Gold Plummets On Bad News, Euro Lift

The recently-established negative correlation between gold and the greenback broke down early this morning, to gold's detriment: the rising Euro had prompted selling of gold from largely European safe-haven buyers. That breakdown encouraged a real sell-off when regular trading opened, which was accentuated by news that the June U.S. CPI fell 0.1%. Although the core rate rose at a higher-than-expected 0.2%, the drop in the raw rate was unexpected. Gold had already started plummeting before the data were released, but the numbers added to the plunge. From $1,204 before the pit session opened, gold was left at $1,190 a little after 8:45 AM ET.

From there, it recovered a little but continued sliding more slowly later. A big tumble in the U.S. consumer sentiment number for July hit the market as it was in a brief relief rally. Shortly after, the metal dropped to its day's low of $1,185.20.

Then, a real relief rally set in. Gold managed to climb up to $1,193 before the climb rounded into another fall. As of 11:53 AM ET, the spot price was $1,190.00 for a loss of $18.40 on the day. The Kitco Gold Index split the loss into -$15.70 for predominant selling and -$2.70 for weakening in the greenback.

The U.S. Dollar Index climbed in the same timeframe, perhaps influenced to do so by the plummet in gold. From below 82.1 as of 8:21, the metal rallied inconsistently but steadily. As of 11:55, it had gotten up to 82.58.

Although this morning was a bad one for the metal, the plummet halted around the bottom of its current interday range. It should be cushioned by bargain hunting once things calm down.


Update: The downward part of the rolling top came to a halt at a little below $1,190. Since then, gold hasn't moved much but hasn't gotten above that level. No further tumble has taken place, but the wind has been knocked out of the metal. As of the end of the pit session, or 1:30, the spot price was $1,188.20 for a loss of $20.20 on the day. The Kitco Gold Index divided the loss into -$16.90 for predominant selling and -$3.30 for greenback strength.

The U.S. Dollar Index hardly moved in early afternoon. Any movement there was showed a tiny upward bias. As of 1:30, the Index was at 82.59.

The electronic-trading hitch for the rest of the afternoon is likely to be quiet. A substantial loss is all-but guaranteed for today, as well as this week, but it could have been worse.


Update 2: The relief-rally effect continued in the electronic-trading hitch; gold managed to climb back above $1,190 shortly after the pit session ended. The subsequent rally was hesitant and slow, but it had enough push to move the metal up to $1,193.00 at the close. The change on the day was -$15.40; the Kitco Gold Index apportioned that change into -$12.60 for the predominant-selling category and -$2.80 for the strengthening-greenback one.

Had it not been for today, this week would have seen a slight loss. Given how today went, it ended with a drop that was substantial: from last week's close of $1,211.40, the decline was $18.40 or 1.52%. There have been worse weeks, but this one was pretty bad.

The U.S. Dollar Index hardly moved, but any movement was basically upwards by mid-afternoon. As of the end of the week, it was at 82.55.

Its daily chart, from Stockcharts.com, shows a new interday low but a slight turnaround by the close:



Today's low brought the Index to a level not seen since May 4th, at about the time the Eurocrisis erupted. Virtually all of the gains since the beginning of May are gone. The Index's RSI level is still below 30, putting it in oversold territory.

There was the hint of a bounceback today, but the peak was reached in late morning. So far, the Index's oversoldness has not prompted any significant relief rally at the interday level. As time goes by, given the mechanics of the RSI's calculation, the number should move up if the Index stays steady. That might be its fate in the near future.

Turning to gold, its own daily chart shows the damage done after regular trading opened:



As indicated in the earlier parts of this post, the metal's interday low was made in mid-morning. Today's candlestick, unlike those of the previous two days, is at the lower end of the $1,185-$1,219 interday range. Today's interday low was a little higher than last week's lowest, keeping the range intact.

Interestingly, gold is about where it was at the beginning of May too. April's upward move was strong enough to get the metal up above $1,180 for May 3rd's daily high. There may be a further test of the low next Monday, but there's a fair bit of bargain hunting that will kick in now that the price is below $1,200.

Last Tuesday saw a rally that pushed gold up to near $1,215 by the end, and to about $1,218 at the day's high. That day's close is the cut-off point for this week's Commitment of Traders data, graphed here. Total open interest shrank a bit, and so did all of the reportable categories. Interestingly, the one that shrunk the most in percentage terms was non-commercial shorts: it shrunk by 7.78%. Given gold's strength that day and resilience during the next two, that shrinkage was understandable but it still came near the week's peak. Evidently, there were a few speculative shorters who threw in their hands several days prior to a worthwhile day for such an endeavour.

The U.S. Dollar Index's CoT data, graphed here, had as its cut-off a day when the previous days' rise had turned into a decline; the next day saw a fair drop prior to yesterday's big one. As of the Tuesday-close cut-off, total open interest shrank yet again. There were only two weekly periods this entire 52-week period with lower open interest than this week's. Commercial longs shrunk again; the category is about a tenth of what it was as of the beginning of last fall. All of the reportable categories shrunk except for non-commercial shorts: it increased, but only barely. Again, this category was the place to be for a speculator.

Turning back to gold, a post-pit Reuters report ascribes today's tumble to fund selling. Amongst the points made therein, these were included:

* Gold pressured by heavy fund selling near COMEX session open - James Steel at HSBC.

* Heavy selling of gold call options by a fund manager in early trade hurts sentiment - COMEX floor trader Jonathan Jossen.

* A report showing weak energy costs pushing U.S. consumer prices lower for a third straight month decreases use of the precious metal as an inflation hedge.

Heav selling there was, but gold has not been pushed into a new bearish channel because of it. Monday won't likely be exciting, but buying pressure all-but-surely will come in.

Thanks for reading what I've got to write. May your weekend not be afflicted by blackouts or brownouts.

Nick Barisheff Explains Gold Shares' Relative Underperformance

In a nutshell, the reason is gold benefits more during a crisis than gold shares. Mining companies are businesses and carry risks that gold itself doesn't. During a financial crisis, market participants become more sensitive to business risk regardless of the business. That's why gold shares plummeted in the Crash of '87 while gold itself was hardly affected; that's also why the HUI got clobbered far more than gold itself in the crisis of '08. One chart from his article shows the HUI losing all of its gains since the beginning of 2000 at the nadir of that crisis:




Given gold's long-term bull market, that was pretty tragic.

Summer Gold Demand In Dubai, Abu Dhabi Up

The evidence only comes from a straw poll, but it looks like gold demand has increased in Dubai and Abu Dhabi this summer as compared with the last. Expatriates buying gold were the cause, suggesting that tourists have more money to spend on the metal.


The demand was for jewelry. No mention was made of the gold vending machine in Abu Dhabi.

Gold In Scotland

This project was a long time coming. The deposit currently held by ScotGold Resources was first discovered by an Irish mining company in the early 1980s. Although the deposit's indicated and inferred resources total only 154,000 oz of gold and 589,000 oz of silver, it's got high grades. A permit to mine was secured as far back as 1996, but the project was abandoned due to low gold prices. Now, ScotGold wants to get it up and running because prices are high enough to do so. They're already running into a roadblack because of the age of the previous permit.


This story's a good object lesson on why peak gold may be pushed back. We don't know how many small projects have languished due to attention paid to the biggies, not to mention how many projects have been shelved due to they becoming uneconomic at lower prices. As more of them become viable, more supply will enter the market.

Japanese Precious Metal ETF Assets To Expand: Mitsubishi

The first yen-denominated Japanese gold ETF was launched on July 2nd, and the issuer of it is predicting an eightfold increase in precious metal ETF assets within a year.

ETFs backed by gold, silver, platinum and palladium stored in Japan may hold as much as 30 billion yen ($337 million) in July next year, from the initial 3.5 billion yen, said Osamu Hoshi, deputy general manager at Mitsubishi UFJ Trust and Banking Corp., a member of Mitsubishi UFJ Financial Group Inc. The yen-based funds from the bank were listed on the Tokyo Stock Exchange on July 2.

Concern that Europe’s sovereign debt crisis would spread sent gold to a record high of $1,265.30 an ounce on June 21. Japanese individuals with combined financial assets of 1,453 trillion yen, as well as institutional investors, may shift some of their money into physical metals as a store of value, he said. Public debt in Japan amounts to $80,000 a person.

However, Japanese investors are more inclined to owning physical gold:

“Owning physical gold has become popular among individual investors,” said Paul Yamamura, a Tokyo-based trader with Sumitomo Corp. “It appears difficult though for demand to grow at that pace because it will take time for people to take a serious look at the market. Traditionally, people don’t like to invest in commodities in Japan.”

That's what Mitsubishi hopes to change. Because of that inclination, the firm's gold ETF has looser redemption privileges than either GLD or Sprott's Physical Gold Trust. Redemptions start at the 1 kg level.

