than any level since the beginning of the Index's bull market in early December. Had the Index still been in a bull phase, the RSI value would have not gone as low as it has. It's now closer to oversold than neutral. Also for the first time since the bull run got rolling, the black signal line in the Index's MACD lines (found at the bottom of its chart) descended below zero.

All of this is not to say that the Index is going to keep falling precipitously, but it does say that bullishness on the greenback is a lot riskier now than previously. It would take another all-out flare-up of the Eurocrisis to change that risk level.

Gold's own decline, as shown in its own daily chart, was worse:



As indicated above, today's plummet rivals the one on February 4th for magnitude. There's one big difference between then and now: February's was the climax of a decline that started in early December; today's came on the heels of a range in which a new record high was made. Needless to say, that range was broken on the downside today.

There's another plummet to which today's can be compared, and it makes for a closer match conceptually: the one on December 4th 2009, two days after gold had made a 2009 record. That plummet prefaced an all-out correction, which may be what gold has in store for it now. If so, then its seasonality has finally caught up with it.

There are reasons for concluding the opposite, that gold just fell out of bed. First and foremost is the fact that a similar plummet took place in late May, which proved to foreshadow a buying opportunity that took place a couple of days later. Although late May's drop was less in magnitude, it did induce some panic that proved to be unfounded. If this one did, then it's a sign pointing to a wall of worry. I note that gold's long-term bull market is still intact.

If the metal follows the same script it's followed in plummets past, tomorrow will see a continuation of its decline but that continuation will largely reverse.

A post-pit Wall Street Journal report says that gold was abandoned while Treasuries were flocked to by the safety-haven seekers. Talk of deflation accentuated the letdown that came with the sucessful Spanish government bond auction. The disappointing U.S. economic data bred the talk of deflation.

"Investors are choosing Treasury's over gold," said Tom Pawlicki, precious-metals analyst with MF Global in Chicago.

The poor economic figures may be signaling a deflationary environment, Pawlicki said, causing participants to prefer Treasury's as a haven over gold, which is often viewed as a hedge against inflation in addition to its perceived role as a haven investment.

"Some of the risk money that went into gold is coming out today," said Ira Epstein, director of the Ira Epstein division of the Linn Group in Chicago.

The strong performance of gold recently made it vulnerable to a selloff to help participants make up for losses in other markets.

"A lot of...funds have been long gold," said Michael Gross, broker and futures analyst at OptionSellers.com in Tampa, Fla. "They're taking profit in those positions to pay for margin calls."

In other words, gold has been a victim of its own success as its gains made it like a tappable piggy bank. This factor added to the momentum selling.

Tomorrow's action could well see a continuation of the decline, in part because it's a pre-holiday day that's normally quiet. Few participants means exaggerated volatility if there's cause. That same factor did play a role today.

A decline from these levels wouldn't be that much of a surprise. What'll tell the tale is how gold reacts after any such decline. The accompanying sentiment will be telling too.

Gold In For A Dip?

In a Seeking Alpha article, Michael Michaud says to wait for a significant dip before buying gold. The nub of his analysis is his interpretation of the three recent record highs as a triple top, and divergences between three technical indiators' levels and the gold price itself. His target price for a buy-in is $1,050, which seems quite low.


Given how gold's dropped this morning, his article is certainly timed right.

Indian Gold Buying Still Quiet

According to a report by the Economic Times, a weaker rupee contributed to damping demand.

"It's very quiet since last week as June and July are traditionally quiet months," said a dealer with a state-run bullion dealing bank in Mumbai.

"I have a few orders below $1,230 (an ounce)," said another dealer with a private bank.

Despite Gold Quadrupling Since The 1982 Low...

...gold's "capitalization" as compared with paper in the form of equities and fixed-income products is way below what it was in 1982. The big gain was in the equities category.



That drop is largely reflective of the 1982-'00 bull market in equities. The Dow is still way above where it was in '82. Believe it or not, there were cheers when the Dow made it above 1000 - yes, one thousand - in 1983.


The only time when the Dow/gold ratio ever sunk below one in the last hundred years was in early 1980, at gold's peak. This chart, from a BullionVault.com article on April 29th, 2009, shows another time when the ratio hit one:



Right now, as a Stockcharts.com ratio chart shows, the ratio is around 7.7. It got as high as 10 when the Dow peaked.

Gold To Go To $1,300: Most Accurate Forecaster

A survey of 18 gold analysts over the second quarter of this year put Anne-Laure Tremblay as the most accurate forecaster of the group: her call was within 0.1% of the actual rise. She believes gold will reach $1,300 by the end of this year. The second-most accurate forecaster, Jochen Hitzfeld, has called for $1,350.

“There are still concerns among investors about the solidity of the economic recovery,” Tremblay said in an interview in London. “The euro zone will see protracted weakness until well into 2011. Funds and/or central banks may switch away from the euro to gold, thus providing support to gold prices.”...

Gold averaged $1,195.27 in the second quarter as of 6:10 p.m. in London yesterday. Tremblay predicted $1,195 and Hitzfeld $1,200. The metal will trade as high as $1,400 this year, according to the median in a separate survey of 19 traders and analysts. Estimates ranged from $1,300 to $1,500.

“If the economy gets too weak then we will see some more quantitative easing measures and then the mistrust of the paper currencies goes on,” Munich-based Hitzfeld said. “Continuous investor demand, much lower scrap supply, stagnating mine supply and a return of emerging market gold jewelry bias” will support prices, he said.

Unusual Concurrence

In the San Francisco Chronicle, Kathleen Pender writes about the unusual concurrence of T-bonds and gold both rising in the first half of this year. The Eurocrisis is the overall reason, but there are special reasons behind the rise in bonds. First of all, banks can buy them for a risk-free return after borrowing money at near-zero rates; that adds demand for Treasury securities. Secondly, there's the widespread comparison of America to Japan: the latter saw long rates go from 2.1% downwards after Japan's zero-interest rate policy was put in place in 1999. Gold, of course, has been moved by the fear trade.


