After Break To $1,205, Gold Tumbles

The metal made a new daily high of $1,205.00 just before the pit session began. Since then, two downfalls visited the metal. The first began right at the start of regular trading, and took gold down to a little above $1,196. The second started at 9:55 AM ET; when it ended, gold had bottomed at a new daily low of $1,186.90. The recovery in the U.S. dollar had a definite influence on the first decline and a likely influence on the second.

From that low, gold began rallying as the greenback pulled back. By late morning, the metal came close to unchanged. As of 11:55 AM, the spot price was $1,193.70 for a loss of $0.80 on the day. The Kitco Gold Index split the loss into -$0.10 for predominant selling and -$0.70 for a strengthening greenback.

That strengthening was greater earlier in the day. What started as a relief rally pushed the U.S. Dollar Index up to new daily highs, as the Euro fell because of stress-test jitters caused by a release of the test menthodology. Reaching 83.03 as of 9:23, the Index began fluctuating around 82.9 before tailing off as of a little after 11:00. During that time, gold's relief rally picked up some steam. As of 11:56, the Index was at 82.64.

Unlike yesterday's, when a dip at the start of the pit session belied a later rise, today's start-off decline in gold foreshadowed a further drop. Technical selling had something to do with the first drop of the morning, as there's not much belief in a sustainable rally above $1,200 right now. Both drops look spent, so there's some chance that gold will move to a gain in the afternoon.


Update: The results of the stress test were bled out starting at noon ET. When the tally was over, seven banks out of ninety-one failed. One was in Greece, one was in Germany, and five were in Spain. Although there have been doubts expressed about its methodology, the test has cleared the bulk of banks.

The gold market didn't like the results all that much. When the parade started, the metal tumbled from $1,194 to $1,188. An unusually large relief rally, which got gold almost all the way back up, gave way to a renewed drop that made a new daily low at $1,185.50. A second relief rally only made it to $1,190. As of the end of the pit session, or 1:30 PM, the spot price was $1,188.40 for a loss of $6.10 on the day. The Kitco Gold Index divided the loss into -$5.30 due to predominant selling and -$0.80 due to greenback strength.

The U.S. Dollar Index reversed the dip that brought it down to 85.65 and rose on the news, peaking at 82.945 as the results impacted the Euro. That rise gave way to a reversal that took the Index back down to where it was just before noon. As of 1:40, it was at 82.66.

Putting both together suggests a deflationistic intepretation, unless the players in each pit had differing interpretations. Whatever the take, the stress test release took away all but a slight chance for gold to close with a gain today.


Update 2: The electronic-trading hitch was more volatile than Friday afternoon ones normally are. After an end-of-pit dip, gold recovered to around $1,190. Slumping back a little after 2 PM ET, the metal endured two more dips; the second made for a new daily low of $1,183.90. Coming at 3:45, it marked the beginning of a recovery rally that got the metal near $1,190 before the end. As of the close, the spot price was $1,189.70 for a loss of $4.80 on the day. The Kitco Gold Index attributed -$6.50 to the predominant-selling category and +$1.70 to the weakening greenback one. Both categories sum up to the raw change on the day.

For the week, the metal clocked in another loss although this week's was much slighter than last week's. From last Friday's close of $1,193.00, the weekly change was -$3.30 or -0.277%.

The U.S. Dollar Index, after its nice morning rally, fell down to 82.4 in early and mid-afternoon. From that low, it poked up to 82.5 and stayed around that level for the rest of the session. It closed at 82.51.

Its daily chart, from Stockcharts.com, shows little movement between open and close despite a nice interday range:



Today's interday low came close to 82, and the entire candlestick shows the Index moving close to its recent short-term low. Another secondary upwards reaction is fizzling.

Still, the Index's MACD lines (found at the bottom of the chart) are getting close to each other. When the black line crosses above the red line, the indicator switches from bearish to bullish. There's no real driver to push the Index up a lot, but it has been beaten down a fair bit. A crossover could signal a secondary reaction that has more power than the recent ones, which have lasted only a few days.

As for gold, its own daily chart shows the current holding pattern continuing:



This week's candlesticks, despite the recurrent declines in the metal, show a slow upwards tendency. Today's interday low was slightly lower than that of the last decline day, two days ago, but today's interday high is above any of this week's. The gold market didn't take the results of the stress tests well, but its interday low was well above $1,180. The same can't be said for yesterday's.

With that event out of the way, the most likely way for gold to endure another significant sinking would be for technical selling to snowball. Absent that, the metal is likely to stay stuck below $1,200 but not fall much farther than $1,180. Its short-term range is solid on both ends.

Last Tuesday had the lowest interday low of the week, but the metal nevertheless managed a nice gain due to bargain hunting. That day's close marks the cut-off for this week's Commitment of Traders data, as graphed here. Total open interest shrunk for the third week in a row, but commercial longs increased by 5.29%. That category wasn't the biggest gainer of all reportable categories: non-commercial shorts was, with a quite large 27.5% jump from last week. Non-commercial longs decreased by 6.52%, and commercial shorts shrunk by 4.97%. This week, the commercial longs had it.

As of the same day, the U.S. Dollar Index was on the cusp of a strong rally that only lasted until the following day. The CoT graph for the Index, found here, shows yet another shrink in total open interest. This week's total of 28,923 contracts is the second-smallest figure for the entire 52-week period. All reportable categories shrunk except for commercial shorts, which were up marginally by 1.86%. The largest shrinkage by far was in non-commercial shorts, which dropped by 33.0%. The holders in that category have to be credited for dodging an upward jump in the Index next day, but its subsequent performance made the pullbacks seem less sagacious. As of now, anyway.

Turning back to gold, a post-pit Reuters report said gold held its ground after the release of the stress tests. Amongst the points therein, these were included:

* European stress test showed banks in Germany and Greece were seen as weak spots and in need of restructuring.

* Analysts had expected five to 10 banks to fail the test. As expected, no big banks failed the health check.

* Stress test has gone reasonably well according to assumptions, and test outcome has already been factored into gold prices - James Steel at HSBC.

Gold is still in its current range, so that characterization is right from a broader perspective despite the bumps endured by gold around noontime. At the end of the week, the metal is still holding up albeit at bargain levels. Indian demand is likely to roar back if the metal sinks as little as fifteen dollars an ounce. That source of support is likely to keep gold's current softness from becoming an all-out correction. This summer's doldrums are likely to clock in as a below-average slump for the season.

In closing, thanks for reading what I've got here. May your weekend not be blistering.

Another Buy-On-The-Dip Recommendation

As summarized by Jay of "Market Folly," a MarketClub analysis using Elliot Wave tools came up with an entry zone between $1,157 and $1,132. The former is near the 50% retracement level from gold's record high, and the second is near the 61.8% level. Both are support levels.

MarketClub also points out a previous bearish divergence in the MACD as it turned negative while gold still headed higher in May and early June. That divergence provided an early signal as gold began to decline in late June. Adam thinks a divergence to the upside is about to take place and an entry point into a gold long should be coming.

Keep in mind, though, that he still feels gold will trade down/sideways in the very near-term. The buy level he is looking for is between 1,132 and 1,157, which implies some further downside. Those levels, coupled with confirming indicators, could provide an excellent entry he feels....

Again, there are lots of buyers who will have their orders triggered long before $1,157 unless there's a plummet that encourages them to pull their bids. The only way I can see the zone being entered is through such a plummet and its aftershock.

"Something has to give."

"Buttonwood" over at the Economist has penned a piece wondering about the disjoint between the rise in gold and low interest rates. When the U.S. dollar is looked at in terms of gold, a large de facto devaluation (80%) has taken place. Despite that, interest rates for Treasury securities are at near-record lows.

One reason why countries tried so hard to maintain the gold standard and the Bretton Woods system was to reassure creditors that they would be repaid in sound money. Since 1971 most countries have had the right to repay creditors in money they could print at will. The likes of America and Britain are now perceived as “lucky” because they, unlike Greece, can devalue their currencies and default in real terms.

That prospect did alarm creditors in the 1980s when the real yields on government debt shot up. But it does not seem to now. America and Britain are paying only 3-3.5% to borrow for ten years. That may be because deflation seems the more immediate threat. It may be because bond markets are now dominated by other central banks, which are more interested in managing exchange rates than in raising returns. But it is not stable to combine low yields, high deficits and governments that are happy to see their currencies depreciate. Something has to give.

It's been quite the disjoint, which has existed for close to two years now. One explanation for it is another disjoint, between official inflation rates and the ones calculated by John Williams of Shadowstats. The former jibes with the bond market, while the latter gibes with gold's performance. Shadowstats' alternate measure, which is the same methodology used in the 1970s, shows 1970s-era inflation in the U.S. right now.

This point doesn't deflect "Buttonwood"'s final remark, but it does explain why the disconnect has been in place for so long. Something indeed has to give, because both can't be right.