Lone Holdout Aims To Sto Gold Mine

This story should resonate in certain parts of America. Osisko Mining is building a huge mine in Malartic, Quebec. 204 out of 205 homeowners have cut a deal with Osisko to either sell or move from the district that the mine's top is going to be located. Ken Masse is the 205th.

He is literally sitting on a gold mine. And he's determined to stop a multibillion-dollar project aimed at exploiting one of the biggest gold reserves in Canada. In his battle against a mining company, Masse is clearly the underdog. He doesn't have a lawyer, draws a momentary blank when asked for his age, and is constantly accompanied by a fast-talking, self-described billionaire adviser. But the man with a jungle of reddish beard said he's convinced he will succeed in his struggle to keep a mining company from digging under his Quebec town.

Masse's childhood abode in Malartic is all that stands in the way of production on what may be Canada's largest untapped gold deposit. For a year his house has been just about the only thing standing on the lunar landscape of what used to be the oldest district in town....

Masse says his decision to hold out is based on principle -- environmental concerns and the good of Malartic -- not on the desire for a bigger buyout....

Osisko is resorting to government-authorized expropriation, which Masse plans to fight.

Gold Buying Picks Up In India

According to a report by the Economic Times, gold traders are trickling in to the buying counters.

"I booked deals for quite a decent quantity since yesterday as prices are almost flat," said a dealer with a state-run bullion dealing bank.

"Jewellers are offering discounts of 7,000 rupees ($149.8) per kg," said another dealer of a private bank, which deals in bullion.

"I have orders below $1,204," said the first dealer. However, a weaker rupee, which makes the dollar-quoted yellow metal expensive, weighed.

That trickle is likey to become a flood if gold prices stay flat after plummeting earlier this morning.

Gold Sinks In Quiet Overnight Trading, Hurt By Rising Euro

Gold tried to get above $1,210 a couple of times last night, but only bested that level briefly. After slumping to the $1,206 level, the metal stayed between it and $1,208 as morning turned into night. A small jump to $1,210.30 at the time London trading opened, or 3:30 AM ET, failed to be followed through upon: it presaged a drop to $1,202.80 around 5 AM. Gold quickly got back above $1,204, and climbed slowly until slipping a little around 7:30. As of 8:03, the spot price was $1,204.50 for a drop of $3.90 on the day. The Kitco Gold Index attributed -$6.80 to predominant selling and +$2.90 to weakening of the greenback.

The U.S. Dollar Index did fairly well last night, rallying all the way up to 82.5 before pulling back to below 82.4. Renewing its rally, it got up to 82.59 at 2:30 and again at 3:00. Then, it began a decline that took it all the way down below 82.1; despite that drop, largely prompted by a continued recovery in the Euro, gold didn't rally except initially. As of 8:13, the Index was at 82.10.

A Bloomberg report, as webbed by Business Week, said the strengthening euro prompted sales of gold by people who bought it as a safe haven.

“Investors’ trust in the euro currency is back,” said Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland. “Previous gold safe-haven buyers, mostly Europeans due to euro fears, are reconsidering their gold investments as gold prices in euro terms are declining.”...

“We continue to expect gold to tread water if not slip during the summer weeks,” Royal Bank of Scotland Group Plc analysts including Nick Moore said in a report today. “The steady performance in the first weeks of July suggests that price dips are likely to stimulate buying interest. Should we see a more significant selloff we expect decent support at $1,150 an ounce.”

The article also notes the holdings of the SPDR Gold Shares Trust declined a little, by 0.61 tonnes to 1,314.20 tonnes.

A Wall Street Journal report ascribes gold's easing to lack of trader interest because gold hasn't broken above $1,219.

The market seems to be confused about gold's next direction, as the euro's rally has not helped gold as might be expected and more market participants are worried about deflation, said Commerzbank analyst Eugen Weinberg....

"We still expect softer prices. We don't see the inflation debate coming back soon. There are fears that the softer economic data is pointing to deflation risks."

The U.S. CPI data were released, and the raw number showed a 0.1% decline for June; the core CPI rose by 0.2%. The former was below expectations, but the latter was above. The difference between the two was largely accounted for by a drop in gasoline prices. The news added to a decline that sunk the metal below $1,200. Starting when regular trading began, at $1,204, the metal careened down to $1,189.20 before halting. As of approximately 8:56 AM, the spot price was $1,192.11 for a drop of $16.30 on the day. The Kitco Gold Index assigned -$18.50's worth of change to predominant selling and +$2.20's worth to greenback weakness. The U.S. Dollar Index recovered a little, but not by much; as of 8:57, it was at 82.21. The CPI data had no discernible effect on the Index.

With the negative correlation between the greenback and gold failing, the only driver for gold has been discredited; hence this morning's decline. Gold is now back in the lower end of its current multiday range, and is at risk of another plummet driving it further into bargain territory.

God Whipsaws In Morning Trading

Again, gold whipsawed after making a run early on in regular trading. This one was less volatile than yesterday's: the peak was reached at only $1,218.30 this time, but the bottom was $1,203.00. The peak took place at just before 9:00 AM ET after the gold market took heart despite some disappointing June PPI data. A dropping greenback provided the driver, but the effects of the 0.5% drop in the raw PPI sunk in after the peak around 8:50. A recovery in the greenback added to the drop. So did news of the Philadelphia Fed's manufacturing index falling to 5.1 instead of rising to 10 as expected.

The low in gold was reached just after 10:15. Subsequently, with a renewal of the U.S. dollar's decline, the metal pulled off its lows. A jump around 11:10 got gold back up above $1,210; that recovery held. As of 11:54 AM, the spot price was $1,210.40 for a gain of $1.90 on the day. The Kitco Gold Index attributed -$9.30 to predominant selling and +$11.20 to weakening in the greenback.

The U.S. Dollar Index, after falling to just above 82.6 as of 9:08, steadied and then recovered to above 82.75 before declining anew. The drop halted at 82.5, and the Index recovered to 82.6 a little before noon. As of 11:56, it was at 82.60.

Gold went through a wild pit-session ride for the second day in a row, as conflicting signals and the volatility of the greenback added hopes and fears to the market. Still, it's in its short term range; it'll likely stay there in the afternoon.


Update: Due to a recovering greenback, gold fell below $1,210 right at noon ET. Continuing to drop, it bottomed at around $1,208. From there, it fluctuated between that level and $1,209.50 for the rest of the pit session. $1,210 reamined out of reach in early afternoon. As of 1:30, or the end of the pit session, the spot price was $1,208.00 for a loss of $0.50 on the day. The Kitco Gold Index assigned -$11.90's worth of change to predominant selling and +$11.40's worth to greenback weakness.

The U.S. Dollar Index, as indicated above, continued that pre-noon rally until it got well above 82.7 around 12:30. After hovering around that level until just before 1:00, it first tumbled and then slipped back down to 82.5 before the decline was replaced by a modest upturn. As of 1:30, the Index was at 82.57.

The trading's been choppy, but gold is pretty much staying where it is. There's still a chance at a gain at the close if the electronic-trading hitch co-operates.


Update 2: The metal did close with a loss, but with the smallest loss possible: a dime on the day. Its performance during today's electronic-trading hitch was quite similar to yesterday's. Again, the metal fluctuated in an interday range between $1,206 and $1,210; that same interday range was established in the middle of yesterday's hitch and held 'til the end. So did today's, even though it prevailed since noon ET. At the close, spot gold was at $1,208.40; as already mentioned, the change on the day was -$0.10. The Kitco Gold Index attributed -$14.90 to the predominant-selling category and +$14.80 to the weakening-greenback one. Both categories sum up to the raw change on the day.

The U.S. Dollar Index, after getting above 82.6 shortly after the last Update, double-topped and resumed sinking. After a pull-up, the drop was fairly steady all the way down to 82.28 as reached around 4:25. Following that low, the Index first dithered and then pulled up a bit. As of 5:30, it was at 82.37.

Its daily chart, from Stockcharts.com, shows its slide continuing with a certain robustness:



The 83 level did give way in what has turned into quite the extended decline. Again, a short-term recovery peaked at a lower high and gave way to a lower low. Needless to say, the Eurocrisis premium is all-but gone from the greenback.

There may also be another factor. Remember the dollar carry trade from 'way back when? Last year, some institutions took advantage of the then-falling greenback by borrowing a haunch at miniscule rates and then selling them for a currency enjoying higher yields. The proceeds were invested in that other currency, giving a positive carry on the trade. The prudent ones forward-purchased greenbacks at the time to lock in a guaranteed repayment price and used high leverage to earn a fat return on a thin differential. The less-then-prudent ones waited a bit for the greenback to fall further before locking in a greenback forward purchase or futures contracts. As long as the greenback kept falling, there was added gravy for the carry trade. The re-purchased greenbacks could be had for less, adding to the margin.

