Friday, July 9, 2010

Weekend Notice

Because of an out-of-town commitment, I won't be able to post the usual summary/comment on the parts of the Financial Sense Newshour podcast that deal with gold. I regret not being able to do so, but I won't have the time this weekend. Thanks.

Gold Surges Up In Morning

Regular trading began with gold already on a roll. At the start of the pit session, the metal was already above $1,202 and was in the process of shooting up above $1,210. In a two-stage rally, gold made it to $1,214.80 around 10:20 AM ET before pulling back. Although $1,210 was breached in the pullback, $1.208 wasn't; the metal bottomed twice at that level around 10:45 and 11:10. Since then, it's pulled up above $1,210 again although the rise is at a slower pace than earlier jumps. As of 11:52, the spot price was $1,211.40 for a gain of $12.90 on the day. The Kitco Gold Index attributed +$15.40 to predominant buying and -$2.50 to a strengthening greenback.

The U.S. Dollar Index, after making it above 84 early in the morning, settled down to just below that level. Descending slowly to just above 83.85, it began bobbing around 83.92. As of 11:55, it was at 83.94.

It's been good enough of a day to suggest the recent doldrums are now at an end. Gold may not hold at these levels in the afternoon, but closing above $1,210 would be an important sign.

Update: The late-morning rise peaked at a level slightly below the daily high made at 10:20. From that secondary peak, gold slid down to $1,208 again, establishing a range between that level and $1,214. The rest of the pit session saw the metal drifting at the lower end of the range. As of the end of the session, or 1:30, the spot price was $1,209.90 for a gain of $11.40 on the day. The Kitco Gold Index assigned +$14.50' worth of change to predominant buying and -$11.40's worth to greenback weakness.

The U.S. Dollar Index continued drifting at just below 84. As of 1:31, it was at 83.97.

So far, the metal has mostly held its gains from earlier morning, which is a good sign. There may be a pullback as the week's trading pulls to an end, but the action is likely to be quiet.

Update 2: The rest of the session was quiet, with a slight upwards bias near the end of the final hitch of the week. With the exception of a short-lived spike just before 2 PM ET, the metal stayed between $1,208 and $1,210 until 4:00. The crawling above the latter level was slow at first, but picked up a little just after 4:30; it came to a stop when $1,212 was reached. As of the end of the week, the spot price was $1,211.40 for a gain of $12.90 on the day. The Kitco Gold Index attributed +$16.40 to the predominant-buying category and -$3.50 to the strengthening-greenback one. The changes in both categories sum up to the raw change on the day.

Last Friday, gold closed at $1,211.30. Surprisingly, given the doldrums the metal faced until today, gold managed to eke out a gain for this week - the smallest one possible in raw terms. Ten cents separates this Friday's close from last's, making for a 0.00826% rise in percentage terms. No zeroes were added in the transferring of that figure.

As for the U.S. Dollar Index, its fluctuations were very narrow in the last part of the session. Not moving above 84.0 or below 83.9, it fluttered directionlessly until a small jump right at the end. As of 5 PM, it closed at 83.98.

The Index's daily chart, from, shows its recent downturn abating today:

Going by the interday lows, its fall has flattened at around 83.6. Today's recovery left it only a smidgen below 84; it might try for a close above that level next Monday. Both today's and yesterday's interday highs were above 84.

There's no guarantee that it will, though. The last two-day stall took place last Friday and this Monday, which gave way to another solid drop. On the face of it, there's less chance now because the Index is closer to a outright oversold level now than then. Its RSI value, found at the top of the graph, is less than seven points above the oversold border at 30.

Turning to gold, its own daily chart shows a nice recovery from Wednesday's bottoming:

Although yesterday was a down day for gold, the higher interday low and today's strong rally makes it in retrospect the first day of a short-term recovery. Interestingly, the width and position of today's candlestick body is almost exactly the same as last Friday's. Not only was the close almost the same on both Fridays, but also the open; today's was only slightly lower than last Friday's. That day was a recovery day after the July 1st plummet.

Interestingly, gold's RSI level is higher today than at the end of last week. It's only a modest divergence, but it does add a little hope for a continued rise next week.

Last Tuesday, the metal had had a bad day. Opening around $1,210, it closed well below $1,200. After Friday's rally, it had been a disappointing day. Its close marks the cut-off for the weekly Commitment of Traders data, as graphed here. Total open interest shrunk for the second week in a row; unlike last week, this week's shrunk a fair bit. Interestingly, commercial longs rose by 5.86%. Non-commercial longs dropped by a large 10.3%; given that the short-term bottom came a day later, that category has another week to add to a certain overall reputation. Detracting from its own overall rep was a larger 19.7% increase in the non-commercial short category. Both categories of non-commercials, overall, were caught flat-footed in retrospect. Commercial shorts shrunk by 6.13%.

The CoT graph for the U.S. Dollar Index, found here, had its cut-off on a day that saw the Index drop a fair bit; that drop would peter out the next two days. Open interest dropped for the fourth week in a row; it shrunk to levels not seen since the beginning of last September. Commercial longs, little more than a sliver on the chart, shrunk by more than 20%. Commercial shorts also shrunk by a large margin. Non-commercial longs shrunk slightly. The only reportable category with an increase was commercial shorts, which were up by a whopping 59.1%. (The Index did drop somewhat subsequently.) Using the non-commercial shorts as the group to watch suggests there will be further declines in the Index next week.

Turning back to gold, a post-pit Reuters report characterizes gold as being in a range, with the upside capped by sellers. Amongst the points made therein, these were included:
* Though trading took prices to a brief excursion above $1,210, the upside was capped around that level - traders.

* Sellers continued to protect that $1,210-an-ounce resistance area on each attempt to drive prices higher - traders.

* Noting that the 6-1/2 week low at $1,185 reached on Wednesday held on Thursday and Friday's session when higher highs were attained, prices seem to have stabilized - traders....

* For now, $1,200 an ounce seems to be the fluctuation point around which gold will continue to trade until there is something offering gold greater direction - analysts....

* For now, traders pointed out that the stock market also seems to be consolidating around current levels along with gold - traders.
The above sources show an unusual amount of uncertainty, if not skepticism, about today's rally. I don't want to hold out too much hope, but the caution could be pointed to as a wall of worry.

Next week will show if it's worry, prudence or indecision. Thanks for stopping by and reading what I've got to write; may your weekend not be blistering.

Playing Off The Gold Bull

The price of gold has continued to rise this year, and at times it seems to have been driven up by hype. Until relatively recently, the gold stocks have not followed. Over the last few years, the stocks have been disappointing relative to gold because of raw materials cost squeezes taking away the profits from any rise in the gold price; the '08 crisis added to that disappointment by pummeling gold stocks far harder than gold itself. The raw-materials situation has changed, with the possible exception of oil. That's the reasoning behind "Avoid Paying the 'Hype Premium' for Gold: Buy Gold Mining Stocks Instead" by Daniel Long. Three stocks he recommends are Golden Star Resources, Gammon Gold and Capital Gold Corporation. The first and the last are recommended because of relatively low valuations, and strengthening balance sheets, while Gammon is recommended because it's been beaten down by an earnings misstatement that has since been cleared up.