Goldline Faces More Criticism, This Time From Consumer Reports

Attracted by all the fuss, Consumer Reports has taken a look at Goldline's prices. The surveyor responsible found Goldline's price for regular bullion coins was in line with other firms, but the markups for semi-numismatic coins was well above that of others'.

The reporter also questioned some of the sales claims Goldline associates made during phone consultations. Perrotta said Goldline told callers they should invest as much as 20 percent of their portfolio in gold. "Most financial advisors say five to ten percent of your portfolio in gold is a good inflation hedge," Perrota said. "Is it good advice? I don't think it's good advice."

The report examines Goldline's assertion that customers should consider buying collectable coins to protect themselves from having the government confiscate their gold. That pitch appears to be a central feature of the company's effort to persuade customers to buy coins, despite a mark-up that can run as high as 35 percent.

Company sales associates told the Consumer Reports caller that after the Great Depression, the U.S. government seized peoples' private stashes of gold, and warn that history could repeat itself. In fact, the report notes, the U.S. government paid market price, and took that unusual step to prevent people from hoarding bullion while American currency was on the gold standard, the Consumer Reports article says. An expert quoted in the report called confiscation today "a non issue."

"Are you worried about the government confiscating your coins? I'm not," Perrotta told ABC News.

Of course, Goldline isn't unique in this area. To anyone who believe they are, I suggest taking some time and watching a shopping channel when the numismatics show comes on.

Big Profits Expected For Big Gold Mining Companies

As reported in Reuters, North American major gold producers are expected to show big profit jumps because of gold averaging about $1,200 in the second quarter. However, some companies aren't going to benefit to the extent of pure plays because they aren't - and prices for byproducts like copper fell in the quarter.

"Shareholders are going to be looking for gold companies to achieve the higher profits that they have promised, because they no longer have the excuse of the gold price not outpacing cost inflation," said Dahlman Rose analyst Adam Graf.

However, it is a common mistake to assume that the higher gold price will automatically translate into higher profits, as taxes and royalties would also rise along with higher revenue, Graf said.

Newmont Mining, Goldcorp and Agnico Eagle will kick off the flurry of reports on Wednesday, with the world's largest producer, Barrick Gold, and mid-tier miner Eldorado Gold posting results on Thursday.

While all major North American gold producers are expected to outpace results from a year earlier, top-rated analysts expect Goldcorp and its smaller rival Kinross to handily beat current consensus expectations of 28 cents a share and 16 cents a share, respectively....

This jump has been expected by some gold analysts for some time. Despite those numbers coming, gold stocks haven't been doing all that well lately. Reagrding Kinross: of all the names above, it's up the most on the day.

Indian Gold Demand Stays Weak After Early-Week Buying Spurt

According to a report by the Economic Times, gold traders are still holding off as a result of gold prices recovering.

"Volumes are very thin, I must have done only 20 kgs from morning," said a official with a state-run bullion dealing bank.

How strong demand was, is indicated by a Reuters report which describes overseas supplier shortages caused as a result of the buying spree.

[A] sharp drop in prices as a result of weak US inflation numbers triggered buying, taking sellers by surprise.

“A couple of them are now taking seven days to supply gold, this problem exists with some of them, so we prefer to buy from those who will deliver us promptly,” said a official with a state-run bank dealing in bullion.

Indian gold demand is set to pick-up for the festivals, starting with Raksha Bandhan on 24 August, and extending till Dhanteras in November, the single-biggest gold buying day.

“There was less demand in May and June, but due to a price fall in July demand rebounded, creating supply constraints,” said another official from the state-run bank, which imported 40 tonnes of gold in the last fiscal year....

The report mentions inventory levels are normally low this time of year, as monsoon season typically means low demand.


It's an open question whether that demand was unintended channel-stuffing - i.e., demand taken away from coming weeks because bargains were realized. If so, then demand in forthcoming weeks will be weaker than it otherwise would have been.

Gold Inches Above $1,200

After staying largely flat last night (ET), around $1,195, gold perked up after a dip down to $1,193.50 around 2:00. The rally wasn't that great in extent; it peaked at $1,202.90. The subsequent pullback never got back to $1,195. Moody's has put Hungarian sovereign debt under review, which has led to a drop in the forint as well as the price of those bonds. The situation was quite different for two other European countries: the U.K. saw GDP growth that well exceeded expectations, and Munich's Ifo business climate index jumped instead of declining. Results from the bank stress tests have yet to be delivered.

The pullback in gold, after bottoming at $1,197 around 7:00, ended with a climb back up to $1,200. As of 8:11 AM ET, the spot price was $1,201.60 for a gain of $7.10 on the day. The Kitco Gold Index split the gain into +$5.50 due to predominant buying and +$1.60 due to weakening of the greenback.

The U.S. Dollar Index also dawdled last night, with a jump above 82.7 providing the impetus for gold's dip. That jump gave way to a spill that took the Index down to 82.2 by 4:45, mirroring gold's run-up. Since then, the Index has recovered to levels seen last night. As of 8:18, it was at 82.52.

A Reuters report ascribes the rise to a return of the traditional negative correlation between gold and the greenback.

"Post the start of the Greek crisis, gold and the dollar were two classic safe havens, and from then until the last few days, there has been actually a pretty strong positive correlation," said RBS analyst Daniel Major.

"Historically, you should get a negative correlation with the dollar and I think that a bit more of a normalization in the risk environment (will lead to that)," he said. "(Investors) are slightly less concerned about the Armageddon scenario and the double dip, and that is taking the edge off safe-haven flows."

The article also mentions a drop in holdings of the SPDR Gold Share Trust: they declined by 6.07 tonnes to 1,302.05 tonnes.

An earlier Bloomberg article, as webbed by Business Week, said last night's lassitude was due to diminishing demand.

“Gold has currently lost the support which helped drive prices to a record,” Wang Huijia, an economist at China Merchants Futures Co., said from Guangzhou. “The Europe debt crisis seems to have calmed down, however, gold’s declines will be limited as a resolution is far from over.”

The article also noted 12 out of 27 traders, investors and analysts surveyed by Bloomberg expect gold to rise next week.

An article in TheStreet.com said gold rose on low volume while awaiting the results of the stress test for European banks.

"The dip buying interest seen in gold over the past few days is an encouraging indicator and suggests ongoing diversification from fiat currencies by investors looking for more tangible assets," says James Moore, analyst at thebulliondesk.com in his daily metals report. "However, the continued failure to clear overhead resistance around $1,200 leaves the metal vulnerable to stale liquidation."

With regular trading open, the recovery ended; gold slumped from $1,205.00 to below $1,197. The recovery in the greenback has its influence. As of 8:55 AM, the spot price was $1,197.30 for a gain of $2.80 on the day. The Kitco Gold Index divided the gain into +$2.30 for predominant buying and +$0.50 for overall greenback weakness. The U.S. Dollar Index continued its recovery, rising above 82.6. As of 8:58, it was at 82.65.

Today's disappointment on the opening of the pit session was worse than those of the past couple of days, so a resumed rally might not kick in later this morning. Still, gold did get above $1,200 and stayed there for some time. The metal might try again today.

Gold Takes Off, Is Stopped At $1,200

Despite the unexciting beginning of regular trading, which didn't anticipate gold's jump starting at 9:30 AM ET, the metal went on a tear between then and 10:00. The catalyst for the rise was a continuation of the greenback's woes.

From a dawdle around $1,186, the metal leapt up all the way to $1,202.20 before the advance halted. At the same time, the June leading economic indicators were released; the overall tally came in at a 0.2% decline, indicating slower growth. The previous month was bumped up to a 0.5% gain. Existing home sales came in with a 5.1% drop, which was better than expectations.

After the stall around $1,200, gold slowly pulled back but stayed above $1,195. As of 11:45, the spot price was $1,195.80 for a gain of $9.70 on the day. The Kitco Gold Index attributed -$0.80 to predominant selling and +$10.50 to a weakening greenback.

The U.S. Dollar Index went on a decline starting at 9:34, which was temporarily interrupted around 10:00 when the above data were released. From 82.83, the Index got below 82.5 after a climactic tumble. A more durable relief rally fizzled, and the Index entered into an interday range. As of 11:53, it was at 82.56.

Again, gold was given a lift-up by the greenback's woes. It's not like clockwork, but the negative correlation between the two is reappearing. Gold still can't get and stay above $1,200, but it's bumping up against that level once again.


Update: $1,195 held, but the metal didn't get much above that floor. Early afternoon saw it in a range centered at $1,196 with little action except fluctuations. As of the end of the pit session, or 1:30 PM ET, the spot price was $1,196.20 for a gain of $10.10 on the day. The Kitco Gold Index assigned -$0.20's worth of change to predominant buying and +$10.30's worth to greenback weakness.