It works great until the greenback starts rising. Then, the interest-rate differential starts getting eaten by the fall of the other currency in U.S. dollar terms. The fully-hedged prudent carry-trade players escape unscathed, but the less-than-fully-hedged ones find themselves in a bit of a spot. The latter is going to be tempted to cut the losses and buy back the greenbacks from another source ASAP: "unwinding" the trade early. Neither player will likely re-up, removing a source of selling pressure in the U.S. dollar. Part of the reason for the the greenback bull trend that had started last November was the unwinding of the U.S. dollar carry trade.

That carry trade might be back, even though there aren't many high-rate opportunities in the other major currency zones. (A large depositor can get more than 2% in a UK bank.) At any rate, the greenback's performance is more felicitous for the carry trade now. I wouldn't be surprised if said trade were already re-appearing.

Turning back to today's performance, the doldrums were further illustrated by the Index's RSI value (found at the top of its chart) going well below the 30 oversold level. Today's was just above 27. Given this oversoldness, the possibility of the Index making a short-term rebound is there.

As for gold, its own daily chart shows the market quieting down as it stays stuck in its short-term range:



$1,219 is still the formidable barrier that it was, but $1,200 is no longer fallen through. The interday span has indeed narrowed.

As of now, there's no indication that gold will move out of its short-term range. The greenback's fall hasn't been enough of a driver; it hasn't even been a consistent one. The current range-boundedness shows there's no internal bullishness to push the price up substantially and no real bearish edge to push it down. So, a new driver will have to show up to push gold out of its lassitude before the range gets broken.

A post-pit Reuters report says gold ended essentially unchanged as weak economic data and mild outside markets failed to either inspire or scare. Amongst the points made therein, these were included:

* Gold pared initial gains after reports showed that new U.S. claims for jobless benefits tumbled last week, manufacturing slowed and industrial production rose but just barely.

* Gold has been largely treading water this week after news that a 346 tonne gold swap operation conducted by the BIS stirred fears of gold dumping.

* Higher allocation by institutional investors including wealthy retirement plans and larger institutions boost gold prices to new highs - Robert Lutts at Cabot Money Management....

* Any surprise from a U.S. consumer inflation report due on Friday could provide new catalyst to bullion - traders.

It's a nice hope, but today's producer prices index report indicates that any such rise would be little more than a blip.

Gold's still in its holding pattern and looks like it's going to stay there. Tomorrow may see an upwards bump, but current action suggests it will be short-lived.

Terry Coxon On Inflation

It's a long interview, but well worth going through. Terry Coxon is a legend, in part because he's level-headed about inflation. Right now, he doesn't see any on the horizon because the deflationary tendencies of collapsing credit are balancing off the huge increase in the monetary base. He gives the figure of a 20% increase in the money supply since the financial crisis began, and concludes the Fed has decided that 20% is enough. He makes the point that the huge deficits are not inflationary, but potentially inflationary. His forecast for higher inflation hinges upon a double-dip (or a serious slowdown) that prompts the Fed to ramp up the money supply again. Once recovery kicks in, and lending ramps up again, inflation will take off.

Intriguing, If Risky, Gold Buying Technique

Dr. Steve Sjuggerud has come up with an interesting strategy to stay in gold during a long-term bull market and get out when the bear market comes. It depends upon the gold supercycle, in which a fairly steady bull market is followed by a long-drawn out bear. He calls it his "Simple Strategy," and it works like so:

Monitor gold prices in four major currencies: the U.S. dollar, the euro, the British pound, and the Japanese yen. If gold is up in terms of all four currencies in the previous month, then buy (or hold) gold. If not - if the metal is down in terms of any of these four currencies - then cash in the gold and put the proceeds in a money-market fund. Keep the funds there until gold has increased in terms of all four currencies in the previous month.

Presumably, a gold accumulator would add the new funds to the switch when the signal first flashes "buy," and would add if the latest month shows the same signal after the other funds have been invested with gold. If the signal flashes "sell", or "don't buy," the adds would go into the money-market fund.


It's an intriguing idea, despite the potential for being nickel-and-dimed to death through whipsaws that would be exacerbated by buying and selling physical gold. Gold does tend to move in long-term waves, which makes the strategy ostensibly practical. One variant would be to shift into stocks instead of gold because long-term bear markets in gold tend to accompany long-term bull markets in stocks. [1980-2001, for example.]

He claims a 14.5% return over the past forty years using this strategy, but it's the result of backfitting. He doesn't say what he used as a proxy for the Euro before it came into being.

BIS Gold Swap Bullish, Argues MineFund.com

The gold market was spooked by the revelation of the BIS's gold swap, but a writer for MineFund.com argues it's good news for the gold market.

Rather than being negative for gold, the news is positive. Firstly, investors have never regarded central banks as strong hands for gold. Second, it confirms that gold is the money of last resort since banks were forced to surrender their metal in order to satisfy near-term cash requirements that could not be satisfied through the printing press and discount window.

Third, the gold was swapped rather than sold. Whilst the metal could make its way to the market, it is literally inconceivable. Were that to happen, the circumstances would be bullish for bullion because it would signal that the swap originators had expended their resources and were essentially in default. That would result in a profound shock to financial assets seen in spiking credit default swaps and additional pressure on embattled sovereign instruments....

In other words, gold is being used as a useful financial asset. In this sense, denigrating gold for being 'uselessly' stored and shuffled from one end of the vault to another is not unlike denigrating derivatives as 'paper shuffing' given that derivates are used to hedge.

Joe Foster: Gold Above $3,000 In Couple Of Years

Joe Foster of US based Van Eck Associates, who runs the Falcon Gold Equity fund, has said gold could go to $3,000/oz in the next few years. The driver will be continued stress on the financial system.

‘We are positioned for a bull market,’ Foster told investors this week. ‘This bull market has been going on for nine years and it could very well go on for another nine years.’...

‘I have no problems with the gold price up around $2000 or $3000 an ounce in the next few years, or even higher than that,’ said Foster. Economic problems are not going away any time soon, he says,...

‘We’re in a great macro environment for gold. We’re in the midst of a credit contraction, the housing market in the US is in very bad shape and the commercial real estate market is also in poor shape. On top of that we have austerity measures spreading around the world. We’re going to get a weak economy going forward, along with deflationary pressures. In that kind of market, investors start looking for a sound currency and they’re looking for gold.’

This forecast isn't really outlandish for a gold bull, and there is some tolerance for that kind of boosterism in the gold fund world. Should his prediction come true, though, gold will definitely be in a bubble.

Texas Higher Education Funa Managers Put 3% Of Fund In Gold

It may be a good sign or it may be a bad one: the University of Texas Investment Management Co. (UTIMC) has put about 3% of the fund's holdings into gold. The reason given is uncertainty about financial markets and the economy right now; the context makes clear that they're doing so as a hedge. UTIMC supplies funds to both University of Texas and Texas A&M University.


Given the percentage, it's little more than a dip into the pool - but it does show that the gold-as-hedge meme is spreading into more mainstream environs.

Indian Gold Buying Weak Yet Again

According to a report by the Economic Times, there was little buying in the Indian wholesale market because prices are still up. This near-dormancy may change if the rupee co-operates.

"It is very quiet... there were a few orders yesterday which got triggered at $1,205/1,210," said a dealer with a state-run bank in Mumbai, which deals in bullion....

"I have plenty of orders below $1,190," said another dealer with a private bullion dealing bank.

Also from India comes an estimate that says gold imports for 2010 will slightly exceed those for 2009. The Indian Bullion Market Association believes imports will be 500-500 tonnes this year; last year's were 480-490 tonnes.

Goldman, Sachs Raises 12-Month Gold Target

It wasn't much of an increase, but Goldman, Sachs raised its twelve-month target price for gold to $1,355. The reason behind the bump-up is continuing low interest rates and worries over European sovereign debt.

The firm expects gold to decline after 2011 as the Fed moves to a tightening stance.

Gold Climbs, Hovers Below $1,215

Gold is still below the $1,219 resistance level of its current range, but is again inching towards the top of the range. The metal climbed above $1,210 last night, and settled in to the middle of the $1,210-$1,215 area. That sub-range, the metal stayed in this morning except for a time when it sunk slightly below the lower end for one and a quarter hours starting at 2:30 AM ET. In that timeframe, it made its daily low of $1,208.70. Rebounding, it moved closer to $1,215 and even exceeded it for a time; the daily high of $1,216.30 was made a little before 7:00. Pulling back later, it entered the middle of the overnight sub-range. As of 8:04 AM ET, the spot price was $1,213.50 for a gain of $5.00 on the day. The Kitco Gold Index attributed -$1.40 to predominant selling and +$6.40 to a weakening greenback.

As indicated by the Kitco Gold Index, the U.S. Dollar Index kept sinking overnight. After rallying a little late last evening, the Index fell down to 83.245 between 10:00 and 10:30. An early-morning recovery, starting at 1:45, got the Index back up above 83.4 but that recovery turned into a tumble starting at 3:30. Gold started rallying at that time. Falling below 83, the Index marked time after the decline finished around 6:25. As of 8:10, it was at 82.89.