The two markets really show a profound split in the disaster circuit. T-bond bulls tend to be deflationists, who see America's fate as mirroring Japan's of the last two decades. Gold bulls tend to be inflationists, seeing America's fate as repeating the 1970s. Of course, the U.S. government has a huge incentive to keep bond and bill rates as low as they can go given the huge U.S. debt load. Should Treasury rates go back to where they were in the mid-1980s, the U.S. budget would groan under a huge interest-payment loadstone. As others have noted, the U.S. government also has a large incentive to understate the inflation rate too.

Gold Holds Steady

It was a quiet overnight, with gold drifting downwards in the night part and drifting back up in the morning. Although Moody's threatened to cut the rating of Spanish sovereign debt, an auction of five-year bonds still went through. The bid-to-cover ratio was lower than usual, and the rate was 12.5 basis points higher than the last one, but the auction was enough of a succes to help the Euro. Despite the Nikkei being in the doldrums, business confidence in Japan hit a two-year high with manufacturers becoming upbeat about business prospects.

The metal drifted down to a little below $1,240 by midnight, and hovered around there until 3:30 AM ET. At that point, it turned up in a slow two-stage advance that got all the way up to $1,245.10 before tailing off. As of 8:04 AM ET, the spot price was $1,241.40 for a drop of $1.00 on the day. The Kitco Gold Index attributed -$8.90 to predominant selling and +$7.90 to a weakening greenback.

The U.S. Dollar Index, after rallying slightly at night, took a tumble largely on the news of that relatively successful auction of Spanish sovereign debt. Reaching almost 86.25 just before 10 PM, the Index fluctuated between there and 86.05 until the decline started at 2:45. Lasting more than five and a half hours, the drop took the Index down below 85.5. As of 8:15 AM, subsequent to a pull-up, it was at 85.53.

A Bloomberg report says that gold is little changed, but may advance.

“Given the current concerns over inflation, slowing economic recovery and European debt the metal may look to extend higher as investors continue to diversify from fiat currencies,” said James Moore, an analyst at TheBullionDesk.com in London....

“For the time being, gold looks likely to remain in demand as a safe haven,” Eugen Weinberg, head of commodity research at Commerzbank AG, wrote in a report yesterday. Still, that trend may be countered by weak seasonal demand for gold from India, the largest importer, Weinberg said.

The article further notes that Indian purchases are expected to fall by as much as 36% this year.
A Reuters report ascribes gold's steadiness to support from safe-haven buying motivated by concerns about global growth.

"It is not unusual for gold to trade in this way, with a period of consolidation after a healthy price rise," said Michael Widmer, an analyst at Bank of America-Merrill Lynch.

Investors are awaiting key U.S. payrolls data on Friday for clues as to the next direction of trade, he said.

"The labor market report is quite critical because a lot of the recent consumer confidence drop came about because people are concerned about their employment prospects," he said.

"If you do get a slowdown, the picture for some of the cyclical asset classes may be perceived to be not as strong... and that could be quite positive for gold overall."

Also mentioned was a new record in another currency: the Canadian dollar. That record was made on the eve of Canada Day, which is today.

A Wall Street Journal report said gold was steady in the absence of a catalyst.

"The bullion is still stuck in a fairly narrow range, bouncing off our key support at $1,230 a troy ounce in thin trading," VTB Capital analyst Andrey Kryuchenkov said. "Risk-aversion is still evident, but there have been some positive developments limiting the downside in commodities and the upside in gold."

He noted that volume remains low. "I think people are just waiting for some clear direction," he said.

That same point was echoed by another quoted analyst.

Weekly first-time U.S. jobless claims unexpectedly rose to 472,000. The news helped drive down gold to the $1,236 level from the $1,241 it was at just before the release of the number. Bottoming around 8:40, the metal pulled back up but couldn't stay above $1,240. As of 8:54 AM, the spot price was $1,239.20 for a loss of $3.20 on the day. The Kitco Gold Index assigned -$16.00's worth of change to predominant selling and +$12.80's worth to greenback weakness. The U.S. Dollar Index continued dropping, with the jobless-claim number not interfering. As of 8:57, it was at 85.15.

The metal continues to languish, as the slow season continues. There may be a continuation of yesterday's choppiness, but there's no sign of it yet.

As mentioned above, today is Canada Day. Happy day to those who celebrate it.

Gold Keeps In $1,240-$1,245 Range, Mostly

The range that was established in overnight trading held during regular trading, despite a fall that took the metal down to $1,236 by 8:30 AM ET. Hovering just above that level, the metal took off at 9:30 and managed to get to $1,248.70 by 10:15. One reason for the run was the disappointing opening for the U.S. stock market; the reason for the earlier slump was the disappointing ADP private-sector jobs number. Different disappointments had different effects. Dropping back, the metal first hesitated around $1,245 and then dropped to a little below $1,240. Again, the metal went up to around $1,245; again, it dropped to $1,240. As morning turned into afternoon, the fluctuations eased. As of 1:32 PM ET, a little after the pit session ended, the spot price was $1,245.10 for a gain of $4.40 on the day. The Kitco Gold Index split the gain into +$1.50 for predominant buying and +$2.90 for a weakening greenback.

The U.S. Dollar Index largely stayed put in the morning and early-afternoon part of regular trading. It ranged between 85.8 and 86.0 from about 8:30 on to 1:45. As of 1:49, it was still in the range at 85.95.

Gold is still holding firm, and the market is calming down. There's a good chance of a gain, although a slight one, at the close.


Update: The choppiness largely ended as gold settled into the middle of its range. Another down-and-up bob, between 3:35 and 4:10 PM ET, left the metal where it was beforehand. As of the close, the spot price was $1,242.40 for a small gain of $1.60. The Kitco Gold Index divided the gain into +$0.50 for predominant buying and +$1.10 for greenback weakness.

The U.S. Dollar Index broke out of its range on the high side in mid-afternoon. It rallied through the afternoon, although more choppily after breaking through 86.0, until 4 PM when it bounced between 86.03 and 86.12. As of 5:30 PM ET, it was at 86.06.

Its daily chart, from Stockcharts.com, shows a slight decline from yesterday's level:



Given that decline, the ceiling of the Index's current range is better pegged at 86.5. 85 is the floor.