The U.S. Dollar Index also changed little in the same timeframe. Stuck largely between 82.55 and 82.6, a very slight upward bias was replaced by a very slight downwards bias. As of 1:35 PM, it was at 82.55.

Gold right now is a lot like twenty-four hours ago, only this time without any event like the Fed testimony to drive it down (or up.) The metal's in position to book a solid gain on the day, and could swing more than ten dollars up.


Update 2: It didn't, but it was close. Gold fluctuated even less in the electronic-trading hitch. After an attempted jump that got up to $1,198 by 2:30 PM ET, the metal sunk back to $1,196. Then, a very gentle drift-down took pace that quietly pushed the metal below $1,195. As of the close of regular trading, the spot price was $1,194.50 for a gain of $8.40 on the day. The Kitco Gold Index attributed -$1.60 to the predomiant-selling category and +$10.00 to the weakening-greenback one. Both categories sum up to the raw change on the day.

The U.S. Dollar Index continued to drift along. That slight downward bias ended at 2:10, when the Index touched 82.5. Then, a jump to 82.65 took pace that ended as of 2:40. The rest of the day was spent fluctuating between 82.55 and the aforementioned 82.65. As of 5:30, it was at 82.63.

Its daily chart, from Stockcharts.com, shows yesterday's gain being reversed today:



Of course, that reversal is what gave gold its impetus to rise today. Despite that drop, the Index is still well above the near-term technical support level of 82. It wasn't that long ago when a break above 82, and a pullback to a little below it, was the prelude for a real rise. That's where the Index was less than three months ago.

There is the possibility that 82 will prove to be a durable support level, in which case the Index will likely churn. If not, then another decline is likely.

As for gold, its own daily chart shows today's gain exceeding yesterday's loss:



Last Monday's decline has given way to another holding pattern, with the short-term low being made on Tuesday. Although there's little sign of a real rally, the metal is still holding up fairly well with physical demand providing the floor. There hasn't been that much lately from the usual sources, but that's because the price has risen some. The metal is likely to continue its holding pattern, with any matching of Tuesday's interday low being bound to meet a lot of bargain hunting.

A post-pit Reuters report ascribed the rise to a brighter economic outlook for the U.S. Amongst the points made therein, these were included:

* Strong corporate revenue growth by bellwether U.S. companies fueled a cross-asset rally, lifting equities, gold and other commodities.

* The metal, viewed as a safe haven during times of economic uncertainty, had seen limited gains ahead of outcome of European banks' stress test due Friday.

* Gold has been largely moving in tandem with the equity markets since early June, as the euro rallied on dissipating fears about European debt contagion.

It seems inconsistent to ascribe today's rally to renewed hopes for the U.S. economy, but gold's been recently retreating on fears that a slowdown would lead to deflationary tendencies, which would knock down the metal. Given this backdrop, gold rallying along with stocks makes sense.

The stress tests are due to be released tomorrow, and gold may get a kick upwards if they go badly. Absent that, the metal is likely to continue hovering below $1,200. The summer doldrums continue.

An Interesting Pairs Trade

Gene Chan's rationale is both simple and straightforward. He suggests shorting GLD and buying SLV, making for a pairs trade that'll work out if the gold-silver ratio narrows.

[C]onsider that a geological analysis of the Earth's crust shows that silver is only 17.5 times more abundant than gold. In fact, over the last 4500 years of history the average price ratio between silver and gold is pretty close to that number. Back in the days when metals are still money, you could exchange 1 gold coin for 16 silver coins.
What this means is that gold is severely overvalued versus silver, and the gap will revert over time, regardless of whether precious metals as a group rise or fall.

He considers gold to have a fat speculative premium built in, which silver doesn't. Plus, anyone expecting economic Armageddon would find silver easier to use for ordinary transactions than gold.


There's a more conservative means to playing it this way: simply buying physical silver, perhaps along with physcial gold. The most cost-effective way fo doing so is through "junk silver" coins.

Forecast For $1,000 Gold

As reported by the Wall Street Journal's "Market Beat" blog, an economist with London’s Capital Economics has predicted gold will drop to $1,000 by the end of the year.

[H]ere are [Julian] Jessop’s thoughts:

“With inflation risks low, it would now take a major new shock to propel gold prices significantly higher. That said, it is not difficult to think of candidates for just such a shock, including the threat of EMU break-up, renewed doubts about the creditworthiness of a major country such as the US or Japan, and the risk of a trade war between China and the West. But none of these risks are likely to come to a head over the remainder of this year. Accordingly, we continue to expect gold prices to drop back towards $1000/oz by end-2010.”

This forecast says something about the gold market right now, as bearish ones tend to surface when the metal's run into price difficulties. There were some early this year; those faded when gold got on a roll. A contrarian would say that the credibility of this forecast says gold is closer to a low than a high.

Cautiuonary Article On Gold

Lee Hudson Teslik and Rachel Ziemba, both with Roubini Global Economics, are not enthused about gold even though they point out the metal has been the best-performing core asset class this past decade. In essence, they think Ben Bernanke and the Fed will avoid both serious inflation and deflation. The third factor that tends to propel gold upwards, a financial crisis, is a factor they don't dismiss out of hand. But, they think the downside risk in gold outweigh the upside.


Someone who's critical-minded would point out the pair contradict themselves when shifting from discussing inflation to discussing deflation. They think the Fed can steer a middle course without any mishaps, which is unlikely to convince a Fed skeptic. The overall track record of the Fed shows erring on the side of inflation.

More Trouble For Goldline

The company is now facing a class action lawsuit brought by two attorneys, which has been joined by a third:

“We are bringing this class action against Goldline for overcharging consumers, deceptive advertising and deceptive sales techniques,” White said in a statement. “The case alleges that paid spokespeople have happily agreed to promote Goldline by playing off the fear of inflation to encourage people to purchase gold as an investment that will protect them from an out-of-control government.”

The lawsuit also claims the company “grossly” overcharges for numismatic coins and bullion, falsely asserts that its products are good investments, and misrepresents its sales people as investment or financial advisers.

White said in the statement he believes the facts will show that Goldline uses conservative rhetoric, high-pressure sales tactics and tall tales about the future of gold to sell overpriced coins that can be bought somewhere else far cheaper.

The company didn't comment to the reporter writing this story.


As far as the lawsuit is concerned, it's a RICO one; that could get messy if it's allowed to go through. Goldline might be successful in getting it dismissed.

Indian Gold Buying Tails Off

Again, the reason is a wait for lower prices. According to a report from Reuters India, that reason plus a weakening rupee explains the new dearth.

"The orders are still at lower levels below $1,180 (an ounce), so buy orders are not getting triggered," said a official with a private bullion dealing bank in Mumbai.

"Nothing much is happening today as the price [drop drop yesterday] is not much in local terms due to a weak rupee," said a dealer with a state-run bank.

The next festival isn't until August 24th, so stockists have some time to wait.

A Blow To Financial Privacy

An issue that has had the gold community up in arms made the mainstream media, as noticed by Kurt Brouwer's "Fundmastery" blog. It deals with the previously little-known provision requiring any business transactions worth more than $600 to be reported to the IRS. Gold coins, buying or selling, are included. There's already a movement to get it repealed, and even the IRS doesn't seem to like it all that much because the form-work will be incredible.


American goldbugs are only part of the repeal movement, so it's hard to gauge their influence, but they are in the swim of things on this issue. Maybe, in a distant day, the goldbug worldview will be mainstreamed. [Admittedly, it would be a bit of a shock...]

Cloud With A Golden Lining

Antonio de Oliveira Salazar was the dictator of Portugal until deposed in 1968, but one of his policies is helping the Portugese government long after he's gone. Under his regime, the Bank of Portugal accumulated gold reserves steadily over the long term. As a result, Portugal now has the highest percentage of gold reserves as a percentage of GDP in Euroland.

The Bank of Portugal is legally barred from selling the gold and sending the proceeds over to the Portugese government, so the reserves are of no help with its share of the Eurocrisis. (Consequently, they don't present a threat to the gold market.) Still, the gold can be sold for foreign exchange should Portugal ever have the need.

A dictator that proved to be a shrewd investor: it makes for a cloud with a golden lining. One point of wry, given rumours floating around: the chief way the gold had been gotten was exporting of wolfram, an ore of tungsten. In essence, tungsten was swapped for gold.

Gold Sidles Upward In Early Morning

There was little fluctuation in gold last night as the metal hovered around $1,185, but movements in the U.S. dollar were to provide some action. An early morning dip, starting at 1:30 AM ET, saw the price go down to as low as $1,180.40 in the next hour. Then, the metal reversed course. A rally, which continued until just before 7:00, briefly topped $1,190.60 at its height. A subsequent pullback left the metal still above $1,185. During this phase, the pre-results from Greek bank stress tests were released: all were expected to pass except for ATEBank, whose difficulties are already well-known.