A Bloomberg report, as webbed by Business Week, said slowing growth in the U.S. and the PRC along with a falling greenback boosted gold.

“The safe-haven part for demand is important and will be the most important thing to watch in the next few weeks,” said Dan Smith, an analyst at Standard Chartered Plc in London. “Gold seems to be reverting back to its relationship with the dollar. There is also an argument that the selloff in gold from its high was overdone.”...

China’s economic growth slowed to 10.3 percent after the government succeeded in tempering credit expansion, investment spending and property speculation. That compares with an 11.9 percent gain in January-March from a year earlier. Inflation cooled to 2.9 percent in June, and industrial output rose a less-than-estimated 13.7 percent....

Also mentioned in the article was the holdings of the SPDR Gold Shares Trust; they remained unchanged yesterday.

A Reuters report highlighted the same causes as the Bloomberg article.

"The market is broadly consolidating, the inverse gold-dollar relationship may be coming back into play," said William Adams, analyst at BaseMetals.com

"The China data was generally weak so there may be money coming back into gold as safe haven but the main thing is the dollar is generally heading lower."

The article also notes mainland Chinese inflation eased as did growth, which should forestall any further tightening measures by the People's Bank of China.

A Wall Street Journal report ascribed gold's rise to it following in the Euro's wake.

Analysts said gold appears to have built a base above $1,180 per ounce and has become more correlated with risk appetite, a reversal of the trend in May and June. Gold has risen in tandem with the euro, equities and commodities in recent sessions.

"As gold slowly and quietly—and perhaps only temporarily—aligns itself to risk indicators, the metal is also losing some of its positive correlation with the dollar, perhaps as an early stage of a revival of the traditional inverse relationship between the two," UBS analyst Edel Tully said in a report Thursday.

June's core PPI came in at a 0.1% increase, but the raw PPI fell by 0.5%. Food prices plunged, making for a much larger drop in the raw rate than expected. Weekly jobless claims fell to 429,000, well below expectations for 445,000. After falling on the news, to below $1,210, gold reversed course and ramped up above $1,216 as the greenback kept falling. As of 8:55, the spot price was $1,216.70 for a gain of $8.20 on the day. The Kitco Gold Index assigned -$1.50's worth of change to predominant selling and +$9.70's worth to greenback weakness. The U.S. Dollar Index continued to fall; the data releases hardly affected it. As of 8:57, the Index was at 82.72.

A weaker greenback has turned into a driver for gold, but one that's not piacking enough power to get the metal above $1,219. The metal may make a try for it in today's pit session.

Gold Ramps Up To Gain In Late Morning Trading

The negative correlation between the greenback and gold is still in force; this morning, it acted to gold's benefit. Thanks to a renewed drop in the greenback, the metal reversed from its doldrums and challenged yesterday's highs in late morning trading.

After a pre-regular trading slump, gold remained in the doldrums until that take-off. Overall, until 11 AM ET, the metal remained in a trading range between $1,206 and $1,210. An earlier rally attempt at 9:15 choked at the latter level. Afterwards, it slumped down to the former before pulling back up again. After 11, though, the take-off began. In about five minutes, gold went from slightly below $1,210 all the way up to $1,217. A pullback prefaced a jump to a new daily high of $1,219.20 before another, stronger pullback settled in: the metal dipped below $1,216 and contunied after a pull-up to that level. As of 11:59, the spot price was $1,213.00 for a gain of $1.70 of the day. The Kitco Gold Index attributed -$1.40 to predominant seling and +$3.10 for weakness in the greenback.

As indicated above, the U.S. Dollar Index went for a tumble after an attempt at rallying to 83.7 failed. After that attempt, made around 9:00, the Index dipped back but stabilized around 83.53. Then, at 10:37, it began dropping after an attempt to stay above 83.55 drained away. The subsequent decline saw it go down to 83.22 before a relief rally; after that break, it dropped to a slightly lower level. As of 11:59, the Index had recovered somewhat and reached 83.32.

So far, gold has not made a break above the $1,219 resistance level; consequently, it's still in its range. The leap on the sinking greenback, however, shows some optimism coming back to the gold market. Unfortunately, some new strength in the greenback caused the rally to ebb; that weakness may continue in the afternoon.


Update: It did continue; in fact, the reversal proved to be quite the whipsaw. From a new daily high at 11:15 AM ET, the metal made a new daily low at just before 1:00 PM. The above-mentioned weakness ended up becoming a tumble that more than entirely reversed the morning leap. Continuing below $1,206, the metal recovered to $1,208 before falling anew. The daily low of $1,201.80 preceded another relief rally that brought the metal back above $1,206. As of the end of the pit session, or 1:30, the spot price was $1,207.10 for a loss of $4.20 on the day. The Kitco Gold Index assigned -$7.20's worth of change to predominant selling and +$3.00's worth to greenback weakness.

The U.S. Dollar Index's turnaround just before noon, as mentioned above, proved to be more of a catalyst for the drop than a sustained driver. It didn't last that long, and turned into a diminishing trading range centered at a little below 83.3. As of 1:40 PM, it was at 83.29.

The early afternoon reversal was unusual, to say the least. It does confirm that gold is still in a trading range, as yet unbroken. Unfortunately, the chance of the metal returning to a gain position in the electronic-trading hitch are slim.


Update 2: Gold did close at a loss, but the metal did make a real try at moving above $1,210. The release of the FOMC minutes at 2:00 PM ET, showing less optimism about the economy, were a help but not immediately. After climbing up to $1,207, gold sold off at the time of the release but recovered by 2:10 and then went on a slow climb. The rise ended when gold tounched $1,210 just after 3:05; the metal then stayed between that number and $1,208 for the rest of the hitch. As of the close of regular trading, the spot price was $1,208.50 for a drop of $2.80 on the day. The Kitco Gold Index attributed -$4.95 to the predominant-selling category and +$2.15 to the weakneing-greenback one. Both categories sum up to the raw change on the day.

The U.S. Dollar Index managed to climb up a bit from the lower levels it was at earlier in the day. It didn't quite make 83.45, but it did rise up in mid-afternoon and mostly stayed above 83.35. As of 5:30 PM, it was at 83.36.

Its daily chart, from Stockcharts.com, shows its decline continuing:



Although its interday low was well above 83, the Index is moving close to that level. Today's decline was lesser in extent than yesterday's, but today's interday high was barely above yesterday's open. Yesterday's was higher than the interday high of the day before.

The Index's RSI level, found at the top of the charts, is drifting closer to the 30 oversold level. It's now lower than it's ever been in the last six months. Although indicative of a possible rebound, its low level is consistent with a downturn. So far, there's no sign of a turnaround brewing.

As for gold, its own daily chart shows a somewhat encouraging candlestick for today despite its whipsaw decline around noontime:



Gold's still in its range, but today's entire candlestick is at the upper end of the range. The bodies of the last two days' candlesticks extend below $1,200; the lower wick of today's, which bottoms at the interday low, didn't get below that number. The morning run-up had its effect; the short-term low of July 7th still is one.

Close to the top it may be, but the metal shows no sign of successfully challenging that $1,219 top. Part of the catalyst for the whipsaw decline was technical selling prompted by gold hitting that level briefly and not recovering to mount a real challenge. That plus a small recovery in the greenback catalyzed the fuel that got the whipsaw buzzing. Right now, the climate isn't all that good for gold because optimism is returning. So, it's likely that the metal will again stay in its range.

A post-pit Reuters report says gold followed the Euro and equity markets down, which it ascribes to the less-than-cheerful FOMC minutes. Amongst the points made therein, these were included:

* Gold was pushed off earlier highs when the euro and U.S. equity markets turned lower in afternoon trade - traders.

* All three markets were responding to lessened investor interest in taking additional risk after the Federal Reserve released meeting minutes that revealed concern about a weakening U.S. economy - traders.

* The euro pared gains versus the dollar after the Federal Reserve said it felt last month it should be ready to consider additional steps to boost the U.S. economy, if the outlook took a noticeable turn for the worse....

* Because the Fed minutes came after many gold traders had completed their transactions for the day, [and after the whipsawing,] some sellers may hit gold again on Thursday - traders.

* The softer U.S. growth outlook would suggest a tame outlook for inflation and could hurt gold's upside potential - analysts.

Those points are consistent with gold remaining range-bound in the near future.

Still, for the traditionally weak summer season, the metal is holding its own and is likely to continue to do so thanks to bargain hunting that will click in at $1,190 or so. Should gold descend to that level, additional buying pressure will help muffle the decline. The range-boundedness is largely a function of there being no positive driver for the metal, and the overall summer doldrums. That too shall pass.