Some financials-oriented investors might well be leery of investing in Gammon because of a (ofteny well-placed) suspicion that a compnay that overstates once is likely to do so again.

Russian Gold Reserves Make Post-Soviet Record

There are already rumours about Russia moving to a gold-backed ruble. Further grist for those rumours is evident in that country's central bank now holding gold reserves that exceed the previous post-Soviet record from 1993.

Given the continuality of recent Russian central bank buying, it's a safe call that new records of this sort will be made in the near future.

Goldman Frowns On Some Senior Producers

Goldman, Sachs has downgraded two major gold producers - Randgold Resources and Anglogold Ashanti - to "sell" from "neutral," on the basis that the rising price of gold and successful execution of their strategies is already factored into their price. Another producer, Hochschild Mining, was cut to "neutral."

Those downgrades clearly show skepticism about the gold sector. Although they may be rated, it's clear that Goldman's gold analysts don't expect a boom in the sector. It shows that the gold stocks are far from being in a manic phase (and that gold-mining top executives don't have a lot of political clout with respect to brokerage firms.)

Indian Gold Buying Picking Up A Little

According to a report by the Economic Times, there was a trickle of buying in India as prices had remained in the doldrums.
Gold buyers trickled in on Friday as traders anticipated a further fall in prices to stock for an upcoming festival season, even as a strong rupee acted in support, dealers said. "There are deals but the deal size has shrunk. Earlier it was 5-7 kgs, now it is 1-2 kgs,"...

"I have bulk of my orders at $1,184-1,185 (an ounce), very few are placed are above $1,190," said another dealer with a private bank.

Now that gold's on a run, those price points may shift upwards - but they may not. Resellers seem to be afraid of getting stuck with overpriced inventory.

Gold Drifts In Overnight Session, Jumps In Early Morning

Overnight trading wasn't that exciting, as gold stayed in a range bordered by $1,195 and $1,200. Although dipping below the former number around 9:00 PM ET, the metal quickly recovered to move back in the range. Another downward test took place around 5:30 AM, making for a daily low of $1,194.20. Again, the range was restored. Just before regular trading opened, gold was still below $1,200.

That changed when the pit session was about to open. A slow rise that started within the range around 6:00 accelerated, breaking $1,200 just before 8:15. Regular trading began with gold on the way to making $1,204. After hovering around that level, the metal jumped up above $1,210 in short order starting at 9:00. Although sliding back, it bottomed above $1,206 and kept most of the day's gains. There was no immediate news item to explain the leap. The U.S. Dollar itself leapt up a little before gold did.

After the post-jump pullback, the metal resumed its rise, slicing through $1,210 easily. As of 10:24 AM ET, the spot price was $1,212.40 for a gain of $14.70 on the day. The Kitco Gold Index attributed +$16.70 to predominant buying and -$2.00 to strengthening of the greenback.

The U.S. Dollar Index also drifted around in the overnight session. Stuck around 83.85 last night, it took a dive starting at 2 AM; the subsequent decline took it to just above 83.6. Reversing, it then forded up to 83.9 before pulling back yet again. Starting at 8:00, the Index then took off to break 84; it topped out its run at 84.1 forty minutes later. At this time, gold had jumped up to $1,204 and was stuck there. Pulling back, it sunk a little below 84. As of 10:31 AM, it was at 83.91.

A Wall Street Journal report said that gold was resting before shooting up.
"Gold is reaching for stability," said Sterling Smith, market analyst at Country Hedging in Inver Grove Heights, Minn. "We are consolidating around $1,200."

The euro, often seen as a higher-risk currency than the U.S. dollar, is moving lower amid concerns over Japanese elections and euro zone debt. S&P 500-stock index futures are lower [at the time of the initial surge-up.]
Also cited is another analyst who said the rise was due to traders getting back into positions they had sold.

An earlier Reuters report, webbed at about the time today's rally started, said that bargain hunting was beginning to euchre out speculative selling.

"We see a lot of people buying gold on dips, below $1,200. However, what we see in these past few days is a bit of indecision in the market," said Ong Yi Ling, investment analyst at Phillip Futures in Singapore.

"In the long run, I don't think that the economic recovery is still entrenched yet. People are still waiting for more signs that the economic recovery is really on track."
Also mentioned in the report is the SPDR Gold Shares Trust's holdings slipping by 0.44 tonnes to 1,316.04 tonnes.

The second leg of the morning rally topped out at $1,214.80. Although an unexpected decline in wholesale inventories was listed as a cause, the number was released more than fifteen minutes prior to the second leg. After settling back to above $1,212, the metal continued to dip; $1,210 fell too. As of 10:46 AM, the spot price was $1,209.00 for a gain of $10.50 on the day. The Kitco Gold Index assigned +$10.50's worth of change to predominant buying and -$2.20's worth to greenback strength. The U.S. Dollar Index churned, failing to make it back above 84; as of 10:48, it was at 83.92.

The overnight session wasn't that great, but it wasn't that bad either. More to the point, the last couple of hours saw a base being built that foreshadowed a decisive break above $1,200 just before regular trading started. The dry spell has come to an end, making those who said that the previous doldrums represented a buying opportunity look fairly good.

Myself, I slipped up in the time department. The reason for this report covering a later period is because I got to the computer late. Thanks for your patience.

Thursday, July 8, 2010

Gold Slumps Below $1,190 In Mid-Morning

Despite the encouragement given by an early rally just before regular trading began, gold tumbled in mid-morning from $1,200 to around $1,188. The drop took place in two stages: a quick fall to $1,192 between 9:30 and 9:50, and a slower, gentler drop that took the metal from around $1,193 to $1,186.50 as of 10:45. Subsequently, the metal rose up, fell back and bumped into the $1,188 level a few times before lumbering up. It settled around $1,190 before climbing a little further. As of 11:56, the spot price was $1,192.10 for a loss of $11.10 on the day. The Kitco Gold Index divided the loss into -$11.00 for predominant selling and -$0.10 for strengthening of the greenback.

The U.S. Dollar Index hovered a little below 84 in a relatively unvolatile start, but was closing in on that level in the mid- and later part of the morning. Bottoming at 83.7 as of 9:43, it drifted upwards afterwards. As of 11:57, it was at 83.95.

So far , the day has been another disappointment for gold as an early rally broke down. There's still some cushioning below the $1,200 level, but that bargain hunting is only sufficing to keep the price from plummeting much further below $1,190. It is not helping sustain the metal above $1,200. Things may change in the afternoon, but so far the action isn't encouraging.

Update: The climb that started in late morning continued until 12:30 PM ET, when gold reached $1,197. Dropping back to $1,194 by 1:00, the metal climbed anew but stalled at $1,196. As of the end of the pit session, or 1:30 PM, the spot price was $1,195.80 for a drop of $7.40 on the day. The Kitco Gold Index attributed -$8.55 to predominant selling and +$1.15 to greenback weakness.

The U.S. Dollar Index, after not quite reaching 84, fell back after making a second attempt at surpassing that level around 12:50. The subsequent pullback stalled at 83.85. As of 1:35 PM, it was at 83.86.