The sideways movement continues as no flare-up has moved the Index in either direction. Its RSI level, found on the top of its chart, is now slightly above neutral and continues to stay in the doldrums around there. The Index's MACD lines, found at the bottom of its chart, continue in a bearish configuration but the distance between the two continues to narrow. Should the black line cross above the red line, or the red line fall below the black line, a switch to a bullish configuration will have been made. The black line is currently at the lowest level it's been at in the last six months.

Since the news flow about the U.S. and other economies has continued, without the Index reacting all that much, it would take a special event to make for a driver. Until such a jolter arrives, or the internals change, the Index will continue to trade in its range. There's no bullish pressure, but there's no real bearish pressure either.

Turning to gold, its own daily chart shows today's slight gain built on yesterday's:



Gold's own MACD lines have drifted to a bearish configuration, but they've done so before without changing the overall neutrality shown for most of this month. Its RSI value has stayed stuck at somewhat above neutral; both are consistent with overall trendlessness.

Yesterday, gold did bump into the $1,230 floor of its current range and even bent it a little. Today, it got above $1,240 and stayed there after the wider fluctatations of this morning changed into the gentler fluctuations of this afternoon. The metal seems to be preparing for another run at the $1,260 ceiling of the range. It might, but recent trading shows that such an advance - even if it results in a new record - will likely be seen as yet another selling opportunity.

A post-pit Wall Street Journal report said the fall in gold, caused by a better than expected European Central Bank tender operation to help out European banks that showed less trouble than expected, was cushioned by the overall fall of the greenback. The activity was relatively quiet.

"Pretty much the only news was the ECB tender early in the day that gave a positive tone to the euro," said Dave Meger, director of metals trading at Vision Financial Markets in Chicago.

This weakened the dollar and helped gold, he said.

"But on the other side of the coin, you are losing any potential safe-haven demand for gold," Meger said of the reduced worries about banks following the tender. "So it was kind of a double-edged sword for gold. That left gold back and forth in a range."

The July 4th holiday is being celebrated on financial markets on Monday, which makes for a holiday weekend starting in two days. The quiet can be ascribed to that approaching long weekend. There are two opinions about these quiet times: fluctuations will be minimized because traders don't bother to log in big positions, or volatility will be accentuated because there'll be less cushioning. It could go either way tomorrow and Friday.

Notice

Due to a personal matter, I'm not going to be posting the usual string of entries today. The first recounting of today's action in gold will be in the early afternoon.

Thanks for your patience.

Dennis Gartman Bullish On Physical Gold

A summary of a "Fast Money" interview at Benzinga.com says Gartman is bullish on gold because he believes there's no other place for money to go given the current economic clime. He also said that mining stocks carry added risks, so people wanting gold should stick to physical or an ETF.

Barclays Calls For $1,385 Gold

The technical analysis department of Barclays, seeing gold in a rising channel, has called for the metal to reach $1,385.

“We maintain our bullish bias for a move through the bull- market highs,” Barclays analysts including MacNeil Curry in New York wrote in a report on June 28. “We look for a push towards $1,385, 20-month channel resistance, as speculators begin to rebuild their long positions.”

A channel is two lines that connect highs and lows, respectively. Technical analysts believe that a rising channel, composed of higher highs and higher lows, can be extended to forecast where an asset price will be.

Indian Gold Buying Still Slack

According to a report by the Economic Times, a weaker rupee helped dampen demand.

"It's all dull at the moment because of high prices and monsoon. There was buying in bits and pieces yesterday, when gold was below $1,230 (an ounce)," said a dealer with a state-run bullion dealing bank....

India is entering the lean season for gold deals as the annual monsoon rains sweep the country, and farmers, who account for 65 per cent of the country's gold demand, spend their money on sowing crop. "We can see more buying if prices fall in the range of $1,230-1,235 (an ounce)," said another dealer with a private bank.

That pricing point makes some sense, as it's at the bottom of gold's current range.

Gold Hovers Above $1,240

It was a quiet session. With little news to move gold either way, except for an ECB bank financing, the metal stayed above $1,240 but didn't get higher than $1,245 except for two brief intervals. Yesterday, the SPDR Gold Shares Trust's assets topped the $50 billion level but that milestone didn't move the metal much either. Around 5:30 AM ET, it sunk as low as $1,238.10 before rebounding; the subsequent rebound pulled it up to $1,246.70 just before 6:00. Other than those two extremes, the range held. As of 8:04 AM, the spot price was $1,241.50 for a gain of $0.70 on the day. The Kitco Gold Index attributed -$4.05 to predominant selling and +$4.75 to a weakening greenback.

The U.S. Dollar Index sunk below 86.0 last night, with most of the drop coming early this morning. Drifting down to the 86 level last night, the Index first sunk slightly below; it recovered above 86 between 4:45 and 5:20. Then, it sunk fairly rapidly to below 85.6. Bottoming at 6:20, the Index reversed course and climbed up somewhat. As of 8:11, it was at 85.79.

A Wall Street Journal report says the Euro's rise helped gold advance a little, with the same factor both helping gold in greenback terms and hurting the metal in safe-haven terms:

Lower-than-expected demand at the European Central Bank's three-month refinancing tender boosted the euro, helping gold in dollar terms but also easing demand for safe-haven assets....

Commerzbank analyst Eugen Weinberg said the gold market has become predominantly long and is therefore vulnerable to bouts of profit-taking.

Still, he predicted gold would rebound through the second half of the year as the metal continues to benefit from the weaker global growth outlook and uncertainty on whether the euro zone's austerity measures will succeed in bringing down high government-debt levels.

"Gold might prove to be the safe haven many people are looking for," he said. "I wouldn't be surprised to see us at $1,300 by year's end."

The article also notes that holdings of the SPDR Gold Shares Trust increased to a new record high of 1,320.44 tonnes.

A Reuters report cited the same low demand for ECB bank refinancing facilities as the reason for it giving up its earlier gains.

The euro jumped and gold dipped briefly lower after the European Central Bank said it lent banks a lower-than-expected 131.9 billion euros ($161.4 billion) in three-month funds at a tender on Wednesday.

The process was closely watched, as banks face the repayment of close to half a trillion euros in 12-month funds later this week. Analysts said the relatively low demand should help ease fears over bank finances which have rocked stock markets this week.

