The Gold Bubble

New Location, New Blog

2011-01-02T18:47:00.000-05:00

I've picked up sticks and moved here. The Notice of Closure just below has my August '10 thoguhts on the state of the gold market.

Notice of Closure

2010-08-08T15:47:00.002-04:00

I'm sorry to say it, but I'm closing up this blog. The reason why is I've got a large chore ahead of me - learning computer programming - and I won't be able to spare the time for both.

There's a second reason, although it doesn't relate to the time constraints. What I'm writing now has gone far beyond the title and purpose of this blog. Rather than the detached fellow waiting for the gold bubble to build and crest, I've become a regular gold-watcher - although one with less depth than others. This reason pertains to why I won't re-open this blog once I'm through; there doesn't seem to be any point going back to a theme I've long gone past. Should I get back in, it would be in a different format.

It's been a real learning experience, and the experience has included me facing my limits as a forecaster. Over the life of this blog, I've seen the excitement of the Indian central bank gold purchase climax with the record high on December 2nd, seen gold correct in December, watched as a rally turned into a sucker rally in January, faced the doldrums of February, and saw a largely frozen gold market in March turn into a recovery in April. There were also the new record highs made in June, after the gold market fall out of bed in mid-late May, and the doldrums of last month that have recently reversed. None of these actions are consistent with a gold bubble made and popped, and none of them are consistent with building the big bubble I've been expecting.

The gold bull market is still intact, if the more than 30% loss in 2008 is counted as a correction rather than as an outright bear market. If '08's turmoil is counted as a bear, then gold is in its second bull market that's lasted for almost two years. Either way, there's little to no sign of the long-term upward movement ending soon.

I still think gold will be entering a parabolic rise that'll last at least a year and be the talk of the Street, but not soon. Gold will have to wait for a wake-up in inflation for that event to take place. This catalyst, I expected to kick in by now.

Should gold go parabolic, and reach $2,000-$3,000 or more, I have this advice to pass along. It'll hurt some, because bubbles are an incredibly easy time to make money by the pony up and re-up, but there's a trick that's often suggested with penny stocks that's useful: sell until your cost basis is negative, and then gamble with house money. That way, when the bubble burst, the worst that'll happen is you'll emerge sad but intact. Any money that comes from bubble-playing would be a bonus.

Another point: right now, gold is thriving in large part because short-term real interest rates are negative. Should real rates go above 3% in the midst of an all-out bubble, it'll look like the Treasury market is discounting future higher inflation. That take was almost gospel in the goldbug world back in 1981. Should real rates ascend to that level in the fever of a parabolic third-stage bull, it'll be easy to point to them as "proof" that more serious inflation - or hyperinflation - is coming. There will be forecasts of much higher gold prices that include one or two of these rationales, and they'll be widely believed and disseminated. Historically, real interest rates above 3% herald the end of the long-term bull and the beginning of a long-term bear. Should they come in the fever of a parabolic rise, the signal will not only be widely ignored but also will be hard to believe.

There are those who won't want to cash out. For those, reducing the cost basis to negative once rates hit that level would be prudent.

If gold is destined to relive a fifteen-year bull cycle, the blow-off won't be climaxing until 2015 or so. The cycle may be shortened because of the sovereign debt crisis, so the blow-off might happen in 2012 or 2013. It'll be recognizable by its rise, and by the innate plausibility of said rise near the end. That end, I have to point out, will be unpredictable. Many will try; all will be early.

With that off my chest, I'd like to thank everyone who's stopped in and read what I've got - and I'd like to wish everyone who's in the gold market the best of luck. Given my habits, I'll likely be back later but under a different format. We might meet up again sometime next year.

Again, thanks.

- Daniel M. Ryan,
danielmryan[shift-2]primus.ca.

Update: As the post just above this one noted, I'm back at it at another blog. One feature I've added is goldbug fiction.

Gold Tops $1,210, Slides Back To $1,205

2010-08-06T18:40:00.000-04:00

Thanks to an encouraging (for the gold market) employment report that showed private-sector payrolls growth well below expectations, gold shot up to $1,208 by 9 AM ET and briefly touched $1,210. There was a pullback, but it wasn't that great in extent; the drop ended at $1,206. Then, gold continued to rise but in a laboured fashion. Poking above $1,210 twice before the laboured rally ended, when the metal touched $1,212.20, it fell back to a little above $1,206. A third attempt at $1,210 resulted in another poke-above that failed to hold. As of 11:56 AM, the spot price was $1,207.10 for a gain of $12.20 on the day. The Kitco Gold Index split the gain into +$5.35 for predominant buying and +$6.85 for a weakening greenback.

What got gold gaining, got the U.S. Dollar Index tumbling. From around 80.85, the Index descended to below 80.1 before the decline halted as of 10:07. From there, it recovered with a slow and rolling advance that still left it well below 80.5. As of 11:58, it was at 80.35.

Needless to say, $1,200 has been smashed. The reaction to what was really a mixed report - the unemployment rate of 9.5% was slightly below expectations - shows pent-up demand for the metal that was waiting for a catalyst. Gold may fall back later, as has often been the case after recent morning leaps, but a close above $1,200 seems assured.

Update: Gold did break through $1,206 on the downside, making for an afternoon post-leap pullback. After doing so, the metal stayed between $1,204 and that price until a little before the end of the pit session. As of the end, or 1:30 PM ET, the spot price was $1,203.40 for a gain of $8.10 on the day. The Kitco Gold Index divided the gain into +$2.15 for predominant buying and +$6.35 for greenback weakness.

The U.S. Dollar Index kept climbing in early afternoon, but slowly. Before pulling back, it barely climbed above 80.4. As of 1:30, the Index was at 80.34.

Despite the letdown gold is still well above $1,200 - and it's still likely to close above that number, making for another third-time-lucky test.

Update 2: Gold did close above $1,200; in fact, it closed above $1,205. The dip below that level at the end of the pit session continued for a short time afterwards, but then reversed with gold climbing back up to $1,206 by 2 PM ET. The rest of the electronic-trading hitch was quiet, with the metal fluctuating a little above $1,205 except for a brief reversed dip. As of the close, the spot price was $1,205.70 for a gain of $10.80 on the day. The Kitco Gold Index apportioned the overall gain into +$4.90 for the predominant-buying category and +$5.90 for the weakening-greenback one.

This week saw a reversal of the declines that previous weeks ended up displaying. Last Friday's close was at $1,181.40, so this week saw a substantial gain of $24.30 or 2.06%. The close for this week was also well above that of two weeks ago.

The U.S. Dollar Index, after managing to get up to 80.425 at 1:15, stayed between that level and 80.295 for the rest of the session except for the last five minutes. A jump above the high didn't stick, though, and the Index closed the week at 80.39.

Its daily chart, from Stockcharts.com, shows the recent attempt at basing thwarted:

Again, what I thought would be the beginning of a short-term turnaround wasn't. The Index managed to stay above the 80 support level, but its reaction to this morning's jobs report shows bearish sentiment has not been exhausted. The Index's RSI level, found at the top of its chart, is still in oversold territory.

It's gone so low, a pattern is beginning to show up - one that does not bode well for it. The Index is very close to touching the same level it was at on April 14th and 15th, before the Eurocrisis-fueled rally got rolling. All but a smidgen of the rise subsequent to those mid-April days, right up to above 88.5, has now been erased. The Index started a late March rise, which took it up to above 82.25, at a little above 79. The descent to 80 comes close to making a head of a months-long head and shoulders reversal. There isn't really a neckline, but more of a neck zone between 79 and 80. The Index only has to fall a little further before entering that zone - and it may.

All it would take to complete that pattern would be a future rise to well below 88 and a fall below 79. Since the pattern's been long in developing, it would take some time to see whether it will go to completion.

Turning to gold, its own daily chart shows its breakthrough above $1,200:

The crossover of gold's MACD lines, found at the bottom of its chart, had the say. Two days after switching to a bullish configuration, the metal has advanced beyond an important resistance level after two days of trying. The third time was the charm.

The metal's RSI level is comfortably above the 50 neutral level, a zone at which it's not been at since the end of June when it was around $1,240. The inverse head and shoulders bottom I was expecting didn't come to pass because gold continued rallying above what would have been the neckline of it. Technically, gold is looking pretty good.

Certainly, it looks better than it did as of last Tuesday's close. Then was the cut-off for this week's Commitment of Traders data, as graphed here. At that time, though, gold had finished the fifth day of its six-day rally; so, the technicals looked fairly good then. As of that time, total open interest had shrunk for the fifth week in a row. All reportable categories shrunk, including the well-watched commercial shorts category. The category that shrunk the most in percentage terms was commercial longs, which decreased by 7.00%. The least, non-commercial longs by 2.43%. Interestingly, long was the place to be for the rest of the week; the latter category, as a category, showed the least disconnect from what transpired later in the week.

As for the U.S. Dollar Index's own CoT data, graphed here, its total open interest remained low but managed to barely break the recent losing streak. Commercial longs nearly doubled from their recent sliver. The only other category to increase was non-commercial shorts, by 28.9%. The other two categories declined. Given the Index's brief rebound the following day was more than checked by two subsequent down days, the non-commercial shorts had it.

A post-pit Reuters report says gold was up on safe-haven demand triggered by the disappointing nonfarm payrolls component of the jobs report. Amongst the points therein, these were included:

* Gold accelerated gains and Wall Street sank after government data showed U.S. private employers added fewer workers to their payrolls in July than expected.

* Recent weak economic data suggested interest rate will be low for a while, which is very good for the precious metals relative to other assets - Thomas Winmill, portfolio manager of Midas Fund MIDSX.O.

* The usual inverse relationship between gold and the dollar has shown signs of a resurgence, after the link loosened earlier this year as extreme risk aversion benefited both assets - analysts.

Gold definitely has had the better of the now-inverse corrlation lately. If things go well, the metal will stay above $1,200 next week and build a base at the new higher level. It's past the bargain-hunting zone, but new demand is beginning to show up. August is starting to shape up as the month when gold shakes off those summer doldrums.

In closing, thanks for stopping by and reading what I've posted here. May your weekend be unmuggy.

Nottingham Scientists Find Way to Use Gold As Antiseptic Agent

2010-08-06T11:27:00.000-04:00

A team of scientists at Nottingham Trent University has found a way of binding gold nanoparticles to antibiotics. The gold lessens bacteria resistance to the antibiotics by weakening the cell walls of the creatures.

The tests so far have been extremely positive and indicate that the particles are highly potent at neutralising bacteria such as E Coli.

The findings of the tests have been published in the Journal of Materials Chemistry and detail how the team has been able to control the production of nanoparticles as part of a chemical reaction. The tests have proven that the particles are highly robust and effective in both acidic and alkaline environments alike.

The gold within the nanaoparticles creates holes in the cell walls of the bacteria which reduces their resistance to antibiotics. The ability to coat particles with antibiotics could lead to exciting and innovative new ways of looking at how we fight bacteria over the coming years....

Boffo for the boffins. They and gold will save lives.

"The Inflation Trader" Doesn't See Gold Bubble

2010-08-06T11:17:00.000-04:00

Through a comparson of three ratios, gold versus oil, the S&P 500 and house prices, "The Inflation Trader" concludes gold is not in a bubble. Although the last ratio is somewhat high, the first two don't show much overvaluation.

All in all, I think there are no real signs that gold is in a bubble at the moment. With real yields around zero out to the 5-year point, gold (probably through an ETF like GLD) is a defensible investment.

One metric that shows gold is in a nascent bubble is the effect that investment demand has had on the metal, without which gold would be in the 800s. Still, even at these prices, there isn't any sign of an all-out bubble. I still believe there will be one, although not in the near future. A ramp-up in inflation would provide the catalyst, because the gold story has spread far and wide enough for an inflation ramp-up to provide a major impetus to piling into gold.

Louis James Sees Pre-Mania Phase For Gold

2010-08-06T10:59:00.000-04:00

James, the Senior Editor, Casey’s International Speculator, says gold and the gold stocks are being held back by memories of 2008. Although gold initially rose when Bear, Sterns got into its trouble, the metal lost more than 30% from then 'til October. The gold stocks got slaughtered.

James suggests the gold stock now, particularly the exploration juniors, are being held back by a fear of another 2008. This time, though, he thinks gold will benefit more, and more quickly:

As the debt-glue holding everything together continues to lose its grip, the ride will only get rougher. As bad as 2008 was, if the Crisis Creature appears to be coming back when everyone on Main Street thought it was dead, the fear should be much worse – and that should drive gold way, way north. It’s possible the fear, coupled with the lack of any safer alternatives, could prevent gold from melting down at all, sending it instead straight through the roof into the clear blue Mania Phase sky....

Unfortunately, the stampede to safety that drives investors to gold is not likely to drive them immediately to junior exploration stocks. “The most volatile stocks on earth” is not what fearful people will be looking for – not until the panic sufficiently recedes and greed joins fear in equal measure in the marketplace…or in greater measure, come the Mania Phase.

If I’m right about fear being the driving force in the markets in 2010, whereas greed drove them in 2009, gold will have to deliver a serious wake-up call – perhaps holding over $1,500 – to really get the show on the road again for the gold stocks. If that happens while fear of a global economic slowdown continues to push oil prices lower, gold producers should be able to report extraordinary profit increases, even as other industries are tanking, and finally penetrate deeply into the awareness of broader pools of investors....

He thinks the producers will benefit sooner, and suggests holding off from buying any gold exploration stock unless it's a real bargain and has a deposit that's millions of ounces in size.

Trouble is, it's hard to find any real bargains using that criterion. From what I've seen, they're in "buy high, sell higher" territory.

Australian Fitness Club Rapped For "Gold Coin To Join"

2010-08-06T10:27:00.000-04:00

The reason given for the Australian Competition and Consumer Commission launching a complaint about Fitness First's "Gold Coin To Join" campaign was the exclusion of an additional administration fee, but there may be cause to wonder if the campaign was frowned upon because Fitness First didn't quote a legal-tender price.

It's a straw in the wind, of a certain sort. Using gold as a medium of exchange, despite E-gold launching long before PayPal, never really took off. If it does, there may be similar hostility surfacing along with it.

John Paulson's Gold Fund In A Bit Of A Spot

2010-08-06T10:14:00.000-04:00

Most of John Pauson's funds would up with gains in July, but his gold funds were a notable exception.

Paulson's gold-oriented fund, the New York-based fund firm's newest offering which launched this year, tumbled 5.93 percent in July, but is still up 5.7 percent [on] the year.

Paulson might get some bad press for that July result, but his gold fund has actually done better year-to-date than his flagship Advantage fund. Despite the hoopla that accompanied its launch, he didn't get much money subscribed to it apart from his own. Paulson himself put $250 million of his own funds in the project, which resonated with the comparisons to his bet against subprime mortgages in '07.

Gold Stays Steady In 1190s

2010-08-06T09:07:00.000-04:00

There was some fluctuation in gold during the overnight session, but the overall direction was sideways; roughly, the metal centered around $1,195. Signs of a slowdown in Euroland emerged with U.K. factory output rising by a less-than-expected 0.3% and German industrial production unexpectedly falling by 0.6% in June. Gold initially fell last night, bottoning below $1,193 a little after 8:00 PM ET, but then rose. Peaking at $1,199.60 as of 4 AM, the metal slid down once again to bottom at $1,192.50 more than two hours later. Turning around, its subsequent rise was muted but enough to carry the metal above $1,194. As of 8:02 AM, the spot price was $1,195.00 for a gain of $0.10 on the day. The Kitco Gold Index attributed +$1.30 to predominant buying and -$1.20 to strengthening of the greenback.

The U.S. Dollar Index stayed mostly flat last night, but rose starting at 3:40 AM after a slight fall to 80.7. Reaching almost 80.95, the Index double-topped and then pulled back a bit. As of 8:08, it was at 80.87.

A Wall Street Journal article says gold has remained flat on low volume due to anticipation of an especially good or bad unemployment number.

"There is a lack of liquidity and everyone is just waiting to see how the data looks," a trader said. "A strong number either way could really move the market."

Expectations of more robust data, following some increasingly positive figures out of the U.S., have been reduced somewhat after Thursday's disappointing U.S. jobless claims data, SEB analyst Bjarne Schieldrop said.

Generally, the weaker the numbers the better for gold. Although not mentioned in the report, holdings of the SPDR Gold Shares Trust increased 0.92 tonnes yesterday to 1,282.75 tonnes.

The U.S. jobs number came out, and the unemployment rate shows a slightly better picture than was expected; the overall picture was mixed. July's rate of 9.5% was slightly better than expectations for 9.6%, but private nonfarm payrolls expanded by 71,000; expectations were gfor a gain of 100,000. The total number of jobs lost was 131,000. The gold market took off on the news. Starting at $1,196, the metal shot up above $1,200 to reach $1,208 before stalling. As of 9:02 AM the spot price was $1,207.40 for a gain of $12.50 on the day. The Kitco Gold Index split the gain into +$6.30 due to predominant buying and +$6.20 due to weakening of the greenback. The U.S. Dollar Index, as indicated, reacted badly to the news. From about 80.85, the Index fell all the way down to 80.35 before stalling. As of 9:05, it was at 80.38.

$1,200 has been tested, and gold has shot through. The gain's been strong enough to give a good chance for the metal closing above that level today.

After Touching $1,200, Gold Slumps Back

2010-08-05T18:13:00.000-04:00

Gold managed to touch $1,200 in the beginning of regular trading on the heels of a disappointing jobless-claims report, but its momentum faded at 8:50 AM ET. From then until just after 11:00, the metal rolled downwards to a new daily low of $1,189.20. A relief rally took it to $1,194 shortly afterwards, but the momentum of the last six days has been broken. As of 11:55 AM, the spot price was $1,194.20 for a loss of $1.40 on the day. The Kitco Gold Index attributed -$1.70 to predominant selling and +$0.30 to overall weakening in the greenback.

The U.S. Dollar Index, after being knocked down by the jobless-claims report, recovered in mid-morning. At the same time gold reached its low, the Index almost touched 81.0. Since 11:07, it's been hovering just below that level. As of 11:57, it was at 80.91.

The newly-restored inverse correlation between gold and the greenback has asserted itself to the detriment of the metal. There may be somewhat of a pickup in the afternoon, but it looks like gold's recent momentum will stay drained.

Update: The momentum did come back, enough to put gold into the gains column. The recovery rally that began a little after 11 AM ET continued through 12:45, when the metal managed to get a little above $1,197. $1,200 eluded it, though. After that peak, it sunk down to around $1,195 and hovered between there and $1,196 before pulling up. At the end of the pit session, or 1:30 PM, the spot price stood at $1,197.30 for a gain of $1.70 on the day. The Kitco Gold Index split the gain into +$0.35 for predominant buying and +$1.35 for greenback weakness.

The U.S. Dollar Index continued to hold below 81.0, and lost a little ground in early afternoon. It managed to stay above 80.85, but bumped against that lower level. As of 1:30, the Index was at 80.86.

As for gold, its recovery from its morning drop shows an overall stall between $1,200 and $1,190. $1,200 was not tested again after that post-jobs-claims rally. Although held back, the metal is still showing some price resilience. There's a good chance of a slight gain at the close.

Update 2: That chance wasn't met, even though the end-of-pit rally got gold up to $1,198 by 1:50 PM ET. For the rest of the afternoon, the metal slowly trended downwards or sideways with nary a relief rally. At the end of regular trading, the spot price was $1,194.90 for a slight loss of $0.70 on the day. The Kitco Gold Index assigned -$3.70's worth of change to the predominant-selling category and +$3.00's worth to the weakening-greenback one. Both categories sum up to the raw change on the day.

The U.S. Dollar Index ended up falling below 80.85, which helped catalyze gold's final rally in regular trading. The Index then trended downwards, but not by much; it ended up fluctuating around 80.75. During that time, gold followed its own path downwards. As of 5:30 PM, the Index was at 80.77.

