Nero's Palace Roof Caves In (I couldn't resist)

I'm not someone who's inclined to anthropomorphize disasters, but I couldn't resist calling attention to this item: part of Nero's old palace has collapsed in Rome.

Part of the ceiling of ancient Roman emperor Nero's Golden Palace collapsed on Tuesday, rekindling fears that site is unsafe for the hordes of tourists who come to see it every year.

Nero's Golden Palace or Domus Aurea, which lies on a hill overlooking the Colosseum, was built in the first century A.D. and has been plagued with structural problems since it was opened to the public in 1999.

Workers were undertaking repairs when part of the roof collapsed, causing a section of the garden above it to fall into the palace over an area of some 100 sq metres, officials said. No injuries were reported....

A puckish reminder: one of the "I"s in PIIGS is none other than - well, you know. More to the point, the name of Nero certainly resonates in these times.

An Oft-Overlooked Source Of Physical Demand: The Middle East

Peter Cooper points out that, although attention is focused on Asian physical demand, Arabian physical demand was the one of the drivers for the 1970s gold bull market. Less attention is paid to this part of the world because of a greater tradition of financial privacy, which means that many sales are unrecorded.

In November 2008 ArabianMoney reported on a record $3.5 billion purchase of gold by Saudi Arabian investors. Many of these gold deals go unreported and are metal deals between individuals, often of very substantial size.

Rumors of gold hoards buried in the Arabian desert may not be so wide of the mark. But the scope for con-men to hone such stories into believable investment opportunities is legendary and due diligence is called for in any such transaction.

What certainly seems to have happened among the super-rich of Arabia is that gold has become very popular as a safe haven asset without third party risk. In the wake of global banking and investment crises and scandals the absence of a third party is particularly desirable.

He end with the possibility that gold is being accumulated in the Middle East once again.


There's no way to find out definitively, of course, but it does fill a gap between reported gold demand and what real demand is likely to be given the current longer-term trading range. Some may be put off by the Arabian denizens' concern over financial privacy, but some others may find it refreshing.

Demand For Gold Maple Leafs Explodes

The Royal Canadian Mint has released its annual report for 2008, which was delayed because of a missing-gold scandal that took months to resolve. Other than that incident, and another scandal where $3 million' worth of gold was sold to a scrap refiner at too deep a discount, the report showed amazing numbers.

The mint's downtown Ottawa operation sold 896,701 ounces of gold in coins, wafers and kilo bars in 2008, a 222 per cent increase from 278,616 ounces in 2007. Sales of silver coins soared, too, to 8.8 million ounces from 3.5 million the previous year.

Call me an apologist for the mint if you like, but common sense suggests that the missing-gold and scrap-sale scandals were caused by the workload exploding due to demand exploding. The same hurried carelessness shows up in financial instiututions when the stock market's hot.

Gold Inches Up To Above $1,110 Level

The U.K. has emerged from recession with a slightly better than expected GDP figure for the fourth quarter of 2009, although there's still some fear that the path to growth will be rocky. Monetary policy is likely to stay loose. The first day of trading for the Grecian government's new seven-year issue didn't go well for the bond: its yield rose to 6.078 percent from its priced 6.001. If it keeps falling, there'll be more refinancing difficulties down the road.

Through it all, gold didn't react much. The metal spent most of the night between $1,108 and $1,110, before breaking through on the upside a little after 11 PM ET. It wasn't much of an ascent, and $1,110 did not hold firm as a support level in the early morning. The price peaked at $1,114.30 as of 2:30 AM. Since then, the metal slid down to $1,107.90; that bottom was reached as of about 6:15. The metal subsequently rose above the $1,110 level but slipped back. As of 8:12 AM ET, spot gold was at $1,109.80 for a gain of $0.80 on the day. The Kitco Gold Index attributed -$0.50 to predominant selling and +$1.30 to a weakening greenback.

The U.S. Dollar Index spent last night drifting, mostly downwards. Starting at 1:35, the drift turned into a drop that took it down to 81.0 by 2:25. Since then, the Index rallied back before settling into a somewhat ragged trading range bordered by 81.125 on the downside and 81.2 on the upside. As of 8:18 AM, it was at 81.17.

The regular Wall Street Journal morning report attributed gold's slight gain to the aftereffects of the Euroland deal.

The precious metal complex rose in the past few sessions after the long-awaited Greek rescue deal was announced, causing the euro to strengthen from the 10-month low hit against the dollar last week and boosting commodity prices overall. Activity may now be generally quiet for the rest of the week with many markets closed Friday for the Easter weekend....