Again, bargain hunting is helping gold. Momentum drains away while the metal's in the high 1190s, but buying power below is enough to reverse any serious declines. The chance of gold making a gain today are slim, but it's likely to close well off the lows of the day.

Update 2: The metal didn't make $1,200, let alone climb into the gains column, but it did rise a little in the electronic-trading hitch of regular trading. The climb started after 2:15 PM ET, subsequent to a bounce between $1,196 and $1,194. Once that range was shaken off, the metal steadily if slowly rose to between $1,198 and $1,200. There, it stayed for the rest of the hitch. As of the close of regular trading, the spot price was $1,198.50 for a loss of $4.70 on the day. The Kitco Gold Index assigned -$7.60's worth of change to the predominant-selling category and +$2.90's worth to the weakening-greenback one. Both category's changes sum up to the raw change on the day.

The U.S. Dollar Index continued drifting downwards until just after 4:00; it bottomed at 83.665. After making that low, a relief rally slowly kicked in; it was blocked at just above 83.75. As of 5:30 PM, the Index was exactly 83.75.

Its daily chart, from, shows its rate of decline has slowed:

Today marks the third day of its decline, but today's candlestick shows a lot less stretch than those of the previous two days. Today's interday low was only a little below yesterday's.

The Index's RSI level (found at the top of its chart) is fairly close to the 30 oversold level, suggesting that it's in the doldrums. There seems to be support around the 83.75 level, but that level might not hold. It's still in a short-term bearish phase, which shows little sign of ending. Eventually, it will bounce upwards.

As for gold, its own daily chart shows a short-term bottom being made:

Although the metal declined today, it has bounced. Today's interday low is higher than yesterday's was. Gold's own RSI level is holding below neutral, but it's stable. In a true bull market phase, that indicator tends to bottom out at or slightly below the neutral 50 level. Although no driver or sustained bullishness has appeared, which could be due to the summer-weakness seasonality factor finally kicking in, the metal has found it hard staying below $1,190. Bargain hunting is evident from its recent performance.

There's a possibility that gold might fall out of bed in the near future, but its recent action suggests that any such spill would likely be short-lived.

A post-pit Reuters report ascribed the drop in gold to rising risk appetite. Amongst the points made therein, these were included:
* A sudden bout of selling around the midsession pulled gold into negative territory, where it flirted with the prior support low at $1,185 an ounce.

* A floor trader said the selling was triggered by a large seller, that drew other short-term sellers into the fray to grab quick profits off the high - traders.

* With equity markets rising and bond prices falling, some gold investors decided they were willing to take on more risk and sold off some precious metal holdings - analyst.

* A break of Wednesday's support level at $1,185 an ounce, a 6-1/2-week low, could lead to selling down to the $1,166 area - technical traders.

* Thin market conditions, low options volatility make gold vulnerable to flash selling - traders.

* In late ]electronic trading], gold cut most of its losses immediately after The Federal Reserve reported that U.S. consumer credit plunged by $9.15 billion in May.

* The consensus forecast called for a $2 billion drop in credit in May. It was also revised sharply lower in April, suggesting Americans are still wary of taking on new debt despite rock bottom interest rates.
The overall picture is of a market that fell out of bed but is still bolstered by bad news. Any such flash crash would likely be a buying opportunity once it ran its course.

As the end of the week approaches, gold hasn't shown much vim but has shown resiliency. That unerlying strength should show up again tomorrow, as it has yesterday and today.

Gold Still At Low Ratios By Some Measures

That's the point of an article by Jordan Roy-Byrne, who says investment professionals are leery of recommending gold for three reasons. First of all, it's harder for an investment pro to make money by recommending gold. Secondly, most investment advisors see gold's rise as abberational; the '80s and '90s markets are seen as the norm. Thirdly: with two bubbles popped this last decade, the rising gold price has made them skittish; consequently, they're prone to see bubbles in any high-flying investment or asset.

The rest of his piece discuss four charts suggesting gold is not in a bubble, gold is underowned if anything, and gold stocks are on the cusp of a further rise. Two of his charts are ratio charts: the first measures gold in terms of the S&P; the second, Barron's Gold Mining Index over the 500. Both are closer to historical lows than historical highs.

Of course, there's no guarantee that a ratio chart is stable enough to provide insight into the future. The S&P 500 has gone up more than ten times in the last thirty years because of overall U.S. economic growth. The denominator expanding over time due to long-term growth does introduce a distortion.

Sad Record For South African Gold Investors

Gold investing has again popped up in a financial-advice column, but this one's a little different from most others. Instead of cautioning about the gold price going down in the future, this one points out that gold has fallen since March of 2009.

That's because the advice column hails from a South African newspaper. Krugerrands have dropped by 13% in rand terms since March of '09, due to a rise of the rand.

Currencies matter. Gold in Japanese yen, to take another example, are far from a record.

GFMS Call For $1,300 Gold Within Six Months

Largely because of investment demand, GFMS called for gold to reach $1,300 in the second half of this year.
In GFMS's view, the growth expected, especially in value terms, of investment demand will probably be sufficient to drive prices above the USD 1,300 mark during the second half," the London-based consultancy firm said in a statement.

GFMS expects investment demand to be volatile in the second half of 2010, but remain on a positive trend overall due to ongoing concerns on the long-run value of major currencies, it said.
Fabrication (mainly jewelry) demand is expected to rise too, although not very fast because of higher prices; 2010's demand is not expected to exceed 2008's. The main risk to gold is a substantial tightening in monetary policy.

Indian Gold Buying Drained By Higher Prices

According to a report by the Economic Times, Indian gold buying tapered off because prices rose above $1,200.
"There was good buying for over 3-4 days, but sales are lagging as prices crossed $1,200 (an ounce)," said a dealer with a state-run bullion dealing bank in Mumbai....

"There could be more buying if prices move to $1,190 an ounce," said another dealer with a private bank....

Traders have been stocking the yellow metal for the upcoming festivals, when demand for bullion goes up.

The price acclimatization is now going the other way, as the second quote indicates.

Fee War Started

In a move to cut out the SPDR Gold Shares Trust (GLD), BlackRock has cut the fees on its much smaller iShares Comex Gold Trust (IAU) to 0.25% of holdings from 0.4%. The latter figure is the same as GLD's.

As a Wall Street Journal "Fund Track" article explains, this move would save some money for a long-term holder but frequent traders would have such expenses swamped by commissions; so, it may be sensible for them to stick with GLD. (The market for GLD is far more liquid than the one for IAU.) Existing holders of GLD would incur a capital gains tax at the high rate for collectibles if they switched (unless said shares are held in a tax-deferred retirement account), so the fee cut is most beneficial for new buyers.

PRC Addresses Fears About Using Debt Holdings As Weapon

A statement by the PRC's State Administration of Foreign Exchange said decisions were made on the basis of wealth maximization, and fears of the PRC using its holdings of U.S. Treasuries as a "debt weapon" are groundless.
According to The China Daily, the SAFE described Beijing as a responsible long-term investor and "doesn't seek the power to control recipients of its investment."

The statement was issued to allay concerns about Beijing planning to shift its holdings of US government debt.