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

Today's interday high was slightly higher than yesterday's, which itself was higher than that of two days ago. The daily lows of all three days were about the same. Still, the Index was down from opening to closing.

Its 200-day moving average, as shown by the red line in the lower middle of its chart, has continued to provide support. The Index's RSI level, found at the top, is still in oversold territory. There hasn't been any real springback as yet, but the Index may be preparing for a secondary run-up.

As for gold, its own daily chart shows its rally stalled:

This morning's test of $1,200 is evident from the chart, but so is the lower interday high as compared with yesterday's. The $1,200 barrier has proven to be fairly potent, especially since there's been no real sustained driver for gold except bargain hunting that melts away when the price approaches that barrier.

Perhaps there won't be any sustained rise unless there are signs of inflation in the developed economies kicking in. More immediately, the Fed undertaking a second quantitative-easing program would provide the necessary kicker. Gold may well stay stuck in the 1,190s for the nonce, and there's the possibility of it falling to the 1180s. In the latter zone, bargain hunting will come back.

A post-pit Reuters report, which preceded the electronic-trading-hitch slump, said gold rose for the seventh day in a row because of a weaker greenback and a leap in grain prices. Amongst the points therein, these were included:

* Weakening of the dollar beginning to work in favor of gold recently - James Steel at HSBC.

* Rising wheat prices after Russia said it would temporarily halt grain exports due to the country's worst drought on record sparked inflation worries - Steel said.

* On charts, a buy signal was triggered earlier this week when the MACD moved above the signal lines, according to the moving average convergence/divergence (MACD) analysis.

That crossover took place yesterday, and evidently made an impression.

In and of itself, the bump-up in wheat prices is a temporary spike but it may catalyze a big run in the commodity. Gold's reaction to it suggests players are on the lookout for inflation, putting the doubt to the recent deflation talk. The metal may be due for a rest tomorrow, but it's still in a fairly good position technically. A drop below $1,190 is unlikely.

Peter Cardillo Sees $1,500 Gold Next Year

2010-08-05T11:40:00.000-04:00

In an inteview with Hard Asset Investor's Mike Norman, Cardillo says the deflation talk is not going to be borne out; instead, the U.S. is going to be visited by inflation.

Cardillo: I don’t think it’s going to lead to deflation. And, for the moment certainly, we don’t have an inflation problem, that’s for sure. But we will have an inflation problem. And we could have hyperinflation if we don’t get these budget deficits under control. And I suspect that we still have wiggle room here in the States. And of course, the austerity programs that have been enacted in Europe probably mean that inflation is going to be dead for a while.

Norman: But why are you so concerned about the budget deficit? We saw the deficit during World War II run up to 35 percent of GDP. That would be the equivalent of something like a $5 trillion deficit today. We saw the national debt, the public debt, run up to 120 percent of GDP. Now we’re about 90 percent. We’re really about 65 percent, if you just consider the debt owed to the public. What is the big concern when … and you said even hyperinflation … historically, and in context, the debt really isn't that high?

Cardillo: That’s right. That’s why I said we have wiggle room. Right now, we don’t have a high debt. The question is, do we continue to spend? And when I said “hyperinflation,” I’m not talking about hyperinflation appearing over the next six months or a year or possibly even two years. I’m talking about down the road if we don’t correct these budget deficits, these imbalances, and not only here in the States, but on a global scale. Because one of the problems that we have is that we have a debt global burden that’s continuing to hurt the markets.

And if you look at the price of gold, that’s telling you something. Right now, gold is out of favor. And I think the reason for that is because it has …

Norman: Well, I wouldn’t say it’s out of favor. It came down a little bit, but got up to, like, $1,250. It’s $1,150-1,160, something like that.

Cardillo: Right. When I say “out of favor,” I mean it’s lost a bit of its luster, in the sense that we’re not seeing headlines anymore, “Gold made a new record high.” No, that’s not happening. And I think the reason for that is simply because of the fact that, from a fundamental viewpoint, there’s been a slowdown in purchasing gold products from India, which is generally, traditionally speaking, a seasonal pattern in this time of the year. And, of course, we didn’t see China come in and buy any more gold from the IMF. And of course, the IMF is selling gold....

Perhaps surprisingly, the interview isn't full of softball questions. At the end, Cardillo gives his $1,500 target and then says he thinks gold will peak at that level. He doesn't explain why.

Peter Brimelow Says Recent Bearishness Proved To Be Contrary Indicator

2010-08-05T11:01:00.000-04:00

In his latest Marketwatch column, Peter Brimelow credits what he calls the "radical gold bugs" with being right on gold's turnaround. Physical demand from Asia was what turned gold around. The more timing-oriented players turned skittish, if not outright bearish, at about that time.

He points to a certain irony with respect to gold exploration:

[O]nce gold gets to a level at which average gold deposits are viable, the discoverers of somewhat better ones make fortunes. So do patient prospectors amongst the junior gold names. It is a great time for what some deride as "rock hounds."

This is what happened during the circa-$300 plateau in gold that occurred 1993-96, when it was considered a healthy price.

So gold miners are partying like it's 1995, when gold was about a quarter of what it is now. That speaks to one serious bout of margin squeezes.

And yet, from what I've seen in the gold-exploration market, the stocks of junior explorers reporting very good drill results aren't getting much of a kick right now. There are exceptions, but not very many. Indifference seems to have settled into that nether region.

Indian Gold Buying Muted For Second Day In A Row

2010-08-05T10:41:00.000-04:00

According to a report by the Economic Times, Indian gold buying remained subdued again because of higher prices in U.S. terms amplified by a weakening rupee.

"There is nothing much today, even yesterday was equally bad," said a dealer with a state-run bullion dealing bank in Mumbai....

"Buying could be seen below $1,190 (an ounce)," said another dealer with a private bank.

Despite the dullness, some upwards price acclimatization is taking place. The trigger point mentioned by the second source used to be $1,180.

Inevitable End To Protest Against New Mine

2010-08-05T10:35:00.000-04:00

In Canada, anyways. Ken Masse was the only holdout against Osisko Mining's offer to buy his family home in Malarctic, Quebec. His and 204 other homes were sitting on top of the deposit, so he fighting an expropriation order and refusing to sell his home to Osisko would have held up the development of the mine. Masse said he was fighting to protect the environment from the mine and for property rights - an interesting combination.

Now, he lost in court. Instead of a large premium, he and his mother will only get court-assessed market value for the home. It'll be a lot less than what Osisko offered in the past.

The little guy fighting for his property rights against a corporation that had to resort to expropriation - this story would resonate in many parts of America. In Canada, though, expropration has a tradition all its own. The United States has only recently joined in.

Yamana Gold Boosts Dividend Too

2010-08-05T10:20:00.000-04:00

Yamana is the latest company to jack up its dividend, with a 100% increase from four cents per share per year to eight cents. As with the Newmont and Barrick, higher earnings made it possible. Kinross, most likely because of a takeover commitment, didn't increase its own.

It looks like the gold companies are getting the message about why so much investment demand has been sucked from their shares to the gold ETFs: paper gold is a purer play, with none of the complications that come with investing in a mining company. Since the corresponding opportunities that leverage offers doesn't seem to be a big draw, a dividend (which a gold ETF cannot pay) can act as an additional inducement.

A dividend boost is also a way to advertise higher earnings.

Gold Drifts Around $1,195

2010-08-05T08:57:00.000-04:00

There wasn't much action on the gold market overnight; the metal drifted around $1,195 for the entire session. Both the Bank of England and the European Central Bank left their respective rates unchanged, the former at 0.5% and the latter at 1%. Both announcements didn't change gold all that much, although the metal was creeping up earlier. As of 8:06 AM ET, though, the metal perked up to make the spot price reach $1,197.30 for a gain of $2.10 on the day. The Kitco Gold Index attributed -$0.80 to predominant selling and +$2.90 to weakening of the greenback.

The U.S. Dollar Index basically stayed where it was last night, hovering just below 81. A break above that level around 2:30 AM prefaced a peak above 81.1, which reversed at 3:25. The resultant slide took it down to 80.6 before a relief rally kicked in starting at 7:10. As of 8:13, the Index was at 80.79.

A Bloomberg report says gold stalled because of concern that the rally has engendered less physical buying.

“We are seeing resurgent interest from the investor community,” said Andrey Kryuchenkov, an analyst at VTB Capital in London. Still, “interest from Asian buyers is likely to ease in the very short term, as prices have significantly recovered from July’s lows.”...

“Gold may take a breather before continuing on its longer- term trend, underpinned by strong demand from India and China,” said Ong Yi Ling, an analyst with Phillip Futures Pte.

The article also mentions holdings of the SPDR Gold Shares Trust declined by 0.45 tonnes yesterday to 1,281.83 tonnes.

A Reuters report says gold was held up by fund buying and Asian consumer demand.

Much of gold's safe haven appeal for investors that derived from the euro zone debt crisis and pushed prices to record highs in late June has evaporated.

But James Moore, an analyst with thebulliondesk.com said renewed confidence in the global economy, helped by upbeat corporate earnings, has lifted the broader commodity complex as well as gold itself by association.

"While we have seen a bit of improvement in the European debt situation, I think investors are still very cautious and obviously, more and more people are looking to diversify their portfolios. So, even if they only add a fraction of gold, those numbers add up," Moore said.

The article also cites Edel Tully as noting the 30-day correlation between gold and the greenback has turned negative.

A Wall Street Journal report says gold is holding steady because of uncertainty over U.S. jobs data.

Better-than-expected jobs data Friday could rejuvenate investors' appetite for growth assets and dim demand for safe havens like gold.

"We have to wait for the payroll figures," said Narayan Gopalakrishnan, a trader at Swiss trading house MKS Finance in Geneva. "Overall it's range trading [until then]."

A return to the lows of July, however, is unlikely, analysts said. Physical demand from the jewelry sector has been solid, providing a floor for prices.

The weekly U.S. jobless-claims number was released at 8:30; it showed a rise in first-time claims to 479,000 when a fall to 453,000 was expected. Regular trading opened with a rise in gold, which continued when the figure was released. Despite the hype over the figure, gold didn't make $1,200 afterwards. As of 8:52 AM, the spot price was $1,199.60 for a gain of $4.00 on the day. The Kitco Gold Index assigned -$1.60's worth of change to predominant selling and +$5.60's worth to greenback weakness. The U.S. Dollar Index reacted to the release with a slump to below 80.55 before another relief rally set in. As of 8:55, it was at 80.63.

So far, gold is on track for a seventh daily gain albeit a slight one. $1,200 remains intractable, although the metal is still veering up against it. A more sustained test of that level may be in the offing today.

Gold Pokes Above $1,200, Then Chokes

2010-08-04T18:33:00.000-04:00

After being barely fazed by the ADP data report showing stronger job growth than expected, gold entered into a staggered rally that took it up above $1,200. The actual break came at about 8:50 AM ET, but it stuck until a pullback more than an hour later. The peak of the rally made for a new daily high of $1,204.20. The metal sunk to below $1,200 again on the heels of an ISM report saying the U.S. service sector in July expanded slightly but more than was expected. Again, the good news proved to be bad news for gold; the resultant pullback was a little more than a momentary interruption. Another rally, starting at 10:20, peaked at less than the first one but well above $1,200; a later pullback, though, left gold a little lower than that level. As of 11:58, the spot price was $1,198.90 for a gain of $13.30 on the day. The Kitco Gold Index attributed +$18.30 to predominant buying and -$5.00 to a strenthening greenback.

The U.S. Dollar Index did strengthen in mid-morning due to that ISM report after drawing a little strength from the ADP one. It got started just before 10:00, but got on a roll afterwards; the rally didn't stop until the Index brushed against 81.1. 81 didn't hold, but the Index descended to a level not far below; as of 11:59, it was at 80.97.

The rally in the greenback did dampen gold's increase, as the metal's high of the day was made before the Index's run. Given the resistance met at $1,200, gold closing above that level isn't very likely. Still, the gain has been fairly impressive. There might be another test of $1,200 in the rest of the pit session.

Update: There was, but the test led to a downturn that took the metal below $1,195. Starting around 1:00 PM ET, it descended from right around $1,200 all the way down to $1,194. No news accompanied that breakdown, which seems to be the result of the earlier greenback rally. As of the end of the pit session, or 1:30 PM, the spot price was $1,193.70 for a gain of $8.10 on the day. The Kitco Gold Index assigned +$14.80's worth of change to predominant buying and -$6.70's worth to greenback strength.

The U.S. Dollar Index, after hovering around 80.95, managed to climb back above 81 just after 1:00. Although not making it to 81.1, it came close. As of 1:35, the Index was at 81.03.

The spill in the last half hour of the pit session put an end to any hope for gold closing above $1,200. Still, a gain of the day seems assured and there's still an outside change of the metal closing with a double-digit gain.

Update 2: That outside chance was made, thanks to a rebound near the end of the day, but just barely. The rebound that did so was the second in today's electronic-trading hitch. The first kicked in right after the pit session ended, pulling the metal up to $1,196-97; it snuck above that zone as the rise continued. Came 3:15 PM ET, and the rise turned into a decline that took gold down to $1,193 by 4:00. The second rise ended with a last-minute kicker that put the closing figure at $1,195.60, for a gain of exactly $10.00 on the day. The Kitco Gold Index attributed +$15.30 to the predominant-buying category and -$5.30 to the strengthening-greenback one. Those two categories sum up to the raw change on the day.

The U.S. Dollar Index, after hovering around 81.1, slid down for more than an hour after 2 PM. Getting below 80.9, it stayed around that level before regaining most of the loss; despite that rebound, it failed to make 81 again. As of 5:30, the Index was at 80.935.

Its daily chart, from Stockcharts.com, shows the first up day in six:

Unlike the previous up day, this one wasn't that insubstantial. Today's close was at the same level as yesterday's open, so today's action reversed yesterday's. The Index's RSI level, found on the top of its chart, is still in sub-30 oversold position but less so than yesterday. As it turned out, touching the 200-day moving average yesterday did act as a kind of support (at least for now.)

It's been quite the downward slide, so some kind of rebound was inevitable. The last upturn only lasted a day; the one before last, four. That earlier one, starting July 19th, was good for a point and a half between bottom and top. I can't say how long this one will last, only that the low RSI level indicates the Index is due.

As for gold, its own rise today made for the sixth gain day in a row:

Its poke above $1,200 shows in the top of today's candlestick. Gold's own RSI level is slightly above neutral, a level that's associated with short-term tops ever since the beginning of July. Even if the metal pulls back from here, its current run has been large enough in extent to make for a head in an inverse head and shoulders reversal. With a neckline around $1,205, the pattern indicates a durable rise into the 1200s if completed. So, even if gold sinks back into the 1180s, the technical position isn't that bad anymore.

Moreover, the MACD lines at the bottom of the chart have shifted to a bullish configuration for the first time since June. This switchover does not guarantee the rally will continue tomorrow, but it does indicate that gold's doldrums have come to an end.

A post-pit Wall Street Journal report says an increase in mainland Chinese demand, plus speculation that the Fed will undertake more quantitative easing, pushed gold up today.

Gold was supported Wednesday by speculation that the Federal Reserve may lower interest rates or buy bonds to try to boost the economy, said Tom Pawlicki, precious-metals analyst with MF Global in Chicago. Even symbolic action by the Fed could send a signal that officials believe the economy is at risk of deflation or a renewed slowdown, enhancing the appeal of gold as an alternative asset....

Futures also received continued support Wednesday from the news that China would take steps to expand its domestic gold market. The People's Bank of China Tuesday announced that the government would permit more banks to export and import gold. Analysts say the easing of restrictions shouldn't immediately lead to an increase in gold investment, but it represents an expansion that could make China a larger player in the international gold market.

"I think the Chinese news is a longer-term underlying theme," said Adam Klopfenstein, senior market strategist with Chicago-based Lind-Waldock. "If they're going to get more aggressive in letting people buy and sell more gold, it's a precursor to more moves from the central bank" in the gold market.

The metal may pull back (further) tomorrow, but the extent of the rise so far has put it in a good position for the coming month. Another gain might as well be a bonus.

Deflation Talk As Contrary Indicator

2010-08-04T11:31:00.000-04:00

The National Inflation Association, looking at the recent deflation talk, concludes it's a contrary-opinion signal to buy gold because two previous spates preceded strong rises in the price of the metal.

The largest spike this decade in articles about deflation came in May of 2003. At that time, the Dow Jones was 8,500, the price of gold was $350 per ounce, and the price of oil was $30 per barrel. The Dow Jones went on to rise for four years straight reaching a high in 2007 of 14,198 up 67%. Gold went on to rise for seven years straight reaching a high this year of $1,248 per ounce up 257%. Oil went on to rise for five years straight reaching a high in 2008 of $147 per barrel up 390%.

The second largest spike this decade in articles about deflation came in November of 2008. At that time, the Dow Jones was 8,000, the price of gold was $725 per ounce, and the price of oil was $50 per barrel. Since then, the Dow Jones has risen as high as 11,257 up 41%, gold has risen as high as $1,248 per ounce up 72%, and oil has risen as high as $88 per barrel up 76%.

NIA has come to the conclusion that the mainstream media talking about deflation is the most accurate contrarian indicator out there. The false threat of deflation in 2003 came at the beginning of the biggest rise in asset prices in U.S. history. The false threat of deflation in 2008 came almost exactly when stocks, precious metals, and commodities had reached their bottom. NIA believes that the threat of deflation today could mean that the biggest move to the upside for gold and silver in history is right around the corner.

One possible trigger for serious inflation would be the PRC selling some of its U.S. Treasuries. The most likely buyer would be the Federal Reserve, which would jack up the monetary base and likely lead to a ramp-up of the money supply. It could lead to serious inflation.

John Embry Says Gold On Verge Of Parabolic Rise

2010-08-04T11:04:00.000-04:00

In a wide-ranging interview with Mineweb, Embry said that gold has some way to go and could hit $1,500-$2,000 in the next 18 months.

GEOFF CANDY: In your latest letter you talk about gold being on the cusp of a parabolic rise - is that for these reasons - where are we now or when are we likely to see that sort of rise coming through?

JOHN EMBRY: Once we get through this very dull summer period where gold is generally kind of soggy - particularly into early August anyway, they're going to start to see manifestations of this move probably by September if not earlier. I would expect the last few months of the year to be quite robust which in a seasonal sense is often the case, but this time I think it's going to be more robust than usual.

GEOFF CANDY: You mentioned earlier the moves by the Chinese, and there was an announcement out today that they're going to look to allow banks to hedge bullion positions in overseas markets and things like that. Also perhaps look at more actively increasing the number of Yuan denominated gold derivative products. What sort of impact is that likely to have?

JOHN EMBRY: Anything the Chinese do in the gold market, based on the fact that they're just holding an excess of US Dollars - they're going to have to be very careful on how they spend it, but they're going to be buying more and more gold as an alternative. They'll be buying other things as well as an alternative to US Dollars, so irrespective of what they say, just look at what they do. The fact is that what they're doing is going to add dramatically to gold demand in the upcoming period and I just don't think the physical supply is there to meet the kind of demand that is being marshalled - the investment demand all over the world and particularly this physical demand that's building in the Far East....

Embry also said that jewelery demand, which is elastic, is being compensated for by investment demand, which is inelastic.

Peter Munk Sides With Peak Gold

2010-08-04T10:47:00.000-04:00

The peak-gold case is being bolstered by none other than Peter Munk, the chairman of Barrick. Essentially, the case is based on the Law of Diminishing Returns and the fact that gold explorers are running out of world. According to Munk, it shows in the recent popularity of mixed-metal deposits - particularly, copper-gold. Dr. Jeffrey Lewis explains:

Mining companies would greatly prefer to dig for a single metal at a time. One metal in one area, with an acceptable ratio of content to dirt, is preferable. For example, should a company be able to pull out 5 grams of gold per ton of dirt, the mine will be wildly profitable. This type of ratio is good enough to develop consistent profits, and the companies can keep digging until every last piece is brought to the surface.