Trouble Ahead For The U.S. Dollar

After dissuading people from playing the market right now, likening it to a casino, "The Housing Time Bomb" points to the rising Euro and says it's a portent for the greenback. If the Euro can rise despite the Moody's downgrade of Portugese sovereign debt, then that currency has something going for it. "The Housing Time Bomb" says the currency's trending up because of European government austerity programs. Since it's highly unlikely for the U.S. government to follow suit, that fundamental suggests the greenback's in for a spell of trouble.


Things might get sticky for the U.S. Treasury if the greenback slump continues. Foreign creditors will begin complaining again...

Cancer Treatments Progressing With Nanogold

The frontier for smart tumour treatments using nanotechnology are for organs like the lungs that move when more conventional treatment methods are used (like surgery.) Markers, of which gold is often a component, aim to pinpoint the tumors and soften them up for radiation, heat or chemical therapy. A presentation at the 52nd meeting of the American Association of Physicists in Medicine will explain how nanocoated gold bullets help improve radiation therapy.

Image-guided radiation therapy targets tumors in organs that tend to move during treatment, such as the prostate gland or the lungs, as well as tumors near vital organs. Often, inert markers are implanted into the body to help radiation oncologists pinpoint the cancerous tissue.

A group of researchers wants to draft these markers to deliver drugs that will combat cancer and make the tumor more sensitive to radiation. The drugs can be tailored to different tumor types, the researchers say.

"Right now, these markers are just passive implants that are inserted into the tumor," says Srinivas Sridhar, a physics professor at Northeastern University and director of the university's Electronic Materials Research Institute. "We're making them active and smart using nanotechnology," he said.

The challenge is designing a system that will work over an extended period of time and target the entire tumor without affecting healthy tissue. The team has already developed a nanoscale polymer coating containing anti-cancer drugs for gold fiducials, which are commonly used markers.

Now, the researchers report they can precisely tailor drug dosage and rate of release in laboratory tests lasting up to three months. The nanoporous morphology of the polymer coatings enabled the controlled release of molecules and nanoparticles. The results also help refine the team's models of drug release kinetics.

The group includes collaborators Mike Makrigiorgos and Robert Cormack from Brigham & Women's Hospital and Dana-Farber Cancer Institute.

For those who are interested, an abstract can be found here (.pdf file.)

Fear, Gold And The General Public

The New Zealand Herald has webbed a London Observer article giving a wrap-up of gold's increasing popularity with the general public in Europe. The root of it is fear that the economy will collapse into a depression.

In their worst moments, panicky investors and savers visualise a world that has been turned upside down by a sovereign debt crisis that breaks the euro and flattens the once mighty dollar. As the West sinks into a quagmire of its own making, demand plummets and the world is dragged into another Great Depression....

This nightmare vision has rattled investors around the word, driving the gold price ever higher. Of all the precious metals, it is the most popular as an investment.

Since the earliest times, it has been seen as both a symbol of prosperity and a store of wealth. In the modern era, it has been bought as a hedge against economic, political or social crises, and as protection against the plummeting value of currencies.

"Debt on government balance sheets and worries that the world could be heading towards a double-dip recession are behind the gold surge," says Charles Cooper at Oriel Securities.

Cooper says there is concern we could be heading towards a second leg of the financial crisis and governments "could be tempted to print more money to dig us out of a hole".

"That could precipitate inflation, making gold even more popular as a safe haven."

One beneficiary has been the Austrian Mint.

Near the end, the article mentions a new trend among German investors: renting decommissioned military bunkers in Switzerland to store their gold. Now that's prepping!

New U.S. Commemorative Gold Coin Proposed

In the form of legislation, no less. The proposed coin, the centrepiece of H.R. 5680 United States Marshals Service 225th Anniversary Commemorative Coin Act and a similar Senate bill, would feature the U.S. Marshals logo on one side and a tribute to U.S. marshals on the other. Its face value is planned to be $5, but it will contain one full troy ounce of gold. There's also a silver version planned, with face value of $1 and the silver content of an old silver dollar.

One interesting facet of this coin is its proposed date: instead of a single year, it would be dated "2014-2015."

GFMS Sees Bright Side Of BIS Swap

Last week, when the gold market took notice of the Bank of International Settlement's swap, the predominant reaction was fear. Yesterday, the GFMS chair put a positive spin on the revelation:

The 346 tonnes of gold swap operations conducted by the Bank of International Settlements (BIS) in recent months highlight gold's central role in the financial system and are unlikely to lead to dumping of the metal on the market, GFMS chairman Philip Klapwijk said....

"Here we have gold being used quite creatively," Klapwijk told Reuters Insider television. "That is in a sense a validation again of gold's centrality to the financial system."

Klapwijk's own guess as to who the counterparty was, is cash-strapped European commercial banks. He said that the amount swapped, although large, would be small for a central bank. In addition, a gold swap is an easy way to secure money that's hard to come by through more conventional means.


Again, I point to the fact that the swap was undertaken before the March 31st cut-off date for the BIS' fiscal year, before the Eurocrisis flared up.

High Gold Price + Bad Economy = Gold Panning

A feature report in the Telegraph goes into the newfound popularity of gold panning in California. In part, the trend is a return to the state's old roots. The main driver, though, is high gold prices plus lack of opportunities elsewhere.

[T]oday – driven by the Great Recession, soaring gold prices, and a new, desperate energy among the jobless and the dreamers – there is a new gold rush going on in California. It takes a certain kind of person to be a New 49er, the kind of person who embraces living outdoors much like a mountain man, yet there are more and more of them.

The best measure of exactly how many is the number of mining claims on file with the US Bureau of Land Management in California; five years ago there were 15,606, in late 2009 that had increased to 23,974. Some are joining this new gold rush for fun - a little hobby for the weekends - some exercise with the kids to make a few bucks and have a few old-time thrills in the mountains.

‘Yeah, there are prospectors these days who are just killing free time – but the most real ones are the ones who are desperate or just plain determined,’ says miner Les Berg, who plied the rivers of northern California until he realised selling equipment to others doing what he was doing was an even surer bet for steady cash. He is now one of 130 gold-prospecting equipment dealers in California.

‘The desperate ones are the most serious – they work the hardest,’ Berg tells me. ‘It’s just like in the 1800s. They get themselves a shovel, then all they need is a sluice box and a pan, and they’re off. Been that way for more than 100 years and I don’t figure it will ever change.’

Later in the article is a discussion of how placer-gold dredging is changing: mechanized dredgers, tools that are often necessary to squeeze a good living off a claim, are now forbidden.

Indian Gold Buying Dormant

Despite the strengthening rupee, Indian gold buying is still weak due to higher U.S. prices.

"There have been no deals since yesterday evening after the sudden jump in prices," said a dealer with a state-run bullion dealing bank in Mumbai....

"I have plenty of orders in between $1,185-1,195 (an ounce)," said another dealer with a private bank.

A new festival season is coming up in late August and September, so resellers have lots of time to stock up.

Gold Drifts In Overnight Trading

Gold stayed between $1,210 and $1,215 in largely directionless trading until just before the regular-trading session began. Despite the recent Moody's downgrade, the Portugese government sold more notes due in 2012 and 2019 than expected. Both rates were significantly higher than the last offering of same-maturity notes. Eurozone inflation slowed down from 1.6% to 1.4%. Despite the latter item, gold didn't move in early-morning trading after getting a slight boost before London trading opened. Its peak at that time was $1,215.80. The second part of a double top at about the time London trading opened presaged a mild pullback that still left the metal above the middle of the range, which held until just before 8:00 AM ET. As of 8:11, the spot price was $1,208.10 for a loss of $3.20 on the day. The Kitco Gold Index split the loss into -$1.70 for predominant selling and -$1.50 for strengthening of the greenback.

The U.S. Dollar Index recovered slightly from yesterday's close, but stayed in a range all though the overnight session with little direction except sideways. A slight upward bias from night to early morning changed into a more neutral bias around 3:20. As of 8:17, the Index was at 83.59.

A Wall Street Journal report, written before the dip, notes gold has stayed up despite the euro softening against the greenback.

Gold managed to hold on to Tuesday's gains, indicating Tuesday's rally may have staying power. "It's bullish that it's stayed up here," said an analyst in London....

While the market initially ascribed gold's rise to the downgrade, the more likely factor was the euro, since it rallied at the same time, said the London-based analyst.

The euro's strength suggests the market is re-rating the euro-zone's growth outlook against the U.S.'s, he said. If that is the case, the euro and gold now may reprise the positive correlation they had until last November.

Also quoted was James Moore of TheBullionDesk.com, who said gold could test resistance at $1,245 if $1,219 was broken through on the upside.

A Reuters report ascribes gold's modest rise early this morning to continued worries over Euroland sovereign debt, but the capping of it to increased risk appetite.

"Every single time gold pulls back a new floor is established and that is always higher than the previous one," a Europe-based trader said. "I would say $1,200 an ounce is the key level; if it goes below that we would see dip buying." "But we think the direction is up going forward," he added.