"Any increase or decrease in our holdings of US Treasuries is a normal investment operation. The agency constantly adjusts its portfolio to maximize returns, and any changes to its US Treasury portfolio should be seen in that light and not interpreted politically," it said in the statement.

This one takes a dedicated sinologist to interpret properly. We in the West are used to treating such official insurances skeptically; there's even a relevant political maxim, "don't believe anything until it's been officially denied." From what I've read, ordinary mainland Chinese tend to regard American with admiration or even awe. The PRC ruling class is separate from them, but I think the separateness consists of a more businesslike view. If the proverbial gun was put to my head, I'd say the above statement should be taken at face value. The post-Deng PRC administration has done awful things, but they haven't abused the world's trust (as yet.)

Gold Slumps To Below $1,200

It was a fairly eventful day in Euroland banking-wise. The Bank of England's Monetary Policy Committee left its rate unchanged, at 0.5%, but the European Central Bank is facing higher interbank market rates that are acting as a synthetic rate hike. The rises are due to uncertainty over the banks' financial condition in the wake of the Eurocrisis. The ECB left its own rate unchanged too, and it may have to intervene in a non-standard way to lower interbank rates. Perhaps paradoxically, European bank shares rose for the second day in a row; the stress tests so far have shown no evident weak points. Over in Asia, the PRC's State Administration of Foreign Exchange said the 'til-recent appreciation in the U.S. dollar has limited the scope for renminbi (yuan) appreciation. The Japanese sovereign debt market saw the PRC government enter to the tune of a new record: $7.9 billion' worth of purchases of short-term bonds.

Despite the events in mainland China, gold wasn't affected all that much last night. A blip-up to $1,205 kicked in around 8 PM ET, but gold stayed steady until just after midnight when fluctuations increased. The fluctuations around the same $1,205 level were replaced by a drop starting around 3 AM. In the next four hours, the metal lost almost ten dollars before the decline ended at $1,197.40. Since then, it stabilized before pulling up above $1,200 again. As of 8:12 AM ET, the spot price was $1,202.00 for a loss of $1.20 on the day. The Kitco Gold Index attributed -$2.65 to predominant selling and +$1.45 to weakening of the greenback.

The U.S. Dollar Index, although down slightly overall, traded in a range overnight. The ceiling was 84.0; as night turned into morning, the floor settled in at 83.80. As of 8:17, the Index was in the lower part of the range at 83.86.

A Bloomberg report, as webbed by Business Week, said that gold's declines have been limited by increases in physical demand.
“We are continuing to see very good physical demand” near the $1,200 level, said Walter de Wet, an analyst at Standard Bank Plc in London. “With markets as volatile as they are, there’s not the momentum yet for gold to move much higher, but it will be supported on dips.”

“Gold bulls will be heartened that gold was able to close above $1,200 yesterday,” said Ong Yi Ling, an analyst at Phillip Futures Pte. in Singapore. “Some investors may also bet that the corrective decline seen earlier had run its course and start accumulating long positions.”
The article also mentions the holdings of the SPDR Gold Shares Trust, which were unchanged yesterday.

A Reuters report said that enthusiasm for gold was dampened by an IMF report saying the risk of a double-dip recession, or "re-recession," was remote although not impossible; still, the metal has held steady.
"I'm still friendly toward gold. We haven't sorted out any of the problems adherent in the economy in terms of sovereign debt, liquidity issues and so on. There will be more of that when the stress tests get underway," said Credit Agricole analyst Robin Bhar.

"I just feel that we could be near the top of the range for gold. Maybe there are factors that will help support it, but I don't think you've got the fear factor any more, the end of the world, Armaggedon to really drive gold significantly higher."
The article also notes a pick-up in physical demand in Indonesia and Thailand.

A brief Wall Street Journal report says gold is hovering, with gains likely to be limited in the near future.
A stronger euro and a greater appetite for risk may dent gold's potential gains, market participants noted.

This week's jobless claim figures for the U.S. economy have come in; they show a drop in initial claims: 454,000, lower than expectations for 458,000. The blip up to $1,202 did not survive the opening of regular trading; nor did $1,200. With the opening of the pit session, the metal slumped to a new daily low of $1,196.10. The release of the jobless-claims numbers went with another blip-up to almost $1,200, which failed to gain traction. Instead, gold slumped down to the $1,198 level before climbing a little again. As of 8:54, the spot price was $1,199.00 for a loss of $4.20 on the day. The Kitco Gold Index assigned -$6.20's worth of change to predominant selling and +$2.00's worth to greenback weakness. The U.S. Dollar Index dipped slightly below its 83.8 floor; as of 8:56, it was at 83.74.

So far, there hasn't been any sustained demand beyond bargain hunting. Resistance at $1,200 may yield again today, but gold's performance has been hobbled by the relative dearth of bad news.

Wednesday, July 7, 2010

Gold Recovers To Above $1190 In Morning, Rises Above $1,200 In Afternoon

An early-morning dive reversed itself when regular trading opened. From around $1,186, gold climbed up to $1,194 in the first twenty-five minutes of the pit session. A pullback was followed by an upward slog that kept the metal between $1,192 and $1,194 until 10:30 AM ET. Ramping up to $1,197.60, the metal made a new daily high at that price. Perhaps oddly, the jump came at a time when the U.S. equity averages were rising - but it did accompany a slide in the U.S. dollar. At any rate, the metal's jump was short-lived. Pulling back to $1,192 again, it climbed above $1,194 only to fall back into the earlier range. As of 11:53, the spot price was $1,193.90 for a loss of $0.80 on the day. The Kitco Gold Index split the loss into -$0.30 for predominant selling and -$0.50 for strengthening in the greenback.

The U.S. Dollar Index spent early and mid-morning downtrending until the fall reversed just before 11:00. Bottoming at just below 83.9 as of 10:53, its subsequent rise pulled it above 84 again. As of 11:55, it had mostly recovered from its slide by reaching 84.09.

Once the initial rise has been factored out, gold has been bobbing around. Still, that rise managed to all-but reverse the droppage in pre-pit trading. It doesn't look like the metal has enough momentum to best $1,200, but a switch back to a gain on the day isn't out of the question.

Update: The muddle-through phase ended a little after noon, at which point gold's climb resumed. Jumping up again to around $1,196, it hung a little below that level until a zig-zaggy advance starting at 12:40 PM ET pushed it up to a new daily high of $1,200.20. The metal may not have bested $1,200, but it touched that level.

The rest of the pit session saw gold hovering around $1,198. As of the end of the session, or 1:30 PM, the spot price was $1,198.30 for a gain of $4.20 on the day. The Kitco Gold Index divided the gain into +$2.15 for predominant buying and +$2.05 for weakening in the greenback.

The U.S. Dollar Index, after making 84.10, slid back down below 84 after hovering around that level for twenty-five minutes. As of 1:35, it was at 83.91.

Gold did shift over into the gain column, and showed a fair bit of rally after moving indecisively during most of the morning. Now, it's a $1,200 close that's not out of the question.

Update 2: The rallying continued during the electronic-trading hitch; gold did in fact get and close above $1,200. That level was broken through around 1:45 PM ET, and the metal hung around until just before 3:00 when it made another daily high at $1,205.10. Settling back, it spent the rest of the hitch between $1,202 and $1,204. As of the close, the spot price was $1,203.20 for a gain of $9.10 on the day. The Kitco Gold Index apportioned the gain into +$7.70 for the predominant-buying category and +$1.40 for the greenback-weakness category. The two sum up to the raw change on the day.