The problem is, however, that those types of mines are gone, and mixed metal operations are the last stop for sustained growth. Mixed metal mines are less profitable, thanks to the difficulty in sorting, as well as accounting for the potential profit and loss due to operations.

While there is still plenty of gold and silver to be found, the simple fact that these mixed metal mines are even on the radar indicates that the days of rampant production are over, and mines are being forced to look for smaller and smaller deposits of multiple types of metals to remain consistent in their growth rates. All in all, the supply of gold and silver in the ground is becoming freakishly low....

Peak gold is still controversial, as the world hasn't been exhausted yet. There are decent, and some huge, properties being found in unexplored areas of already well-combed areas like the Timmins district in Ontario, British Columbia and Alaska.

Indian Gold Buying Forestalled By Higher Prices

2010-08-04T10:28:00.000-04:00

According to a report by the Economic Times, gold buying retreated because prices have passed above the bargain zone.

"On Monday we saw good sales, but by yesterday evening it turned dull... but today only exporters are covering fearing that prices may move higher," said a dealer with a state-run bank in Mumbai, which deals in bullion.

"However, there are no domestic deals...," said the dealer....

"They would buy if prices come to $1,180 (an ounce)," said another dealer with a private bank.

Also adding to the weakening demand was a weakening rupee.

Hedging Now A Dirty Word

2010-08-04T10:18:00.000-04:00

A Wall Street Journal article covering the annual Diggers & Dealers forum in Kalgoorlie, Australia points to the current unpopularity of hedging. The reason behind the shunning is angry shareholders, who saw some earning slip away due to hedging earlier in the decade.

"Hedging is a four-letter word around here," said Darren Klinck, vice-president for investor relations at Oceanagold Corporation (OGC.AU), an unhedged gold producer that estimates it will produce more than 270,000 ounces in the fiscal year that began July 1 from its mines in New Zealand.

Klinck, who was attending the annual Diggers & Dealers mining forum in Western Australia's gold-mining capital Kalgoorlie, said major shareholders would not support the company if it was hedged, as their typical investment objective is leveraged exposure to the gold price.

Virtually all the small and mid-size miners at Diggers & Dealers gave the same message.

Another participant quoted, Sean Russo, said the aversion to hedging has become irrational.

The article itself intimates that the current anti-hedging tilt could be a contrary indicator. For the record, Barrick bought back its hedge book on the same day of gold's 2009 peak.

Gold Breaks Above $1,190

2010-08-04T08:55:00.000-04:00

There was little accompanying news in this cycle, but gold managed to break above the barrier that's stymied it for the last two days. The metal bumped up against $1,190 for a two-hour stretch starting just after 7 PM ET. The breakthrough came around 9:00, and the metal ascended to $1,193-4. Falling back to slightly below $1,190 by 2 AM, the metal reversed course and rose to the $1,195 level and later beyond. As of 7:59 AM, the spot price was $1,196.40 for a gain of $11.40 on the day. The Kitco Gold Index split the gain into +$10.50 for predominant buying and +$0.90 for weakening of the greenback.

The U.S. Dollar Index actually rallied through most of the overnight session, but shed its gains in early morning. Although jaggedly, with an interrupting spill that erased all of its gains, the Index managed to climb up all the way to almost 80.8 by 4:35. The reversal was also jagged, with a sharp drop followed by a sharp recovery that took the Index back to 80.75, but was enough to take it well below 80.55 before reversing too. As of 8:11, the Index was at 80.59.

A Reuters report said gold rose as a result of the PRC's liberalization of the mainland Chinese gold market and a current damping of the appetite for riskier assets, and was held back by lack of safe-haven demand.

"The initial impetus of safe-haven buying of gold has faded away," said Standard Chartered analyst Daniel Smith. "We are slowly moving to other drivers."

"Ultimately we are going to see more portfolio money coming into gold," he added. "We could see consolidation in the short term, but ultimately on a one to three month view we are going higher."...

The gold market also continued to take support from news that China had taken steps to liberalize its gold trade.

"The international gold market is now paying a lot more attention to China's gold demand, not just from an official reserve asset perspective, but also private demand," UBS analyst Edel Tully wrote in a note.

"Behind India, China is the second-largest physical consumer," she added. "Therefore any step to integrate, liberalize, and expand this market should, in time, foster a rising appetite for gold."

The article also mentions another bullish factor: rising speculation that the Fed will undertake another quantitative-easing program.

A Wall Street Journal article also pointed to the PRC liberalization.

"China became the focus of the gold market and the potential for increased demand from this region prompted gold to trade to a high of $1,194 a troy ounce in Asia overnight," said UBS analyst Edel Tully.

Also mentioned is the results of a UBS tally of twelve gold ETFs, which showed a rise for the first time since July 27th.

The ADP jobs data noted a gain of 42,000 in July for the sixth consecutive monthly gain. Although the number was well above expectations for +23,000, the gains still show no acceleration. The news bobbled the gold market temporarily, chipping its price to $1,195, but the metal recovered afterwards. As of 8:49 AM, the spot price was $1,197.60 for a gain of $12.00 on the day. The Kitco Gold Index attributed +$13.10 to predominant buying and -$1.10 to a strengthening greenback. Unlike gold, which was little affected overall, the U.S. Dollar Index got a boost from the news. Initially rallying to 80.66, it pulled back to 80.6 but rose further before pulling back to a higher level. As of 8:52, it was at 80.67.

With gold well above $1,190, and even above $1,195, the level to watch for now is $1,200. The metal is unlikely to make it above that round number, but it's now close to a test. It may poke at $1,200 later today.

Gold Fluctuates In Mid-High 1180s In Morning, Tests $1,190

2010-08-03T18:14:00.000-04:00

Regular trading opened with a drop that got the price down to $1,184, but bounced back shortly afterwards. The personal income and spending data for U.S. consumers had little effect on the price, which sunk to around $1,185 between 9:15 and 9:45 AM ET. Then, the metal rallied to a smidgen below $1,190. That rise didn't last, and gold sunk back down to the $1,185 level. U.S. factory orders data for June, which showed a drop of 1.2% for capital equipment, added to the downward pressure on equity markets as well as gold.

After bottoming around 10:40, the metal reversed course and rallied all the way up to a new daily high of $1,191.90. The pullback left the metal above $1,188, suggesting further strength. As of 11:54 AM, the spot price was $1,188.80 for a gain of $6.80 on the day. The Kitco Gold Index split the gain into +$3.00 for predominant buying and +$3.80 for greenback weakness.

The U.S. Dollar Index showed a bit of strength in early-mid morning, but couldn't get much above 80.8 before it turned down again. As of 11:57, it was stuck at 80.60.

Gold has tested $1,190 gain today, but so far has not seriously breached that level. It may do so this afternoon, but a continuation in the high 1180s looks more likely.

Update: After that break above $1,190, the metal did sink back into the high 1180s. At the nadir of the pullback, it was only a little above $1,185. It bounced back somewhat but stayed in the lower end of the upper 1180s. As of the end of the pit session, or 1:30, the spot price was $1,185.40 for a gain of $3.40 on the day. The Kitco Gold Index attributed -$0.40 to predominant selling and +$3.80 for greenback weakness.

The U.S. Dollar Index stayed largely where it was in early afternoon. A slight upwards bias didn't get it above 80.65. As of 1:30, it was 80.62.

So far, gold has stayed in the higher 1180s and shows no sign of advancing much from there. Although it may bend $1,185 to the downside, it will likely rack up a gain for the day.

Update 2: Gold did manage to close with a gain, and most of the volatility in the electronic-trading hitch was upwards before retracements. Gold got as high as $1,188 before falling back, and dipped as low as $1,185 after that peak. The subsequent recovery wasn't much in extent. As of the close, the spot price was $1,185.60 for a gain of $3.60 on the day. The Kitco Gold Index assigned -$0.80's worth of change to predominant selling and +$4.40's worth to a weakening greenback.

The U.S. Dollar Index's slight upwards bias faded in mid-afternoon, but the pullback wasn't that much in extent. Except for a brief period in late afternoon, the Index stayed above 80.55; after that brief period, it rebounded. As of 5:30, the Index was at 80.61.

Its daily chart, from Stockcharts.com, shows its latest decline continuing to a rather significant spot:

Significant to a technical analyst, anyway. The Index has touched its 200-day moving average, drawn in red in the middle of the graph. That average is way below the 50-day, drawn in blue, so the Index is still far away from a "death cross." Nevertheless, the distance is also testament to how far the deterioration has progressed. The Index's RSI level keeps getting deeper into oversold territory, with little effect on its declining as yet. Today's session marks the fifth down day in a row.

There's no indication that the current downtrend will reverse by any significant margin. The 200-day moving average is widely seen as a support level amongst techncial analysts, so some technical buying may be encouraged by today's descent - even if a plain chart reading shows a lot of risk in doing so. The Index can't fall forever, so eventually it'll reverse, but the last two short-term drops almost makes it look as if it could drop forever. As with yesterday's there's no sign of any upward reversal in the offing.

As for gold, its own daily chart shows the opposite streak:

Today's slight gain makes it the fifth up day in a row for the metal. Gold managed to get, and stay, above $1,180 today. That puts it back in the range it was in before July 27th's plummet.

Gold's own RSI value is close to the 50 neutral level at which that indicator has topped in the metal's summer doldrum stretch. Down below, at the bottom of its chart, gold's MACD lines are very close to a bullish crossover. Should gold hold above $1,180, it will be a good sign of some sort of recovery settling in.

A post-pit Reuters report says physical buying has helped gold's technical position improve.

Scott Meyers, senior analyst at New York-based Pioneer Futures Inc, said that gold's direction hinged on the stock
market's performance, as a possible equities sell-off could spark higher gold prices.

He said an improved technical picture should also lift prices, after the metal tried and fail last week to break below a rising trendline in place for two years.

"There was a three-day bottom formed at $1,160 last week, and the market held there well. From a short-term technical perspective, it is indicative of a market that does perform well and will possibly advance to another level" above $1,200 an ounce, Meyers said.

If so, then gold is on the track to a better autumn. It still has some headway before reaching $1,200, as seen in its recent difficulty with the $1,190 level, but the technical picture is brightening. Maybe tomorrow will be three-time-lucky for $1,190.

Futures Funds Shying Away From Going Long Gold

2010-08-03T11:41:00.000-04:00

Brad Zigler of Hard Assets Investor reveals futures fund managers have been switching away from gold longs, and increasingly are going short.

At first, traders were content just to abandon the gold market. As of July 13, 118 funds held long futures positions while 24 were short. A week later, 107 long accounts remained. The short side only picked up one. This past week, though, when 17 funds liquidated their long positions, nine players switched sides to go short. There haven't been this many funds short since November 2008.

Granted, these aren't large short positions. Money managers are still net long — and, at better than 154.000 contract equivalents, by a sizable margin. But, less than 73 percent of them are long now, down from 87 percent just a month ago. The ratio hasn't been this low since April 2009.

Clearly, the speculative gold segment has been rejiggered over the past couple of weeks. The backdrop to this has been liquidation. The market's gotten notably smaller, shedding 7.7 percent of its open interest. The closeout has been universal, as commercially — the usual counterparties to fund managers' trades — have peeled away as well....

He ends with a question that, I'm sure, is going through many minds: is this the sign of a revival of an intermediate-term rise or something less? He says trading over the next couple of days will give guidance to that question.

U.S. Mint Bullion Coin Sales Down Slightly From Last Month

2010-08-03T11:21:00.000-04:00

The July 2010 U.S. Mint sales figures for bullion coins are in, and for gold they show an overall drop from last month's elevated levels. Still, Eagle sales of 175,000 oz. are up 103% from July of '09.

This month, fractional Eagles were only 2.6% of all bullion sales; last month, they accounted for almost 30%. The spike-up is due to their late debut last month; a lot of the sales reflected pent-up demand for the fractionals. That demand now satisfied, the one-ounce Eagle is back in its usual predominant position. The Buffalo continues to sell well, but well below the figures for the one-ounce Eagle.

Janes Turk's Take On The BIS Gold Swap

2010-08-03T11:00:00.000-04:00

James Turk suspects the hidden party behind the BIS gold was was Portugal, becuase the Portugese government recently announced that they will be posting collateral against derivative transactions in order to reduce funding costs and that same government has long been active in the gold market. The revelation that commercial banks were on the other side of the trade made him modify his theory:

Before it was announced that the BIS completed the swap with a commercial bank, the mainstream interpretation was that a troubled sovereign borrower or perhaps even the ECB itself needed liquidity, so they used gold to borrow currency. But given its two-sided nature, there was also another potential reason for the swap even if it received little attention – the BIS may be running out of physical metal for its interventions in the gold market. So it needed to get its hands on some physical metal. Consequently, it swapped currency for physical gold (or perhaps to deliver on calls it had sold and was exercised).

Then after the BIS announced that it had completed the swap with a commercial bank, many observers – including me – were perplexed. If it were a traditional swap, the commercial bank would have 380 tonnes of gold in its possession, which is a highly unlikely proposition. Commercial banks are not in the business of owning gold; they are in the lending business. Clearly, if any commercial bank had owned gold, which is highly unlikely I might add, the gold would have already been loaned out....

Now consider for a moment, what if that gold loan had been made by Portugal to Citibank or some other zombie bank? It wouldn’t look very good on Portugal’s balance sheet to be owed 380 tonnes of gold by a near-bankrupt institution. Given that Portugal is taking steps to “to reduce its funding costs” as the FT reports, it would be logical for it to get rid of that gold loan.

The best choice of course would be to demand repayment of the loan and put the 380 tonnes of gold back in its vault. That action though would drive the gold price sky-high, given the dearth of sellers of physical metal at current prices. Sky-high prices would blow-up the gold cartel and its efforts to continue capping the gold price as it operates its staged retreat, letting gold rise every year but not too much so as to not draw everyone’s attention to it and the resulting consequences of ever-depreciating fiat currencies. So enter the BIS.

It swaps currency for the gold loan at the commercial bank. In other words, the 380 tonnes of gold is now owed to Portugal by the BIS, improving considerably the quality of Portugal’s balance sheet. After all, who would you rather have owing gold to you? Some commercial bank like Citibank or the central banks’ own central bank, the BIS? Clearly, being owed gold by the BIS instead of a zombie bank would be one way for Portugal to “reduce its funding costs” by improving the quality of its balance sheet.

He ends by saying lack of transparency means we'll never know the real reason(s) behind the swap.

Indian Gold Demand Holding Up

2010-08-03T10:46:00.000-04:00

According to a Reuters India report, gold demand from traders is still strong.

India gold traders continued to book deals on Tuesday afternoon as international prices stayed steady while the rupee strengthened making the dollar-quoted asset cheaper, dealers said.

Most of the deals are at $1,180 an ounce and sales are averaging 200 kgs daily in the past one week, said a dealer with a Mumbai-based state-run, bullion-dealing bank, whose imports rose by 90 percent on month to 3.8 tonnes in July....

"Prices below $1,180 are attractive for Indian buyers," said another dealer with a private bank in Mumbai.

That number is up slightly from the $1,175 of one to two weeks ago, likely because of a strengthening rupee.

Speaking of Indian demand, Edel Tully said in a note that physical demand has been fairly high.

"...the presence of very decent physical demand emits positive sentiment. Its persistence indicates that gold is trading more in line with its fundamentals," Edel Tully, precious metals strategist at UBS, a large supplier to India, said in the note.

UBS's five day moving average of sales to India was the highest since late Nov 2008, she added....

In fact, demand has risen to the point of making an upwards revision to the July import figures possible.

Gold-Company Takeovers Set Record

2010-08-03T10:36:00.000-04:00

The acquisition trail has been hot this year, with several deals contributing to $32 billion' worth of takeovers this year. It's only early August, and the gross value of deals has already set a record.

“The reason why we may have seen a pickup in activity this year is because gold prices are around $1,200” an ounce, said Greg Fournier, Hong Kong-based head of Asia Pacific region metals and mining investment banking at Merrill Lynch. “If you have a view that the gold price is strong and is going to go higher then acquiring more reserves or producing properties today makes sense.”

Also a factor is gold majors wanting to increase their resource base in a time when new gold deposits (particularly big ones) are becoming harder to find.

It's only a matter of time before takeover interest will move to smaller deposits. Because of the general fascination with huge-potential properties, the development companies with smaller properties have been overlooked - even ones with good grades. Although less convenient and less easy to manage, someone who's adept at a portfolio approach could put together an agglomeration of smaller properties and wind up with a mid-tier or even a major by collecting those leftovers. Given their low profile, they're likely to be cheaper than a major elephant.

PRC Opens Up Gold Market Further

2010-08-03T10:19:00.000-04:00

The mainland Chinese gold market is being opened up further to foreign trading companies, and more banks are being allowed to import and export gold. Overseas hedging restrictions are being dropped.

The reason why is booming gold sales.

Gold demand in China, the world’s largest producer, gained in the first half as government measures to cool the property market and falling equities spurred investment, the Shanghai Gold Exchange said July 7. Spot gold gained to a record in June as investors sought to protect their wealth amid concerns about the global economic recovery.

“China’s domestic production of gold, albeit the largest in the world, cannot satisfy its demand,” said Ellison Chu, managing director at the precious-metals desk at Standard Bank Asia Ltd. in Hong Kong. “By allowing more foreign participation and more Chinese commercial banks to import and export, China can better balance its demand and supply.”

It's interesting, given that PRC mercantilism typically favours producers. My own guess is a decision has been made to let gold be accumulated by the mainland Chinese people rather than through official forex reserves. The latter move might come later, but not without a substantial decline in prices. The PRC monetary authorities might have been waiting back in February to see if they could get a lower price than the Indian central bank: that price point makes sense as a competitiveness metric.

Gold Inches Up, Stays Below $1,190

2010-08-03T09:00:00.000-04:00

After an initial dip to slightly below $1,180, gold picked up last night but kept below $1,185. The metal stayed between those two values except for blips until 6 AM ET. Although breaking through $1,185, the metal stalled in the high 1180s after touching $1,190.20. As of 7:58 AM ET, the spot price was $1,185.90 for a gain of $3.90 on the day. The Kitco Gold Index attributed -$0.20 to predominant selling and +$4.10 to weakening of the greenback.

As the Euro continues its run upwards, the U.S. Dollar Index is still under pressure. After hovering around 80.95 last night, it made a run up to 81 which reversed around 2:25 AM. Dropping farily rapidly, its decline leveled off for an hour and a half before continuing more slowly; by 6:10, it was below 80.5. After a slight recovery, the Index found itself above 80.6. As of 8:07, it was at 80.63.

A Reuters report ascribed gold's rise in thin trading to a weaker U.S. dollar, plus expectations of Indian jewelers stocking up for festival season.

"I would look at the upside for gold being capped," said Ong Yi Ling, an investment analyst at Phillip Futures in Singapore, who pegged key support at a three-month low of around $1,150.

"And hence, we might actually see gold edging down a little bit if the economic data come in better than anticipated, like the consumer spending and personal income figures."....

"The market is quiet today with light buying interest from investment. But we did see some buying from India as it builds up stocks for the festival," said a physical dealer in Singapore.

The article also notes holdings of the SPDR Gold Shares Trust remained unchanged yesterday.

A more recent Wall Street Journal report also pointed to the weaker greenback.

"It looks like gold is starting to receive support from a weaker dollar and is on its way to re-establish a more normal negative correlation with the [dollar]," SEB analyst Bjarne Schieldrop said....