European shares also turned positive in the wake of the tender, stabilizing after steep falls a day earlier....

The article also mentions that Indian demand is lackluster, but so is supply from scrap sales. Hong Kong premiums for gold bars rose.

A Bloomberg report, as webbed by Business Week, said gold was little changed. The report was written prior to the bank refinancing.

“Sentiment is still sour,” said Andrey Kryuchenkov, an analyst at VTB Capital in London. “Scrap selling has also been fairly limited because most players fear more upside to prices amid ongoing uncertainty.”

“Demand for gold as a safe haven will remain strong, which should oppose any major declines in prices,” Eugen Weinberg, head of commodity research with Commerzbank AG, wrote in a report. “Due to the currently high price level, profit-taking by short-term oriented investors is increasing.”

Also mentioned is the fact that the metal is on track for a seventh quarterly gain in a row, the best streak since 1979.

The June ADP report for private-sector jobs was released at 8:15, revealing a number lower than expected. Equity futures did not react well to the 13,000 jobs gained number, nor did the gold market. When regular trading opened, the metal dropped from above $1,243 to below $1,237, reversing course around 8:30 AM. Despite that reversal, it stayed below $1,240. As of 8:53, the metal was at $1,239.70 for a loss of $2.00 on the day. The Kitco Gold Index assigned -$5.20's worth of change to predominant selling and +$3.20's worth to overall greenback weakness. The U.S. Dollar Index reacted positively to the number, rising above 85.9 by 8:20. Pulling back a little, it rallied above 85.9 again but did not reach 86.0. As of 8:56, it was at 85.92.

Gold has not had a great day so far, not even a particularly good one. Still, its performance hasn't been all that bad. It's held its own, which provides reassurance if not optimism.

Gold Fluctuates In Morning Trading, Gets Above $1,240 In Afternoon

Actually, the metal went through a choppy ride without any overall direction. The lowest dip of the day came just before 10 AM ET, when gold sunk as low as $1,226.40 before reversing. The trigger that got gold up above $1,236 within twenty minutes was a collapse in consumer confidence: the Conference Board Index dropped nearly 10 full points for June as compared with May. The Expectations sub-index dropped more than 13 points.

Although the news was good enough to put ten dollars on the gold price, the metal then sunk back as it continued trading choppily. Another rise, starting just after 11:00, got the metal above $1,238 before it pulled back and settled around $1,236. As of 11:56 AM ET, the spot price was $1,238.00 for a loss of $0.60 on the day. The Kitco Gold Index attributed +$5.30 to predominant buying and -$5.90 to strength in the greenback.

The U.S. Dollar Index went on a rally in mid-morning after slumping to a little below 86.0 at the start of regular trading. Making 86.3 just before 10:20, it slipped back to below 86.1 before trading sideways between 86.05 and 86.12. As of 11:58, it was at 86.09.

So far, $1,230 held as a floor except for a brief interval. There have been more declines since yesterday's tumble, but they haven't gained any traction. The choppiness in gold is actually a good sign.


Update: The late-morning rise, and pullback to $1,236, proved to be the first stage of a rally that took the metal above $1,245 in early afternoon. Shortly after noon ET, the metal advanced to reach a new daily high of $1,246.30. Retreating after that 12:20 peak, the metal got down below $1,242 before bobbing between there and $1,244. As of the end of the pit session, or 1:30, the spot price was $1,241.80 for a gain of $3.70 on the day. The Kitco Gold Index assigned +$9.20's worth of change to predominant buying and -$5.50's worth to grenback strength.

The U.S. Dollar Index traded largely sideways in a hardly-tested range bracketed by 86.0 and 86.1. As of 1:35 PM, it was at 86.09.

Gold is still rallying on the consumer-confidence disappointment, to the point where earlier losses have turned into a gain. It may slip in later-afternoon trading, but the chances of the metal closing with a gain today are fairly good.


Update 2: There was a slip, but gold stayed above $1,240 except for a stretch in mid-afternoon; it did close up. For most of the electronic-trading hitch, the metal stayed between $1,240 and $1,242. At the end of regular trading, it closed at $1,240.80 for a gain of $2.20 on the day. The Kitco Gold Index attributed +$8.45 to predominant buying and -$6.25 to strength in the greenback. The two changes sum up to the raw change on the day.

The U.S. Dollar Index, after sinking to a little below 86.0 by 3:10 PM ET, climbed up to above 86.15 just before regular trading ended only to sink below that level at the end. As of 5:30, it was at 86.13.

Its daily chart, from Stockcharts.com, shows today's rally pulling it out of the recent 85.0-86.0 range:



With that breakout, it looks as if the Index might be undertaking a short-term rally, although today's interday high was lower than last Wednesday's. Perhaps a more accurate upper bound for its range is 86.5, in which case it isn't out of the range yet. What the Index has going for it is its relatively low RSI value relative to normality in a bull market phase. A value of below 50, which the line at the top of the chart shows prevailed recently, has led to a run upwards in the past.

But, this rally doesn't look like it will surmount the 88.5 high made on June 7th. Given that the subsequent fall took the Index down to the same level it was at before that run-up, it's in a vulnerable position technically. A drop below 85.0 would be the signal for a further decline, which would put an end to the Index's bull run.

Turning to gold, its own daily chart shows a candlestick with almost no body:



In other words, the difference between today's open and close is miniscule. The lower end of the wick shows an interday low that's comparable to one made last Wednesday and Thursday. Despite some porousity, the $1,230 floor held today - as has the $1,260 level at the top. Whenever gold has inched to a new record, traders have taken it as a sign to sell in sufficient volume to drive down the metal to the lower end of the current range. Gold's MACD lines (found at the bottom of the chart) continue their drift at the near-zero level, making the indicator signal neutrality. The metal's RSI level continues to stay above neutral, but not by much. Both present a picture of a continued range.

A post-pit Wall Street Journal article ascribes the afternoon recovery to safe-haven buying prompted by fears about the economy.

Gold overcame pressure from a stronger dollar--which can dent demand for the dollar-denominated metal--as U.S. equities extended their fall.