The U.S. Dollar Index stopped falling back around 2:10, when it inched below 83.75. Rising up to 83.95, then falling back before rising once again, it didn't see 84 for the rest of the afternoon. As of 5:30, it was 83.94.

Its daily chart, from, shows the Index's continued deterioration:

Today's rate of descent was lesser than yesterday's, and today's interday low was only a smidgen below yesterday's. Still, the Index continues to trend downwards; it's well below its 50-day moving average. Both indicators at the top and bottom of its graph show further deterioration.

The main reason has been the recovery of the Euro. Rightly or wrongly, the Eurocrisis has gone dormant. The can may well have been kicked down the road, but the kicking was done successfully. Evidently, the market believes the austerity pledges from governments with high deficits as percentages of national GDP. With no sign of a further flare-up, although there were hints of such in Spain when the Index was still flying high, the greenback has given up the bulk of its safe-haven premium. It may take some time before the Index moves more in accordance with international fundamentals.

Over the longer term, the Index may be stuck in a trading range. This three-year daily chart shows that its top last month peaked at about the same level at which March of '09's did:

Although last November's low was well above that of '08, the Index's chart does look like a long-term range is forming. That pattern would be fairly good for the United States, as lowering would bring some relief to U.S. exporters and rising would keep the U.S. Treasury's foreign creditors from complaining...not to mention not re-upping.

Gold's own chart shows a reversal of its recent declines, due to bargain hunting:

Today's interday low was lower than yesterday's, but the close was higher than yesterday's too. Gold's technical picture doesn't look all that great, but balancing that out is the bargain-hunting buying that's cushioning the falls at these levels. There has not been a repeat of last Thursday's plummet. Gold may continue to linger around the sub-$1,200 level, but appearances suggest that the bottom's in or near - at a higher level than late May's.

A post-pit Wall Street Journal report, which missed the electronic-trading recovery rally, ascribed the earlier drop to gold's diminished appeal due to safe havens being less wanted.
Investors looking for a safe bet amid dimming prospects for robust economic growth propelled gold to record highs in June, but those investors recently have seemed to favor other assets. Recent news has raised doubts about gold's ability to set new record highs.

Gold was pressured Wednesday by reports that central and commercial banks may have liquidated or swapped holdings in gold in the first quarter, either to raise short-term capital or to invest in other assets.

In addition, a Chinese foreign exchange official said the country won't reorient its currency holdings toward gold. The news isn't viewed as a major shift in policy, analysts say, but it nevertheless added downward pressure to a gold market already jittery in the face of volatility in wider markets....

Still, the later afternoon recovery says those factors were counterbalanced by bargain-hunting. Gold may not continue to rally tomorrow, but there's enough cushion to pinpoint sub $1,200 levels as a bargain zone.

Gold To Rise To $1,500: Yorkville Securities

That institution has a target price of $1,500 within 18 months because of higher inflation coming down the pipe.
“The upside outweighs the downside,” said Brian Kinane, managing director at Yorkville. “It provides a potential inflation hedge and inflation is coming in due course.

“It gives you protection for flight to safety because it’s the global currency that is not subject to quantitative easing,” he added. “I believe gold can move to $1,500 within 18 months.”

“Gold is well priced right now but there are people who have a view that it could go to over $2,000 an ounce,” Kinane said. “I would be of the view that gold has more room to run.”
Also mentioned in the article reporting the forecast is the fact that a near-zero interest rate environment (with inflation still positive) makes for a favourable climate to hold gold because the opportunity costs are minimized.

Indian Gold Dealers Still Restocking

According to a report by Reuters India, demand for gold at the wholesale level is still strong because of lower prices.
"Southern centres like Chennai, Coimbatore and Kochi are more active than north, we are sufficiently stocked" in case of a surge in demand, said a dealer with a state-run bullion-dealing bank in Mumbai....

"We may have priced in for at least 100 kgs today morning," said another dealer with a private bank.

Selling By Stockists Pushes Gold Down In Indian Market

According to a report by the Times of India, gold dropped because of heavy selling by stockists.
Marketmen said sustained selling by stockists in tandem with the weakening trend in international markets mainly weighed on the trading sentiment here. They highlighted the fact that even demand for the ongoing marriage season failed to check the falling prices.
Still, as an earlier report by the Economic Times relates, there was physical buying:
Indian gold jewellers rushed to replenish stocks ahead of religious festivals and other physical buyers in Asia snapped up bullion after prices fell to their weakest in more than a month, dealers said on Wednesday....

Gold buying in main consumer India resurfaced after a gap of nearly a month as dealers stocked for a second round of religious festivals starting in August, when demand for bullion picks up and the wedding season starts.

"The initial reaction for the dip was good but they are looking for more correction. I may have imported about a tonne since 3-4 days," said Pinakin Vyas, assistant vice-president-treasury with IndusInd Bank, a gold importer. Jewellery is the most common gift during religious events and weddings in India.

"They don't want to miss this chance of a dip before festivals. I placed indents to import half-a-tonne of gold over the past 3 days," said a senior official with a state-run bullion dealing bank, which imported about 40 tonnes last fiscal year.
The resultant picture is mixed, with one kind of buyer acting in discord with another.

Shanghai Gold Exchange Trading Jumps By 59% In 1H '10

The PRC government's attempts to cool the property market and ad campaigns for buying gold have had their effect. In the first half of this year, trading on the Shanghai Gold Exchange jumped up by 59% to reach the equivalent of 3,174.5 metric tons. Silver trading increased by a greater amount.
“Gold- and silver-trading volume expanded sharply in the first half of this year because a declining stock market, the government’s efforts to cool the property market and the general volatility in the global financial market have all fueled the investors’ enthusiasm,” Song said....

“I expect China’s gold demand to rise by 11 to 12 percent this year to 440 to 450 tons because Chinese investors have shown their willingness to buy more when prices are on the rise,” Hou Huimin, deputy secretary-general at the China Gold Association, said today by phone. “I expect prices will rise over the remainder of this year and next year,” said Hou.
Also jumping were sales of physical gold:
Sales of gold products such as bars and coins by China National Gold Group Corp., owner of the country’s largest gold deposit, jumped as much as 40 percent in the past six months, Song Quanli, deputy party secretary at the company, said today in an interview. “We have witnessed some really good sales in our retail outlets,” said Song at China National.

Central banks Swap Gold For Cash In Record Numbers

The gold market got the jitters overnight from a report that central banks have been swapping their gold for cash with the Bank for International Settlements (BIS), agreeing to repurchase the gold later. Those transactions, more like pawning than sales, shouldn't affect the gold market but could if any central bank defaults on their repurchase commitment. In that case, the BIS might sell the pledged gold to get its money back.

A Wall Street Journal report goes into the mechanics of the swaps and explains why the possibility of the BIS selling any of the gold is far-fetched. Still, the swaps put some doubt on the newfound theme of central banks buying gold. Interestingly, those swaps ramped up back in January before the Eurocrisis flared up. The central banks entering into those agreements might have been swayed by the December decline and partial recovery in January - or they could have done so because they saw trouble coming.