"Gold has once again started decoupling from the U.S. dollar," said VTB Capital analyst Andrey Kryuchenkov. "Gold's rolling monthly correlation to the U.S. currency fell to around 68% from highs above 85% last month. So, given a further improvement in risk sentiment from here, the correlation is set to weaken even more with gold prices tracking firmer PGMs [platinum group metals]."

The article also cites Edel Tully disclosing that UBS gold sales in India yesterday were the second-highest for any day this year.

U.S. disposable-income and consumer-spending numbers for June came in, and the 0.2% rise in the former and 0.1% rise in the latter [flat after inflation's factored in] matched expectations. The only effect it had on gold was to push the metal down a couple of dollars, which were tacked back on shortly afterwards. As of 8:51 AM, the spot price was $1,186.80 for a gain of $4.80 on the day. The Kitco Gold Index split the gain into +$0.10 for predominant buying and +$4.70 for a weakening greenback. The U.S. Dollar Index slumped back to 80.49, with an earlier decline helped along by the income and spending data. As of 8:54, it had mostly recovered to make 80.58.

So far, gold hasn't moved much. The upside may indeed be capped, as Ong Yi Ling said, but the downside seems capped as well. Although it's too early to say an all-out recovery is in place for the metal, it's looking fairly good as compared to late last month. Gold today might test $1,190, as it did yesterday.

Gold Touches $1,190, Falls Back

2010-08-02T18:28:00.000-04:00

Regular trading didn't start off with much excitement, but gold got rolling around 8:30 AM ET. In the next forty-five minutes, the metal rallied from $1,176 to more than $1,190. Pulling back to $1,186, the metal rallied again. The ISM manufacturing index number appeared in the middle fo the second rally, and gold seemed to take heart from its above-consensus level. Although dropping to 55.5%, it was still above expectations for 55.0%. Gold peaked at $1,191.60 twenty minutes after the ISM release. The metal then fell back to $1,184, and fell further after dawdling at that level. As of 11:52, the spot price was exactly $1,180.00 for a drop of $1.40 since Friday's close. The Kitco Gold Index attributed -$12.20 to predominant selling and +$10.80 to weakening of the greenback.

The U.S. Dollar Index declined through most of the regular morning session, breaking and staying below 81 in the process. The decline wasn't that fast, except for a fall around 9:45 AM, but it was fairly steady until about 11:30. As of 11:56, the Index was at 80.88.

A falling greenback had helped gold a fair bit, but that advantage was erased by the mid-late morning decline. Increase in risk appetite had something to do with the retreat, as the stock market pulled and stayed up. Gold might pull back to a gain in the afternoon, but such an outcome looks iffy at afternoon's threshold.

Update: After bottoming at $1,180, the metal did recover somewhat. The recovery kicked in around 12:30 PM ET, after more than a half an hour spent near $1,180. Stalling initially, the metal climbed up to a gain as it settled in around $1,184 before inching back. As of the end of the pit session, or 1:30, the spot price was $1,182.70 for a gain of $1.70 on the day. The Kitco Gold Index assigned -$8.30's worth of change to predominant selling and +$10.00's worth to greenback weakness.

The U.S. Dollar Index, after hitting bottom of 80.775 as of 11:35, slowly climbed up before trending sideways at just above 80.9. As of 1:30, it was at 80.92.

$1,190 looks out of sight now that the pit session is over. The metal may continue to hang on to a gain during the electronic-trading hitch, but it won't be much of one.

Update 2: It did clock in a gain, and not much of one. Except for a brief dip, the electronic-trading hitch saw the metal drift between $1,182 and $1,183.50; the close came right at the bottom of the zone. As of the end of regular trading, the spot price was right on $1,182.00 for a gain of $0.60 on the day. The Kitco Gold Index (KGX) attributed -$9.70 to the predominant-selling category and and +$10.30 to the weakening-greenback one. Both categories sum up to the raw change on the day.

The KGX, ex-greenback, has gone through an all-out correction since it hit its high on June 7th. As this 6-month chart of it shows, the drop has been all the way from 1100 to a little more than 950 for a drop of about 13.5%:

Had it not been for the greenback's own drop, the current summer pullback would have been an all-out correction in US$ terms. Gold has dropped more than 14% from its record high in Euro terms.

The U.S. Dollar Index hardly moved during the rest of regular trading. The center line of a little more than 80.9 lowered a little as mid-afternoon turned into late. As of 5:30 PM, the Index was at 80.88.

Its daily chart, from Stockcharts.com, shows its continued drop as another support level was tested:

The Euro has broken well above $1.30 and its upwards run is continuing relatively unimpeded. That was the main impetus behind the testing of the 81 support level and close slightly below it. As is evident from the chart, my belief that the Index was basing around 82 proved to be wrong. From the high of almost two weeks ago, the Index has lost about two and a half points. That's about the same amount of loss as was made in the last short-term downturn, although this one took longer. The Index's RSI level, found at the top of its chart, is well below the oversold threshold of 30.

Again, the parallels between the last two months and May of '09 are fairly evident:

The earlier period is near the left of the graph. The intermediate-term decline taking place right now has been more stretched out, and the oscillations in both indicators on the top and bottom of the chart have been more volatile this time, but the same sharp drop is evident. Should the parallel continue, the Index will jump up a couple of points or so but soften afterwards.

As for gold, its own daily chart shows a fourth day of gains - but just barely:

Gold's own RSI has been fluctuating between the high 30s and the 50 neutral level, befitting a time when the metal has softened. Despite gold still being well below $1,200, and the risk of an outright decline for tomorrow, the metal has fared better in relative terms than it has in the last two post-tumble days. The doldrums for the metal may be coming to an end.

A post-pit Reuters report says gold's rally was dampened by reduced safe-haven demand due to the U.S. equities rally. Amongst the points made therein, these were included:

* Selling by short-term traders more than offset underlying
physical demand in earlier trade - Michael Daly at futures broker PFGBest.

* Lack of trading interest ahead of Friday's July nonfarm payroll data - Daly.

* Gold has traced out a new downward trendline on charts, and a new technical buy signal will be triggered if gold breaks out the upper part of the trend.

As its chart shows, it's close to breaking that downward channel but there's still a little way to go. There is some chance that the metal will decline tomorrow as the four-day rally looks like it's running out of steam. Gold is also less of a bargain that it was almost a week ago, which will tend to hamper physical buying. The metal is still holding up, though, and it might be basing. If tomorrow's action shows a rally, there's some reason to think the weak seasonality is coming to an end.

David Rosenberg Still A Gold Bull

2010-08-02T11:43:00.000-04:00

As reported by The Pragmatic Capitalist, David Rosenberg is still bullish on gold; he believes the current doldrums represent a buying opportunity. Rosemberg bases his optimism on more skeletons emerging from the financial-system closet.

Watering down financial regulation bills in the U.S.A., kicking the can down the road via less-than-onerous Eurozone stress tests and reduced capital stringency as per Basel III does not alter the deleveraging game that much and the rounds of market instability that will come our way.

The investment demand for gold remains quite solid at a time when production growth is still anaemic – the World Gold Council just released data showing that investors bought 273.8 metric tons of gold via ETF’s in Q2, the second highest tally on record (and brings net investment in these finds to over 2,000 tons value at just under $82 billion).

That last point about increased gold investment demand has been dented a little by recent outflows, but not by much. Even after those outflows, GLD's current holdings are more than 165 tonnes greater than they were in mid-January.

Gold And Kondratieff Winter

2010-08-02T11:31:00.000-04:00

The Kondratieff Wave is not to everyone's taste, and has been debunked from time to time, but a modified version of it gibes with both the debt crisis and the gold bull market. Ian Gordon of Longwave Analytics, the person who modified the Wave, points to Kondratieff Winter as consistent with deleveraging and resultant depression.

According to Gordon in the Gold Report interview "The indication of the season change from autumn to winter is the bull stock market peak. We say that peak was effectively reached in 2000, not 2007, because NASDAQ obtained the real speculative peak in the market in March 2000. When that peak is reached, as it was in September 1929, it signals the onset of winter and the deflation/depression stage of the cycle. That whole winter period is really where debt is expunged from the economy and that process is extremely difficult for creditors and debtors alike. The last depression, for instance, following the 1929 stock market peak, brought the entire U.S. banking system to its knees. In fact, between 1929 and 1933 about 10,000 banks failed. That kind of process is bullish for gold because people move to gold as money of last resort."

Gordon points to the performance of gold and the few gold stocks around at the time of the 1929 crash and the Depression of the ‘30s as a guide to the likely performance of gold stocks under this scenario. At the time Homestake Mining was perhaps the key North American gold stock and after initial falls as everything crashed (a phenomenon seen again 2008), Homestake then soared in value while nearly everything else remained depressed overall, despite occasional upturns. The gold price was fixed at the time - and then revalued - so one cannot plot the performance of bullion on that occasion, but Gordon is among the more bullish predictors of the gold price suggesting it will rise to $4,000 - or perhaps higher....

The forecast of gold going higher during deflation is dependent upon a crucial assumption: the Roosevelt Administration's devaluation of the U.S. dollar was not an outside intervention but an endorsement of what market forces would have done had gold's price not been fixed. Homestake is the "talk stock" for this scenario. The stock stayed largely flat in 1930 and began rising in 1931, as a chart on this Webpage shows. Its big run was delayed a year; it didn't start rolling again until late 1932. Earning actually jumped 63.3% in 1931 from 1930; 1930's earnings were higher than those of 1928.

Supporter of the endorsement theory have Homestake's 1931 performance to point to, although plummeting costs had a lot to do with its earnings increase.

Howard Katz Takes Alan Abelson To Task

2010-08-02T11:13:00.000-04:00

Howard Katz claims last Monday's rout was caused by Alan Abelson saying unkind things about gold in his Barron's column of last week. Katz make this point that's worth remembering: contrasting two periods of American history and the fate of real wages in each.

First, consider 1866-1896. During this period the U.S. was on (or returning to) the gold standard, stocks were flat, the real wages of the average worker rose by 90% and foreigners poured into this country because the streets were (in a very real sense) paved with gold. Second, consider 1980-2010. During this period the U.S. issued trillions of paper dollars (yes, trillions). Stocks went to the moon. The real wages of the American worker fell (the only generation to be poorer than its fathers) and foreigners are denigrated as “illegals,” and used as an object of hate. In which period were Americans rich and in which are they poor?

With regard to gold as an investment, Katz says it's time to sit tight; he cites a well-known quote from Jesse Livermore to that end.

Regarding real wages: remember Henry Ford's famous five-dollar day? Back in the time when he offered it, 1914, five dollars meant a quarter of an ounce of gold. Back then, no income tax was paid on wages of that size. So, a worker in Ford's plant would have gotten a quarter of an ounce of gold tax-free for a day's hard work. At today's prices, that's more than $350 per day take-home. A six-day week meant 1.5 ounces of gold per week, or about $1,700 at today's prices.

$1,700 per week, take-home. At current tax rates, that would be around $3,000 per week gross. If no vacation time, $3,000 a week is $156,000 per year before taxes. For skilled labour, albeit with a six-day week and eight-hour day. Yes, the five dollars was for eight hours of work.

Sounds a lot more impressive than the nominal value, doesn't it?

Peter Munk Says Gold Price Will Rise For Years

2010-08-02T10:34:00.000-04:00

Although disclaiming the label of "goldbug," Barrick founder Peter Munk says gold will keep rising over the next several years.

[E]conomic uncertainty and investor warniness about other asset classes -- particularly currencies -- would continue to support gold, which hit record highs in June.

"I expect the trend to continue because I think once people have lost confidence in their currency, once people have lost big money in equities and in bonds and traditional vehicles, their confidence in gold, especially having seen gold rise year in and year out for a decade, is reinforced," he told Reuters....

"A temporary setback is normal in all trading situations and is not going to change that," Munk said, but added later: "I am categorically not a gold bug."

He also said Barrick's strategy will be to grow margins and the dividend along with it as gold keeps going up.

India Gets First E-Selling Service For Gold

2010-08-02T10:22:00.000-04:00

If you're a resident of India and want one or more 1 kg gold bar(s), you can now order online.

According to a press note, for the first time, a private organisation will participate in e-selling of imported gold bars and coins. The service started from August 2....

In the first phase, Shree Ganesh Jewellery House will sell imported London goods delivery bar with a minimum booking volume of 1 kg and 0.995 per cent purity.

London goods delivery bar is a bar of gold or silver which meets the good delivery rules for gold or silver bars published by the London Bullion Market Association.

Initially, although booking can be made from across India, the physical delivery of the gold will be across 19 districts of West Bengal....

Based upon the hopes for the program, it should increase demand for the metal in India.

Indian Gold Buying Picks Up On Stronger Rupee

2010-08-02T10:11:00.000-04:00

According to a report by the Economic Times, Indian gold buying rebounded because a strengthening of the rupee made prices cheaper in Indian terms.

"There is good buying at current levels as the dollar/rupee has fallen, which us helping demand," said a dealer with a bullion-dealing state-run bank in Mumbai....

"Last week was good, we did good volumes from 27th onwards," said another dealer with a private bank. "All our orders got filled on Friday itself and by evening there should be a lot of advance orders," said the state-run bank dealer.

Also having an influence is the need to stock up for the Raksha Bandhan festival on the 24th of this month, and other festivals until November.

Gold Slumps Below $1,180

2010-08-02T09:00:00.000-04:00

Gold started the week fluctuating around last Friday's close; it started to inch up after dipping around 8:30 PM ET. Climbing all the way up to $1,185.10, reached around 2 AM, the metal began sliding back down to the low 1180s until 5:00. Then, it sunk as the Eurozone PMI clicked in with higher than expected growth for July. Not stopping until it reached $1,177 at 6:00, the metal meandered around that level before dipping a little further. As of 8:08 AM, the spot price was $1,175.70 for a drop of $5.70 since Friday's close. The Kitco Gold Index attributed -$8.50 to predominant selling and +$2.80 to a weakening greenback.

The U.S. Dollar Index slumped below 81.5 at the start of this week's trading. Pulling up to 81.55, it sunk back to around 81.4 before fluctuating between that level and 81.5. Sinking choppily from 3:25 AM, it bottomed at slightly below 81.35. As of 8:12, it was at 81.39.

A Bloomberg report, written before the drop, said gold was little changed.

“It seems to be bargain-hunting after price declines,” said David Thurtell, an analyst at Citigroup Inc. in London....

“Safe-haven buying seems to have faded for now,” Dan Smith, an analyst at Standard Chartered Plc in London, wrote in a report dated July 30.

Gains for spot gold may be capped around $1,190 an ounce, the 20-day moving average, Thurtell said.

The report also noted holdings of the SPDR Gold Shares Trust were unchanged on Friday.

An earlier Reuters report said gold was supported by physical buying in Asia and a weakening greenback.

Investment demand remained lacklustre, analysts said....

From a technical perspective, gold's price decline in July leaves it vulnerable to further losses, analysts said.

"The weekly trend remains bearish as we have now seen the third consecutive down week, and two consecutive weeks with lower intraday highs and lows," ScotiaMocatta said in a note.

The article also mentioned a lack of safe-haven buying due to increasing risk appetite.

A more current Wall Street Journal report says gold has been stable overall.

Friday's GDP data suggested there is still enough uncertainty regarding the speed of the economic recovery to support demand for gold as a perceived safe haven, market participants said.

But UBS analyst Edel Tully noted the metal, which remains well off its June high of $1,265, lacks any drivers to sustain a recovery.

After bottoming at below $1,175, gold pulled up in a two-stage rise that was interrupted by a two-dollar fall when the pit session opened. As of approximately 8:54 AM, the spot price was $1,180.90 for a drop of $0.50 since Friday's close. The Kitco Gold Index assigned -$5.80's worth of change to predominant selling and +$5.30's worth to greenback weakness. The U.S. Dollar Index, after that earlier recovery, continued to sink to below 81.2 before blipping up a little. As of 8:58, it was at 81.22.

So far, gold's performance hasn't been all that great but the pull-up to the $1180 level has taken the edge off the earlier decline. The rest of the pit session may be kind to the metal.

Conundrum Of Gold Stock On Financial Sense Newshour

2010-08-01T15:08:00.000-04:00

The price of gold may be stuck right now, but it's still high enough to secure large profits for many senior mining companies. Yet, the gold stocks aren't doing that well. Case in point: Barrick, which is at about the same level where it was when it closed its hedge book. Despite the company taking the loss that came with the closing of their hedge book, which puts the hedge-book drag-down in the past, it's now selling at about the same price now that it was when the book was closed.

In the third segement of the Financial Sense Newshour podcast [.mp3 file], John Doody explains why the gold stocks aren't faring that well. Part of it is operational issues, like Newmont finding lower grades than expected in its new Boddington mine, but part of it is the convenience of gold ETFs taking away investment demand for gold stocks. Doody expects those companies to become more dividend-focused, which would help boost demand for their stocks particularly from funds that don't invest in issues that don't pay dividends.

Next on that segment was Patrick Heller of Liberty Coin Service, who argued againt the opinion that the new form 1099 rules were aimed at gold holders. The rules require any company to fill out one (in triplicate) if they pay $600 or more for any good(s) or service(s) in the course of a year to a supplier. The Obamacare bill, now law, requires a 1099 when any seller gets more than $600 total in the entire year. Some have argued that this new requirement was aimed at tracking gold coins, but Heller disagreed; he believes that it was just a general sweep. He (and Jim Puplava) still complained about it.

Following was John Williams of ShadowStats, who believes that inflation is still around the corner. The reason why is, the data he uses still shows the eocnomy in a real mess. He expects quantitative easing as a result, which would drive down the greenback a lot.

The relative underperformance of the gold stocks is a bot of a mystery, but it is a sign that they're out of favour right now. Boosting dividends, like Newmont's 50% boost and Barrick's 20% increase, will help because they'll increase the payout for waiting.

Gold Dives Down, Rallies to Above $1,180

2010-07-30T18:39:00.000-04:00

Initially, the gold market liked the second-quarter GDP number of 2.4%. Spiking up to around $1,176 right after 8:40 AM ET, gold then fell down to below the level it was at when regular trading opened. A bobble around $1,171 gave way to a fall all the way down to $1,166.40. The fall started around 9:30, when factory activity for the Chicago region was revealed to have strengthened. The Chicago purchasing managers' index went up from 59.1 in June to 62.3 for this month.

After bottoming a little before 9:40, gold first hesitated around $1,168 and then took off. A large drop in the University of Michigan consumer sentiment index, from 76 last month to 67.8 this month, added fuel to the rise. By 11:00, the metal was above $1,175; a new daily high of $1,177.50 was made shortly afterwards, which was bettered shortly before noon. As of 11:52, the spot price was $1,178.00 for a gain of $11.50. The Kitco Gold Index split the gain into +$10.00 for predominant buying and +$1.50 for weakening of the greenback.

The U.S. Dollar Index, after rising to just above 81.85, turned downwards just before 9:45 AM. The decline was rolling and fairly mild, but it resulted in the Index reaching 81.5. There seemed to be no discernible immediate effect on it from the above-mentioned economic data. As of 12:00, it was at 81.49.

The early-morning spill, in part prompted by good news, was reversed: that shows the current short-term recovery of the metal is fairly solid. Again, bargain levels are exerting their influence.

Update: The rally continued in early afternoon with not much pullback until the top was reached a little after 1 PM ET. At that top, the metal touched $1,184.60. After it, gold fell back a little but still remained above $1,180. As of the end of the pit session, or 1:30 PM, the spot price was $1,181.70 for a gain of $15.00 on the day. The Kitco Gold Index divided the gain into +$14.45 for predominant buying and +$0.55 for greenback weakness.

The U.S. Dollar Index bottomed around 12:30 when it got just below 81.45. Then, it pulled up but could not rise above 81.6. As of 1:30, the Index was at 81.58.

Gold has managed to be in rally mode for most of the pit session, ending it with a strong double-digit gain on the day. There may be some pullback in the electronic-trading hitch, but not enough to make the day's gain less than a double-digit one.