As of 8:09 AM, the spot price was $1,187.40 for a gain of $1.30 on the day. The Kitco Gold Index attributed -$6.50 to predominant selling and +$7.80 to weakening of the greenback.

The U.S. Dollar Index weakened through the entire overnight session except for secondary reactions. Drifting downwards until 1:40, the Index ramped up from 83.1 to 83.3 in the next fory minutes. A double top at the latter level was the cue for it to begin a sustained decline that took it all the way down to 82.625 before abating at 6:50. As the times indicate, gold played off against the greenback this session. After double bottoming, the Index managed to get above 82.75 after 8:00. As of 8:16, it was at 82.79.

A Bloomberg article, as webbed by Business Week, says gold may advance on hopes for more safe-haven buying.

“We see support coming from the potential that safe haven is demanded,” Tom Pawlicki, an analyst at MF Global Holdings Ltd. in Chicago, said today in a report. “Markets aren’t content to sit back and watch the Fed do nothing more. This should be bearish for risk.”

“Gold had a big run last month as the European debt crisis drove a flight to safety, so it has been consolidating those gains in the past few weeks,” said Liu Mingliang, a Sichuan- based analyst at Chengdu Brilliant Futures Co. “There’s little conviction to either buy or sell gold at the moment, so the market will take its direction from other markets.”

The article also mentions the holdings of the SPDR Gold Shares Trust were unchanged yesterday.

A Reuters report, as webbed by NineMSN, said gold eased as investors wait for the results of the stress test.

"On the gold market, as a lot of the bids back in June were primarily on the back of worries about the banking crisis in Europe, so there has been a lot of noise about the stress tests," said Saxo Bank senior manager Ole Hansen.

"It seems most banks are going to pass, and that is removing some of the safe-haven support we've seen previously."

A retreat in concerns over the health of the European financial sector has allowed prices to slide back from the record highs at $1,264.90 an ounce they hit in June. An attempted move back up to $1,200 was short-lived on Wednesday.

"The way we got rejected yesterday at $1,200 indicates that there are sellers out there who are looking for an opportunity to reduce exposure," said Hansen.

Also quoted is James Steel, who said Ben Bernanke's comments yesterday afternoon indicated heightened deflation risk.

Initial U.S. jobless claims rose by 37,000 to 464,000 for the week ending July 17th, a number that was well above expectations for 450,000. The gold market didn't react all that much to the number, which came near the end of a drop from $1,188 to almost $1,185 when regular trading began. A slight recovery got the metal around $1,186. As of 8:54 AM, the spot price was $1,186.20 for a miniscule gain of $0.10. The Kitco Gold Index assigned -$7.80's worth of change to predominant selling and +$7.90's worth to greenback weakness. The U.S. Dollar Index lost momentum, sinking below 82.75 although the jobless-claims number provided a temporary boost. As of 8:58, the Index was at 82.72.

So far, the overall flatness in the gold market has continued. The metal may go for a bit of a run today, but the opening of the pit session wasn't all that encouraging. Gold's still stuck in the bargain zone.

After Pre-Regular Pop-Up, Gold Gets Choppy; Sinks After Bernanke Testimony

Gold got off to a good start before regular trading began, pushing up to almost $1,200 at the 7 AM ET peak. Since the start of the pit session, it's been in a choppy pullback. Starting regular trading at almost $1,197, the metal slid down to $1,192 before turning around and rising to about $1,196. Right after, as of 9:45, the metal had dropped down to $1,190. Another pull-up peaked at a lower price, this time $1,194. Since then, the metal's pulled back but $1,190 has not been breached. The choppiness could be pegged to uncertainty about Bernanke's testimony to a Senate committee, plus gold reacting inversely to the greenback. As of 11:58 AM, the spot price was $1,192.60 for a gain of $0.40 on the day. The Kitco Gold Index attributed +$4.10 to predominant buying and -$3.70 to a strengthening greenback.

The U.S. Dollar Index managed to climb above 83, but not by much as it fluctuated between 82.94 and 83.11. Its upwaves and downwaves played off against gold's and were somewhat ahead of the metal's, suggesting the greenback was the short-term influence on gold's own fluctuations. As of 11:59 AM, the Index was at 83.06.

The metal may end up taking heart from Bernanke's words. So far, its choppiness suggests there's no reason for traders to push it beyond bargain levels.


Update: The downwardly-biased choppiness has turned into a trading range. After reaching $1,193, gold poked up above $1,194 right after 12:30 PM ET only to fall back to just above $1,191. A further recovery near the end of the pit session brought the metal back into the gains column. As of the end, or 1:30 PM, the spot price was $1,192.30 for a miniscule gain of $0.10. The Kitco Gold Index assigned +$4.10's worth of change to predominant buying and -$4.00's worth to strength in the greenback.

The U.S. Dollar Index has become range-bound too, in a more quiet fashion than gold. Staying above 83 but mostly below 83.1, its fluctuations centered around 83.07. As of 1:35 PM, it was at 83.06.

Despite the fluctuations, the only momentun for gold now is sideways. The release of Bernanke's testimony may change that, but so far the gold market isn't discounting any surprises.


Update 2: The trading range turned into a decline when Bernanke's testimony was disseminated. He said the outlook was "unusually uncertain" right now, which markets in general took as meaning a slowdown or even a double-dip. The gold and greenback markets took it as meaning deflation was a bigger worry than inflation; they acted accordingly. Discussion of the Fed possibly undertaking another quantitative easing program if necessary, as one of three options, didn't carry the day on the gold market. Nor did his continued use of the term "extended period" reagrding the zero interest-rate policy. Six months ago, a few were wondering if a rate hike would be put in place by now. Nowadays, "not until sometime in 2011" looks realistic.

Gold spent the entire 2:00 - 2:30 PM ET time period falling, ending at $1,184 after a climactic dip to $1,182.70. Despite a few attempts to get up above $1,186, the metal failed to do so and largely stayed in the $1,184-$1,186 zone despite inching above it at the end. As of the close of regular trading, the spot price was $1,186.10 for a loss of $6.10 on the day. The Kitco Gold Index attributed +$1.70 to predominant buying and -$7.80 to strengthening of the greenback. The two categories sum up to the raw change on the day.

The greenback longs liked what they heard. From a little below 83, the U.S. Dollar Index leapt up; it didn't stop until 2:35 after touching 83.45. Sinking afterwards, the Index still stayed above 83.2 before turning upwards again and then bobbing. As of 5:30 PM, it was at 83.29.

Its daily chart, from Stockcharts.com, shows that run-up as part of a nice recovery from its recent doldrums:



No more is the Index near oversold. Its RSI level, found at the top of the chart, is almost half-way between oversold and neutral. Unlike yesterday's gain, today's was fairly substantial. Bernanke's testimony was the driver today, but something like it would have pushed the Index up anyway because of previous oversoldness. Despite the extent of the gain, the Index is still in a short-term uptrend in a wider downtrend. It's still too soon to say the fortunes of the greenback have changed. If the austerity theme becomes durable, then the Index will continue downwards.

As for gold, its own daily chart shows yesterday's recovery being preponderantly erased today:



A robotic reading of the chart doesn't lead to a very optimistic conclusion. The last peak was a lower high with respect to the previous one, which set a new record; yesterday's low was lower than the one of July 7th. A lower high with a lower low suggests a short-term downtrend. The 50-day moving average, the blue line in the middle of the chart, has also turned down.

The chart, I believe, has to be read skeptically at this point. Gold could continue down on technical factors influencing longs to get out, and/or shorts to get in, but the underlying demand for physical is still operative at these levels. The overall spot market doesn't always pick up on that source, but the demand is still there and will increase if prices fall further. This fundamental factor, I believe, will trump any technical factors. There's already a rising chorus of analysts (who are permitted to issue buy and sell recommendations) saying this period makes for a buying opportunity. Also, there's seasonal weakness to consider. The renewed talk of deflation is eating away at the gold market in part because of that seasonality. As of now, when extra-chart factors are considered, gold looks like it's in a holding pattern.

A post-pit Reuters report says gold closed the pit session flat, but was reeled by the testimony. Amongst the points therein, these were included:

* Market consolidation seen after a significant technical reversal pattern on Tuesday - Scott Meyers at Pioneer Futures.

* Federal Reserve Chairman Ben Bernanke's comments about U.S. economy facing "unusually uncertain" prospects take a toll on futures prices after COMEX settlement. Wall St down 1.5 pct.

* A 6.1-tonne fall in holdings of the SPDR Gold Trust (GLD), the biggest one-day decline since December, hurts investor confidence.

As indicated, there was a confidence damper even before the testimony. Gold held up well nonetheless, and may show a rebound tomorrow. If not, its visit to the bargain zone will continue.