Sentiment was hammered after a weaker-than-forecast U.S. consumer confidence reading for June, a downwardly revised Conference Board leading economic indicators index for China and a gloomy outlook for the U.S. housing market.

Gold traded lower early in the session, but later investors began buying gold as a safe haven to accompany their Treasury and dollar holdings, said Sterling Smith, an analyst with Country Hedging in Inver Grove Heights, Minn....

"Investors have kind of run out of room to run," said Dan Cook, Chicago-based senior market analyst with London-based brokerage firm IG Markets. "You don't want to carry all your eggs in one basket."

The collapse in consumer confidence did spark the safe-haven buying; the release of the index number did coincide with gold's interday low. The metal is still holding up despite seasonal weakness; anyone counting on that seasonality has had a disappointing June. If it continues to perform as it has recently, the recovery will continue albeit slowly.

Jewelry Demand Trend Not Good Forecaster Of Gold Price

In "Gold: Assumptions vs Reality," Moses Kim debunks the notion that a drop in jewelry demand means the gold price will fall. As it turns out, forecasting based upon that assumption would have led to being wrong nine years out of ten (he says.) Although it may be iffy, investment demand has a stronger correlation to gold prices. Kim ascribes this disconnect to gold being one of the few goods that sees increased demand go along with increased prices.


In other words, gold is bubble-prone: that's what rising demand caused by rising prices implies. Perhaps that's why "gold" and "bubble" are put together so much these days.

The Case For Development Companies

An article by Marc Davis argues that development companies are a good bet for speculative money, provided that their deposits are large and/or rich enough to make for a sure-fire mine. The companies mentioned in his piece are not cheap, having eight-figure market caps, but they have huge deposits.


There is something to be said for this approach, although (as always) the big gains come from development companies with question marks about the transformation of their projects into real mines. The main hurdle is securing financing; while the market awaits for news in that area, a development stock tends to languish. The downside of the sure-fire companies is, they tend to trade near the level they would reach should they go into production.

Gold Exploration A Hard Trail

That's the theme of an article by Brent Cook, proprietor of Exploration Insights. He says that only a small number of promising properties ever become mines, because several factors all have to be present in a deposit.

With each of these individual settings [in a deposit] comes a characteristic mineral and alteration assemblage that changes with distance from the hydrothermal source. This "zoning" reflects and is a result of different chemical, pressure and temperature environments. On top of those primary factors we have to overlay the structural setting and rock type, either of which can be the make-or-break feature for the formation of an economic mineral deposit. An economic mineral deposit results from the unique combination of all of these features, a combination that rarely occurs in nature.

Although nearly every intrusive magma body (the hatched bodies in the diagram) will have some of the right stuff, I would estimate that 90% of these mineral systems do not contain a geologically economic deposit-they have anomalies; the very same anomalies that keep the exploration industry in business. That "geologically economic" classification doesn't consider the added criterion that takes the mineralization into the truly economic category: it has to be near enough to the surface and recoverable to be economically viable. To those hurdles we can add political, environmental and social obstacles.

Now place the same diagram under thick jungle cover or hundreds of meters of gravel and you begin to get the sense of how hard it actually is to make a real discovery. This is why maybe less than 1% of the exploration projects out there will ever turn into an economic discovery, and nearly all the exploration companies eventually go broke.

Despite a production slump in the face of rising prices, which suggests that the majors are slowly running out of economic deposits, exploration is hard in part because the same difficulties also affect exploration companies.

Near the end, he mentions four stocks: AuEx Ventures Inc., Lydian International, Mirasol Resources Ltd. and Kaminak Gold Corporation. The last three are at least five times higher than their year lows.

Selling Secrets About...Gold?

Heidi Moore of Forbes magazine managed to flush out an interesting wrinkle in the Russian espionage scandal: one of the data that the accused spies flushed out was prospects for the gold market.

James G. Rickards, senior director for market intelligence at Omnis, pointed us to the fact that the FBI complaint mentions that the global gold market was one of the key sources of interest of the Russian Federation and its intelligence agency, SVR.

"On a number of occasions, the SVR specifically indicated that information collected and conveyed by the New Jersey conspirators was especially valuable. Thus, for example, during the summer and fall of 2009, Cynthia Murphy, the defendant, using contacts she had met in New York, conveyed a number of reports to [Moscow] Center about prospects for the global gold market."

According to the complaint, the SVR responded in November 2009 that the information on the gold market was very useful and had been forwarded to Russia's Ministry of Finance and Ministry of Economic Development.

If Russia wanted information on the gold market, it would hardly be alone. In 2009, of course, gold jumped 24% in value, closing the year at $1,095 an ounce - a price that seems quaint now that gold is over $1249 an ounce, but was still the biggest story in the financial markets of 2009.

Murphy's alleged tips about the gold market must have been quite powerful. It's impossible to tell how they influenced Russian economic policy or thinking, but we can look at some of Russia's moves at the time and notice some striking trends that show that Russia dramatically reversed its stance on gold in late 2009.

Before October 2009, Russia had been planning to sell nearly 25 tons of gold into the market. In November 2009, however, one month after Murphy's alleged report to the SVR about gold, Russia started stocking up on the precious metal. In November 2009, Russia's central bank bought more than $1 billion of gold from the foreign exchange market in order to better control the price of the ruble, central bank deputy chairman Alexey Ulyukayev told Reuters at the time. Russia also said at the time that it might buy gold from the state repository, Gokhran....

How's about that. The alleged espionage ring had an influence on the Russian central bank's policy of buying gold. Geo-industrial espionage, with gold at the centre of it.

Part of me is wondering why they'd bother, given that forecasts are all over the place. It might have meant easy money for the alleged sellers of secrets.

Indian Gold Demand Still In The Doldrums

According to a report by the Economic Times, gold demand is still weak in part because of the season but also because of continuing high prices.

"Now the prices are near 19,000 [rupees per 10 g]. Sentimentally, this scares demand. There is little activity today," said a Mumbai-based dealer with a private bank.

Demand might pick up as prices stay low, but so far there's no sign of it.

