Robert Prechter Bearish On Gold

That isn't a new stance for him, but the reason given now is essentially contrarian:

Meanwhile, the most popular alternative to currencies, gold, isn’t such a good buy either, according to the veteran market watcher. “It’s losing upside momentum at the same time more people are getting more enamored with it,” [Prechter] notes.

Interestingly, he has this to say to the fear that gold will drop should recovery ensue:

Contrary to popular belief, “gold tends to rise when the economy is expanding not when it’s in recession,” according to Prechter’s research.

Of course, there are expansionary periods where gold does not do well; the '90s are an example. Believe it or not, the '80s did follow that rule. Gold got to $300 in 1982, and rallied to almost $500 until the crash of '87 intruded.

Gold Creeping In To Institutional Portfolios

In a commentary mostly focused on the stock market, Jon D. Markman has this to say about institutional investment in gold:

There are lot more portfolio managers reporting that they own gold now than in the past. But global analyst Larry Jeddeloh tells us that most managers he talks to only own 2% to 3% of their portfolios in precious metals. Many are also first-time owners of gold, and he says it won't take much more momentum to nudge them toward a higher weighting. Note that while physical gold is trading near an all-time high, the miners in the Market Vectors Gold Miners ETF Index (NYSE: GDX) just failed to hold their high of October last year or double-top the March 2008 high. I don't think this is the end for gold miners, so just expect a decline to around $45 before another rally attempt is begun.

Those additions are likely due to follow-the-leader. It's further evidence that investment in gold, as a portfolio hedge, is becoming mainstreamed.

Indian Gold Demand Close To 2007 Levels

In a Reuters India interview, the World Gold Council's Ajay Mitra says Indian gold demand for the first quarter this year could match 2007's level as the slumps of 2009 are shaken off.

"Demand for gold in Q1 has been robust, growth in value terms are in double digits, close to 40-45 percent...," Ajay Mitra, managing director India and Middle East, WGC, told Reuters in an interview, ahead of the release of quarterly demand figures on Wednesday, adding "they look close to 2007 numbers."

"We expect the momentum to continue in coming months on excess surplus cash and liquidity," said Mitra, adding "gold offers better returns than other asset class."

He also intimates that expectations for higher prices are helping push up demand.

Indian Gold Buying Picking Up

Now that prices have lowered, buyers are coming in to the Indian market.

"Bookings are continuing today as traders are expecting a further rise in prices," said a dealer with a state-run bank. "I booked 200 kgs at $1,175-1,180 (on Friday), while today I ended deals for 150 kgs at $1,185/1,186."...

"Gradual demand is there, there will be further buying if prices fall further to $1,175 an ounce," said another dealer with a private bank.

So, the bargain point is around $1,175 in that market. That price is a little above the near-term recent lows.

New Investment Demand Outstrips Production Increase

That the start of a Bloomberg article that looks at reasons why gold may continue to advance over the longr term.

Exchange-traded products backed by bullion added 41.7 metric tons in the week to May 14, the most in 14 months, data from UBS AG show. China, Australia and the 15 other largest mining nations averaged weekly output of 41.6 tons last year, researcher GFMS Ltd. estimates....

Supply from mines, which peaked in 2001, fell in five of the last eight years, data from London-based GFMS show. Companies are digging deeper to extract dwindling reserves, with mines in South Africa extending as far as 2.35 miles (3.8 kilometers) down.

Investment, including bars and coins, almost doubled to 1,901 tons last year, exceeding jewelry demand for the first time in three decades, according to GFMS. Jewelry will jump 19 percent to 2,100 tons this year and industrial use 8 percent to 398 tons, Sydney-based Macquarie Group Ltd. says.

The article does mention that economic recovery is the biggest risk factor for gold. It also has this fact about gold/greenback concurrency: "The metal added 18 percent in 2005 when the U.S. Dollar Index, a measure against six counterparts, advanced 13 percent."

Gold Rises As Week Begins

The troubles in Euroland continue as Spanish bank CajaSur's assets were seized by the Bank of Spain. It foundered because of distressed real-estate exposure, and its failure ignited the now-familiar fears. Earlier, President Hu Jintao announced that the PRC government will revalue the renminbi on its own time and at its own speed; Hong Kong shares were up in part becuase there's hope that the People's Bank of China will put an end to its current tightening measures.

Both developments were good for gold, as the bank closure was announced over the weekend. After reaching $1,192.10, just before 4 AM ET, the metal pulled back when London trading opened. Within two hours, it was below $1,185. Pulling back up to the $1,185 level, it slumped back to around $1,183 before recovering a little. As of 8:05, the spot price was $1,184.80 for a gain of $7.80 since Friday's close. The Kitco Gold Index attributed +$21.10 to predominant buying and -$13.30 to a strengthening U.S. dollar.

The U.S. Dollar Index was the prime beneficiary of the Spanish troubles; it advanced not only last night but also this morning. Rising in the evening, it marked time until just before 4 AM. Within three hours, it rallied from the 85.7 level to the 86.45 level before marking time once again. As of 8:15, it was at 86.46.

A Reuters report attributed last night's overall rise in gold to bargain-hunting.