A Bloomberg report said that gold's rises were muffled by improving economic news.

Improving economic data and news “limits gold prices to trade higher,” said Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland. “Above $1,200 an ounce physical buyers are not attracted. Gold is certainly in a consolidation phase.”...

“Clearly, safe-haven demand for gold is withering as evidence of an economic rebound emerges,” said Park Jong Beom, Seoul-based senior trader with Tongyang Futures Co. “Still, gold is likely to be supported above $1,200 level due to the dollar’s weakness.”

The article also notes holdings of the SPDR Gold Shares Trust were unchanged yesterday, while ten gold ETFs collectively added 1.1 tonnes to their holdings.

The retail-sales numbers for the U.S. economy showed an overall decline of 0.5% for June, making for the second monthly decline in a row. The news didn't have that much effect on gold, which moved directionlessly between $1,206 and $1,209. As of 8:52 AM, the spot price was $1,208.30 for a drop of $3.00 on the day. The Kitco Gold Index attributed -$3.20 to predominant selling and +$0.20 to greenback weakness. The U.S. Dollar Index did sink a little, but managed to stay above 83.5 for the most part. As of 8:56, it was at 83.52.

There has been a pullback by gold, but it hasn't been much of one. The metal is still well above $1,200, and there's a good chance it'll stay above that level in today's regular trading.

Gold Shoots Up To Almost $1,220, Pulls Back A Little

It took some time for the gold market to pick up on the significance of the Moody's downgrade of Portugese sovereign debt, but pick up it did. From the start of the pit session to around 9 AM ET, the metal rallied strongly in two stages. When the leap finally got exhausted, it had touched $1,219.10.

Since then, gold pulled back a little before stabilizing. From around $1,218, the metal sunk to just below $1,214 before moving into a range between that level and slightly $1,216 in late morning. As of 11:54, the spot price was near the top of the range at $1,216.30 for a gain of $19.20 on the day. The Kitco Gold Index split the gain into +$8.15 for predominant buying and +$11.05 for weakening in the greenback.

The U.S. Dollar Index has not had a good morning. From well above 84, the Index has slid fairly steadily to below 83.5. Interestingly, the aftereffects of the downgrade have not helped the greenback; they have helped gold. As of 11:55, the Index was at 83.46.

A negative correlation between gold and the U.S. dollar has been re-established, with the help of a driver that would have pushed up both when the Eurocrisis was boiling over. With that driver gone, gold's rally has exhausted itself; there may not be much change in the afternoon as a result.


Update: Early afternoon trading saw the stabilization continue until near the end of the pit session. Starting at 12:45 PM ET, a gentle decline took the price down to $1,214 and crossed that level around 1:15; it bottomed at $1,213. With the early-morning driver absent, buying interest has lulled. As of the end of the pit shift, or 1:30, the spot price was $1,213.50 for a gain of $16.40 on the day. The Kitco Gold Index divided the gain into +$7.60 for predominant buying and +$8.80 for greenback weakness.

The U.S. Dollar Index, after reaching the sub-83.5 doldrums in late morning, flattened and then turned around. Starting a mild rally at 12:45, it rolled up to 83.65 but flattened again at that higher level. As of 1:30, the Index was at 83.62.

Gold settling back isn't that surprising, given the extent of the run-up earlier and the overall doldrums. The metal's still above $1,210, and will likely stay that way until the close.


Update 2: The metal did stay above $1,210, although it was close to breaking down at one point. It stayed between $1,212 and $1,214 until 3:45 PM ET, when it dipped down to $1,210 before pulling up in a rounding short-term top. The U.S. budget balance numbers came in at $68 billion, as of 2:00; the gold market yawned.

After that rounding top peaked at just below $1,213, the metal softened to below $1,212. As of the end of regular trading, the spot price was $1,211.30 for a gain of $14.20 on the day. The Kitco Gold Index apportioned the overall gain to +$3.70 for the predominant-buying category and +$1.50 for the weakening-greenback category.

The U.S. Dollar Index continued its gentle rise until 2:30, when it reached 88.65. Then, it slowly fell back but mostly stayed above 83.5. As of 5:30, it was at 83.51.

Its daily chart, from Stockcharts.com, shows today's decline extending past last week's interday lows:



As I wrote yesterday, the less iffy short-term bottom made last week was no guarantee that the Index would keep rising. Today's drop made the short-term bottom quite short-term, and truncated any recovery rally. That, despite the fact that today's interday high was higher than yesterday's.

The Index's RSI value, found at the top of its chart, is again close to the oversold level of 30. Its MACD lines remain in a solidly bearish configuration, as they have been for over a month. Although the former is around levels at which a bounce would be expected, the latter indicates that the decline of the Index is still entrenched. It didn't get any lasting gain from an important Eurocrisis-related driver, Moody's downgrade of Portugese sovereign debt. That's not a good sign.

Especially when paired with the reaction of the other safe-haven asset, gold. The metal did rally strongly on the Moody's news, although regular trading had to commence before the rally kicked in. Gold's daily chart, though, shows that it's still in a trading range:



Its interday high was a bit above the highest once from last week, but the body of today's candlestick shows it stuck in the same range it's been at for the last three days. Gold's own RSI number is close to neutral, which suggests its doldrums in that area are over. Still, the RSI has been at a low level as compared to the times it was ramping upwards; that difference shows gold's overall neutrality as of now. That neutrality has held up despite the strong rally on today's driver, suggesting that it'll continue tomorrow by gold getting the droops. That possibility would be likely, given the re-establishment of the negative gold-greenback correlation, if the U.S. Dollar Index recovers.

A post-pit Reuters report ascribes gold's rise today to that same Moody's driver. Amongst the points made therein, these were included:

* Investors ran to buy gold after rating agency Moody's downgraded Portugal's debt ratings - traders.

* Greece tapped its rescue fund reinforcing some investors' move to seek safety in gold - traders.

* Greece also sold T-bills to borrow under its rescue fund, raising some eyebrows among investors who feared it may need quick cash again - traders.

* The euro rose after the U.S. trade deficit was reported to have widened unexpectedly in May, weighing down the dollar.

* Some players questioned the longevity of gold's latest rally, which has been holding in the same range since July 1.

* Bears were forced to cover short positions around $1,215.10 an ounce - traders.

Interestingly, that short covering took place near the end of the rally and accompanied gold's peak today

Tomorrow may see some further softening, unless another driver makes its appearance. Gold's current price is not conducive to bargain hunting, whether physical or paper, so support at lower prices from that source will not be there. The summer doldrums continue.

Jordan Roy-Byrne Says Gold Bull Market To Go For At Least Five More Years

In the end of a commentary that take the form of a rebuttal to the Wall Street Journal's James Altucher, Jordan Roy-Byrne says the gold bull market has more than five years to go:

In the meantime, precious metals are the only asset (aside from bonds) in a full-fledged bull market.... as we recently showed our subscribers in a report, bull markets typically accelerate in the ninth or tenth year and then begin a final acceleration three to four years later. It is not difficult to see why we are on the cusp of acceleration in the precious metals. European banks still need to rollover $1.65 Trillion in debt by the end of 2011. Our big states are likely to need bailouts by the end of the year. The Fed will begin a new round of quantitative easing in a desperate attempt to help the banks recover so they can lend again.

Furthermore, it is just a fact that the U.S., U.K., Europe and Japan can’t grow their way out of the debt mess. A new currency regime is coming. It is only a question of when. It could be five years or ten years if we are lucky.

Precious metals will continue to crush stocks for another five to seven years. However, a portfolio of quality emerging gold and silver stocks will outperform gold. Eventually silver will outperform gold. While we are bullish on the metals, we do agree with Altucher that silver is preferred and stocks are the way to go- as long as they are gold and silver stocks.

His forecast will pan out as long as gold does not capture the imagination of momentum traders in the next year or so and go parabolic as a result. That occurrence would move gold up more quickly, and send it crashing down earlier than Roy-Byrne's forecast.

Gold Spin-Offs

There's a long Bloomberg article, webbed by Business Week, that discusses spin-offs from the gold boom. First mentioned is prospecting: not only have the number of members of the Gold Prospectors Association of America gone up 93% in 2008, but also a fellow has set up a thriving business teaching people how to prospect with an adventure-vacation format. Also, sales of prospecting tools are booming. So are safes; so are gold vending machines, the latter being an idea that's caught fire. Interestingly, so is gold insurance.


[Gotten from Superior Gold Group, which has a summary of its own.]

A Gold Stock Insiders Like

Marc Faber, George Soros and John Paulson have one thing in common: they're all involved in a gold stock that has an exciting property in Alaska. It's NovaGold, and its Donlin Creek deposit is huge: an estimated 34 million ounces in the ground. Estimated costs are $500-$550 per ounce.