After Lassitude, Gold Slumps Below $1,190

The inflation rate in Grece hit 5.2%, but that number was largely due to tax increases. The data didn't provide any boost to gold, which dropped in early morning trading after failing to stay above $1,195. It did get above that level for two hours starting at 8:30 PM ET, but sunk back to around $1,194. The decline in early-morning trading was choppy and frequently interrupted, but it proceeded to the point where the metal got below $1,185; the bottom of $1,184.30 was reached as of 5:30 AM. Recovering to above $1,190 within two hours, the metal slumped back to the high 1180s. As of 8:01 AM ET, the spot price was $1,185.80 for a loss of $8.00 on the day. The Kitco Gold Index split the loss into -$5.10 for predominant selling and -$2.90 for a strengthening greenback.

The U.S. Dollar Index spent most of the overnight session drifting upwards. Reaching almost 84.4 around 5 AM, it slumped back a little later. As of 8:06, it was 84.25.

A Wall Street Journal report ascribes the early-morning fall to two items: mainland China's State Administration of Foreign Exchange deciding not to sway from their policy regarding gold, because the metal's thirty-year return hasn't been all that good, and a report that the Bank of International Settlements undertook some gold swaps.
Simon Penn, market analyst at UBS, added: "The reality is that all SAFE [China's State Administration of Foreign Exchange] said was that it wasn't changing its existing investment strategy towards gold—no news really. But given the pressure gold is under at the moment and the very long positioning in the market, its comments were sufficient to depress the market below $1,190/oz."

Reports that the Bank Of International Settlements undertook large-scale gold swaps in the first quarter also "confused" the market, said UBS analyst Edel Tully, compounding the downward pressure on gold....

Gold could possibly retest the mid-May lows around $1,165 an ounce, after failing to hold at $1,200 an ounce , said Bullion Desk analyst James Moore.

However, he added that with little change in the global economic and European sovereign-debt outlooks, there "is little at present to suggest this is anything other than a short-term correction."
Another analyst was quoted as saying the market was keeping an eye out for economic data; if they're bad, then gold should rise in consequence.

The State Administration's decision, plus some recovery in the greenback, were the reasons given by a Reuters report. There's still a fair bit of physical demand at current prices.
"China has $2 trillion in currency reserves, so it is simply not possible for them to invest a major part of this in gold -- the gold isn't there," said Commerzbank analyst Daniel Briesemann.

"I am convinced they will increase their gold holdings if prices fall further. I don't expect gold to fall below $1,000, but if that happened... China would step in and buy gold."

He said concerns over the economic outlook after a raft of soft U.S. economic data was likely to keep gold well-bid, however. "Over the mid to long term, gold should be very well supported," he said.
Also mentioned is the holdings of the SPDR Gold Shares Trust (GLD) dipping 2.43 tonnes to 1,316.48 tonnes.

The morning Bloomberg report, as webbed by Business Week, says the U.S. dollar's pull-up helped push gold down. It included an influence on the rising greenback: a major Russian bank defaulted on $250 million of its bonds.
Gold “is looking increasingly bearish and we could see even more technical selling and profit-taking,” said Andrey Kryuchenkov, an analyst at VTB Capital in London. Still, “the downside will remain very limited as long as economic uncertainty prevails.”...

“The dollar is exerting an influence on gold at the moment,” said Park Jong Beom, Seoul-based senior trader with Tong Yang Futures Co. “Gold has been losing some momentum since breaking higher to a record last month as more investors are enticed to book profits.”
Despite the decision from the State Administration of Foreign Exchange, gold buying in mainland China was up on the first half of this year. The article also mentions that fact that, despite the drop in GLD's holdings, overall holdings of ten gold ETFs were up slightly yesterday.

The beginning of regular trading saw a rebound to above $1,190, briefly pushing gold into the gain column. In the absence of any new economic data, the metal's run that started with the opening of the pit session took it up to $1,194 before reversing. As of 8:50, the spot price was $1,192.30 for a decline of $1.80 on the day. The Kitco Gold Index assigned +$0.60's worth of change to predominant buying and -$2.40's worth to greenback strength. The U.S. Dollar Index, after a partial recovery that took it up to 84.33, slumped below 84.2 before picking up a little. As of 8:53, it was at 84.21.

Although that news from mainland China was a disappointment, it didn't have a lasting effect on the gold price. Regular trading, seemingly motivated by the greenback's stall, all-but erased the loss. The metal may sink back as the session moves from early to late, but it got off to a good start.

Tuesday, July 6, 2010

Taking Two Drops, Gold Sinks To $1,190 In Morning; Stays In Low 1190s

Gold's first drop started before the pit session began, around 8:00 AM ET. It sunk to a little below $1,200 by just after 8:30 and hovered above that level until about 9:35. Its second tumble was quicker and deeper. Starting right after the U.S. equity markets opened up strongly, the metal suffered by unwinding of safe-haven trades. By a little after 9:45, the metal was below $1,190.

The much-anticipated ISM Services Sector report showed expansion, but less than what was expected. The release of the number had little effect in gold either way; it remained stuck between a little below $1,190 and $1,194 before crawling above just before noon. As of 11:57 AM ET, the spot price of the metal was at $1,196.60 for a decline of $12.30 on the day. The Kitco Gold Index attributed -$21.50 to predominant selling and +$9.20 to weakening of the greenback.

The U.S. Dollar Index, after showing a bit of strength earlier in the morning, did get affected by the ISM report. Starting at 10:00, it stumbled from around 84.25 to well below 84. Although most of the tumble was immediately after the report's release, the Index still headed down in a more leisurely drop which bottomed about an hour later at 83.85. A final blip downwards prefaced a trading range centered at around 83.9. As of 12:00, it was at 83.91.

Good times for equity markets have taken their toll on the metal, which did thrive on earlier equity declines. The U.S. equity markets keep fording higher, but gold's decline potential has been exhausted for now. The afternoon part of the session may continue the calm.

Update: The rise that began at 11:45 AM ET petered out a little after noon, and the metal slowly sunk back down to below $1,193. A little before the pit session ended, another upturn began. The bottom as of 1:15 PM was higher than the bottoms formed in the morning. The second top was about the same height as the first. Another pullback kicked in just before the end of pit trading. As of that end, or 1:30 PM, the spot price was $1,195.00 even for a loss of $13.90 on the day. The Kitco Gold Index assigned -$22.70's worth of change to predominant selling and +$8.80's worth to weakness in the greenback.

The U.S. Dollar Index drifted in early afternoon; it didn't sink back below 83.9 but also didn't get back above 84. As of 1:30 PM, it was at 83.93.

There hasn't been much of a relief rally for gold, but the quiet suggests there will be no further tumbles today. $1,200 doesn't look very reachable, but there's a chance the metal will regain that level.