Gold Sinks In Early Morning Trading

When evening trading started, gold drifted around where it had closed yesterday. Reaching $1,240 around midnight ET, it got as high as $1,242.60 around 1:30. Then, it slid down in the next few hours to reach $1,231.50. Recovering to almost $1,240, it slid back down in a climate of dropping stock prices. This morning, dropping stocks and stock futures did not lend a boost to the metal overall; any such boost was counteracted by strength in the U.S. dollar. As of 8:07 AM ET, the spot price was $1,235.70 for a drop of $3.40 on the day. The Kitco Gold Index attributed +$2.55 to predominant buying and -$5.95 to a strengthening greenback.

The U.S. Dollar Index managed to get above 86.0 after trading sideways with a slight upward bias last evening. The run upwards started at 2:00 AM, and lasted until 4:25 when the Index reached almost 86.2. This time saw gold take its early-morning drop. Since that run, the Index has stayed in a range between that same 86.2 and 86.05. As of 8:15, it was at 86.11.

A Bloomberg report, as webbed by Business Week, said further profit-taking was driving gold down.

Gold is “likely to remain vulnerable to further pockets of long liquidation or profit taking in the run-up to month- and quarter-end,” said James Moore, an analyst at TheBullionDesk.com in London. “With Chinese growth concerns surfacing and European Union default fears on the rise, we expect investor dip-buying to provide further background support.”

The report also mentions a double downer from Asia: the PRC Conference Board is forecasting weaker growth for mainland China, plus the Japanese employment rate rose to 5.1% and consumers tightened their spending. The article also notes the holdings of the SPDR Gold Shares Trust were unchanged yesterday.

A Reuters report said earlier gains were limited by a stronger greenback.

"Both times gold reached $1,260 over the last week it has been instantly hammered $30-$35 lower," said Ole Hansen, senior manager at Saxo Bank.

"The focus seems to have shifted back toward the strong dollar/weak commodity relation. This has increased the risk for a deeper correction," he added. "If support at $1,224 is broken it could get a bit ugly."

[G]old is entering a seasonally weak period for physical demand which could undermine any push higher, analysts said.

"June-August are the months in which demand for gold retreats," said Societe Generale in a note. "Along with the onset of the vacation period in North America and Europe, the Indian market slows significantly."

"The average difference in tonnage (consumption) between the second and third quarters 2000-2008 was 41 tonnes," it added.

The article also notes other commodities have weakened, leading to a sympathetic fall in gold itself.

A Wall Street Journal report ascribes the fall to the disappointing growth data from mainland China.

A downward revision in Chinese leading economic indicators and disappointing Japanese economic data pushed down stocks and pushed up the U.S. dollar. Strong euro-zone consumer and business-confidence data steadied markets....

"Technically, [gold]'s looking a little heavy," said Tom Kendall, a precious metals analyst at Credit Suisse in London. "The speed of yesterday's move was discouraging for those who were trying to pick the bottom."

However, safe-haven support for gold remains relatively firm on corrections. Swedish bank SEB Tuesday said gold could benefit from worries over the expiry of the European Central Bank's €442 billion ($542.51 billion) bank-funding program.

The opening of regular trading saw a zig-zag, with gold falling below $1,230 just before 8:30. Reversing, it climbed up to $1,238 before stalling. As of 8:56 AM, the spot price was $1,237.30 for a loss of $1.30 on the day. The Kitco Gold Index assigned +$3.30's worth of change to predominant buying and -$4.60's worth to greenback strength. The U.S. Dollar Index fell slightly, getting a little below 86.0 before recovering to just above that level. As of 8:59, it was at 86.02.

So far, gold's performance has not been encouraging - but that's par for the course when range-bound. Any recovery today is likely to be muted.

Gold Touches New Record High, Gets Slammed Down

It was an odd morning for gold. After hovering around $1,254, subsequent to a dip around the time regular trading began, the metal went on an upward run starting at 9:45 AM ET. Equities opening lower was the likely cause of the rally. Making it above $1,260, the metal fluctuated between $1,260.50 and $1,262 except for a brief blip-up that made for a new record high of $1,263.90. At 10:40, though, the metal hit an air pocket that drove its price from $1,262 all the way down to $1,245.10 before relenting. A recovery in U.S. equities seems to have been the trigger for the tumble. Stopping at 10:50, the metal climbed up slowly afterwards only to resume tumbling. As of 11:58 AM ET, the spot price was $1,239.60 for a loss of $16.10 since last Friday's close. The Kitco Gold Index split the loss into -$14.20 for predominant selling and -$1.90 for a strengthening greenback.

The U.S. Dollar Index started off in a narrow range between 85.4 and 85.5, but widened the range to 85.35-85.55 as the morning progressed. Despite the symmetry of the widening, the overall bias was downwards until just before 11:45. As of 11:59, the Index was at 85.51.

Today's action in gold is reminiscent of last Monday's, although the record high made back then was booked before regular trading began. It looks like some traders are seeing a new record as an inducement to sell.


Update: The sell-off continued in early afternoon, although at a much slower rate. After reaching $1,238, the metal bobbed up to $1,241 before sinking again. Around that time, Fed governor Kevin Warsh gave a speech in which he said he preferred Fed asset sales and would oppose further quantitative easing unless a "high bar" was met. The $1,235 level was touched by the metal around 1:15 PM. Shortly afterwards, it headed back up to a little below $1,240. As of 1:31 PM, the spot price was $1,238.00 for a loss of $17.70 on the day. The Kitco Gold Index divided the loss into -$12.40 for predominant selling and -$5.30 for greenback strength.

The U.S. Dollar Index, after turning up just before 11:45, continued rallying until reaching 85.7 as of 12:40. Pulling back, it gained renewed strength and forded above 85.7. As of 1:33, it was still climbing having reached 85.77.

The greenback rally did detract from the price of gold, but the tumble in the former did precede the rally in the latter. It looks like the former kicked off the latter, which did add to the decline in gold later. The metal may have settled down at the end of the pit session, and may start to recover a little in the electronic-trading hitch.


Update 2: The recovery didn't come, except temporarily, but the tumbles vanished and were replaced by sideways movement. The metal didn't get below $1,237 during the rest of the afternoon, and got a little above $1,240 between 2:15 PM ET and 3:15. Movement in the last hour was miniscule. At the end, the spot price was $1,328.60 for a loss of $17.10 since last Friday's close. The Kitco Gold Index apportioned the loss into -$12.15 for predominant selling and -$4.95 for greenback strength.