"The nervousness of currency markets is clearly visible in the gold market," said Pradeep Unni, senior analyst at Richcomm Global Services in Dubai. "The extreme fear of potential unannounced ECB intervention or a fresh development in the euro bloc is keeping investors on the edge."...

A stronger dollar usually weighs on gold, but the traditional strong inverse link between the two assets has weakened as both are benefitting from risk aversion. In the longer term, this link may well be re-established, Unni said.

"Now more than ever, arguments of the dollar and gold decoupling from (their) inverse correlation are emerging and this is because investors are hedging recent euro zone and UK crises equally in gold and US dollar," he said.

"The key point is that gold never actually decouples from the U.S. currency on a longer time duration."

The article also mentions that high prices have impacted jewelry demand in Italy. Holdings of the SPDR Gold Shares Trust were unchanged last Friday, and still at a record high.

A Bloomberg report, as webbed by Business Week, said that uncertainties in the Euro zone and a consequent weaker Euro helped reverse the decline.

“The ongoing uncertainties created by the euro-zone debt situation will continue to draw investors towards safe-haven assets such as gold and the dollar,” James Moore, an analyst at TheBullionDesk.com in London, wrote in a report. “Bargain- hunting interest” is also supporting gold prices, he said....

After the “sell-off there’s some revived appetite for precious metals, including gold, as a decline in the euro reminds the market of risks linked to the region,” said Hwang Il Doo, a Seoul-based trader with KEB Futures Co. “The price declines are no more than a mere correction.”

The morning Wall Street Journal report ascribed the rise to an improvement in investor sentiment.

"As a new week begins, gold looks like it wants to reverse its previous five-day losing streak," said UBS analyst Edel Tully.

"We remain bullish on the gold price; although we acknowledge that increasing share of investment consumption in the global gold demand will continue to increase volatility in the gold price," investment bank Fairfax said.

Regualr trading began without much fluctuation in the gold price, but that changed with a quick rally up above $1,189. As of 8:55 AM, the spot price was $1,188.00 for a gain of $11.00 since last Friday's close. The Kitco Gold Index assigned +$23.80's worth of change to predominant buying and -$12.80 to strength in the U.S. dollar. Unlike gold, the U.S. Dollar Index marked time in the period after falling back below 86.4; as of 8:57, it was at 86.35.

The rise in gold could be a relief rally, but it comes at a time when the metal wasn't that oversold. It suggests that the intermediate-term rise since last month hasn't been impugned.

Aftermath Of The Great debate

In this week's Financial Sense Newshour podcast, the first segment had a lot on gold - but that's because of the public reaction to last week's "Great Gold Debate," on whether or not the gold price is manipulated. [.mp3 file of it here, if you need it.] More than a third of that more recent segment [.mp3 file], at the end, was devoted to reactions to each side. One of the callers used the word passionate, which was the right word to describe GATA's Bill Murphy. He carried the day with those who respected his passion, as well as with the disaffected. Those more dispassionate, as well as the image-conscious, tended to favour Jeffrey Christian. There was at least one caller who thought Jim Puplava was unfair to Murphy, which I don't believe was the case.

Also on, just before the Q-calls, was Ron Greiss of The Chart Store. He raised the possibility of gold entering into a bullish cup-and-handle formation, which may lead to the metal going back up again once the present difficulties are hurdled over. Mindful of the seasonality factor, Puplava suggested that gold may be in the doldrums until June.


The third segment features an interview with one of FSN's more colourful guests. Martin L. Gross is a bestselling author who thinks that the fisc has gone to a rather sulphrous place, and he has some choice words to describe politics as usual in today's D.C. The title of his interview, which has been placed early in the segment [.mp3 file], gives a good indication of what his words are: "When Racketeering Is Legal."

Here's an important point relating to the $100 trillion in unfunded liabilites the U.S. government has assumed: as of now, total U.S. household wealth is somewhere in the neighbourhood of $60 trillion. Since corporations are owned, this figure captures corporate wealth as well - more specifically, that part of it owned by members of U.S. households. Here's the jaw-dropper: if the U.S. government instituted a 100% wealth tax, its shortfall would still be in the neighbourhood of $40 trillion. Yes, if total 100% expropriation could somehow be enacted, the U.S. goverment still couldn't fully fund all its unfunded liabilities.

Now here's an interesting legal decision that's made all the difference in the world to U.S. Treasury debt: a court once ruled that a future entitlement commitment is not an asset. Unlike a whole-life insurance policy, it's impermissible for someone to borrow using future Social Security payments as collateral. It can be done with a whole-life policy, which is an asset of the policyholder.

If the decision had gone the other way, GAAP would require the U.S. government to record those "assets" as firm, real liabilities. By extension, Medicare would be a firm liability too. Had it not been for that judge, unless it could be demonstrated that U.S. government property has a value of $40 trillion or more, GAAP rules would officially declare the U.S. government insolvent. That's right: under GAAP terms, Uncle Sam would be a walking bankrupt. Imagine Moody's twisting words around to justify not slapping a C-Ccc rating on long term T-bonds.

It's amazing how a seemingly quotidian legal decision makes the difference between Aaa and Ccc.

Thanks to that decision, the U.S. government has the right to do the as-now politically unthinkable: slash entitlement spending without being held in breach of contract. The way the numbers work out, a future Congress will need that right.