VTB Capital analyst Andrey Kryuchenkov said he expects the Greek deal euphoria to end in the near future because "underlying debt problems in Greece and other euro-zone countries have not disappeared all together."

Also mentioned is a probable focus on other data now that the Eurocrisis has calmed down.

A Reuters report notes the thinness of overnight trading, and the fact that there was almost no activity in the Asian physical markets. What little gain there was, was attributed to a recovering Euro.

"I think sentiment is really neutral. It's stuck in a range of $1,080 and $1,130," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.

"Gold is watching the dollar. Everybody is in a holiday mood. Nobody wants to commit too much ahead of the Easter weekend."

Also mentioned is a rise in the holdings of the SPDR Gold Shares trust (GLD): they increased by 5.176 tons yesterday.

Bloomberg's regular report, as webbed by Business Week, attributes the slight gain to the same cause but mentions an interesting fact: the above-mentioned increase in GLD's holdings has put its gold hoard at the highest level it's been this year. That, in a range-bound market.

“As we enter the second quarter of the year, downside pressure from weak seasonal demand should ease, although upward potential is also expected to be limited,” Stefan Graber, Singapore-based analyst with Credit Suisse Group, wrote in a note to clients. “Investors should expect price gains for gold in 2010 to be considerably smaller than in 2009.”

As regular trading opened, $1,110 was fallen through more definitely. After fluctuating around that level, a drop set in starting just before 8:30 that took the price down a couple of dollars an ounce. As of 8:53, the spot price was at $1,108.30 for a drop of $0.70 on the day. The Kitco Gold Index had +$0.45 for a weakening greenback and -$1.15 for predominant selling.

The U.S. Dollar Index, as indicated above, did rally since regular trading began. The above-mentioned trading range was broken through on the upside; by 8:42, the Index has reached 81.27. As of 8:54 AM, it was at 81.25.

Indications are that today's session will be quiet. The ebbing-Eurocrisis driver is fading, and there isn't much that looks likely to push gold higher (or lower.) The U.S. Dollar Index is still sinking overall, but not by that much now. Gold's session today may wind up tepid.

After Morning Run-Up, Gold Slides Down

Although a spurt at the beginning of regular trading failed to hold, gold stayed above $1,110 except for a short period between 10:00 PM ET and 10:45. That dip carried gold from just above $1,111 to $1,107, but it was reversed by a run from that level to above $1,114 between 10:05 and 11:15. Although the metal pulled back from that peak, it still held above $1,110 comfortably. As of 11:52 AM ET, the spot price was $1,112.10 for a gain of $5.50 on the day . The Kitco Gold Index split the gain into $1.70 for predominant buying and $3.80 for a weakening greenback.

The U.S. Dollar Index had a nice run early in the regular session, which topped out at 81.46 as of 9:15. That run provided a potential air pocket that, as it turned out, wasn't there. After descending into a ragged trading range centered around 81.38, the Index slumped again from 10:45 to 11:11. Bouncing off the 81.26 level, it climbed back up; as of 11:53 AM ET, it was at 81.34.

So far, gold's been acting fairly well. One of those mid-morning drops was shrugged off, which says that the market internals are pretty good right now. Gold looks likely to keep holding its own during the afternoon session.


Update: The price slid down a bit in early afternoon trading, with $1,110 not holding. After lingering around the $1,112 level, the slide continued at 12:15 PM ET. Reaching $1,109.50 just before 12:30, the metal settled into a trading range with descending tops and a floor of $1,109. The descending-top part ended between 1:00 and 1:30. As of 1:39, spot gold was at $1,109.10 for a gain of $ on the day. The Kitco Gold Index attributed -$0.70 to predominant selling and $3.10 to greenback weakness.

The U.S. Dollar Index had a bit of a run up between 11:20 AM and 12:45 PM, which brought it from below 81.3 to almost 81.5. Since then, it pulled back a little; as of 1:40, it was at 81.38. Overall, the Index hasn't moved all that much so far.

The conclusion in the original post may have been a little too optimistic. Gold has softened, and $1,110 may not be as solid as I had assumed earlier. The rest of the afternoon's trading may be less saggy, but it looks like $1,115 is out of reach for today's session.


Update 2: The decline did continue, but not for much longer. $1,115 proved to be out of reach, $1,110 wasn't solid, but gold didn't fall much further from that level. For a while in the late afternoon, the metal got above it.