Update 2: The electronic-trading hitch for the end of the week was fairly relaxed, although some fluctuations did take place. For the most part, gold stayed between $1,180 and $1,182, although there were a few poke-ups above and one larger poke-down below. At the end of the week, the spot price was near the top of that zone: $1,181.40, for a gain of $14.90 on the day. The Kitco Gold Index apportioned +$14.50 to the predominant-buying category and +$0.40 to the weakening-greenback one.

Last Friday, the metal closed at $1,189.70. So, again, it closed with a loss on the week. The drop was much less than it would have been had it not been for today's rally, but a loss was still booked. Over the week, gold declined by $8.30 or 0.698%.

The U.S. Dollar Index, after drifting down again to a little below 81.5, managed to rebound after a double bottom at 81.48. The rise wasn't much, but it added to an overall upward tilt this afternoon. As of the close, the Index was at 81.57.

Its daily chart, from Stockcharts.com, shows a down day but not much of one:

The interday range of today's chart is about the same span as the body of yesterday's candlestick. The body of today's is almost nonexistent, indicating a close only slightly below the open. The Index's RSI level, found at the bottom of the chart, is still in sub-30 oversold territory. There's no real sign of a rebound visible on the chart as yet.

As the days tick on, the Index is getting closer and closer to its 200-day moving average - the red line in the middle of the chart. A real technician would point to that level as support, although 81 is also a support level of some potency. As things look better in Euroland, the Euro will keep rising and the Index will keep falling until more quotidian economic reality intrudes. On a purchasing-power parity basis, the Euro is overvalued.

I keep anticipating a probably unsustainable turnaround for the Index, as based upon its oversoldness, but such an eventuality isn't apparent yet.

As for gold, its own daily chart shows today's recovery making for three gain days in a row:

The metal has not yet gotten back to the levels it was at before Tuesday's plummet, but it's now close. It wouldn't be too much to hope for the metal to ascend well above $1,180 and stay there, returning to the same short-term range it was at last week. If it does get up to $1,200, albeit unsustainably, then things will get interesting if it stays above $1,180 after the dropback. A few completed reverse head-and-shoulder patterns have been frustrated due to selling cascades, so there's no guarantee even if the metal traces one out in the coming days - but it will be interesting. The summer season's already over the hump, and it remains to be seen if gold's gotten over its seasonal weakness. The current short-term uptrend has potential, although it may be beaten back because the bargain-hunting has diminished.

Last Tuesday, as noted above, was plummet day for gold. The interday low was close to being the low of the week, although Wednesday's was slightly lower. That day's close was the cut-off for this week's Commitment of Traders data, as graphed here. Total open interest declined for the fourth week in a row, although not by much this week. Interestingly, the number of contracts in the non-commercial long category increased slightly. It was commercial longs that shrunk appreciably. The biggest percentage decline, by far, was in the non-commercial short category: the number shrunk by 20.8% from last week's elevated level. Last Tuesday would have been about the time to cover, so the non-commercial short category exhibited some sagaciousness. Of interest is the fact that the change in non-commercial longs was on the right side of the rest of the week. Non-commercial shorts shrunk slightly.

For the Index, last Tuesday saw a slight up day that proved to be the prelude for further drops. Its own CoT data, graphed here, shows yet another decline in total open interest. This week's was the lowest it's been over the last fifty-two. Total longs are actually less than commercial longs were back on September 8th of last year. All categories shrunk, with commercial shorts declining the least. Interestingly, the sharpest-declining category on a percentage basis was non-commercial shorts: that category shrunk by 21.1%. The pullback was the second shrinkage in a row, suggesting that non-commercial shorts see better times ahead for the Index.

Turning back to gold, a post-pit Reuters report said that, despite today's gains, gold ended with the biggest monthly loss since December. Amongst the points made therein, these were included:

* Gold lost about 5 percent in July and was among the top
percentage losers in the commodities complex.

* Gold benefited after data showed U.S. economic growth slowed in the second quarter, raising concerns about the recovery in the rest of 2010.

* Disappointing U.S. GDP report prompted gold investors to cover short positions - Frank McGhee at Integrated Brokerage Services.

It has been a fairly bad month for gold, but the summer decline has still been below average. A lot of this month's was due to the fading of the Eurocrisis, which had made June a gain month. Now that August is approaching, the present short-term turn-up may well continue.

In closing, thanks for stopping by and reading what I've got. May you have a restful weekend, especially if you celebrate the Canadian long weekend.

Moses Kim Expects Parabolic Gold Soon

2010-07-30T11:41:00.000-04:00

Unlike Dennis Gartman, Moses Kim is convinced that gold will go parabolic sometime in the near future. He thinks that now is one of those times when supposedly maniacal forecasts will turn out to be right.

I am a big believer that Pareto's law applies to markets. In other words, 20% of inputs will drive 80% of outputs. I honestly couldn't care less about productivity numbers because what's coming is no demand-pull inflation. I am much more focused on the dollar, bond rates, bond/dividend spreads, TIC capital flows, and the stupidity of governments around the world. Of all these variables, I am most confident in my prognostication that politicians will become increasingly foolish as the economic crisis on our hands becomes more complicated.

I have been preparing for the gold rocket launch for many months now. I am probably different from most people in that I focus more on the likely flow of capital than inflation when trying to figure out gold price movements. What I foresee is a flood of capital going from bonds into gold. The bond market is so huge that even a small percentage of capital flowing from bonds to gold will result in a volcanic eruption of epic proportions. So the potential rocket launch in gold depends largely on the bond market.

You all know where I stand. US government bonds are the biggest bubble I've seen in my life. If you are trying to rationalize 10-year yields at 3%, then you are probably the kind of person who rationalized bubble home prices by using the "there's a fixed amount of land but a growing population" argument. In other words, your mind is stuck in the 5th grade. I advise you to think rationally for a second and consider the credit quality of a country that has to monetize its debt in the face of falling tax receipts and a stalling economy. Are you really on the right side of the trade going long bonds?

There will be monumental paradigm shifts in the years ahead. Everyone is asleep, but I think this is going to change fairly soon. The big changes, which will be evidenced by huge moves in gold, are still ahead.

Essentially, he's counting on government officials acting maladroitly and then adding fuel to the fire by panicking.

Mac Slavo Debunks Burst-Bubble Talk

2010-07-30T11:28:00.000-04:00

Mac Slavo passes on a Daily Wealth conclusion that gold could fall to as low as $900 and still remain in its long-term uptrend. He also notes that some are saying gold was in another bubble that's burst. He debunks that talk by pointing out that ebbs are normal in a long-term bull market, and it won't be in a bubble until the economic picture is much darker.

We’ve noted before that Gold is often considered to be an inflation hedge. But if you look at the precious metal historically, it’s not inflation (or deflation) that drives gold up, but rather, a loss in confidence. When the private sector realizes that government is not only unable to fix our problems, but complicit in making them worse, that’s when gold really shines.

When the financial, economic, political, and monetary outlook is darkest, that’s when we’ll see the next great gold bubble come to fruition.

So, George Soros will be proven right. As other assets around the world crash - things like real estate, stocks, paper monetary systems and living standards - we’ll see capital flee to the safety of the only wealth preservation monetary asset that has survived the test of time. If you don’t believe, just ask the Greeks why gold was selling at $1700 an ounce only a few months ago.

It will be an extremely volatile ride going forward, perhaps to the point where you’ll hate your gold so much you’ll want to spit on it. But don’t sell unless you’re sure that global crisis has turned to recovery and growth.

Gold will eventually become the ultimate bubble - you can bet on it!

He also points out that gold is nowhere near its CPI-adjusted high of $2,300.

Steve Sjuggerud's Simple Strategy Says Hold Off

2010-07-30T11:12:00.000-04:00

Sjuggerud's "Simple Strategy" really is simple. It says to buy gold at the beginning of the month when the price in four major currencies has been up in the previous month. If gold's down in any one of the four currencies, either cash in (for traders) or hold off from buying. The four currencies are the U.S. dollar, the euro, the yen and the British pound.

As for July, it looks like gold will be down in all four currencies. So, the Simple Strategy recommends holding off (or cashing out) at the beginning of August.

This system will be in and out of gold a few times a year. It is a trading system, which shouldn't have much to do with your long-term gold holdings.

On the other hand, if you don't own gold yet, you might want to wait for this system to signal "buy" again... If you do, you'll be buying into what's historically a moneymaking time for gold.

Gold doesn't look great in the short run... Our Simple Strategy says gold could have a rough month in August. The recent gold price trend isn't good.

Big falls in the price of gold are typical in major gold bull markets... A 50% drop is not out of the question.

In my opinion, it's better to wait for gold to bottom and start an uptrend again to buy... Instead of trying to catch a "falling knife," wait for it to hit the ground and settle, then grab it.

In short: Yes, you want to own gold for the long run. But based on the Simple Strategy and the trend, the short run doesn't look promising. Trade accordingly

Of course, mechanical trading systems - like this one - work best when they're not second-guessed. Sjuggerund's Simple Strategy is explained here.

Indian Gold Imports Actually Up On Year-To-Date Basis

2010-07-30T10:58:00.000-04:00

Despite the sharp drop in imports for July from the same month a year ago, total imports for the first seven months of this year are higher than those for last year. Imports to India are up 7.8%: 171.6 tonnes were brought in from January to July of this year as compared with the same period last year.

Still, there has been a dearth recently due to traditional summer weakness and higher prices. June's import numbers were lower than July's.

It's Best To Check

2010-07-30T10:44:00.000-04:00

As a Telegraph article explains, it's best to check on the holdings of a mutual fund because the names themselves don't always indicate what the funds are invested in.

For instance, you would be forgiven for thinking that the Blackrock Gold & General fund invests in gold. It doesn't, well not directly, but investors won't be disappointed.

It does not invest in the gold price or hold any gold bullion as you may expect, but instead gold and mining equities. This gives the fund greater liquidity and has allowed it to beat the impressive gold price rally over the past five years...

The fund manager Evy Hambro invests up to 30pc of the fund in other mining and precious metals, including platinum and diamonds.

The return can't be quarreled with, but someone investing in that fund seeking exposure to gold itself wouldn't get what (s)he expected. Mutual funds and ETFs are convenient, but there's still some due diligence required.

Bank of International Settlements Discloses Counterparties To Gold Swap

2010-07-30T10:30:00.000-04:00

Ten European banks were on the other side of the gold swap, according to a Bloomberg summary of a Financial Times report.

The Bank for International Settlements swapped gold with more than 10 banks in Europe, including HSBC Holdings Plc, BNP Paribas and Societe Generale, to earn a return on its dollar-denominated holdings, the Financial Times reported, citing unidentified European bankers.

The BIS initiated the transactions, asking commercial banks to pledge a gold swap as guarantee for the dollar deposits they were taking from the BIS, the newspaper said.

That may be all to the story, but it seems odd given that the BIS normally deals with central banks.

Two Major Gold Producers Raise Dividends

2010-07-30T10:23:00.000-04:00

Both Newmont and Barrick have raised their dividends by substantial amounts. The former bumped it up by 50% to 15 cents per share per quarter, and the latter upped by 20% to 12 cents. At current prices, both yield a little more than 1%.

It's higher gold prices that have done it, along with the lack of margin squeezes due to higher costs. Although gold companies are more prone than most when it comes to dividend cuts, those increases show some confidence in currently elevated profit levels.

Indian Gold Buying Cools Off

2010-07-30T10:12:00.000-04:00

According to a report by the Economic Times, Indian gold buying eased off because prices advanced; so did premiums for gold bars.

"Sales today are in less quantity compared to previous days, I did 25-30 deals, in all 150 kgs between $1,160-1,168 (an ounce) yesterday evening," said a dealer with a state-run bank in Mumbai....

Dealers said premiums charged on the market price of the yellow metal could inch higher on the back of contiued offtake from the world's largest consumer of bullion. "It's a seller's market now, for 4 buyers there is only one seller, demand-driven premium would be witnessed in coming days," said Pinakin Vyas, assistant vice-president with IndusInd Bank, a large gold importer.

The article also said premiums on gold bars rose to $1.50/oz from $1.10.

The buying hesitation, which some had feared would take place, hasn't. Evidently, buyers see recent prices as a bargain worth snapping up.

Gold Sneaks Above $1,170

2010-07-30T08:59:00.000-04:00

Last night, gold stayed between $1,166 and $1,168 as little gold-related news was disseminated. Climbing above $1,168 a little before 11:30 PM ET, the metal then fluctuated between that level and $1,170 before sneaking up above the latter level around 6 AM. As of 8:05, the spot price was $1,171.40 for a gain of $4.90 on the day. The Kitco Gold Index attributed +$6.20 to predominant buying and -$1.30 to a strengthening greenback.

The U.S. Dollar Index, after drifting last night, briefly descended below 81.5 before undergoing a rally. Starting at just after 3:00, the rally took the Index almost all the way up to 82 befoe it ran out of steam around 6:30. Afterwards, the Index fell back part way; as of 8:11, it was at 81.72.

A Wall Street Journal report says gold continues to stabilize as physical demand kicks in.

"Quite simply, investors are seeking risk and for now gold's safe haven properties have been made redundant," said UBS analyst Edel Tully in a daily report....

Analysts said physical demand has helped put a floor in gold prices this week around $1,160, safely above the 200-day moving average of $1,149.50.

Each time gold dipped below $1,160 this week, it didn't get far before it bounced back, said Rory McVeigh, a precious metals trader at Commerbank in Luxembourg.

The article also mentions holdings of the SPDR Gold Shares Trust stayed steady yesterday.

An earlier Reuters report also ascribes gold's stabilization to physical buying.

"The market is very hot. There's plenty of physical demand and I can't meet the orders. It's from India, Indonesia and Thailand," said a physical dealer in Singapore. "Basically we are seeing buying from jewellers and investors from the Far
East."...

"On a longer-term basis, it will fuel demand for gold if your economic recoveries have stalled. Equities might not perform so well," said Ong Yi Ling, investment analyst at Phillip Futures in Singapore.

"For today, I don't see it going up above $1,175 for the upside. On the downside, I think it should be still supported above the $1,155 level."

The article also points out recent earnings in Euroland companies have bolstered confidence in the economies of the region.

8:30 saw the release of the second-quarter GDP figure for the U.S. economy. The number was slightly below expectations: 2.4%. However, the number for first quarter GDP was revised upwards by a full percentage point: instead of 2.7%, the Q1 figure now stands at 3.7%. The chief drag on the 2Q number was net exports.

The gold market took to it fairly well at first. The metal has slumped down below $1,171 when regular trading began, but it shot all the way up to $1,176.90 between 8:25 and 8:40 AM. Since then, it slid all the way back down plus a little more. As of 8:49, the spot price was $1,170.10 for a gain of $3.60 on the day. The Kitco Gold Index assigned +$4.55's worth of change to predominant buying and -$0.95's worth to a strengthening greenback. The U.S. Dollar Index, after holding steady around 81.75 until 8:32, stumbled at that time but recovered later. As of 8:53, it was at 81.71.

Despite that spill, gold is still holding on to the bulk of its overnight gains. Physical buying has come in, and that demand has led to gold being supported. The metal might rack up its third daily gain in a row.

Gold Slinks Up In Mid-Morning Trading

2010-07-29T18:32:00.000-04:00

The rise was choppy after the daily bottom of $1,159.10 had been reached at 8:40 AM ET, but there was an underlying upwards tendency despite gold's choppiness; it ended at 11:00, but was evident for most of the morning pit session. Just before the peak, it was announced that the Italian government approved a 25 billion Euro austerity package which should protect its credit rating. Focused on public-sector pay freezes, pay cuts for high-earning civil servants and a crackdown on tax avoidance, it's expected to get the Italian government deficit to below 3% of GDP by 2012.

Gold's peak at 11:00 was at above $1,166; afterwards, the metal slumped back but bottomed at $1,162. As of 11:55 AM, the spot price was $1,163.00 for a loss of $0.30 on the day. The Kitco Gold Index attributed -$6.40 to predominant selling and +$6.10 to a weakening greenback.

The U.S. Dollar Index, after touching 81.5 as of 9:38 AM, underwent a rolling and hesitant rally that got it well above 81.7. As of 11:57, it was at 81.71.

So far, gold's held fairly steady. The storm has passed, but there's no real excitement in the market as of yet. Based upon today's signs, gold will likely continue churning in the afternoon.

Update: Instead of churning, gold climbed upwards in the last forty-five minutes of the pit session. The churning did continue a little after noon ET, but the metal didn't go back downwards after the last churn. Instead, it stayed between $1,163 and $1,164. Starting from the former level as of 12:45, the metal climbed above the latter level around 1:00 and continued upwards with only a little pullback. As of the end of the pit session, or 1:30 PM, the spot price was $1,168.50 for a gain of $5.20 on the day. The Kitco Gold Index assigned -$2.80's worth of change to predominant selling and +$8.00's worth to a weakening greenback.

The U.S. Dollar Index, after almost reaching 81.75, turned downwards and meandered down to a little below 81.55. The second leg of the downturn roughly coincided with gold's run. As of 1:35, the Index was at 81.57.

A little before the run, at around 12:30, St. Louis Federal Reserve president James Bullard said the best way to prevent a Japan-style deflation is for the Fed to buy more Treasury securities; merely holding the Fed Funds rate at near-zero might even be counterproductive. That support for more quantitative easing did have its influence on gold, and may have more later this afternoon.

Update 2: The run-up basically ended after the pit session did, with a double top at $1,169 right after 1:30 PM ET. From there, gold descended to a little below $1,166 before rebounding to around $1,168. From 2:40 to just before 5:15, the metal stayed within the confines of $1,167 and $1,168.50 only to drop below just before the close. At the end of regular trading, the spot price was $1,166.50 for a gain of $3.20 on the day. The Kitco Gold Index attributed -$4.30 to the predominant-selling category and +$7.50 to the weakening-greenback one. Both categories sum up to the raw change on the day.

The U.S. Dollar Index didn't move all that much over the rest of the session. Staying between 81.535 and 81.69, its overall direction was slightly upwards. As of 5:30 PM ET, it was at 81.62.

Its daily chart, from Stockcharts.com, shows a substantial decline from yesterday's mark-time level:

Yesterday, I thought a base was being built for the Index; today's drop makes me look premature, if not wrong. The main reason for the latest drop in the Index was the Euro making it above US$1.30; the chart shows a fairly clear sky for it with respect to the greenback.

The Index's RSI level is again back under the 30 oversold level. Ever since the plummet of July 5th, it hasn't been much above 40 and way below the 50 neutral level. Those levels are not characteristic of a bull market; they're more characteristic of a bear market. The last comparable RSI dry spell took place in May of 2009, as this 2-year chart shows:

If the Index follows the same track, it's got a long way to fall. However, the last RSI dearth was followed by a partial rebound and a month of stabilization. This one, should it occur, will bottom at a significantly higher level than the one in May of '09. From the long-term perspective the Index may be in a wide trading range between 89-90 and 74, or a huge gently ascending triangle. The U.S. Treasury is really caught between a rock and a hard place with respect to the U.S. dollar: a falling greenback makes for higher exports ceteris paribus, which would help spur the GDP numbers, but a rising greenback makes for currency profits enjoyed by foreign holders of U.S. Treasury securities; those gains make up for the low yield. I suggest gently that the institutional self-interest of the Treasury is more aligned with a rising greenback than with a falling one. I further suggest that the U.S.-as-Japan scenario is also in Treasury's interest because it implies the U.S. T-bond bull market will continue, thus lowering rates. Both developments prevent the more explosive U.S.-as-Greece scenario from erupting - and long-term debtors tend to develop a certain cunning. That debt inurement, plus the long-noted incentive on the part of the U.S. government to minimize reported inflation because doing so minimizes COLA-based entitlement spending increases, means the edge is tilted to gold when it comes to figuring out what's really going on with actual inflation. The bond market moves to the CPI, while the gold market tends to move with this series.