Update 2: That last uptick didn't do much for gold; shortly after the end of the pit session, it drifted back down to the $1,192 level. Falling below just after 3:00 PM ET, the metal briefly dropped to $1,188.40 before recovering to $1,192-$1,194. A last-minute jump got the metal slightly above that range: as of the close the spot price was $1,194.10 for a loss of $14.80 on the day. The Kitco Gold Index attributed -$22.00 to the predominant-buying category and +$7.20 to the weakening-greenback one. The two changes sum up to the raw change on the day.

The U.S. Dollar Index drifted up from its lassitude starting in early afternoon. At the peak, the drift-up got the Index up above 84 to 84.12. Stalled at that level around 3:30, it drifted down to near the 84.05 level. As of 5:30 PM, it was at 84.03.

Its daily chart, from, shows it testing the 84 level that held at the end of the day:

The technical picture for the Index continues to deteriorate as the Eurocrisis keeps staying on hold. Its RSI level, found at the top of its chart, is closer to oversold (30) than to neutral (50). It's on track to the RSI touching oversold outright, which has never occurred since the bull market began last December; the last time it dropped below 30 was in last September, when the bear market had yet to run its course. Both MACD lines, found at the bottom of its chart, are below zero for the first time since mid-December. They're still in a bearish configuration, with the red line over the black line.

Given the overall deterioration, it's hard to see the Index rallying more strongly than bounceback should it become oversold. The bull phase lasted six months, from the beginning of December to the beginning of June. The current pullback has been in place for almost a month, and seems to have some ways to go. Believe it or not, a continued fall to as low as 82 would not signal an end to the overall bull market. That's because the last month of the bull run saw a very rapid advance.

As for gold, its own performance today doesn't make for much optimism either:

The $1,200 support level that held yesterday yielded today. Gold's own RSI level is between neutral and oversold, and its MACD lines are in a solidly bearish configuration. Recently, gold and the Index have been moving in tandem again because the safe-haven demand for both continues to melt away.

I can't say how low it will go, but this decline is being accompanied by skepticism and gloom; there wasn't any bullish frenzy accompanying its recent nudge towards a new record high. The last time gold plummeted and kept drifting down, in late May, it ended up recovering.

A post-pit Reuters report says gold was pressured due to a combination of technical factors and rising risk appetite (i.e., demand for equities.) Anongst the points therein, these were included:
* Selling momentum picked up with break below last week's trough at $1,196. Market's inability to break further attracted some late short-covering - traders.

* Market coming to an end of unwinding of the gold/euro spread. Price correction seen healthy - Frank McGhee, head precious metals trader with Integrated Brokerage Services LLC in Chicago.

* Improved risk sentiment on back of upbeat assessment of global economy by Reserve Bank of Australia....

* Indian buying continued as traders in world's biggest gold consumer picked up bargains ahead of a second round of festivals and watched rupee for direction.

The above-mentioned selling momentum may continue tomorrow, but expectations are inclined towards this current downtrend being a pullback like late May's. Given increases in demand for physical, any further downtrend should be cushioned unless a negative driver rears its head.

Gold Skepticism Stiil High

In a Seeking Alpha piece, Dr. Duru points out that the put-call ratio on the SPDR Gold Shares Trust (GLD) keeps rising along with its price. That concurrency indicates bearishness, or skepticism regarding the rally, is moving up with GLD. That's not a sign of a momentum-driven bubble.

He supplements that result with some search-string research of his own. The string "gold bubble" in Google News shows an increase in the number of hits as the gold price rises. Search interest in both buying and selling gold has remained steady over the last several years. More recently, however, Web searches for "gold bubble" have slumped subsequent to late 2009.

It's an interesting analysis, and complements the put-call ratio data. I have to say that there is no all-out mania developing at this time.

Darryl Guppy's Call On Gold

Darryl Guppy, the same chartist who said the Dow has been tracing out a head-and-shouders pattern it exhibited in 1930, has put out his call on gold. He being a technical analyst, he relies on chart patterns. The recent one he focuses on is an "ascending triangle," which broke down when gold dropped below $1,240. Because of that breakdown, Guppy is forecasting a drop to as low as $1,177 before the metal possibly heads up to $1,319.

Sketch Of Stock Frauds

Gold exploration is one area where frauds pop up because it's less clear as to what "too good to be true" is. The best exploration companies do go up ten times and, very occasionally, much more. No fraudster with any common sense would tout a phone or bank stock as a quick ten-bagger; all but the very naive would scoff, and the fraud would be spotted very quickly.

On the other hand, touting a fake exploration penny stock is feasible because there has been the occasional penny stock that has gone to dollars - and people remember. One emotion that fraudsters prey on is "I missed the boat - I should have seen that one" regret itch.

It's a sad fact that the exploration stock with the greatest percentage gain, from beginning to top, was a fraud from beginning to end. Starting at only pennies, Bre-X stock reached more than $200 at its height. Later, it was revealed that the exciting samples were all "salted;" no gold was in the rock from which they came. This scandal rocked the Canadian exchanges and resulted in a considerable tightening up of the standards for reporting sample results, resources and reserves.

An article in Gold Investing News has a few case histories of penny stock frauds, including Bre-X. It's well worth going through.

Unfortunately, the old adage "if it seems to be good to be true, it probably is" doesn't stick all that well. The best line to draw would be to assume that any penny stock touted by an Internet newsletter shouldn't be touched at all, regardless of how legitimate it appears. Finding good exploration stocks does take some time; even well-meant tips from people who know the business have to be examined skeptically. I know of no Internet stock toutsheet that came up with a penny stock that did turn into dollars, which wasn't later exposed as a fraud.

Sad to say, the above warnings won't deter someone from flip-trading a touted stock cynically. It's hard to feel sympathy for those folks unless they were clearly taken advantage of.

Russin Bank Offers Time Deposits In Gold

A custodial or allocated account can be considered a kind of bank account; a share of an unallocated pool can be compared to a chequing account minus the cheques. The companies that offer them, though, are either the dedicated gold sellers or another kind of investment firm. There hasn't been a bank offering anything like a deposit account in gold since the fall of the gold standard; any banks that have sold gold have done so as investment firms by offering gold certificates.

Until now.

As a report webbed by the Telegraph explains, a Russian bank is now offering time deposit accounts denominated in gold.
Punters have to deposit a minimum of 100g of gold, or 10,000g of silver, worth $3,885 and $5,893 respectively. The interest rate depends on the term of the deposit, with options ranging from 181 to 732 days.

"A time deposit in precious metals is interesting to depositors who prefer to diversify their savings," said Ilya Filatov, deputy chairman of the board, in a recent interview. "We made sure of this when we launched the product in Moscow, Ufa and St Petersburg.

"That pilot product proved a success. A deposit in precious metals doesn't depend on exchange fluctuations and protects funds from inflation."

Part of the reason for the offering of the accounts is the recent devaluation of the ruble, but demand for gold is another. If a bank in Russia can make a profit on loaning out money derived from gold time deposits, it's only a matter of time before other banks in other countries get the idea they can do so too.

Physical Gold Demand Increasing

Several facts collated by a Bullion Vault article show demand for physical gold is increasing at a nice clip. First and foremost, demand for COMEX gold bar delivery is up 39% from the same period last year. Sales of American Eagles, both one-ounce and fractional, are also rising; Buffaloes and the premium First Spouse coins are also rising, but at a lower rate. In addition:

Jon Spall, director of commodities at the UK’s second largest bank Barclays said, "There's much more demand from gold investors for Allocated Gold. People are attracted to hard assets outside the banking system which do not represent a credit risk to anyone."
It seems to be investment demand behind the increase in coin sales. The coins with the higher premiums are seeing their sales rise more slowly than the straight-bullion ones.