The U.S. Dollar Index, after climbing above 85.75 right after 1:30 PM, sunk back to a little below 85.6 by mid-afternoon. It then pulled up to 85.7 and sunk slightly during the rest of the afternoon. As of 5:30, it was at 85.68.

Its daily chart, from Stockcharts.com, shows its recovery erasing last Friday's decline:



The interday high for today's trading was lower than yesterday's, but the recovery was sufficient to reinforce the current range in which the Index finds itself. The recovery took place after its RSI level (found on the top of the chart) reached a level not seen since mid-April. The 50-day moving average (the blue line in the middle of the chart) is almost at the Index's raw value, but that's because the MA's rising at a fairly fast clip. As of now, the Index looks like it's going to continue in the 85.0-86.0 range.

As for gold, both its record high and its plummet are shown in its own daily chart:



It had quite the comedown, suggesting that the metal is in a range of its own whose top is $1,260. The bottom is a little diffuse; $1,230 would be a good guess given recent trading, although last Tuesday's and Wednesday's interday lows were below that figure. The $1,260 top, though, is quite evident.

Gold's MACD lines are continuing at near-neutral levels, and both of them are trending sideways even though gold itself has been trending up on balance. (That's because of how they're calculated: the black line is a 9-day exponential moving average, while the red line is the difference between the 12-day EMA and the 26-day.) Given how the metal has reacted after its last slamdown, it's likely to crawl back up to well above $1,240 again.

A post-pit Reuters report ascribes the morning post-record drop to technical selling after the record-hitting rally fizzled, along with profit-taking. Amongst the points made therein, these were included:

* Gold turns lower on technical selling and as investors take profits after prices ran into heavy technical resistance at above $1,260 an ounce - traders

* Earlier in the session, ongoing economic uncertainty prompted investors to pile into precious metals as an alternative investment.

* Signs of rising inflation boosts the metal's attractiveness, after data showed Core PCE Index, a key inflation measure monitored by the Federal Reserve, rising 1.3
percent in the 12 months to May.

* Underlying support seen in gold as equity markets unperturbed after world leaders abandoned a global bank levy and eased the timetable for new capital requirements at the G20 summit.

* Bullion's safe-haven appeal increased following U.S. comments that economic sanctions on Iran will not deter Tehran from seeking a nuclear capability - analysts.

Again, a new record failed to hold. As June approaches its end, gold is still holding up fairly well despite those sudden drops.

Guide To NYMEX Mini Futures

In an interview with Lara Crigger of Hard Assets Investor, Jennifer Ropiak explains mini-futures contracts and how they work. The gold mini-futures contract is for 33 ounces, and the silver one is for 1,000 ounces. As the prices of both metals continue to rise, both minis are becoming more popular.


One interesting point: physical delivery is not allowed for a single mini contract; instead, a Warehouse Depository Receipt (WDR) is issued. Once three gold WDRs are accumulated, or five silver WDRs, the holder can exchange them for a regular-sized contract delivery of physical metal. These contracts don't have to be settled in cash.

Eight Mega-Sized Gold Projects Coming On Stream..Or Seven

The numbers in "Sizing Up the World’s Mega Copper-Gold Projects" are eye-opening. Collectively, the metals have a gross value of $846 billion. One project, the Oyu Tolgoi in Malaysia, promises to be the biggest gold mine ever in terms of value. (It's owned by Ivanhoe.) The capital costs needed to get it up and running are probably a record too: $6 billion. One of the eight projects mentioned is being reviewed because it's not economic.


Near the end is an item, concerning a ninth deposit, that can serve as a warning. That huge deposit in the Pakistani province of Balochistan looks like it's going to be taken over for development from the company that discovered it. Reko Diq, owned by Barrick Gold and Antofagasta, might be (effectively) expropriated by the province although the companies plan to fight to keep it. At a price tag of $4 billion in capital costs, they'd better be sure they win in the end.

Mainland Chinese Gold Demand Growth Expected To Exceed Economy's

A report webbed by Shanghai Daily has the World Gold Council's latest forecast of mainland Chinese investment demand for the metal.

CHINA'S consumer gold demand is expected to rise in double digits annually as people get richer, said a senior manager at the World Gold Council today.

"We expect gold demand in China to grow faster than its economic growth each year," said Albert Cheng, Far East managing director of the World Gold Council.

Over the past five years, consumer demand for gold has risen by an average 13 percent annually in China. And that is set to double by tonnage terms in a decade on a rising economy and short supply, the World Gold Council said earlier.

"Investment gold is set to grow at a double-digit rate in China as an alternative investment," Cheng said.

The article also says 2009 demand grew by seven percent.

The "If You Must" Stance

The gold skeptics are getting cautious. Webbed by the Olympian, an article entitled "Gold isn't best option to stash cash in troubled times" makes the point by quoting a mutual fund analyst as saying that the most popular "'silver bullet'" is usually overpriced. The article doesn't pooh-pooh gold, but instead suggests a vehicle with low transactions costs and a mix of physical gold with gold mining stocks. Other alternatives suggested are TIPS (which are also pricey), REITs and commodities in general.

Iranian Central Bank Head Says Bank Sold, Not Bought, Gold

Subsequent to scotching rumours that the Iranian central bank was planning to buy $45 billion's worth of gold and U.S. dollars, central bank head Mahmoud Bahmani said that Iran's central bank actually sold $9 billion's worth.

"The country's foreign exchange reserves have been increased by $9 billion through selling gold and foreign exchange conversion," IRIB reported him as saying at a breakfast meeting at Tehran's chamber of commerce....

Earlier this month Bahmani denied a newspaper report that the central bank was selling 45 billion euros from reserves to buy dollars and gold.

That would have marked a reversal of Iran's policy of moving away from the dollar, both in its reserves and in the currency it receives for its oil exports. Bahmani called the report "sheer lies".

Presumably, this means the Iranian monetary authorities are sticking with the Euro.

Bubble Call From Down Under

The fellow that made it, Macquarie Bank interest-rate strategist Rory Robertson, says that gold is in a bubble because it's supposed to be an inflation hedge but inflation's nowhere in sight. More to the point, the main reason given for going up is, it's gone up.