Speaking of gold, its own daily chart shows a continued recovery from Tuesday's plummet:

The technical picture for gold is still lousy, backing up the thesis that bargain-hunting is keeping it from declining further. The spills haven't been as sudden as the one in late-mid May, but yesterday's interday low was below that of May 21st's. The recovery over the two post-plummet days hasn't been as strong.

There's a chance for another one before the summer is through. If there isn't, then this summer's decline from peak to bottom will still be below average for the period. July is almost over, and August tends to see a pick-up. Ther may not be this summer, but the odds say it's likely.

A post-pit Reuters report said the gains were prompted by the above-mentioned Bullard speech, but large outflows from the SPDR Gold Shares Trust limited those gains. Amongst the points therein, these were included:

* Gold boosted on comments that the United States could fall into a Japan-style quagmire of falling prices and investment that is hard to get out of by St. Louis Fed president James Bullard.

* A sharp drop of bullion holdings in the world's biggest gold-backed exchange traded fund combined with a loss of COMEX open interest indicated investors are moving out of the precious metal into other assets such as the equity markets.

* Trading volume of U.S. COMEX gold futures also rose to an all-time high on Wednesday, driven by a combination of an option expiration and contract rollover.

July is almost over, and gold's performance in August is the big question mark. If the metal continues to follow seasonal patterns, there will be a pick-up next month. If a pick-up doesn't come by Labour Day, then the talk about a new financial crisis may have substance to it.

More Buying-Opportunity Counsel

2010-07-29T11:40:00.000-04:00

Gary Tanashian has an interesting take on the conspiracy crowd: he says it's a reflection of impatience and a casino mentality that's more at home in the stock market.

There is an opportunity to own value shaping up. I suspect the usual casino players will fail to capitalize while the minority capitalizes once again. Missed the last buying opportunity this space identified in euros? Well, another opportunity is on the way. Who will capitalize and who will be immobilized by fear? Gold in USD is also presenting an opportunity. In fact, name me a major developed society that is not tramping out its currency for the purpose of manufacturing politically expedient economic growth and I will show you a society of relative value from an investment standpoint. There are those in ascension and it is no coincidence that those are targets for my investment dollars in the big picture.

For now, gold is a monetary value anchor. In a world of eroding confidence in politicians and policy makers who use official paper and digital money, gold represents value; nothing more, nothing less. Still, it is always great to exchange confidence paper for value when value goes on sale. You do not buy gold when everybody loves it. You understand who you are and if you perceive that your personal situation is in need of this value anchor, you buy gold when the public hates it. You buy it when the speculators (ultimate casino patrons) are dumping and you-know-who is buying or buying to cover.

He holds up October 2008 as a classic time to buy, and says gold going into a serious intermediate-term decline would lead to another opportunity.

Gold Discountign Another Financial Crisis?

2010-07-29T11:29:00.000-04:00

The current weakness in gold is telling to Simon Derrick, head of currency research at Mellon Bank. He sees a parallel between the recent record high of $1,260 and the topping of $1,030 back in February of '08.

He believes it is telling that with the exception of June 21st, the day that China changed its currency policy, falls in the price of gold have come after the publication of uninspiring US economic data.

"The current decline in the price is down to deterioration in sentiment about the economic outlook (and the threat of rising deflationary pressures) rather than a reflection of greater optimism about the standing of the euro," Derrick wrote.

Demand for gold from India fell by 30 percent last year and could fall by as much as 40 percent next year if the Bombay Bullion Association is to be believed, Derrick said.

"All this comes at a time when the technical picture for gold is sending some very clear warning signals. Most notably, a series of lower highs on our favored momentum indicator since the fourth quarter of last year speaks of a longer term trend that is looking increasingly tired," he added.

With the oil price flashing a similar warning, it seems we are getting closer to answering the question whether this feels more like the summer of 2008 or that of 2007. On the basis of the current evidence it seems like July of 2008 provides a better fit," Derrick wrote.

It's an interesting argument, perhaps because it implies there'll be a huge buying opportunity in the fall or winter. The trouble with it is, gold's decline from its February high was (in retrospect suspiciously) out of season. The recent high and current decline are in season.

Besides, the only visible fault line is underneath European sovereign debt. Unlike in the '08 credit crisis, gold benefitted from the Eurocrisis. The only way that a next round could hurt gold would be if the banks' capital levels implode in a deflationary spiral.

Marc Faber Still Bullish On Gold, Bearish On Treasury Securities

2010-07-29T11:15:00.000-04:00

As passed along by the Chicago Tribune's Gail MarksJarvis:

Investors, who think they are safe hiding in bonds, are playing with fire, The Gloom, Boom and Doom Report publisher Marc Faber warned in Chicago.

"When the turn comes and inflation and rates rise, all the money in bonds will move into equities," he told analysts and money managers from throughout the world at the CFA Institute's summer seminar....

In 2007, Faber was warning investors to avoid stocks as he observed the growing threat of a financial meltdown. Now, he says the cure for the meltdown is a threat to bonds, which would plunge in value if rates and inflation rise -- as he says they ultimately will.

"At some point people won't want to be compensated at two percent" in bonds, and will put money into stocks, he said. "Government bonds will not be a good investment for the next 10 years."

Faber also likes Asian stocks and those of "developing frontier economies," but he keeps returning to the themes of physical gold and agricultural land.

Gauge Of Inflation / Safe Haven Components For Gold

2010-07-29T11:09:00.000-04:00

Gold sometimes rises becasue of inflation fears, and sometimes out of fears for the financial system. Steve Place concludes that gold was not pushed up by inflation demand after checking the correlation between GLD and a multi-commodity ETF (DBC). While gold was going up late last spring, the correlation between the two dropped to only slightly positive - or near-zero.

This is a correlation between two etfs: GLD and DBC.... DBC is a commodity etf that has exposure in heating oil, crude, gold, natty, zinc, and others. Basically, when GLD and DBC are highly correlated, that means there is more risk of inflation, and when the correlation breaks down, it means we are in a “risk aversion” mode.

This can actually make for a nice long term timing of the market, and we’re coming down to levels in which I feel the risk for reflation could be coming back into play (maybe). A confirmation would be a drop in demand for treasuries.

It's an interesting tool, as it's sometimes hard to see whether financial-crisis demand is tied to expectations of future inflation or not.

Indian Gold Buying Still Active

2010-07-29T10:46:00.000-04:00

According to a report by the Economic Times, buyers are still coming in to stock up for festival season at low prices; that buying pressure pushed up premiums for gold bars.

"We got good order fills at $1,159/1,160 (an ounce) yesterday, and the current levels are still attractive for local buyers," said a dealer with a private bank in Mumbai, which deals in bullion....

"We have plenty of advanced orders in the range of $1,150-1,157," said another dealer with a state-run bank. Premiums have moved up to $1.5 an ounce from 80 cents-$1 per ounce a few days earlier on a surge in demand from India, dealers said.

There has been some downward price acclimatization, as the present bid range is lower than it was; the knocked-out bids at $1,160-$1,175 have not been replaced. But, the rise in premiums does show an active market.

Peter Brimelow Says Rising Bearishness, Except Fro The Usual Suspects

2010-07-29T10:39:00.000-04:00

As Brimelow relates, a lot of market times have turned the frown on gold.

Most observers are very negative. At JSMineset, "Trader Dan" Norcini gloomily noted on Tuesday evening: "Technically, the market fell out of its trading range that has been in place since May. ... Bears have now gained control over the market"

The Aden Report declared in its weekly update Wednesday evening: "The gold price fell to a three-month low yesterday in both dollars and the euro. ... It's clearly in a D decline, and it's weak by staying below $1,200, basis December. If gold now stays below $1,180, it's very weak and it could test the $1,135 level. In a worst case, it could test its rising 65-week moving average, now at $1,080."...

MarketVane's Bullish Consensus is back down to 61% Bulls. On July 19 it fell to 60% (and gold then staged a modest rally). Lower readings were last seen at the height of the crisis in December 2008. The Hulbert Gold Newsletter Sentiment Index is at 9.2%, which is its low for the year.

However, the habituants of Le Metropole Café are still bullish - some insistently so - on confidence that physical demand will keep the market from sliding further.

Poking Around For Likely Takeovers

2010-07-29T10:30:00.000-04:00

A Morningstar report says takeovers are going to continue in the gold-mining sector, and it tries to identify some. Since the report left out gold juniors, the universe of small- and mid-tier producers it works with is fairly small.

According to its author, Joung Park, there are three factors motivating a takeover as based upon recent ones: the potential target has to have sizable amounts of low-cost reserves, near the potential acquirer's own properties, and there already has to be a joint-venture or minority-stake relationship between the latter and the former. Based upon these criteria, the only takeover candidate Park fleshed out is Kinross Gold; that company is a potential target for Barrick. Two other candidates are mentioned, but the would-be acquiers would be more likely to buy a property instead of the whole company in those cases.

Gold Inches Up Overnight But Falls Back

2010-07-29T09:00:00.000-04:00

Despite a slight dip shortly after the beginning of overnight trading, gold managed to inch above $1,165 and briefly touch $1,170. The height of the overnight was made around 3 AM ET, when the price touched $1,170.40. Pulling back, the metal still stayed above $1,165 until about 7:30 AM when it dipped to $1,161.80 before rebounding a little. As of 8:05 AM ET, the spot price was $1,163.50 for a gain of $0.20 on the day. The Kitco Gold Index attributed -$6.50 to predominant selling and +$6.70 to weakening of the greenback.

The U.S. Dollar Index spent some of last night drifting, but it began falling around 9:15 PM. Tumbling a bit after breaking through 81.95, its fall climaxed at just above 81.5 before it double-bottomed and started pulling up at 7:20 AM. As of 8:12, it was at 81.65.

A Wall Street Journal report said gold crept higher because of bargain hunting induced by a steadier market.

"It looks like the selling has eased off a bit," said Afshin Nabavi, head of trading at Swiss trading house MKS Finance. "I don't know if it's finished or if it's just waiting for time."

Demand for physical gold has absorbed a lot of selling pressure, and there are sufficient bids in the market to hold gold above $1,160 in the near-term, he said.

The article also mentions a large drop in the holdings of the SPDR Gold Shares Trust, by 18.55 tonnes to 1,282.38 tonnes.

An earlier Reuters report ascribed last night's rise to physical buyers stepping in as well as bargain hunting.

"Signs of slowdown in the U.S. recovery (yesterday) sent out ripples again, so we've seen bargain hunters coming in given there's still a long way to go in terms of economic recovery," said TheBullionDesk.com analyst James Moore.

He added: "There's been good demand from physical sector this morning (but) over next week or two my outlook is for sideways to lower trade. We saw 18 tonnes of gold cut from the SPDR gold trust yesterday."

The article also noted that, despite the price relief for jewelers which many were happy to take advantage of, negative sentiment still weighed on the market.

The weekly jobless-claim numbers came in; the initial-claims number of 457,000 was slightly lower than expected. Although continuing claims rose, the four-week moving average of initial claims fell. After sinking to around $1,160, gold blipped up just beforehand but fell right after the data was released in a short-lived downward spike that made a new daily low of $1,159.10. As of 8:54 AM, the spot price was $1,162.20 for a drop of $1.10 on the day. The Kitco Gold Index assigned -$7.90's worth of change to predominant selling and +$6.80's worth to greenback weakness. The U.S. Dollar Index managed to climb up to almost 81.75 but began dropping at 8:36. As of 8:57, it was at 81.61.

Again, the pit session started off less than encouragingly. Still, gold's floor of $1,160 has remained solid if occasionally flexible. The rest of the pit session may see the metal holding steady.

Gold, After Further Slump, Steadies

2010-07-28T18:22:00.000-04:00

After regular trading began, gold fell below $1,160 because of bad news on the U.S. durable-goods orders front. A drop of 1% in June was well below expectations for a 1% rise. Subsequent to that report, the metal trended down but choppily; the day's low of $1,156.90 was made around 9:45 AM ET. After double-bottoming, though, gold began rising just after 10:00; its climb got the metal up to $1,164 by 10:45. Falling back, it halted that next decline at $1,159. Overall, gold is fluctuating around its $1,160 support level. As of 11:55, the spot price was $1,161.10 for a loss of $0.50 on the day. The Kitco Gold Index attributed -$1.10 to predominant selling and +$0.60 to a weakening greenback.

The U.S. Dollar Index has been fairly steady in a range bordered by 81.95 on the downside and 82.2 on the upside. Reaching its morning nadir around 10:45, it drifted back up while remaining in that interday range. As of 11:56, it was at 82.10.

Although more bad U.S. economic news rocked gold this morning, it didn't have the same effect that yesterday's consumer confidence report did. The metal holding steady after being knocked yesterday shows the air pockets are now gone from the gold market. The rest of the pit session should show more drift.

Update: There was more drift. After bouncing around a zone between $1,159 and $1,161, the metal snuck up a little but not above $1,163. Peaking just after 1:00 PM ET, the metal continued bouncing but with an overall downward bias until it bottomed at $1,159 again. As of the end of the pit session, or 1:30, the spot price was $1,161.50 for a drop of $0.10 on the day. The Kitco Gold Index assigned -$0.15's worth of change to predominant selling and +$0.05's worth to overall greenback weakness.

The U.S. Dollar Index, after surmounting 82.1, drifted around that level until it blipped up slightly starting at 1:20. As of 1:35, it was at 82.135.

In advance of the release of the Fed's Beige Book, there isn't much discounting one way or another. Yesterday's tumble seems to have left the gold market exhausted today. Unless the Beige Book contains some surprises, the drift will likely continue until the close.

Update 2: The Beige Book came out at 2 PM ET, and it showed a less rosy picture than the last one. The economy improved overall, but the pace slowed and two districts reported backsliding. It had little effect on gold, which continued bouncing around but moved up slightly overall. By the time 4 PM came around, the bouncing had largely stopped and gold was left around $1,163. As of the close, the spot price was $1,163.30 for a gain of $1.70 on the day. The Kitco Gold Index split the gain into +$1.30 due to predominant buying and +$0.40 due to overall weakening of the greenback.

The U.S. Dollar Index headed up unsteadily until 3:20, when it managed to reach above 82.2. Falling back to almost 82.05, it double bottomed and then trundled upwards. As of 5:30, it was at 82.125.

Its daily charts, from Stockcharts.com, shows the Index basically staying in place:

Today's movement wasn't much all told, and the close was quite close to the open. The Index is still near oversold levels, and for now it's stalled just above 82.

Unlike the last two short-term lows, this one han't seen a real rebound afterwards. Yesterday's interday low was only a little below the last one made twelve days ago, which suggests a slowing of the Index's decline. There's no sign of an upturn with any real strength, but it could be argued that the Index is basing at this point.

As for gold, its own daily chart shows a mild recovery today:

Although today's interday low was slightly below yesterday's, the plummet was still halted in its tracks. The durable-good report at 8:30 did provoke another downturn, but it was much more limited in extent than yesterday's. It also was erased by a recovery. There's no way for me to time the gold market, but today's pattern is reminiscent of the day after Feb. 4th's wipeout. I'm also seeing more bearish calls from people who aren't inclined to be gold permabears.

Is gold basing? There's an argument to be made that it is. Gold has been affected by the ill winds now blowing, where good news is interpreted badly and bad news is held to be symptomatic of deflation. There's also the aftereffect of the Eurocrisis, which has led to disappointment from the formerly enthusiastic. The mood has swung the other way; it was only a couple of months ago when good news was good for gold and so was bad.

With enthusiasm turned into gloom, there's a case to be made that gold is now below where it should be - and some are making it. Most of the ones I've seen have an entry point well below today's close, like this fellow; this one's an exception. How it turns out, we'll see over the rest of the summer.

A post-pit Wall Street Journal report notes that gold not only held steady because of bargain hunting but also because of lack of investor interest.

"Gold was the hot thing all spring and early summer," said Bob Haberkorn, senior market strategist with Lind-Waldock in Chicago. "Now it's like the stepchild."

The metal hasn't been helped much by a weakening U.S. dollar--which often lifts dollar-denominated gold by making it less expensive for buyers using other currencies--as equities have been ascendant while a measure of calm has returned to markets.

"People are more inclined to put their risk into equities," Haberkorn said. "It's kind of left gold by the wayside."

Be that so, but the pendulum has swung the other way. Gold may continue in its doldrums, but there isn't that much excitement to dampen anymore. To move down significantly from here would require something close to outright panic.

Jeb Handwerger Sees Support For Gold At These Levels

2010-07-28T11:41:00.000-04:00

Unlike this Barclays techncial analyst, Jeb Handwerger sees gold as still in a rising channel that provides support at these levels. Consequently, he thinks gold is in buying-opportunity mode right now.

Gold is now at my buy point of the rising long term trend support line (click on chart...). GLD touched that line 6 times, which signifies that this trendline is a reliable point of support. The significance of this line is that it is not steep, which also brings a higher probability that GLD will find support here. It is also oversold. Continued weakness here and a break below this long term trend would be troubling and highly unlikely. If there is a break most likely it would be exhaustive, meaning that it will shake out a lot of shares before the next move higher. I do not see $1200 as a top in gold as there are no technical signs of a major top.

He also sagely notes that the best time to buy usually makes the buyer uncomfortable. To extend his winter-coat-in-summer analogy, it can be awkward sporting a winter coat around in the heat.

Another Gold-Watcher Says Buying Opportunity Coming

2010-07-28T11:18:00.000-04:00

Dominic Frisby points out that times like these are shake-out times for those who are trend-chasers or who don't really believe in gold. Generally, summer is a good time to buy gold; the only exception came due to the financial crisis, but the metal recovered to its summer levels and above by the end of the year.

He uses the 252-day moving average as a touchstone. Right not, it's at $1,110; that level, he recommends, would be a real buying opportunity for the metal.

To conclude - we know that the July-August timeframe has been a good time to buy gold in recent years. Given that in the coming weeks gold looks likely to touch, or come close to touching, its 252-day moving [average], which have proved such a consistent marker over the last ten years, I'd suggest that if gold falls another $50 or so from here, that could well mark an excellent buying opportunity for those who don't currently have, or those who want to add to, a position in gold. (And, by the way, somewhere just beneath the blue line might mark a sensible place for a stop).

Of course, it's possible that the bull market is over. I don't think it is, but that doesn't mean I'm right. I see $1,040 - the old high - as a big number for gold. If it falls beneath that, then we need to have a serious rethink.

There is that risk, and he is cognizant of it; he's no superbull.

Indian Gold Buying Picks Up After Plummet

2010-07-28T10:51:00.000-04:00

According to a report by the Economic Times, lower prices have spurred Indian gold buying.

"Buying is definitely there.... Traders, who bought 10 kgs a few days back, are now buying 40 kgs," said Harshad Ajmera, proprietor, of Kolkata-based JJ Gold House...

"There could be more buying if prices fall to about $1,150 (an ounce)," said dealer with a state-run bank in Mumbai.

Also aiding the buying spree was a strengthening rupee, although the direction of Indian stocks didn't lend much confidence to a bullish outlook for gold.

Indian Gold Imports For July Halve

2010-07-28T10:43:00.000-04:00

According to a Reuters India report, Indian gold imports for this month are slated to come in at about half of what they were for July of '09.

"It is all because of the prices," [head of Bombay Bullion Association Suresh] Hundia told Reuters, referring to the firm levels gold has held on for the greater part of the month in the local market.

In the international market gold prices went into a gradual decline in July after hitting highs in the previous month as buyers weighed its investment appeal amid a sputtering global economic recovery.

Though prices were softer in July from the month ago, Indians were still not used to the levels, Hundia said.

The estimate for this month is 14-15 tonnes. July of '09's figure was 28.4 tonnes.