Indian Gold Buying Strong Again

According to a report by the Economic Times, bargain-hunting in the Indian gold market is continuing.
"Still there is buying, I must have done about 300 kgs since yesterday evening at about $1,210 an ounce level," said a dealer with a state-run bank in Mumbai....

"There could be more buying if the rupee strengthens a bit from here," said another dealer with a private bank in Mumbai.
Although bargain hunting played its part, one of the reasons for the increased buying is another festival coming up next month. The two put together explain the upsurge in volume.

After Slump Below $1,210, Gold Rises Above Then Falls Back

The U.S. markets were closed yesterday, but other markets were not. After making it to above $1,214 at the end of Sunday night, gold spent Monday morning slumping down to $1,206. Despite a spike-up, followed by another in last evening's overnight trading, gold slumped further to below $1,203. A rebound to $1,206 prefaced a climb that stalled at $1,208 early this morning but continued just after 4:00 AM ET. Within an hour, the metal reached $1,214.80. That price reached, the metal then pulled back; $1,210 held until around 7:30 AM. As of 8:00, the spot price was $1,206.70 for a loss of $2.20 on the day. The Kitco Gold Index attributed -$5.00 to predominant selling and +$2.80 to weakening of the greenback.

The U.S. Dollar Index, after rising to above 84.8 in a largely choppy rally, started sliding after that peak was reached as of 8:55 PM. The slide lasted several hours and was fairly steady until the end was closed in on around the 84.25 level. After the low itself was reached, the Index began trading choppily upwards in action that resembled a trading range. As of 8:09, it was at 85.35.

A Bloomberg report, as webbed by Business Week, pegs the earlier rise as fueled by the decline in the greenback.
“Everybody used to be so bearish on the euro, but it’s turned around,” said Jesper Dannesboe, a senior commodity strategist at Societe Generale SA in London. “That could give a bit of help to gold. Some people may also come in and think gold’s had a nice correction and try to buy.”

“With gold touching its lowest close in over a month, we see these levels as a good entry point for fresh long positions,” Hussein Allidina, head of commodity research at Morgan Stanley, wrote in a report today.
Also mentioned is the likelihood of the U.S. service sector slowing down.

A Wall Street Journal report has the same explanantion, but indicates gold may consolidate as traders reassess their longs.
Following a quiet day of trading Monday, where prices kept within an $8 range, the markets are expected to closely watch how Wall Street opens Tuesday after the U.S.'s July 4 holiday break.

"Gold [is] holding above $1,200 a troy ounce; however, the lack of gains in European markets yesterday may suggest the negative sentiment will continue when U.S. markets reopen, with further consolidation likely in gold as investors and speculators par their stale longs," said Bullion Desk analyst James Moore.
Also mentioned is the upcoming Institute for Supply Management report on the U.S. service sector, due out at 10 AM ET.

An earlier Reuters Africa report credits physical buying for pushing gold up.
"What gold needs now is a fresh catalyst. It needs something to trigger it to go higher. We might be seeing investors cashing up to rebalance other markets," said Mark Pervan, senior commodities analyst at ANZ in Melbourne.

"There's certainly been a fair bit of disappointment that it was unable to break a fresh record high early last week," said Pervan, who pegged support at a May level around $1,170 an ounce....

"There's very good physical demand out of Indonesia and Thailand. Premiums now range from 40 to 70 cents," said a dealer in Singapore, who offered gold bars at a premium of up to 60 cents last week.
Also mentioned is the state of the physical market in Hong Kong, which was less active. There was hesitation, according to one dealer there, because of fears that a U.S. double-dip recession would lead to selling of gold.

The start of regular trading saw a fall that has already begun, accentuated. From $1,206 when the pit session opened, gold free-fell about seven dollars to reach $1,199.00 right after 8:30. A recovery to $1,203 fizzled, but the metal stayed above $1,200. As of 8:55, the spot price was $1,201.80 for a loss of $7.10 on the day. The Kitco Gold Index assigned -$10.30's worth of change to predominant selling and +$3.20's worth to greenback weakness. The U.S. Dollar Index slumped to 84.2 by 8:25, but recovered to above 84.3 before fluctuating in the 84.26-84.32 area. As of 8:59, it was at 84.27.

So far, the shortened week hasn't been that cheery for gold. It may pick up later in the day, but no sign of that exists yet.

Sunday, July 4, 2010

Holiday Notice

Since the commodity markets in the U.S. are closed, and there's likely to be little action in the other gold markets, I'm not going to be writing the usual fare tomorrow. I'll resume a normal schedule on Tuesday.

Happy Independence Day Holiday, if you celebrate it.

Gold Rountable Special On Financial Sense Newshour

The second segment of this week's Financial Sense Newshour podcast was devoted to a gold roundtable with four experts discussing where the gold market is [.mp3 file]. The consensus was, the gold bull market was still intact and it shows little signs of froth. The chief difference between this bull market and that of the 1970s was the relative smoothness of this one. The '70s one was punctuated by a severe downturn in '75 and '76; this one hasn't had a multi-year drop.

The supply situation was also discussed. Although there are new discoveries, the capital costs of bringing new "elephants" into production has multiplied. Bringing the biggest new deposits onstream costs $2 billion, which makes it prohibitive for any except a major with access to that kind of capital. Jeff Christian dissented, as based on overall reserve replacement. Christian added the point that smaller companies will likely fill any production gap should gold keeps going up. Later, Bob Morarity dissented too by arguing that production was crimped because of margin squeezes. Still, the overall impression given was gold miners running out of world.

Investment demand is one of the drivers of gold in this present bull market, but there's little to no sign of any selling. Gold is coming in to its own as a store of value and even potential money; even some central banks are accumulating gold. The possibility was broached, but the consequence of a selling spree were basically minimized except by Jeffrey Christian. He noted that central banks becoming more responsible at the margin could tip off a real selling cascade.

In the third segment [.mp 3 file], John R. Ing disussed his observations about ballooning sovereign debt and his impression that the debt levels are such that the developed world is moving into a pre-hyperinflationary phase. He said that there was going to be no deflation because the money supply won't be falling, like it did in the early 1930s. In the next interview, with Frank Barbera, Jim Puplava discussed the possibility of a new and bigger quantitative easing program in the offing which would work this way: the U.S. government would spend the money directly and the Fed would directly monetize the resultant (added) deficits. Since the banks don't seem to want to lend that much, and creditworthy borrowers aren't borrowing in great numbers, QE through the banking system hasn't done the job. There's the possibility that the Obama Administration is looking to undertake a more fiscal-centric reflationary program.

Both segments were quite educational, and even eye-opening. I have to say that I share Jeffrey Christian's concern about central banks becoming more monetarily responsible at the margin, which can be "relatively less irresponsible" from a more distant view. Investment demand turning into divestment supply would be a major blow to the gold market, whatever be the cause.