Unfortunately, there are drawbacks. The total capital costs to bring Donlin into development are estimated at $4.5 billion. NovaGold will be responsible for about half of the total. Production is slated to begin at the end of 2017. However, estimated proceeds for the company (absent dilution) are estimated to be at about $40/share. Right now, it's around $6.50.


This is the kind of company that will end up being put at serious risk if gold flies up and then crashes - even if the metal is left at $1,000 at the end of the crash. [A bubble top of around $3,000 would lead to that bottom if the crash follows the 1980-82 bear market.] Even if the project remains profitable, financing will be really scarce even for good projects as the banks and gold investment markets lick their wounds. The best scenario for Nova would be a continued measured rise in gold with pulbacks that are relatively mild. It could survive a multi-year trading range at these levels.

Should gold enter a mild bear market, like 2008's, this stock would be one to look at.

Indian Retail Buyewrs Switching To Bullion

Traditionally, gold jewelry has been the holding of choice for Indian retail buyers. Because of price increases, though, more buyers are switching to more cost-effective bullion.

"Customer preferences are changing," notes Hareelalbhai Zaveri, a Mumbai-based bullion dealer. "Earlier, customers would buy gold jewellery since they were considered the best investment option. Nowadays, customers are keen to buy gold biscuits [Gold Bullion], since they are easy to hoard. The customer is also assured of best value for money. Gold jewellery is no longer an investment option."

That switch explains in part why gold imports have been rising overall with rising prices.


Of course, it can only be done once. Should the bulk of buying shift to bullion, then that option will be closed if gold prices rise even more. At that point, Indian buyers are going to be facing hard choices without any recourse except ponying up more and/or buying less.

Indian Gold Buying Drains On Lower Rupee

According to a report by the Economic Times, Indian gold buying remains weak despite the dips below $1,200.

"It's quiet today as there is no much change in prices... traders are unwilling to book new deals," said a dealer with a state-run bullion dealing bank....

"I have advance orders and all of them are below $1,190," said another dealer with a private bank.

Evidently, wholesale buyers are becoming cagey in advance of festival season next month. Some of them may have taken losses, and more had their profits dented, during the last festival season. The weakened rupee, of course, has had its influence on the buy points.

Gold Rebounds Above $1,200

After dawdling below $1,200 until early morning, gold jumped up to $1,203 right around the time the London market opened. The renminbi fell a little against the U.S. dollar as the latest pegging, which was below Monday's, indicated to traders that its appreciation will be slower than expected. The Grecian government successfully sold a new tranche of six-month bonds at a 4.65% annual rate; the issue was oversubscribed by 2.88 to 1. The auction's success, at a rate below the IMF loans, didn't impede the early-morning rise of gold. Helping the metal was a fall in German investor expectations, to a level not seen since April of 2009.

After that London-opening jump, the metal kept rising albeit slowly. $1,205 was breached around 5:30 AM ET, and gold continued climbing. Moody's downgrading Portugese sovereign debt by two notches, from Aa2 to A1, added to the metal's upward movement. As of 8:12 AM ET, the spot price was $1,207.90 for a gain of $9.70 on the day. The Kitco Gold Index split the gain into +$8.70 for predominant buying and +$1.00 for weakening in the greenback.

The U.S. Dollar Index, after slumping to 84.1 last evening, recovered to the 84.2-.25 level. Starting at 2:00, it went on a nice run that pulled it up to 84.56 in the next hour and a half. But, the Index lost all of that rally in the next two and a half hours. The Moody's announcement helped cushion the downslide, but the Index remained below 84.2. As of 8:20, it was at 84.16.

A Bloomberg report, as webbed by Business Week, ascribed the rise to the downgrade of Portugese sovereign debt and buying at below $1,200.

“The downgrade is a signal to the market that the situation is not over,” Bernard Sin, head of currency and metal trading at bullion refiner MKS Finance SA in Geneva, said by phone. “There is still long-term fear because of uncertainty. There is also very good physical demand from Asia” and some Middle East countries, he said.

Also mentioned in the report was a rise in holdings of the SPDR Gold Shares Trust yesterday by 0.3 tonnes to 1,314.82 tonnes. Bloomberg's survey of ten gold ETFs showed total additions of 2.7 tonnes.

An earlier Reuters report is also headed up by the Portugal downgrade.

Concern over euro zone sovereign debt drove gold to a record $1,264.90 an ounce in June, but prices receded after a successful Spanish bond auction and after a one-year European Central Bank liquidity scheme expired uneventfully.

The market remains sensitive to such concerns, however.

"What we see from our clients is that there is a lot of interest in protecting portfolios, and exposure to gold at least dampens down some of the worst effects of currency volatility," said Daniel Smith, an analyst at Standard Chartered.

"There is a continued focus in Asia as well on worries about inflation," he added. "It still very much remains a tale of two worlds, which is that the West is still very worried about currency values, and Asia is worried about potential inflation. Both of those things are supportive for gold."

The article also notes that Indian gold demand remained soft.

A Wall Street Journal report starts off with the Portugal downgrade as well, but notes that it wasn't much of a booster to gold.

The rally was relatively modest, suggesting gold lacks the drivers and momentum to break out of its recent range, traders said....

Analysts and traders said they expected gold to consolidate this week while the market digests the heavy inflow of economic data releases and second-quarter results.

Physical demand and investor bargain hunting is likely to hold gold prices above $1,185 an ounce and profit-taking will cap prices around $1,215 an ounce, they said.

"With physical demand helping to provide a floor around $1,200, we believe gold will remain on investors' radar," UBS analyst Edel Tully said in a report Tuesday.

The U.S. trade deficit unexpectedly widened by 4.8% to $42.3 billion; it was expected to narrow slightly. Although the price didn't move at the time of the release, it bookended two jumps that pushed the metal well above $1,215. The first jump started right when regular trading began; the second, at 8:50. As of 8:54, the spot price was $1,216.70 for a gain of $19.60 on the day. The Kitco Gold Index divided the overall gain into +$17.05 for predominant buying and +$2.55 for greenback weakness. The U.S. Dollar Index, after a short-lived rise above 84.2, slumped in the same timeframe. As of 8:56, it was at 84.05.

Yesterday's pullback, as it turned out, was aberrational; the vim is back in the gold market. The most likely reason is reaction to the Portugal debt downgrade, which did not have that much of an impact on pre-regular trading. Leave it to the pit session to rev up the rally.

Gold Sinks Below $1,200

It wasn't much of a drop below that round number, but gold did get below $1,200 due to a drop between 10:40 and 10:55. In the first hour, the metal was trending up somewhat; it peaked above $1,208 around 9:45. Sliding back down to the $1,204 level, gold stayed where it was while Ben Bernanke made a speech about the dry-up in business credit. Some time after its completion, gold dropped to $1,198. After a downward test of that floor, the metal rose slightly above but failed to break through $1,200. As of 11:47, the spot price was $1,199.70 for a loss of $11.70 on the day. The Kitco Gold Index split the loss into -$6.45 for predominant selling and -$5.25 for strengthening of the greenback.

The U.S. Dollar Index managed to recover some ground in morning trading, but breaking through 84.4 eluded it. It spent the morning marking time in a range between that level and 84.2. As of 11:54, the Index was in the upper part at 84.32.

The mid-morning drop was not that extensive, but it was unexpected. There is a chance of a further decline to well below $1,200 in the afternoon.


Update: There wasn't any further decline, but there also wasn't any real advance. Instead, gold stayed stuck where it was. An attempted rally around noon ET got it above $1,200, but only briefly and not by much. The ceiling of about $1,201 was followed by a dip to $1,198; those two values established a range that gold stayed within as the pit session wound to an end. As of 1:30, the spot price was $1,198.70 for a drop of $13.00 on the day. The Kitco Gold Index divided the loss into -$9.80 for predominant selling and -$3.20 for greenback strength.

The U.S. Dollar Index, after making it to almost 84.4 just before noon, fell fairly steadily in early-afternoon trading. A temporary halt around 84.25 was followed by a further drop to 84.2, which also gave way to a halt. As of 1:35, it was at 84.19.

The other shoe didn't drop in early afternoon, so gold might as well be stuck at $1,200. The electronic-trading hitch shouldn't see the metal drop all that much further.


Update 2: After slowly veering in on $1,198, the metal did drop a little - but not after making a molehill of a rise that took it up to $1,201. Subsequent to that rolling hillock, the price dropped down to its closing value of $1,197.10 for a loss of $14.30 on the day. The Kitco Gold Index apportioned the loss in this way: -$10.70 to the predominant-selling category and -$3.60 to the strengthening-greenback category.

After falling back from its noontime rise, the U.S. Dollar Index quieted down. Drifting between 84.18 and 84.27, it managed to stay well above 84. As of 5:30 PM, it was at 84.235.