Nassim Nicholas Taleb Says Government Debt Next Black Swan

2010-07-28T10:34:00.000-04:00

In an interview with Business Week timed with a release of a new edition of his book, Taleb says government deficits and debt are going to be the source of the next Black Swan.

What are are potential sources of fragility or danger that you're keeping an eye on?

The massive one is government deficits. As an analogy: You often have planes landing two hours late. In some cases, when you have volcanos, you can land two or three weeks late. How often have you landed two hours early? Never. It's the same with deficits. The errors tend to go one way rather than the other. When I wrote The Black Swan, I realized there was a huge bias in the way people estimate deficits and make forecasts. Typically things costs more, which is chronic. Governments that try to shoot for a surplus hardly ever reach it.

The problem is getting runaway. It's becoming a pure Ponzi scheme. It's very nonlinear: You need more and more debt just to stay where you are. And what broke [convicted financier Bernard] Madoff is going to break governments. They need to find new suckers all the time. And unfortunately the world has run out of suckers.

He says that a U.S. sovereign debt crisis will be a Black Swan to those not forewarned. So, his own warning could be seen as an attempt to forestall it. He also said the world has become too financialized, with too little attention paid to ordinary sources of income. A sound financial plan for (say) retirement should be focused on capital preservation.

Barclays Technical Analyst Says $1,127 Gold Possible

2010-07-28T10:17:00.000-04:00

The reason given by the analyst is gold falling below a trendline that has held up for 21 months. The specific target was reached by Fibonacci analysis, using a 23.6% retracement from gold's October '08 low.

“The trend-line break is forcing a lot of people out of their positions,” MacNeil Curry, an analyst at Barclays, said in an interview from New York. “People being washed out of their positions may open up an opportunity for a stronger base and subsequent move higher.”

Technical analysts tend to be trend-followers; as a result, their predictions often are bankable in terms of footage. This prediction plays into the current cloud over the metal; a contrarian may doubt as a result.

Gold Stays Steady After Yesterday's Tumble

2010-07-28T09:02:00.000-04:00

After being hammered down to $1,160, gold stayed in a range between that level and $1,165. Last night saw a drift upwards, which came to a halt as night turned into morning. A dip at 1:30 AM ET led to a daily low of $1,160.70, after which the metal recovered and moved close to $1,165 in the next two hours. The daily high of $1,167.00 was made at around 5:00, but above-$1,165 didn't last; the metal descended to the middle of the range afterwards before pulling up again. As of 8:09 AM ET, the spot price was $1,163.40 for a gain of $1.80 on the day. The Kitco Gold Index split the gain into +$1.40 for predominant buying and +$0.40 for weakening of the greenback.

The U.S. Dollar Index, after inching up to 82.3 last evening, descended to a little below 82 by 3:10 AM. Subsequently, it bobbed with decreasing volatility as it veered in around the 82.1 level. As of 8:14, it was at 82.12.

A Wall Street Journal article said gold was steadied by physical buying.

"There's some very good physical demand here," said a senior trader in London.

But physical buying may not be strong enough to overcome investors' dwindling lack of appetite for gold, analysts said. A recovery in confidence across equity markets and the euro's stronger outlook have negated two key factors that had underpinned gold's rally to a record high of $1,249.40 on May 14.

"People seem to be a little bit more confident about matters economic and are taking on risk again," said the trader in London.

The article also said the short sellers have come back in force.

An earlier Reuters article said part of the reason why gold has been declining has been deflationary pressures, or lack of inflationary pressures.

With increasing market scrutiny on nations' fiscal health and doubts over the effectiveness of ultra-low monetary policies in supporting the economy, governments around the world are facing difficulties finding fresh ways to stimulate the economy and beat deflationary pressures, said Koichiro Kamei, managing director at Tokyo-based researcher Market Strategy Institute Inc....

"Reasons supporting investor buying of gold have weakened recently, and options-related technical selling could undermine sentiment in the short-term as investors seek fresh clues for direction," Kamei said.

The article also mentions holdings of the SPDR Gold Shares Trust dropped yesterday to 1,300.83 tonnes.

The stabilization didn't hold up with the beginning of regular trading. After a recovery from a descent to $1,161, gold fell to a new daily low of $1,158.50 on the heels of a durable-good report saying orders dropped by 1%. Expectations were for a 1% rise. As of 8:57, the spot price was $1,159.90 for a drop of $1.70 on the day. The Kitco Gold Index attributed -$2.30 to predominant selling and +$0.60 to greenback weakness. The U.S. Dollar Index continued fluctuating and made no lasting gain or loss from the report. As of 8:59, it was at 82.12.

Bad news has once again become bad news for gold as the deflationist meme recovers. The metal may recover today, but the start of the pit session hasn't been that inspiring.

Gold Tumbles To $1,160

2010-07-27T18:22:00.000-04:00

After a combination of good and bad U.S. economic news, gold tumbled well below the floor of its current range. The decline started slowly around 8:40 AM ET; by the time the Case-Shiller Housing Index number was released, showing a 1.3% seasonally-unadjusted increase in home prices in the twenty cities surveyed, gold was at $1,182. The tumble began at the same time the data were released, or 9 AM. An hour later, the metal was at $1,170. Then, the Conference Board's consumer-confidence numbers were released. The overall index value was 50.4, a big drop from last month's revised 54.3.

The metal's fall continued after this item was disseminated. A fifteen-minute relief rally between 10:15 and 10:30 failed to get the price above $1,170, and the metal ended its tumble at a new daily low of $1,159.70. Since that low, made at about 10:45, gold was drifting around the $1,162 level before blipping down a bit. As of 11:53 AM, the spot price was $1,160.70 for a loss of $21.40 on the day. The Kitco Gold Index split the loss into -$18.30 for predominant selling and -$3.10 for a strengthening greenback.

Exacerbating gold's losses was an upturn in the U.S. Dollar Index to well above 82. Although the extent of the rally wasn't large - it got no higher than 82.375 - the direction was clear. From around 81.9 at the time gold's tumble began, the Index climbed intermittently but steadily in morning trading until it hit that peak at 11:21. As of 11:56, it was at 82.24.

I admit to beign surprised by the tumble, which has taken gold down a fair bit today. It's possible that physical buying will be deterred by hopes of a further drop. Still, solid support exists at $1,160 which is still holding up.

Update: That support level gave way just before 1:00 PM ET, after a dip below it just after noon. Shortly after 1:00, the metal made a new daily low of $1,156.80. That foundering was enough to keep it from reaching $1,160 by the end of the pit session. As of that time, or 1:30, the spot price was $1,158.40 for a drop of $23.70 on the day. The Kitco Gold Index divided the loss into -$19.75 for predominant selling and -$3.95 for strength in the greenback.

The U.S. Dollar Index, after hovering around 82.25, fell to 82.1 between 12:10 and 12:20. The Index subsequently recovered, and managed to surmount 82.25 just before 1:30. As of that time, it reached 82.31.

Gold's tumble did lead to an aftershock, which the $1,160 level failed to halt. There may be further drops later this afternoon, but they're likely to be limited in extent.

Update 2: As it turned out, the $1,160 support level was restored in later-afternoon trading. The rebound took place shortly after the end of the pit session. After which, the metal hovered around $1,160; except for a mid-afternoon stretch, it slowly inched up. As of the end of regular trading, the spot price was $1,161.60 for a drop of $20.50. The Kitco Gold Index apportioned -$18.70 to the predominant-selling category and -$1.80 to the strengtening-greenback one.

The U.S. Dollar Index pulled back a little in later afternoon but stayed well above 82. Sliding down to 82.1 by 4:20 PM ET, the Index then pulled up and settled around 82.15. As of 5:30, the Index was at 82.145.

Its daily chart, from Stockcharts.com, shows a slight recovery overall:

Despite that recovery, the fall continues. 82 did hold at the end of the day, but it was unsuccessfully challenged. Today's interday low made for a new one not seen since May 4th. The Index's RSI level (found at the bottom of its chart) continues to droop at near-oversold levels, suggesting the momentum in late spring is long gone.

However, there's a slight divergence. Today's RSI level is a little bit higher than the one at the last near-term high, while today's Index low is lower. The MACD lines, found at the bottom of the chart, are still in a bearish configuration but are close to crossing over into a bullish one. Given the Index's performance since early June, such a crossover isn't likely to portend much more than a more extended upward reaction. Still, the courrent drop can't go on forever.

As for gold, its plummet today shows quite prominently on its own daily chart:

The old $1,175 support level gave way, even though $1,160 ended up holding. Gold's own RSI level is fairly close to oversold levels, and its own MACD lines are still solidly in a bearish configuration.

There's a chance for a further fall if this day's tumble resembles late May's. The physical buyers waiting for the chance to buy below $1,175 will have their chance, but they may pull their bids in the hope of more declines. So far, I've seen no missives pegging the current rout as a buying opportunity.

If the behaviour after this plummet is like that after the last one, the metal will muddle along just above $1,160 with a ceiling around $1,175-$1,180. Whatever the outcome, the seasonal summer weakness is still afflicting gold.

A post-pit Reuters report pegs the decline as caused by technical selling triggered by the above-mentioned housing and consumer-confidence data plus options expiry. Amongst other points therein, these were included:

* After trading modestly weaker in early sessions, bullion prices accelerated losses despite firm U.S. stock markets and a flat dollar.

* Gold pressured as crude oil leads commodities to decline on weak consumer sentiment.

* Selling related to COMEX August option expiration and first-notice day on Friday trigger heavy selling in gold futures - Sean Lusk at futures broker PFGBest.

* Bullion prices are at risk of breaking below a two-year bullish support channel and could fall toward $1,000 an ounce, CitiFX said.

That could happen if the physical-buying rug is pulled out and stays furled, but it seems unlikely. Today was a bad day for gold, one I didn't expect, but it's not the first time such plummets have visited the market. The long-term bull market is still intact.

Walter de Wet Says Gold Looks Techncially Bearish

2010-07-27T11:18:00.001-04:00

In the midst of a short analysis of the gold market, Standard Bank analyst Walter de Wet says gold looks technically weak:

In technical terms, gold looks bearish within a $1,181 - $1,174 range where the 100-day MA and long-term support trendlines meet. However, in the physical market, buying interest is providing support around this crucial technical range for gold. A break below this range could see gold decline to $1,150.

It's hard to criticize his timing. This morning, the metal tumbled down to $1,160 as the previous range bottom broke through.

Fall Run To $1,300?

2010-07-27T11:11:00.000-04:00

Despite gold's present doldrums, an options advisor at www.skoptionstrading.com says the metal looks positioned to mount an assualt at $1,300 starting in a month or so. Despite that call, (s)he says it's too early to buy out-of-the-money call options on gold. Leaving open the possibility that it will fall to around $1,140, the advisor suggests selling out-of-the-money puts on the metal for now. August puts below $1,140 are being considered. Then, in late August, the next trade should be buying out-of-the-money calls, with strike price of $1,250 or higher, expiring in January '11 or later.

This strategy depends upon gold's seasonal weakness turning into a strong rally in the fall. The first half of it, selling those puts, seems the less risky play.

James Altucher's Favourite Gold Stock

2010-07-27T10:58:00.000-04:00

Yes, he has one. Despite his aversion to gold as an investment, he likes Kingold because he thinks it has a lock on the mainland Chinese jewelry market although it's present market share is only 4.3% by his calculation. The company sells gold jewelry, and has its supply chain management fine-tuned to the point where there's an average of five days between buying the raw gold and selling the jewelry. According to Alucher, who believes in gold as a luxury good, the Chinese jewelry market is growing strong.

One of the biggest demographic trends that will be occurring over the next ten years is the rising middle class in China. The China middle class is growing by approximately 50mm people a year and represents 25% of the population now, up from less than 5% of the population a decade ago. That means, for instance, that China has gone from being the 20th country ranked by oil consumption to the 2nd country and is now number one in terms of total energy consumption. It also means the demand for luxuries by this nouveau middle class is now insatiable, growing, and cannot easily be satisfied due to lack of supply....

Altucher lists seven points in Kingold's favour, including growth of the market as well as growth of the company itself. Three of them involve strong revenue growth, strong earnings growth and a low forward P/E ratio. The company's trailing P/E is about 18 right now.

Gold Hand-Down Favourite At Agora Conference

2010-07-27T10:42:00.000-04:00

According to Peter Cooper, the consensus at an Agora Financial symposium has a fairly good track record. 2008's saw a consensus against stocks before the financial crisis erupted.

This year, the consensus is for gold. In a nutshell, the argument says we're in a re-run of the mid 1970s; inflation will come roaring back in a few years.

The re-run of the mid to late 70s school of thought is right. We have had the financial accidents of 1973 and 74, and the gold correction of 75. We are perhaps in mid-76, another very hot summer or was that 75?

The policy response to the financial crashes has not been so different this time. It took time in the 70s too for inflation to gather speed, and we saw a big deflation of house prices in 74-75. It is no different this time.

However, by 1977-8 inflation was picking up speed and it topped out in 1980 with gold at $800 an ounce – eight times higher than its correction in 1975. Adjusted for inflation then that would put gold at $5,000 an ounce by 2013.

We have not even seen the start of the ballistic up phase for gold. The past 10 years is only base-building for the rise to come.

Gold bug Jim Sinclair has $1,650 by next February and this forecast looks perfectly possible after the usual summer down for the gold price. Remember when he made that prediction the gold price was nearer $400 and then it looked outrageous....

The "new '70s" thesis is fairly credible if John Williams' alternate measure of inflation is used. At the very least, because his inflation-calculation methodology is the same as that used by official sources in the 1970s, it's the best metric for comparing this decade to the 1970s.

Indian Gold Buying Still Soft

2010-07-27T10:19:00.000-04:00

According to a report by the Economic Times, gold buying remained subdued as traders still await lower prices.

"There are a few deals in between $1,180-1,185 (an ounce), but in all weak as it was yesterday," said a dealer with a state-run bank in Mumbai, which deals in bullion....

"Traders are waiting for a breakout on either side of $1,180-1,200, where I have advanced buy orders," said another dealer with a state-run bullion dealing bank.

The article also notes the rupee's strengthening, which has helped sentiment somewhat.

Case/Shiller Index Rises 1.3% In May; Gold Tumbles

2010-07-27T10:14:00.000-04:00

Although there are cautions not to read too much into the data, the Case-Shiller housing price index rose 1.3% in May (not seasonally adjusted) for the second monthly rise in a row. Price rose in 19 out of 20 cities surveyed.

Right around the time the news was released (at 9 AM ET) gold started dropping in earnest, adding to a milder decline that started a half an hour earlier. An hour afterwards, the metal had gone from $1,182 to $1,170.

Gold Drifts Up Slightly

2010-07-27T08:59:00.000-04:00

There was little overnight news pertaining to gold, and little action in the metal itself overnight. Gold drifted up to $1,185 last night, and stayed around that level until 3:30 AM ET. A blip up to $1,188.40 turned into a fall, which brought the metal down to its daily low of $1,181.70 reached at a little before 7:00. A reversal of that fall brought gold back to around $1,185. As of 8:00 AM ET, the spot price was $1,185.10 for a gain of $3.00 on the day. The Kitco Gold Index split the gain into +$0.50 due to predominant buying and +$2.50 due to weakening of the greenback.

The U.S. Dollar Index, after moving up slightly last evening, dropped slightly below 82 later. Recovering somewhat, it then fluctuated around the 82 level until a more sustained rally kicked in around 3:15 AM. Making it to 82.25 by 5:30, the Index then reversed course and fell back down below 82 again for a new overnight low. As of 8:09, it was at 81.86.

A Wall Street Journal report said physical demand is offsetting reduced investor demand, keeping gold in a tight range.

"It seems people are moving a bit out of gold," said Jeremy East, global head of commodities trading at Standard Chartered in London. "Financial meltdown and all the rest of it seems to be disappearing."...

UBS analyst Edel Tully said gold ETF holdings in July are having their worst month since February. Holdings in gold ETFs are up just 219,000 ounces, well below the average monthly inflows of 2.44 million ounces for March to June, Ms. Tully said in a report Tuesday.

The falloff puts pressure on jewelry demand to make up the slack, and it may not emerge until prices are significantly lower.

The article further quotes East as saying second dips encourage physical buyers to shy away, even though they come in on the first dip.

An earlier Bloomberg report, as webbed by Business Week, says bargain hunters may take heart from the first monthly decline in gold prices since March.

“For the past two or three weeks we’ve seen good buying in the physical market” at current prices, said Walter de Wet, an analyst at Standard Bank Plc in London. Still, “if gold doesn’t move higher, physical buyers will probably adjust their expectations lower.”...

“The regional physical markets are still seeing bargain hunting, which is helping to underpin values,” David Wilson, an analyst at Societe Generale in London, wrote in a report yesterday. “The continued uncertainties in the markets, including the mixed reaction to the results of the European Union stress tests, is expected to sustain investment interest in the market for the medium term and we look for further price gains as the year wears on.”

The article also mentions holdings of the SPDR Gold Shares Trust declined 0.3 tonnes yesterday to 1,301.74 tonnes.

A Reuters report says a lower greenback also helped gold but sentiment is softening.

"There seems to be a pause in the gold market, with investors unclear about the immediate trend," said Pradeep Unni, senior analyst at Richcomm Global Services.

"Investment demand has taken a back seat and physical buying is only expected to emerge by the end of this month.

"There is overall weakness in place and it's likely that gold would be dragged slowly and steadily to $1,170, but weakness beyond $1,165 isn't envisaged," he added....

"Given current market momentum, a net redemption ETF trend could well follow through in August," said UBS analyst Edel Tully in a note. "January holds the title of the worst monthly ETF performance in 2010 with 722,200 ounces of net selling action, February follows (with a drop of) 79,600 ounces.

"If gold retains its current dynamics, then it's quite possible that investors will return to early first-quarter activity," she added.

The article also mentions gold is trading more in line with other commodities.

A dip preceded the opening of the pit session, dragging the metal down to $1,181 before a rebound kicked in. As of 8:52 AM, the spot price was $1,183.20 for a gain of $1.10 on the day. The Kitco Gold Index attributed -$0.40 to predominant selling and +$1.50 to a weakening greenback. The U.S. Dollar Index, after some hestitation, rallied to the 82 level. As of 8:57, it was at 82.01.

The doldrums continue, with gold not making much headway above $1,185. As the day unfolds, the short-term interday range is likely to keep in place.

Gold Gets Knocked Down By Housing Sales Data

2010-07-26T18:27:00.000-04:00

After a nice climb up to above $1,192 when regular trading started, gold turned downwards around 9:30 AM ET. Still, it hung around a little below $1,190 until the U.S. June new home sales number was released. Total sales of 330,000 were higher than expected, which catalyzed a drop in the metal all the way down to a little below $1,180. The decline then abated by gold getting back up to $1,182. That relief rebound didn't last: around 11:00, the metal dropped further to below $1,180 again. In that timeframe, a new daily low of $1,178.60 was made. The relief rally that followed was stronger: starting at 11:10, the metal veered up to the mid-1180s. As of 12:02 PM ET, the spot price was $1,185.40 for a loss of $4.30 on the day. The Kitco Gold Index attributed -$10.90 to predominant buying and +$6.60 to weakening of the greenback.

The U.S. Dollar Index wasn't affected by the new-home-sales number. Fluctuating between 82.25 and 82.3 in mid-morning trading, it went on a rally that peaked as of 10:46 at just below 82.4. Then, the rally turned into a downturn that saw the Index reach just below 82.1. As of 12:04 PM, it had turned still lower at 82.06.

The greenback's late-morning drop helped add strength to gold's rally, but there is a hint of the old concurrency returning. A good U.S. economic datum diminished the safe-haven appeal of both. Gold may recover to $1,190, but so far any such recovery looks iffy.