Jeff Clark's Riff On Buying The Dips

Jeff Clark says the summer is the best time to buy gold and gold stocks, and supplies a fair bit of seasonal analysis in several charts embedded in his article. The tendency applies to gold stocks, which show definite weakness in June and July.


Based upon his study of average pullbacks, he arrives at a buying price of $1,126.98. Interestingly, the recent price of gold - and gold after late-spring and summer routs - has been considerably above that level, corresponding to an average 8.9% decline. This year, the metal has already dropped below the indicated price of the smallest drop, $1,209.99, so this year won't be setting any records. So far, though, it's clocked in at below average decline-wise...and we're already coming up to late July.

It Has Been Rumoured...

Tim Iacono, in a commentary on yesterday 6.08 tonne drop in the SPDR Gold Share Trust's holdings, passes along this rumour: "Rumor has it that liquidations at John Paulson’s hedge fund (owner of about 10 percent of the ETF) are somehow involved."


It can be safely assumed that the expected value of rumours are less than what they cost, but they do show something about the rumour-mongers. "Paulson's being hit by redemptions" piggybacks on Dennis Gartman's partial liquidation two days ago, and plays into a current bearish bias about gold. A contrarian-minded bull would be inclined to believe it because it smacks of capitulation.

List Of 72 Strong Bulls

Some time ago, Lorimer Wilson listed ten gold analysts who thought the price will go much higher than today's. Now, he has 72 - enough to break then down into categories: $10,000 and more, $5,000-$10,000, $5,000 and $2,500-$5,000.


It makes for quite the round-up. One thing that's apparent from his list is how popular the $5,000 figure is. As gold keeps going higher, more permabulls get more confident about gold's long-term fate.

Gold Bearishness Thickening, And The Contrarian View

"GuestPoster" at Investing Contrarian has surveyed the gold landscape and sees a buying opportunity. The deflationists are out in force, and many gold bulls are getting skittish. To a contrarian, that means "buying opportunity."

I have always been here before. Since 2002 (my personal entry point into the secular bull market) we have witnessed this ‘wash, rinse, repeat’ cycle play out several times. As has been noted repeatedly in the newsletter and blog, the Deflation captains – smart economists that they tend to be, with a tragic and almost comical blind spot – are helpful to the process of protecting one’s wealth over the long term with the monetary metal that is no one’s liability. After all, would you rather buy on declines that start out as well and good technical corrections and morph into emotion-fueled, savage drops propelled by the herd’s perceptions? Or would you rather buy hype-fueled runaway price increases?...

Oh and to the d Boys, that is not a picture of a bubble… no matter how hard you click your heels, study Great Depression theory and ignore the fact that monetary authorities need you and your linear philosophy in order to kick start a popular mandate for more inflationary policy. In short, Ben Bernanke is playing you, whether intentionally or not. He needs your story because his power goes out the window if inflation expectations break out. This is again denoted by the monthly EMA 100 on the 30 year treasury bond, followed slavishly on the blog....

He has a point. Widespread jitters among bulls are often a sign that a market's been oversold, and there isn't any reason why the long-term bull market has come to an end.

The Numbers Just Keep Going Up

There have been forecasts of $3,000 gold, $5,000 gold and even $10,000+ gold based upon various valuation frameworks. From what I've seen, the most popular level is around $5,000 with $3,000 running second. Now, someone associated with GATA has come up with the figure of...$52,831. It isn't a real forecast, as it's contingent upon the U.S. returning to a full gold standard, but it can serve as the base of one. As explained in a Mineweb article:

In a rather convoluted article on the real value of gold GATA's Adrian Douglas, writing in www.marketforceanalysis.com has calculated that in terms of U.S. dollar convertibility, the real price of gold now stands at $52,381 an ounce!

In producing this figure Douglas goes back to President Nixon's ‘temporary' removal of the convertibility of the dollar for gold in 1971, when the U.S. money supply was valued at $35 an ounce, to the current money supply/price situation.

Today, Douglas avers, with $13.789 trillion in circulation and a gold price of around $1200 an ounce, if one wanted to return to a gold-backed dollar, the U.S. government would need to hold 11.5 billion ounces - it actually admits to only having 261.5 million ounces (although some believe it may in reality hold even less). Thus in terms of simple mathematics the gold price - to make the dollar convertible again, would have to be the aforesaid $52,381. And, with the U.S. money supply growing by the day this figure should probably actually be even higher already....

I can't help thinking that someone, somewhere is going to come up with a perhaps hypothetical framework that backs up a valuation of $100,000 gold or more. Six figures awaits...

Jeffrey Christian On Gold During Deflation

In an interview with Hard Assets Investor, rewebbed by Bullion Vault, Jeffrey Christian explains that gold tends to do well in a deflation because of a ramp-up in investment demand. He points out that gold did go up in deflations past, not just the one that ended with the Roosevelt devaluation.

Jeffrey Christian: Well, it's hard to say that it's true, because we've had very few real deflations in history, in recent history. The big deflation that we had coincided with the Great Depression. And gold came into the Depression on a fixed price. And there was so much investor demand for gold that the governments had to abandon the Gold Standards that existed in the late Twenties, early Thirties, and allow gold to float, at which point Gold Prices basically appreciated 60%.

A lot of people think that Roosevelt raised the price 60%, but he didn't. What he did is he kept raising the price until he found a market clearing price. So, he was really letting the market set the price for gold. And he had to keep raising the price until it got up to $33 before people would say, "OK, now I'll give you my gold."...

And then if you take that deflation out, and you go back and you say, "What about other deflations?" we saw three bouts of deflation in the 1870s, 1880s and 1890s. And in each case, you saw a tremendous Gold Investment demand. So, it's not that gold makes particular sense during an inflation, but what you see in deflation is so destructive of economic sensibilities and systems that people flock to gold as a safe haven. They say, you know, "This could bring down the whole house of cards."

Christian makes the point that gold is much higher than it would be if conventional commodity supply-and-demand fundamentals prevailed, but they don't because of investment demand. Should that source of demand fade away, gold would come down a lot. He doesn't expect it to do so in the foreseeable future.

Indian Gold Buying Slows Down As Prices Advance

According to a report by the Economic Times, gold buying retreated because traders are waiting for lower prices to stock up, with a weakening rupee still holding back demand:

"Buying receded after prices moved above $1,190 (an ounce) last evening, even the rupee is not acting in favour," said a dealer with a state-run bank in Mumbai, which deals in bullion....

"If prices fall below $1,175, then most of my buy deals would get triggered," said another dealer with a private bullion dealing bank.

$1,175 is lower than recent prices reported by that same source. This could be because buy orders at above that price were taken out, but the weakening rupee is also influencing the drop-down. So is downwards price acclimatization, encouraged by a slump to that same $1,175 early yesterday morning. It may only be me, but those traders seem more eager to get on the low end of the market than in the spring.

Gold, After Softening, Perks Up

Gold stayed above $1,190 until almost midnight ET, even though it softened from yesterday's closing level. A dip below $1,190 didn't lead to much of a further fall; the metal stayed between that level and $1,188 until a little after 5:00 AM. Then, it jumped above $1,190 and stayed around $1,191 until just before 7:00. Subsequently, a larger jump kicked in that took the metal all the way to $1,199.00 before exhausting itself by sinking to $1,195. The market seemed to be discounting favourable words from Ben Bernanke's upcoming testimony to Congress. As of 8:12 AM ET, the spot price was $1,195.70 for a gain of $3.50 on the day. The Kitco Gold Index attributed +$5.50 to predominant buying and -$2.00 to a strengthening greenback.

The U.S. Dollar Index spent last night fluctuating around the 82.72 level before sinking down to 82.55 around 2:20 AM. An attempted rally was aborted, making for a double bottom at that level, followed by a more sustained one that took the Index up above 83 before being spent. As of 8:19, it was at 82.94.

A Bloomberg report, as webbed by Business Week, says the recent rise has been engendered by an increase in physical buying.

“There’s been an upturn in physical buying, in Asia particularly,” said Dan Smith, an analyst at Standard Chartered Plc in London. “People see it is a cheap price. There’s been a bit of an improvement in risk appetite and gold can benefit on the back of portfolio flows.”

The article also notes that holdings of the SPDR Gold Shares Trust (GLD) dropped by 6.08 tonnes to 1,308.13 tonnes.

A Wall Street Journal report said buying interest picked up but is still soft.

TheBullionDesk analyst James Moore said: "The fact gold also rallied yesterday while SPDR ETF holdings declined is encouraging, but with risk appetite improving as European debt fears improve, gold overshadowed by top heavy technical outlook and limited physical demand the current consolidation phase may have further to run."

An earlier Reuters report ascribed the pre-jump lassitude to a shift away from risk aversion and concern over the drop in GLD's assets.

Technical analysts, who study charts of past price moves to determine the future direction of trade, said current signals pointed to near-term stability.

"Trendline support from 2008 is closing in near $1,173, and against here, we are looking for a bounce," said Barclays Capital in a note.