Its daily chart, from Stockcharts.com, shows a rolling bottom still forming:



I did mention last Friday that there was no guarantee that the Index would continue recovering from what was an iffier bottom as of then, but today's action makes the short-term bottom less iffy. Since there's no real driver back, the most likely cause is its previous oversoldedness. Thus, I repeat there's no guarantee that the greenback will enjoy a sustained rally; the winds are no longer in its favour.

As for gold, its own daily chart shows a short-term trading range:



My hope that Friday's impressive performance would lead to a more sustained rally was disappointed today, but gold never got much below $1,200. Today's close was a little below yesterday's open, which is consistent with a trading range. The metal's interday low today is still well above last week's low.

There's not much sign of gold going higher as of now. Its RSI level, shown at the top of its chart, has been in the sub-50 doldrums for an unusually long time with respect to last three month's trading. It's not been consistent with a bull run; it is consistent with being stuck. Still, gold is less than seventy dollars off its high: hardly a correction, and much better than the slide from early December to early February. The most likely explanantion for the doldrums is seasonal weakness in the absence of any drivers like the Eurocrisis.

A post-pit Reuters report ascribed the drop to profit-taking. Amongst the point made therein, these were included:

* Gold fell amid short-term profit-taking selling off of Friday's run to the top of its recent range - traders.

* Gold's range has been forming since the start of July, with the support being defined as the 6-1/2 week low at $1,185 an ounce hit on July 7, and the top around the July 6 high at $1,215 an once - traders.

* For now, analysts and traders said they regard $1,200 an ounce as the psychological point around which gold continues to fluctuate until clearer directional signals emerge.

* A break above resistance would send gold back to its all-time high at $1,266.50 on the August Comex gold contract reached on June 21 - Adam Sarhan, chief executive of New York-based Sarhan Capital Llc.

* A violation of support could lead to $1,134 - Sarhan.

* Longer term, gold's prospects remain bullish - analysts.

Also mentioned was the strength of the greenback helping to push gold down.

As I said above, gold's seasonal weakness is back. Still, given last month's record high, "sell in May and go away" would not have worked. Gold's action is still consistent with $1,200 being a bargain point, which should temper or even muffle any futher decline. A short-term range has been established.

Katy DeLay: BIS-Related Drop Irrational

In a Seeking Alpha column, Katy DeLay points out that the drop induced by the news of the Bank of International Settlemets' gold swap was only speculators panicking. The fundamentals haven't changed, and any true goldbug should recognize it.

Toronto-Dominion Bank Moving In To Precious Metals Markets

The Toronto-Dominion Bank is setting up a new trading department for platinum, palladium, silver and gold.

“It’s a really interesting growth market,” said Patrick Meneley, head of investment banking at TD Securities. He said trading is “highly specialized and very intricate, and fits hand-in-glove with our investment-banking and sales and trading businesses.”

By building a trading team, TD is hoping to do more business for its corporate clients in the mining world, by helping them buy, sell and hedge the metals they produce. That may help the firm win more deals with miners as they do other business, such as mergers.

“There are a lot of ways clients use metals traders to manage their risk,” Mr. Meneley said.

In so doing, they will be competing against the already-established player in the fielld: ScotiaMocatta. As the article makes clear, investment-banking opportunities are the main driver. Evidently, the upsurge in mining-company private placements attracted them; TD management thinks the financing boom will continue.

More Detail On The BIS Gold Swap

During the July 6th and 7th overnight session, the gold market was spooked by an obscure footnote in the Bank of International Settlements' annual report disclosing an unusually large gold swap. Originally believed to be a central bank on the other end, speculation later settled on the IMF: Edel Tully pointed out the most likely central bank in such a swap arrangement (Portugal, Greece, Spain) would have had only restricted use of the cash. Later, the BIS disclosed that the swap has been done with a commercial bank, which made the story murkier.

It is almost inconceivable that a single commercial bank could have accumulated so much gold alone. And cynics have suggested that the whole affair still looks like a secretive European bailout that a single country wants to keep quiet.

In this case, one or more of the so-called bullion banks – which act as wholesale market-makers and include Goldman Sachs, Deutsche Bank, JP Morgan, HSBC, Barclays, UBS, Societe Generale, Mitsui and the Bank of Nova Scotia – would have agreed to act on behalf of a monetary authority.

This would add an extra layer of anonymity. "So the BIS swaps look like a tripartite transaction," writes Adrian Douglas of the Gold Anti-Trust Association. "The commercial bank or banks made a swap with a central bank or banks and then the commercial bank or banks made a swap with the BIS."

Analysts for Commerzbank note that in the meantime, "The price of gold is tending weaker at present."

The BIS is supposed to be a central bankers' central bank, so they undertaking a swap arrangement with a commercial bank would be unusual. Since the repurchase part of the swap would be done with a price agreed upon beforehand, the couterparty evidently: a) expects gold to rise further, b) has borrowed the gold to meet commitments for physical delivery, or c) needed the cash.

The BIS' fiscal year ends March 31st, before the Eurocrisis exploded. Since the arrangement was made before that date, a PIIGS central bank would not have had restricted use of the funds; it was pre-bailout.

So, I present this guess: given the Grecian government's proclivity for using private parties already, I suggest it was the central bank of Greece acting through a proxy. In that case, the gold has probably been sold already.

Indian Gold Buying Pulls Back

According to a report by the Economic Times, Indian gold buying retreated as buyers wait for lower prices.

A weak rupee also made the dollar-denominated yellow metal expensive... "It's a totally dull scenario, there was activity last week on dips below $1,200 (an ounce)," said Pinakin Vyas, assistant vice-president, with IndusInd Bank, a gold importer.

"A dip below $1,200 could re-activate the market," said a dealer with a state-run bullion dealing bank.

Again, wholesale buyers are getting cagey before the two festivals coming up this summer.

Gold Drifts Down, Stays Above $1,200

Opening after the weekend, gold failed to keep the momentun shown last Friday. A couple of jumps above Friday's close failed to take hold, and the metal drifted down below $1,210. After midnight ET, a stabilization just below that price turned into a downward drift punctuated by a spill that pushed the metal down below $1,205. Recovering to about $1,207, the metal turned downwards again just before 8:00. As of 8:05, the spot price was $1,214.00 for a loss of $7.40 on the day. The Kitco Gold Index split the loss into -$3.40 for predominant selling and -$3.30 for strengthening of the greenback.

The U.S. Dollar Index, in recovery mode, made it above 84.5 in an overnight rally whose fits and starts changed into a more consistent rise as night turned into early morning. Slumping back to 84.15 in after making it to almost 84.3, the Index lumbered up to 84.44 before pulling back to levels seen a couple of hours after midnight. As of 8:12, it was at 84.25.

A Bloomberg report, as webbed by Business Week, said gold's rise was curbed by an increase in risk appetite and a stronger greenback.

“Given the increase in broader risk appetite, gold may be vulnerable to further long liquidation,” said James Moore, an analyst at TheBullionDesk.com in London. Still, “we expect further dip-buying interest below $1,200 an ounce from physical and investment players.”...

“To some extent gold prices are trading lower due to a stronger dollar,” said Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland. Gold typically moves inversely to the greenback....

Also mentioned is the source of the recent decline in pessimism: an unusually strong export report from mainland China. Holdings of the SPDR Gold Shares Trust declined by 1.52 tonnes last Friday to 1,314.51 tonnes. The article also notes that holdings of ten gold ETFs hardly changed over that same day.

A Reuters report ascribed gold's pullback to the same causes.

"Gold continues to consolidate beneath the 50-day average (now $1,218)," said technical analysts at Barclays Capital. "Such price action is bearish, and a break below $1,183 would likely resume the downtrend to $1,155/65."

A Wall Street Journal report said gold softened in light trading as it looks for direction from upcoming economic data.

Gold is encountering selling on rallies towards $1,215 an ounce, while dips towards $1,200 an ounce are triggering physical purchases, said Afshin Nabavi, head of trading at Swiss trading house MKS Finance in Geneva. "I think there's profit-taking around the $1,215-ish level."

However, Mr. Nabavi said the latest Comex gold market positions data shows that longs have reduced their exposure to gold, making the metal less vulnerable to heavy profit-taking or long liquidation.

Also quoted is Commerzbank analyst Eugen Weinberg, who expressed concern over gold slipping to $1,150 if it broke below $1,200.

The beginning of the pit session saw gold slip to $1,200.60 but recover. After jumping to $1,205, the metal pulled back to $1,203 but it continued to rise afterwards. As of 8:51 AM, the spot price was $1,205.90 for a loss of $5.50 on the day. The Kitco Gold Index divided the loss into -$1.40 due to predominant selling and -$4.10 due to greenback strength. The U.S. Dollar Index climbed a little in the same timeframe, but it carried little conviction. As of 8:55, it was at 84.30.

The start of this week's trading has seen a pullback in gold, but $1,200 has held even when the metal was most pressured. Bargain hunting has not really kicked in as yet, but a sub-$1,200 price would call some forth. The metal looks like it'll mark time overall today.