Update: In the rest of the pit session, that recovery did not happen. Instead, gold topped out at a little above $1,186. After sinking back to $1,182 around 12:45 AM ET, the metal pulled up and settled into a zone between $1,186 and $1,184. As of the end of the pit session, or 1:30, the spot price was $1,184.50 for a loss of $5.20 since Friday's close. The Kitco Gold Index assigned -$12.50's worth of change to predominant selling and +$7.30 to greenback weakness.

The U.S. Dollar Index spent early afternoon softening. After reaching 82.0 a little after noon, and pulling up to 82.1 later, the Index sunk a little below 82 but ended up staying at that level. As of 1:35, it was at exactly 82.0.

Gold made it to the mid 1180s, which is an improvement from its lows, but the metal is likely to close with a loss on the day. Good news is still bad news for the metal.

Update 2: The recovery all-but fizzled in the electronic-trading hitch. After descending to slightly below $1,184, the metal dropped down to a little above $1,180 by 2:50. A double bottom preceded a rise up to $1,183, which gave way a litle just before the end. As of the close of regular trading, the spot price was $1,182.10 for a drop of $7.60. The Kitco Gold Index attributed -$14.50 to predominant selling and +$6.90 to weakening of the greenback. The two categories sum up to the raw change since Friday's close.

The U.S. Dollar Index didn't do that much in the rest of the afternoon, but it did get below 82 albeit breifly. For the bulk of the stretch, it fluctuated between that same level and 82.1. As of 5:30, it was at 82.035.

Its daily charts, from Stockcharts.com, shows today's close at slightly lower than recent interday lows:

Today's decline makes for the third session in a row. The Index barely made a new short-term low, although staying above the 82 support level. Its RSI level, found at the top of its chart, is close to oversold levels again.

How low can it go? It's now wellbelow its 50-day moving average but stil well above its 200-day moving average. The former has turned down, but the latter is still trending up. The distance between the two moving averages is indicative of the Index's run in late spring. 82 is a fairly important support level; if the Index gets and stays below it, there could be a fair bit of downide left. 80 wouldn't be out of the question. At any rate, it's clear that the Index's intermediate-term downtrend does no appear finished.

As for gold, its own daily chart shows the inching up over the course of last week came to an end today:

The metal managed to stay above the recent $1,175 support level, keeping the current trading range intact, but the slight upward momentum it showed last week is gone.

Still, the drop hasn't gone that far. The current interday range is only a little below the previous one, and support is still being provided by physical buying. Investment demand may have dried up for now, but that other source is still active. Hence gold's reluctance to fall very far.

There isn't any pressure to push the metal above $1,200 right now, and any that has existed in the recent past has fizzled, but the lower end of the range is still solid. Gold's midsummer holding pattern is still in place.

A post-pit Reuters report ascribes today's drop to safe-haven demand fizzling due to the home-sales number. Amongst the points made therein, these were included:

* Bullion was pressured as U.S. stocks gained ground after data showed sales of new U.S. single-family homes rebounded in June from May's record low.

* Gold was hovering just above an upward trend support, but a sharp price decline could happen in an overly bullish gold futures market held up largely by short-term, speculative investors - analysts.

* Money managers cut their long, or bullish exposure, to U.S. gold futures by 18 percent for the week to July 20 as the metal's prices hit two-month lows, U.S. CFTC's trade data showed. [ID:nN23274411]

Presumably, more good news from the U.S. economy will continue to pressure the metal as there's an absence of countervailing (or overpowering) bullishness right now. With inflation failing to make an appearance in the U.S. and the Eurozone, and it being still relatively muted in the U.K., the next big driver for the metal has not kicked in. Nevertheless, the metal's still holding up at levels well above last mid-winter. The recent doldrums can be taken as a sign that gold's long-term bull market has not tipped over into a frenzy, except briefly at the height of the Eurocrisis.

Gold Nanoparticles Add To Efficiency Of Bacteria-Produced Electricity

2010-07-26T11:31:00.000-04:00

It;s not likely to be a significant source of demand, and it's only a lab project right now, but an electrical system using microbes to generate electricity has its efficiency improved about twenty times by putting gold nanocoating on the anode. That efficiency gain is compared to using naked graphite anodes. Since gold is expensive, the inventors are loking for a cheaper alternative like iron.

Planned uses for the gizmo are water treatment and even desalination in the midst of generating power.

Gold Trading As Currency

2010-07-26T11:25:00.000-04:00

In a commentary over at EquityMaster.com, Asad Dossani says the reason for gold quintupling in five years has little to do with it as a commodity and lots to do with it as a currency. Despite the gold standard being gone, lots of gold holders still expect it to act as a store of value and gold is priced accordingly.

Dossani makes a good point when he says gold cannot be printed, which keeps its value up, but gold is not supported by any major central bank; the latter fact adds to the metal's potential downward volaility.

Peter Krauth Sees Higher Gold Ahead, In Par Due To Banks

2010-07-26T11:15:00.000-04:00

In a wide-ranging interview with William Patalon III, Peter Krauth gives several reasons why gold is going to $5,000/oz in the longer term and is also veering in on a shorter-term leap. One of the reasons he brings up isn't mentioned by many: U.S. banks are moving into commodities in a big way.

Q): You've talked about your proprietary "Gold Spike Indicator" (GSI) market-timing signal? Can you give us a basic explanation of what that is and how it works and explain the "window of opportunity" that it identifies?

Krauth: Well, since the financial crisis, some of the largest U.S. investment banks have converted into bank holding companies. That means they must file quarterly reports on their holdings, including gold and other commodities. What I've repeatedly noticed is that, for a certain amount of time before, during and after these quarterly reporting dates, gold has moved up significantly.

(Q): So exactly what is your "Gold Spike Indicator" saying right now ... or what do you expect it to say? How long will this window be open this time around?

Krauth: This window is usually open for about three to four weeks. That's not a long time. It's important to ensure you're properly positioned in time to benefit. This time around, I'm expecting the GSI to indicate that the next two to four weeks are likely the best time to get positioned in both gold and silver, as both those metals could begin to spike soon after that.

As you know, the fall tends to be the strongest period of the year for precious metals prices. What's interesting this time around - because GSI provides a signal four times a year - is that precious metals go through their weakest period in the summer months of June, July and August. That means we could be setting up for an even bigger spike this time around. And that's really exciting.

(Q): You've written extensively about the bullish, long-term prospects for commodities. As part of that, you've uncovered a promising new development in the resources area: It involves banks - especially big investment banks - taking physical control of commodities. Just what is it that we're seeing here? And isn't this an element of your "Gold Spike Indicator?"

Krauth: That's correct - this is part of the GSI. Keep in mind that a large chunk of profits that big banks report these days come from trading. But much of that trading isn't even that risky, it's just leveraged so highly it pays off very, very well. As we know, banks can borrow pretty cheaply these days with interest rates at microscopic levels. But it goes deeper than that. These banks have made strategic moves to "control" many of the commodities they trade.

What I mean by this is that they are no longer just "paper trading" commodities through futures contracts. This began a couple of years ago with the creation of exchange-traded funds (ETFs) that were physically backed with such commodities as gold, copper or silver, to name just a few.

JPMorgan Chase & Co. (NYSE: JPM) and Goldman Sachs Group Inc. (NYSE: GS) have begun taking physical delivery of gold when their futures contracts mature. Last August, Morgan Stanley got the okay to trade with Dubai Gold Securities, which will allow it to take physical possession of the gold.

Earlier this year, Goldman and JPMorgan each bought established metals-warehousing facilities. Goldman purchased Metro International of Detroit for $550 million, and JPMorgan bought Henry Bath of the United Kingdom as part of a larger $1.7 billion acquisition. According to industry insiders both deals were done at a premium. These guys aren't paying premiums unless they foresee higher prices.

As for profiting from a future rise, Krauth likes gold stocks - particularly, mid-tier producers and exploration stocks with multi-million ounce deposits.

Russian Gold Production Falls By 3.41%

2010-07-26T10:59:00.000-04:00

According to a brief report in the Automated Trader, Russian gold production from January to June of this year fell 3.41% from the same period last year. This small fall occurred despite significantly higher gold prices.

Russia's central bank is still adding gold to its reserves, so net exports from the country must be falling unless demand from the Russian public has fallen by a greater amount than central bank purchases plus the production shortfall.

Large Commercial Net Shorts Plunge

2010-07-26T10:49:00.000-04:00

That's what an analysis of recent Commitment of Traders reports shows to Gene Arensberg of GotGoldReport. His tracking of large net commercial short positions shows a large drop of 25.6% over the past three weeks. The last three-week period with a larger drop was in August of 2008, just before the financial crisis. Long commercial net short positions as a percentage of total open interest also dropped quite briskly in the last week.

The drop in LCNS outpaced the drop in open interest at a roughly 4:1 pace in the week ending last Tuesday. And when we see that, it suggests that the largest "paper gold" sellers are aggressively closing out their "hedging".

As gold sold down from the $1260s to the $1170s, please note that the LCNS:TO has fallen to its low of the year, and this is the first time the LCNS:TO has fallen below 39% since December 9, 2008 – back amid the post-Lehmans panic.

The fact that the LCNS:TO has fallen so far on what is essentially only a modest, roughly 7% pullback for Gold Prices suggests a major shift is underway in the futures market. We view the current LCNS:TO of 38.6% as considerably more bullish than bearish. The largest commercial traders, as a group, seem to be rushing to cover or offset their net short positioning as gold consolidates in the $1170-1210 range.

That doesn't necessarily mean that gold won't continue to sell off even more. It can and it might. But these date certainly do mean that the largest "hedgers" and short sellers of paper gold have closed out a substantial amount of their collective net short positioning on what amounts to a net $50 drop in the Gold Price, as measured on Commitment of Traders reporting Tuesdays.

The neat thing about this finding is, it works as a contrarian indicator whether or not the big commercial shorters are manipulating the market. If not, if the large net short position on Comex is hedged elsewhere, then it signifies a lull in demand that might reverse later.

June New Home Sales Rebound More Strongly Than Expected

2010-07-26T10:27:00.000-04:00

New home sales in the U.S. rose by a greater amount than expected last month: they jumped by 23.6% above the downwardly-revised May figure of 267,000, to 330,000. Economists were expecting a smaller rebound, to 315,000. Inventories of unsold new homes shrunk a little.

Gold didn't take the news all that well. From around $1,188 around the time the news was released at 10:00 AM ET, the metal plunged to as low as $1,179.70 before rebounding a little to around $1,182.

Indian Gold Buying Pulls Back Somewhat

2010-07-26T10:16:00.000-04:00

According to a report by the Economic Times, Indian gold buying eased from Friday's levels as lower prices are still being waited for.

"Today sales are down, but Friday we did good volumes at $1,187-1,195 (an ounce)," said a dealer with a state-run bullion dealing bank in Mumbai. "There was activity on Friday evening but today there are enquiries, but nothing is materialising," said another dealer with a private bank....

Traders and dealers said the recent correction in prices seems to have pushed up sales in July as traders replenished stocks for the upcoming festivals, which will last till November. "I ended up booking 5 times more for shipments than last month," said the dealer at the state-run dealer. "I have plenty of orders below $1,900 (an ounce)," said the private bank dealer.

Also mentioned in the article was a forecast of somewhat higher level of imports into India this year as compared to last year's 480-490 tonnes.

After Trending Up, Gold Sinks Below $1,190

2010-07-26T09:00:00.000-04:00

After an initial bob-and-weave, gold climbed until hitting around $1,193 shortly before 1 AM ET. A dip preceded a climb up to the daily high of $1,198.80, which itself preceded a reversal of the trend. In a downwards wavy motion, the metal lost fourteen dollars an ounce from top to bottom as it touched $1,184.80 a little after 6 AM ET. A relief rally failed to get it back above $1,190. As of 8:01 AM ET, the spot price was $1,186.60 for a drop of $3.10 since Friday's close. The Kitco Gold Index attributed -$6.40 to predominant selling and +$3.30 to a weakening greenback.

The U.S. Dollar Index, after churning around mostly downwards last night, fell down to below 82.25 by 2:45 AM. Recovering to 82.55, about at last night's mid-level, the Index slumped back down to about the same level as its previous dip. As of 8:11 AM, it had pulled up slightly to reach 82.28.

A Bloomberg report, as webbed by Business Week, said gold may rise on hopes physical demand will increase.

“Physical demand is supporting the market,” said Afshin Nabavi, a senior vice president at bullion refiner MKS Finance SA in Geneva. “In the past two weeks, every time there’s an attempt back towards the $1,185 level, there is good demand coming. The investment side has been relative quiet.”...

“There is physical buying coming in, as prices are below $1,200,” said Chae Un Soo, a Seoul-based trader with KEB Futures Co. “In the longer term, gold has the potential to power higher again, as signs of an economic rebound are likely to provide an excuse for investors to build up positions as an inflation hedge.”

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

A Reuters report points to physical buying as providing the push upwards, but the stress test results drained safe-haven demand.

Traders said prices below $1,200 were boosting bargain hunting from physical buyers.

"The fact that we are below $1,200 has reignited... jewellery demand," said Robin Bhar, an analyst at Credit Agricole. But he added that the results of the stress tests had diverted investors' attention to riskier assets than gold....

"The factors pushing gold haven't gone away," Bhar said, citing sovereign debt, the outlook for inflation and the devaluation of currencies.

"They're just probably not going to be in focus now the stress tests have been done and concerns about the banks and the overall level of debt have been eased for the time being."

The article also quotes another analyst as saying physical buying has been there, but it's been light.

A Wall Street Journal article said gold slid down because of investment demand waning.

"I think people are a bit wary of getting too heavily long in gold, because the technicals below $1,185 an ounce look really bearish," said Walter de Wet, a precious-metals analyst at Standard Bank in London, adding a break below that level could spark a pullback toward $1,145 an ounce....

UBS analyst Edel Tully said speculators have been liquidating gold in Comex gold futures as well, according to latest data from the U.S. Commodity Futures Trading Commission. This reduces the chances of a heavy selloff, but also indicates investors believe the stress-test results and recovery in risk appetite won't spur safe-haven demand for gold.

"Until one of these factors changes direction, gold remains locked in a range-bound state as summer trading conditions permeate sentiment," Ms. Tully said.

Regular trading started for the week on the heels of a dip to $1,186. Jumping up to $1,190 in the opening minutes, gold sunk down a little before resuming its climb. As of 8:53 AM, the spot price was $1,191.10 for a gain of $1.40 sine Friday's close. The Kitco Gold Index assigned -$1.50's worth of change to predominant selling and +$2.90's worth to overall greenback weakness. The U.S. Dollar Index climbed up a little until just before 8:30 but sunk back later. As of 8:56 AM, it was at 82.28.

So far, the gold-greenback negative correlation has not been evident. The metal has shows some strength in early regular trading, and has ascended to levels not seen since 5 AM. It may not continue, but the week has gotten off to a good start in the Comex pits.

Financial Sense Newshour Discusses The Weather

2010-07-25T13:58:00.000-04:00

There wasn't much on gold in this week's Financial Sense Newshour podcast; instead, other topics like energy, a possible double-dip, and weather events were discussed. Mentioned in passing was Niall Ferguson's continued warnings about the state of America's government finances and the suddenness of a crisis.

What if the crisis that Prof. Ferguson and other have been warning about comes to pass? What if America is visited by imperial decline, which is covered up by some quick fiscal fix that seems to restore the good old days? What if the climactic blow is covered over by the assertion that the crisis is over and things will be getting only better, once [say] 401Ks have been commandered to force American savers to act more like Japanese savers?

The final tip-over for the U.K. was World War 2. Although it's common for Americans to claim that America won World War 2, the United States didn't enter the war until more than two years after Great Britain did. On the eve of Pearl Harbor, there were lots of British soldiers who had already served more than a two-year hitch. The Battle of Britain, with the U.K. serving as the last rampart of civilization in Europe, was more than a year in the past. It's true the the Roosevelt Administration provided aid to the U.K. in the form of Lend-Lease, but the British boys were doing the fighting and dying. The later Vietnam War can serve as evidence that money and materiel alone does not win a war.

The same point applies to members of the Commonwealth like Australia and Canada. The U.K. Parliament declared war on Sept. 1st, 1939. The Canadian Parliament declared war two days later. On the eve of Pearl Harbour, it wasn't that hard to find the Canadian equivalent of "Gold Star Moms."

Revisionist historians have said that America was dragged into war because of blandishments from the U.K. government, which President Roosevelt looked favourably upon. He wanted war, and Churchill wanted him in. They have a point, in that the U.K. was glad to have help from anywhere in the English-speaking world. (Yes, it was that bad in 1940 after France fell.) The ultimate price was the loss of the British Empire in part because of a precedent set after World War 1. Although the beginnings of Britain's welfare state were inched into earlier, with the People's Budget of 1909, it got its real start after 1918 by flying under the colours "A Nation Fit For Heroes To Live In." Temporarily pushed back by the Geddes Axe, it reached full fruition with the new Labour government of 1945. In a very real sense, the British welfare state was a G.I. Bill writ large.

Of course, the foundation of the welfare state - social insurance - was first introduced in the German Empire. Thus, the Tory quip after the 1945 election: "After the Beveridge Plan, it is clear that the man who won was Bismarck."

The fiscal trick that the Labour government used was a 30% devaluation of the pound in 1949. Although the U.K. had already lost India, and the Empire was effectively through, it had the temporary effect of convincing many in the U.K. that Britain would carry on. The return of confidence was such that an early BBC miniseries called The Quatermass Experiment took it for granted that the first manned flight into orbit would be British.

On the ground, something else was apparent. Young men and boys in gangs were sporting garb that came from Edwardian times; hence, they were called the "Teddy Boys." During King Edward VII's time, the British Empire had hit its height. Youngsters appearing in the garb of the time reflected a kind of A-OK confidence in the future of Britain, which dovetailed with the devaluation that was supposed to solve the U.K.'s fiscal problems.

If the United States gets scathed by a crisis and emerges through some kind of quick fix, like the commandeering of 401Ks for forced investment in U.S. Treasuries, we might well see the American equivalent of the Teddy Boys: young toughs dressed up like they stepped off the set of Mad Men - right to the nines. Full grey flannel suits with three buttons, narrow silk ties, leather wingtip shoes: the kind of garb worn by movers and shakers at the time America had hit its height. The female garb would be pillbox-hat glamour. Tail-finned Cadillacs, authentic classic models, would likely be the preferred mode of transport.

It'll last as long as the United States isn't humbled on the world stage, like the U.K. was during the Suez Crisis. Being left in the lurch by the United States, and unable to fight the battle alone, exposed the remnants of the U.K. empire as not worth belonging to anymore. It was the spark for the final devolution of the former British Empire: decolonization.

The American equivalent would be the unravelling of NATO, which would not happen unless the U.S. lost a major war affecting its traditional territorial claims after being humbled by the more quotidian means of excessive debt. An example of a major war in this context would be, say, a foreign power backing a successful insurgency in Hawai'i that led to its independence. If such should happen, NATO would appear to be a millstone...just like membership in the British Empire appeared after Suez.

After Break To $1,205, Gold Tumbles

2010-07-23T18:32:00.000-04:00

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

2010-07-23T11:40:00.000-04:00

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."

2010-07-23T11:24:00.000-04:00

"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

2010-07-23T10:56:00.000-04:00

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

2010-07-23T10:34:00.001-04:00

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

2010-07-23T10:18:00.001-04:00

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

2010-07-23T09:00:00.001-04:00

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

2010-07-22T18:23:00.000-04:00

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

2010-07-22T11:33:00.000-04:00

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

2010-07-22T11:19:00.000-04:00

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

2010-07-22T11:06:00.000-04:00

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

2010-07-22T10:52:00.000-04:00

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

2010-07-22T10:42:00.001-04:00

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

2010-07-22T10:34:00.000-04:00

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

2010-07-22T10:24:00.000-04:00

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.