"However, to suggest a stronger base, we prefer to see a meaningful recovery through trendline resistance at $1,207."

With no news on the U.S. economy today, gold was left without any influencer from that region. It softened again, dropping from $1,195. As of 8:57, the metal was at $1,193.60 for a gain of $1.40 on the day. The Kitco Gold Index assigned +$4.05's worth of change to predominant buying and -$2.65's worth to greenback strength. The U.S. Dollar Index continued fluctuating at just below 83; as of 9:00, it was at 82.95.

Although gold got a good push in the London market, there still isn't that much excitement. Bernanke's testimaony today may supply some.

After Drop Below $1,180, Gold Climbs To Gain

The bottom of the day, $1,174.80, was reached just before regular trading began. Despite a couple of pullbacks, gold has climbed up since the pit session began. The first up-leg was accelerated by the dismal housing-starts number, which showed a drop of 5% in the face of expectations for a drop of only 3%. After that leg was over at about the time the equity markets opened, gold had reached $1,185. A slate of disappointing corporate earnings helped push down the major averages, which added to the gold rally; so did a pullback in the greenback. By the time the second up-leg was over, around 11:15 AM ET, the metal had touched $1,194.70. A second pullback left it near $1,190. As of 11:56, the spot price was $1,189.80 for a gain of $5.70 on the day. The Kitco Gold Index attributed +$7.30 to predominant buying and -$1.60 to overall strengthening of the greenback.

The U.S. Dollar Index, after making a double top around 83.1, slid a fair bit until a relief rally set in. The slide started as of 9:20 and lasted three hours, largely mirroring the second leg of gold's advance. As of 11:57, the Index had pulled up from its 11:15 low of 82.625 to reach 82.72.

Gold is still well below $1,200, but bargain hunting has moved from the physical market to the overall spot market. The downward reaction may continue, but the metal's in a position to keep a gain on the day by the close.


Update: $1,190 ended up holding. After touching that level, and scraping alongside it for two brief periods, the metal rose above it and began fluctuating around $1,192 as the pit session veered to an end. At that end, or 1:30, the spot price was $1,192.30 for a gain of $8.20 on the day. The Kitco Gold Index assigned +$9.25's worth of change to predominant buying and -$1.05's worth to overall greenback strength.

The U.S. Dollar Index, after the relief rally went all the way up to 82.785, rolled over but stabilized around 82.7. As of 1:30, it was at 82.69.

Gold is now in a fairly strong position all told; the rally held for the rest of the pit session. There's a good chance of the metal closing above $1,190, and a stong likelihood of a daily gain.


Update 2: It did close above $1,190, well above. Gold hardly moved in the electronic-trading hitch, largely staying above $1,182 until the end. As of the close, the spot price was $1,192.20 for a gain of $8.10 on the day. The Kitco Gold Index apportioned the gain into +$10.10 for predominant buying and -$2.00 for strength in the greenback. The two categoreies sum up to the raw change on the day.

The U.S. Dollar Index finished right around 2:00, when it reached about the same level it bottomed at late this morning. After that double bottom followed an interrupted pull-up that got it above 82.8 before another interruption set in. As of 5:30 PM ET, the Index was at 82.775.

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



Today's interday low was a little above last Friday's, and the high was better than any day's since last Thursday's tumble. There has been a short-term upturn, although the most likely cause is the Index being oversold over the last two days. Today, its RSI level (found at the top of its chart) got above the oversold level of 30 but not by much. The upturn may have a little run left, but there's no real indication that the Index is due for a real turnaround. Given the relative good news that's come out of Euroland, a lot of the current downturn is due to the crisis premium evaporating. Even now, it's still way above its early-December low.

In order for the Index to have any real chance of meeting that low, to sink into the high 70s and even beyond, the currency markets would have to reward austerity programs as part of a genuine theme...and the besotten governments of Euroland would have to stick with their budget cuts. I think it's safe to assume the U.S. government will not pursue any serious austerity program.

Turning to gold, its own daily chart shows a lower interday low despite the solid recovery in regular trading:



The body of today's candlestick is almost beside yesterday's, with the different-colored body indicating a reversal. It took some time for bargain-hunting to re-emerge in the overall spot market, but emerge it has.

Since the bargain hunting tends to tail off when the price approaches $1,200, there's no guarantee that any serious momentum has been built up even though buyers are looking favorably on evidence of another slowdown in the U.S. economy. The way things look now, there'll be more bad economic news coming. Should the gold market feed off that, the seeds will be planted for another upwards run. If not, then the metal will likely hang around the bargain range. Needless to say, the Eurocrisis premium is gone.

The summer doldrums continue, but today's performance shows there are limits to it.

A post-pit Reuters report ascribed today's rally to technical buying and worries about the U.S. economy. Amongst the points therein, these were included:

* Strong technical buying at below key support level
$1,175-1,180 and short covering lifting August gold - Sean Lusk at
PFGBest.

* Gold prices supported after data showed U.S. housing starts hit their lowest level in eight months in June.

* Independent investor Dennis Gartman said in a Monday note that he has halved his gold holdings after recent selling.

Regarding Gartman, a question needs to be asked: is his selling rational risk management, or is is capitulation? (Is it both?) The way the market took it suggests capitulation, if only from a short-term perspective. Evidently, he sees no driver on the horizon to push gold up.

Despite that lack of overall bullishness, there's still firm support at just below today's closing levels. Bargain hunting lives, and will continue to do so unless the gold market is poleaxed. Now that the Eurocrisis premium is basically gone, there's no poleaxe visible that would cause it. Only technical selling would do so, and that's likely to have only a short-term effect.

Buying Opportunity?

Over at Minyanville, gold cycle analyst Toby Connor uses a multicycle analysis to conclude the gold bull market is still intact, and fears of a bubble popping in the immediate future are unfounded. He makes the noteworthy point that no secular bull market has ever come to an end before a blow-off phase, which has not occurred in gold yet.

After he works down to a daily cycle, he has this advice to offer:

...we can extrapolate a reasonable timing band for a final bottom somewhere in the next one to two weeks.

Here's what to look for:

First off, I think gold will need to retrace at least 50% of the intermediate rally. That would come in around $1,155.

Next, I'd like to see sentiment turn extremely bearish. We're already well on our way to that happening as public sentiment is now nearing the same levels we saw at the February intermediate cycle bottom.

About this time we'll see the conspiracy theorists blaming a mysterious gold cartel for what, in reality, is just a normal correction within an ongoing bull market, and one that happens like clockwork about every 20 weeks.

So the bottom line is, we're on the verge of getting one of the best buying opportunities we ever get in a bull market sometime in the next week or two. The question you have to ask yourself is, will you take it or will you let the "technicals" talk you into missing another fleeting chance to accumulate at bargain prices in the only secular bull market left? Let's face it, at intermediate cycle bottoms, the technicals aren't going to look like a bottom. Instead, they're going to look like the bull is broken.

I don't want to get into the manipulation issue, but his use of volubility as a sentiment indicator does make some sense.

I should add another point: there's not only the possibility that gold will go significantly lower than his buy point, but there's also the possibility that gold will bottom while still above it. Even with clear-cut advice, there's always a judgment call and some kind of risk.

Dennis Garman Says He Was Wrong About Gold Going Parabolic

As noted on Benzinga, Gartman said on the CNBC program "Fast Money" that he was wrong about gold heading in to a parabolic phase. He evidently meant that gold was going parabolic as of last or this month.

He explained that gold is making new lows, and the up trend looks like it's broken. Gold is also falling relatively to euro and British pound. He added that it looks like the game has changed and people are worried about deflation. Inflation is not an issue any more, and there are signs of the slowing of the economy and the non-growth of the monetary base.

It takes some spine to get up on national television and admit to a mistake in that way. I don't want to hold out unrealistic hopes, but there is the possibility that Gartman was early. There's also the possibility that he capitulated, but again I don't want to hold out too much hope.

Still Waiting For Inflation

In a Financial Times post, president and chief investment officer of Pacifica Partners Capital Management AJ Sull says that U.S. inflation doesn't seem to be on the horizon. The monetary base has been flat for the last eight months; bank credit, despite a jump in early spring, is still below where it was in early 2009. The monetary picture still suggests the Fed was pushing on a string; the potential inflation enngendered by the earlier doubling of the monetary base has not been actualized.

Despite the addition of Keynesianism, and a seeming obliviousness to the possibility of stagflation, Sull has a point regarding the monetary side of things.

Goldline Defends Itself On ABC

The cloud over Goldline, a now-controversial sponsor of Glenn Beck's show, got the company's executive vice-president Scott Carter on ABC's Good Morning America for an interview - particularly since investigators in Santa Monica and Los Angeles are investigating the company for illicit sales practices.