The above-mentioned trading range was broken on the downside as of 1:38 PM ET initially and 2:00 for real. The resultant decline took gold down to $1,107.50. Making a double bottom, gold turned up at 2:30 and settled into a churn just below $1,109. By 4:00, the price had vaulted above $1,110; a range developed between that level and $1,111 for the next forty-five minutes. However, the price turned down and gold fell through that floor. As of the close, the spot price was $1,109.00 for a gain of $2.30 since last Friday's close. The Kitco Gold Index attributed -$2.60 for predominant selling and +$4.90 for a weakening greenback.

The pullback of the U.S. dollar index continued in the later afternoon, but the decline levelled off just before 4:00. By the time it was finished, the Index touched 81.35. The last hour-and-a-half of regular trading was spent adrift in a near-trading range that was slighly concave. As of 5:30, the Index was at 81.265.

Its daily chart, from Stockcharts.com, shows a surprising near-gap between today's action and Friday's:



It's been a bit of a come-down day for the Index, even if the overall chart readings are still solidly bullish. Last week's leap has been mostly reversed. That leap, though, was prompted by speculation about a messier resolution to the Eurocrisis than the one that was. It had been far more anticipatory (and cynical) than the drivers for earlier jumps. There's really not that much surprise in seeing the pullback because things are calming down in Euroland and the anticipations of an all-out crisis event like Grecian government inability to sell bonds never emerged. Instead, the latest issuance was successful.

This interpretation ties in with an overall framework of bullishness, though. It still looks like the Index got ahead of itself last week, but there's no indication that any serious reversal is coming. There really won't be unless it goes down below 80.5 in a sustainable way.

As for gold, its own chart shows an encouraging three-day rise that's gotten it above the important $1,100 level:



From one angle, gold's done well over the past three trading sessions. It looked a lot like the break below $1,100 last Tuesday would harbinge another serious decline; there were people expecting it to plummet down to $1,050. Instead, after a couple of days' muddle, the metal reversed course and climbed above $1,100. For a time when the U.S. Dollar Index had been vaulting upwards, gold put on a good show.

On the other hand, its present price is still well below the last peak made on March 17th. In the shorter term, there are still two higher highs and lower lows evident on the chart. Gold's MACD lines are still in a bear zone, as indicated by the histogram at the bottom of the chart. Gold may peak at this level, which would not be a very good technical sign for the metal.

The best hope right now, if gold turns down tomorrow or Wednesday, would be for the decline to come to a halt around $1,100. That bottom would further confirm that the $1,100 support level is real.

Moving back to today's action, a Reuters report credits today's gain to economic optimism causing a rise in the commodities complex in general. Amongst others, these points were therein:

* Gold buying backed by a stronger euro, boosted by last week's euro zone agreement on emergency fund for Greece.

* Better economic data boosts risk appetite, lifting gold and other industrial commodities across the board - traders

* Momentum dent after U.S. data showed PCE price index, a key inflation gauge, rose less than January.

* Boosted by commodities gains led by an oil rally, but volatility expected to rise in shortened trading week - RBC.

Volatility may indeed rise over the next three trading sessions; the softening this afternoon may continue tomorrow. However, gold's still directionless over the longer term - and demand below $1,100 has held up well. Tomorrow may see directionlessness in the shorter term too.

A Long-Term Warning From Peter Mycroft Psaras

He analyzed major gold companies from a free-cash-flow and free-cash-flow-to-invested-capital perspective, and concluded that the rates for those companies were lousy over the long term. Out of the twenty-eight gold companies he analyzed, only two had acceptable ratios in both: Freeport McMoran and Golden Star Resources. His advice is to stick with physical gold unless there is special reason (like a good market for the next few years) to believe that free cash flow for gold companies will increase considerably.


There may be reason, from a contrarian standpoint. The gold industry may be in last place by those metrics, but the last can be first if conditions are right. There's already signs that the seniors' cash flow is perking up in a big way, although it may be shunted into more capital expenditures.

Gold Won't Go On A Tear Without More Monetary Irresponsibility, Says Howard Simons

In an article entitled "Gold Needs More Irresponsibility," Howard Simons crunches some numbers and concludes that gold in U.S. dollar terms is tracking U.S. inflationary expectations but gold in Euro terms is exceeding inflation expectations in Euroland. He chalks up a run ahead of inflation expectations in 2004-8 to Indian demand prompted by the wealth effect, which explains why gold and interest rates were rising at the same time.


It's a well-written article, but the conclusion may not be liked by some goldbugs. He says that there isn't enough inflation baked in the cake to sustain a further rise in gold, long-term. More monetary irresponsibility is needed.