Robertson admits one has to be careful about bagging gold bugs because for a decade they have been right - gold has been a standout performer

''Naturally, this long, steep uptrend in price has been attracting new investors, with the growing gold bandwagon driving further increases in the price. While some investors really do fear runaway inflation just around the corner and others genuinely fear a collapse in the fiat money system, my guess is that the bulk of investors have been attracted primarily by the extraordinary upward momentum in its price.

''Right now, the idea that gold above US$1200 an ounce might be a good investment mainly reflects the early near-quintupling in price.''

The commentator linked to above adds to Robertson's reasoning with these two points: first of all, gold shooting up is making marginal mines profitable again, inducing further supply; secondly, there's a self-fulfilling-prophecy kind of infinite regress in play. To wit, gold going up shows the financial system is close to collapsing; the financial system being close to collapsing justifies a higher gold price - and around it goes.


Unlike some others, Robertson isn't smarting over a missed call. He actually won a bet about Australian property prices with another fellow recently. In addition, he expresses caution that a snarker wouldn't:

''It is the very nature of bubbles that drives prices well beyond what most observers see as reasonable. Accordingly, the price of gold over time could jump to multiples of its current elevated price, before reversing,''

Ironically, that statement jibes with what some excited gold bulls have been saying. The difference is that Robertson thinks such a rise will prove to be unsustainable.

The fact that he's cautious is good reason to take his forecast seriously - it's a sign that he knows bubbles.

On the other hand, just because he's serious doesn't make him right. Shae Smith essays a rebuttal here. Smith's main point is that there's real financial turmoil out there, and it looks like it's going to spread further.

Indian Gold Demand Still Weak Due To Rising Prices

According to a report by the Economic Times, gold at almost 19,000 rupees per 10 g is staunching buying.

"We are in a lean period and with prices nearing 19,000 rupees people are not in a hurry to buy," said Pinakin Vyas, assistant vice-president, treasury with IndusInd Bank....

"Even the June numbers are not encouraging, confirming the weak trend," said Vyas....

"A couple of orders are there below $1,250 (an ounce)," said another dealer with a state-run bullion dealing bank, which was selling gold at 19,042 rupees per 10 grams.

As for the June numbers, Indian imports are expected to fall by 75 percent from last June's levels because of high prices. June '09 imports were 29.9 tonnes total; a 75% drop-off would make this June's figure a mere 7.5 tonnes.

Gold Fluctuates Around $1,255, Dips

The G20 summit has ended. Despite the "excitement" in the streets of Toronto during it, there was little action in the gold market after it. The renminbi dropped slightly because no statements were released about the PRC's revaluation policy.

Gold sunk slightly after trading for the week began, to around the $1,255 level. Climbing a few dollars after 8 PM ET, it sunk back and hovered around that same $1,255. A fall at 3:00 turned into a rally that peaked when the metal hit $1,260.40; afterwards, it fluctuated between $1,256 and $1,258. As of 8:05, the spot price was $1,256.00 for a gain of $0.30 since Friday's close. The Kitco Gold Index attributed +$1.80 due to predominant buying and -$1.50 due to strengthening of the greenback.

The U.S. Dollar Index, after dropping a little yesterday evening, ralled up to 85.5 by 3:35 AM. A double top at that level presaged a drop down to 85.25, which ended with a return trip up to 85.5 as the ceiling of a range whose floor was 85.4. As of 8:12, the Index was at 85.44.

A Bloomberg report, as webbed by Business Week, ascribed the modest rise to investors seeking wealth protection.

“Gold is the ultimate currency and the ongoing global currency substitution in favor of gold will continue,” Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland, said today in an e-mail. He forecast prices to rise to $1,300 an ounce in two months.

Also mentioned was a tracking of 10 gold ETFs showing increases of four tons in total last Friday, although the SPDR Gold Shares Trust's holdings didn't rise.

A Wall Street Journal report said that the safe-haven buying was induced by fears about economic growth.

"The G-20 was pretty much a nonevent," said Afshin Nabavi, head of trading and physical sales at Swiss trading house MKS Finance in Geneva.

Still, the summit didn't significantly ease the market's worries about sovereign debt in the euro zone and the U.S., which should underpin safe-haven demand for gold, said Swedish bank SEB. "All in all, the outcome of the meeting did not reduce the level of fear significantly," it said.

The savings rate for U.S. households increased to 4% in May as real personal incomes rose 0.5% while real spending rose only 0.3%. The former was slightly below expectations, while the latter was slightly above. The overall data continue to paint a picture of the U.S. consumer repairing the balance sheet. Gold dipped below $1,255 before the release, but the news itself added to the push-down; the bottom was found at $1,251.80 as of 8:40. The metal pulled back up somewhat but not enough to re-establish a gain. As of 8:52, the spot price was $1,254.00 for a drop of $1.70 since Friday's close. The Kitco Gold Index ascribed +$0.60's worth of change to predominant buying and -$2.30's worth to greenback strength. The U.S. Dollar Index wasn't affected by the news, but it did manage to inch up slightly above 85.5 before pulling back. As of 8:55, it was at 85.47.

So far, it's been a tepid start to the week for the metal. Although still above $1,250, gold has slumped during the start of the pit session. An upwards turn may take place later, but there isn't any sign of it as yet.

Financial Sense On Devaluation, Gold Holding

There wasn't much about where gold's going in this week's Financial Sense Newshour podcast, in part because there was a special on the possibility of the state of California going bankrupt. [.mp3 file]. In the third segment [.mp3 file] was a roundtable interview with Axel Merk and William Poole, former president of the Federal Reserve Bank of St. Louis. The point was made that, although it's formally impossible for the U.S. dollar to be devalued, debasement serves the same function.

Afterwards was an interview with Jonathan Potts, managing director of gold-storing outfit FideliTrade. Amongst other points, he said that it's a better idea to take delivery of a large amount of gold in coin or small-bar form because the bigger bars have to be assayed when they're brought back in for resale. (The assaying requirement is a downside of the otherwise-cheapest option of buying a futures contract and taking delivery.)