The controversy hinges around Goldline selling semi-numismatic coins with the pitch about possible government confiscation of gold coins. When done in 1933, collectors' coins were exempt. [Trivia: so were $100, or about five ounces' worth, of then-regular gold coins.] That exemption is the base for Goldline pushing the semi-numismatics. The story linked to contains two complaints from customers who found out that other gold dealers buy semi-numismatics only at spot value. [From what I've seen, the same thing goes for private buyers on eBay.] Carter defended his mark-ups by saying they're disclosed, and he intimated that the premiums won't be that big a deal if the coins are held for the long term.


I have to say I'm partial to tracking down the lowest price that's practicable for gold coins. I don't know if Goldline sells to Canadians, and it would be highly unlikely I'd buy from them had I been an American. Had I wanted numismatic coins, lived in America and could swing a way to meet the minimums, I'd likely buy from Tulving.

Here's a cautionary thought for any Glenn Beck supporter: if the crackdown on Goldline is political, then the (current) government is clearly aggravated by Beck. If the aggravation sticks, and a later government decides to confiscate gold coins, what's to stop government officials from confiscating semi-numismatics this time 'round? If the crackdown really is political, "Beck Nation" has a lot at stake when it comes to winning this one - and, I suggest, the mattter of how to win this one.

Indian Gold Buying Accelerates

According to a report by the Economic Times, continued drops in gold presented another opportunity for resellers to stock up for festival season.

"This is the last week of July before festivals in August, so physical traders are taking every opportunity to enter," said Pinakin Vyas, assistant vice-president, treasury, with IndusInd Bank, a gold importer.... "I priced-in for a sizeable quantity of gold from yesterday evening below $1,190 levels," said Vyas.

A lower prices is having its effect, even if a weakening rupee is encouraging stockists to buy at lower US$ prices. It might be an auspicious season for them this time 'round.

Gold Drops Again, Stays Above $1,175

Right after overnight trading began, gold tried to get above $1,185 but failed to do so. Dropping to $1,180, it then rebounded to about half-way between those two levels by midnight ET. Sidling up closer to $1,185, it then dropped starting at 5:00. $1,180 was broached on the downside around 5:30, but the decline tailed off long before $1,175 would have been reached. Short-term sovereign debt sales by the Grecian, Spanish and Irish governments went well, providing further justification for the belief that the Eurostorm has passed. The Hungarian government had some trouble selling theirs, which put some pressure on the forint.

The pre-8:00 overnight low was made around 7:30, when gold touched $1,175.60; afterwards, it recovered somewhat to around $1,177-8 before making a new low at $1,175.10. As of 8:12 AM, the spot price was $1,176.20 for a drop of $7.90 on the day. The Kitco Gold Index split the loss into -$2.20 due to predominant selling and -$5.70 due to a strengthening greenback.

The U.S. Dollar Index drifted downwards a bit last night to stabilize at around 82.5 between 11 PM and 2 AM. Then, it went on a tumble that took it below 82.2. If that wasn't action enough, a reversal starting at 2:25 pulled it up all the way to 83 and a little beyond. As of 8:17, the Index was still climbing at 83.04.

A Bloomberg article, as webbed by Business Week, ascribes the drop to expectations of investor demand weakening.

“Gold’s safe-haven appeal has started evaporating following a strong rebound in the euro,” Andrey Kryuchenkov, an analyst at VTB Capital in London, said today in a report. “Unless we see a renewed flight for safety, it is unlikely that gold would retest the June highs anytime soon.”

When prices fell below $1,190 on July 16[, though,] “the buying response from the traditional physical hubs was quite significant and volumes to India were the sixth largest our sales desk in Switzerland experienced so far this year,” UBS AG analyst Edel Tully said today in a report. “Physical buyers are prepared to buy gold on a day when the metal experiences a large intraday negative swing.”

The article also notes that the holdings of the SPDR Gold Shares Trust were unchanged yesterday and the collective holdings of ten gold ETFs actually rose by 1.6 tonnes.

A Wall Street Journal article says gold is being pressured by holders chasing returns from other assets: other commodities and equities.

Société Générale analyst David Wilson said there has been "a bit of sentiment reversal", with a lack of demand for the precious metal as a perceived safe haven having led to repeated selloffs in Europe, and on the Comex in New York, in recent days.

"Momentum has eased and triggered stops below technical levels, and will continue to pull back until decent technical support is held, possibly around the $1,170/oz level," London-based broker Triland Metals said.

The article also references a Barclays Capital note, which anticipates further pullbacks but says the long-term bull market is still intact.

U.S. housing starts were lower than expected, according to the report for June. They dropped 5% due to the end of the housing subsidy, when expectations were for a drop of 3%. Gold started to move up beforehand, when regular trading opened, but the news gave an added boost to the metal. As of 8:53 AM, the spot price was $1,182.80 for a drop of $1.50 on the day. The Kitco Gold Index attributed +$2.40 to predominant buying and -$3.90 to greenback strength. The U.S. Dollar Index failed to hold 83, descending a little after the news. As of 8:56, it was at 82.94.

The metal is still floundering, but the reaction to the housing starts number shows there's still some handicapping of another quantitative-easing program in reaction to a slumping economy. Also, the above-mentioned jump in physical demand is lending some support. Gold may continue to languish, but the unlikelihood of a plummet is growing.

Gold Sinks Below $1,180 In Morning, Crawls Above In Afternoon

From above $1,188 at 8:30 AM ET, the metal sunk well below $1,180 as trading demand diminished. The bulk of the drop took place over the next hour; a little after 9:30, gold was below $1,179. A slight recovery to between $1,180 and $1,182 gave way at 10:40, taking the metal down to a new daily low of $1,176.70. The home builders' index, released at 10:00, shows a level of pessimism not seen since April of 2009. Although not having a direct influence on gold's turn-down, it played in to the recent worries about deflation. As of 11:57 AM, the spot price was exactly $1,180.00 for a loss of $13.00 on the day. The Kitco Gold Index attributed -$13.50 to predominant buying and +$0.50 to a weakening greenback.

The U.S. Dollar Index, after getting up to 82.64 right around the time gold started its slide, weakened to below 82.4 until 10:07. Recovering most of its lost ground, it got to just below 82.55 before pulling back a little and then fluctuating before resuming its climb. As of 11:52, it was at 82.52.

Mood has shifted to watching for deflationary tendencies as the U.S. economy shows post-stimulus weakness. This mood shift continues to drag down gold, although the declines are not that swift. The metal managed to get back above $1,180, and may stay there in the afternoon.


Update: The metal did slip back to $1,178, but that slip-back didn't last long. Touching that level at 12:15 PM ET, it bottomed higher than the daily low. The post-noon dip made for a double bottom, which preceded another run-up to the $1,180-$1,182 area. As of the end of the pit session, the spot price had reached the upper edge of the zone; as of that same 1:30, it was $1,182.10 for a drop of $10.90 on the day. The Kitco Gold Index split the loss into -$10.70 for predominant selling and -$0.20 for a strengthening greenback.

The U.S. Dollar Index managed to get above 82.55 in early afternoon trading, after being stuck between there and 85.5 for about an hour. Almost bettering a 12:05 spike, it climbed to 82.585 before settling down slightly. As of 1:35, it was at 82.56.

Although the overall mood is still gloomy, the metal did manage to pull up above $1,180. Bargain hunting isn't very evident right now, but physical markets are showing a definite revitalization. The spot market still has a certain resilience that does hinder, if not stop, any declines.


Update 2: That revitalization continued, although at a slow pace. After bumping against the $1,182 level until 2:25 PM ET, the metal climbed sustainably above it and managed to reach almost $1,185. After that crawl, interrupted by a revisit to $1,182, the metal pulled back again to that same level before blipping up near the end of the day. As of the close, the spot price was $1,184.10 for a drop of $8.90. The Kitco Gold Index divided the loss into -$8.40 due to predominant selling and -$0.50 due to a strengthening greenback.

The U.S. Dollar Index drifted upwards as well, in a wavy motion that contained a couple of pullbacks. As of 5:30, it was at 82.61.

Its daily chart, from Stockcharts.com, shows a bit of a recovery from its depressed levels:



That pull-up was little more than a bounce, and can be explained by the Index being oversold. Its RSI value, found at the top of its chart, is still below the 30 oversold level albeit slightly. That's not to say the Index looks good from a technical standpoint. Its MACD lines are still in a definite bearish configuration, and have been so for more than a month. In terms of overall value, they've only been lower than today's levels during three periods in the last three years: the nadir of the greenback bear market ending in early '08, the post-'08-crisis plummet in March of '09, and the climax of an intermediate low in June of '09. This three-year chart shows it, as well as some fairly dim prospects for the Index:



Turning to gold, its own daily chart shows the damage done by this morning's drop:



Gold did break through its short-term range on the downside today, as the chart shows. However, that breakdown may not be as serious as it looks. There's still physical buying at sub-$1,200 levels, and there may be a lot of it at these prices particularly in India. The chief risk in the breakdown is further technical selling, as more short-term oriented buyers give up. That eventuality would also encourage physical buyers to pull their buy prices down, as price acclimatization works both ways.

Still, that demand is there and will eventually cushion the market even if there's a waterfall decline. Summer weakness has been pushed back because of the Eurocrisis, but has reasserted itself now that the crisis has gone dormant. There's less to the chart than meets the eye.

A post-pit Reuters report said technical selling and a weak housing report pushed down gold. Amongst the points therein, these were included:

* Weak U.S. July homebuilder confidence hit a 15-month low, hurting bullion's appeal as an inflation hedge - traders.

* COMEX August broke below a major up-trend line dated back from a February low after suffering a price breakdown on Friday - Rick Bensignor, chief market strategist at Execution Noble.

* However, the bullish pattern remained intact based on continuous one-month futures and spot gold despite August's weakness - Bensignor.

Desite today's disappointment, gold's weakness is still a combination of post-Euroflareup hangover and seasonal weakness. The metal may continue to decline tomorrow, but this afternoon's action suggests it won't - or, at least, it won't by all that much.

Gold Trade Not Crowded

In an article published at Seeking Alpha, Jeff Clark argues the gold trade is not crowded. He uses a figure calculated by John Paulson, which divides the total amount in gold ETFs (at $1,200 gold) by the total amount available in money market funds. The ratio is only 2.7%.

Clark points out the gold trade seems crowded because gold assets and interest are high relative to the dearth years. That said, he notes an increase in the above ratio to 10% would cause the price to explode.

Harry Schultz Still Bullish On Gold

Harry Schultz is one of the original goldbugs, and a big name even back in the 1960s. [The late Paul Erdman was a "Harry L. Schultz man", or "HLSM."] In an interview with the Daily Bell, exerpted at LewRockwell.com, he said gold is destined to go much higher. One reasons is his belief that the gold markets are manipulated - he believes all market are - but the metal will break the bounds placed on it.

Interestingly, he's an Internet and computer skeptic. He says high tech has traded performance for dependability: it was generally expected that a typewriter would never "hang," but computers don't have that reliability. He also thinks the Internet may be a gigantic trap as the government can collect much more information on people than would otherwise be the case.


I should add that Schultz got his start in old media: newspapers.

How Far Can Gold Go...

Dominic McCormick has written a thoughtful piece looking at gold's future, which attempts to clear up some misunderstanding about the metal as a portfolio holding. He pulls away from the gold-as-money issue, arguing that gold is a counter-cyclical asset relative to confidence in the financial system. As such, it can balance off financial assets whose value is tied to such confidence. He notes that gold is becoming more popular as an alternative investment, albeit in the teeth of a number of vocal gold skeptics. That rise in popularity leads him to conclude gold is closer to the end of its bull market than the beginning, although he does say the current bull market could go on for several years. [The metal's been been rising for more than nine years.] Given this increase in popularity, there is a chance of gold forming a blow-off top should it become a must-have asset.


One point he made caught my eye:

Critics, meanwhile, get obsessed with arguments that gold doesn’t have an income stream, cannot be valued easily and relies heavily on speculative buyers/investors. It is therefore crucially reliant on “confidence” – something they argue is very fickle. This is true, but confidence affects the return on all investments. Even a stock or a market with a known dividend can fall 50 per cent if sentiment sours and its price/ earnings ratio falls from 20 to 10 without any change in the underlying fundamentals.

The part about confidence being fickle made me wonder if those skeptics are confusing gold with the fractional-reserve system. A loss in confidence could collapse the fractional-reserve banking system far more quickly, and more completely, than a loss of confidence in gold. To the extent to which gold skeptics are fiat-money fractional-reserve system boosters, the shoe is on the other foot.

Stay The Course, TMFSinchiruna Advises

The current slump is frustrating, but TMFSinchiruna over at the Motley Fool says it's best for gold bulls to hold on and stay the course. He says he himself has traded some of his PMs, trying to sell on the upswing and buy when lower, but he only does so wtih 5-10% of his allocation. He said it's best to stand pat all told. [Marc Faber calls that kind of trading "be[ing] clever," and he strongly advises against it because of the risk of gold shooting upwards and leaving the trader buying less for more.]


TMFSinchiruna also points to a significant item at the bottom of the same entry: Zhang Monan, a researcher with the State Information Center think tank, says the PRC should gradually unload its Treasury securities now that demand for them is high. Monan also advocates moving some of the money into hard assets. [Full story here.]

Sinchurina has also linked to a real heartbreaker of a story, detailing the trouble that an old woman, afflicted with cancer had in redeeming her silver bullion certificates from Scotiabank. The Toronto-Dominion bank was more accomodating.

Indian Gold Buying Strengthens On Lower Prices

According to a report by the Economic Times, there was a fair bit of buying due to gold prices dropping below $1,200.

"Good fall has led to good demand... there were deals at all levels be it $1,200/1,190/1,186 (an ounce)," said a dealer with a private bank in Mumbai, which deals in bullion....

"My order sheet is showing advance orders below $1,185," said another dealer from a state-run bullion dealing bank.

Sentiment, though, has been dampened somewhat by a weaker rupee.

Gold Gets Down Below $1,190

This week's trading began with lassitude; gold stayed stuck around $1,192.50 all through Sunday night (ET). As night turned into morning, the metal began to drift downwards. Touching $1,190 around 3 AM, the metal rallied but couldn't make $1,195. That rally failing, gold moved down to $1,190; after a relief pullup, it descended below that level. Moody's downgrading Irish sovereign debt by one notch from Aa1 to Aa2 didn't help the metal any. As of 8:05 AM, the spot price was $1,187.20 for a drop of $5.80 on the day. The Kitco Gold Index attributed -$6.80 to predominant selling and +$1.00 to weakening of the greenback.

The U.S. Dollar Index drifted upwards a little last night, but didn't make it above 82.75. A spike-up to a little above that level failed to carry through, and the Index sunk well below 82.50 before stabilizing at slightly below that level; it laster crept slightly above. As of 8:09 AM, the Index was at 82.52.

A Bloomberg report, as webbed by Business Week, says gold has been under pressure because speculators are reducing long positions.

“Price direction is probably down for this week and gold will spend more time around the $1,180 and $1,190 levels,” said Robin Bhar, a metals analyst at Credit Agricole CIB in London. “Prices looked overbought and everybody was very long gold,” he said. A long position is typically a bet for rising prices....

{Still, s]ixteen of 24 traders, investors and analysts surveyed by Bloomberg, or 67 percent, said bullion will climb this week. Three forecast lower prices and five were neutral. Prices below $1,200 an ounce attract purchases particularly in Asia, Mark O’Byrne, executive director of GoldCore Ltd. in Dublin, said in a July 16 report.

The article also notes that holdings of the SPDR Gold Shares Trust were unchanged on Friday.

A Reuters article says gold has come under pressure because of a newfound deflation watch.

"It's now deflation worries people are looking at," a Europe-based trader said, adding the market was wary after cautionary U.S. Federal Reserve minutes released last week. "Plus the euro is not helping either," he added....

"On the downside, $1,165 an ounce is a key support level and I don't think it could go all the way down. There's good demand in the physical market," the trader said.

Fresh worries on the eurozone's debt problems on news that the IMF and European Union suspended a review of Hungary's funding programme at the weekend could boost bullion's safe-haven appeal.

The article also mentions Dennis Garman's reassessment of his long-held strategy of buying Euro-denominated gold becuase of the Euro's recent strength.

A Wall Street Journal article says gold is still range-bound as it waits for direction.

Analysts said market participants are cautious, uncertain about the yellow metal's next move. They said gold will likely take its cues from new economic figures and the European bank stress tests results, out Friday....

The market should see trading volumes, which have already begun declining marginally, slip in the coming weeks as the "summer lull" takes full effect, TheBullionDesk.com analyst James Moore said.

The article also excerpts a Barclays Caital note that said gold's failure to break above $1,219 indicates greater downside than previously thought, although the firm expects the current short-term multiday range to continue.

Regular trading saw gold sink a little after a relief rally that took it up above $1,188. The drop took place right at 8:30 despite there being no news to push it down. After getting as low as $1,182.70, the metal rebounded to $1,185. As of 8:53 AM ET, the spot price was $1,185.80 for a loss of $7.20. The Kitco Gold Index split the loss into -$6.35 for predominant selling and -$0.85 for greenback strength. The U.S. Dollar Index, after making it above 82.5, continued on a run that carried it up to 84.64 before tailing back As of 8:55, it was at 82.58.

The summer doldrums are back. It remains to be seen how much of a cushion physical buying will provide. Gold isn't likely to see $1,200 today, but it's still near the bottom of its multiday short-term range.