Losing Streak Snapped

Now that the safe-haven trade is ebbing, and the greenback is falling a bit, gold's made a bit of a comeback. The bottom made yesterday morning was a little higher than Wednesday afternoon's, and yesterday afternoon didn't see the push-down that the previous two afternoons have seen. This Globe and Mail report by Jan Harvey, which includes a five-day chart, notes that demand in Asia (but not India) seems to be picking up. This Wall Street Journal Online report by Devin Maylie credits a good industrial-production report from China. A Bloomberg report, written by Nicholas Larkin and Glenys Sim, ascribes the recovery to the decline in the fears that drove the U.S. dollar up.

All three reports include the new gold-analyst near-term consensus: gold will mark time until the end of the year, after which it'll begin rising again.

Latest Installment Of The Salvation Army Gold Donor Watch

Two stories this time: one from Denver, Colorado and another from Spokane, Washington. The Denver chapter of the Salvation Army reported getting three gold coins this past week - two of them semi-numismatic $20 coins more than 100 years old.

Gold Price Decline Not Yet Over

Another day, another drop. Yesterday afternoon, spot gold dropped to slightly below US$1120/oz. That drop took place a little earlier in the day than Tuesday's plummet, and it bottomed at a slightly lower price. Unlike yesterday, there's been no relief rally so far today; after a slow climb to above $1130 last night, gold's drifted down to slightly more than $1120. As of the time of this post, spot gold's at $1124.50. [Update: Now, an hour later, $1129.70.]

The chart that accompanies this report, "Gold dips as dollar firms," shows the last five days's drop. The experts quoted in the story see little hope in the immediate term: "Analysts say the upward trend in gold, which took the metal to record highs at $1,226.10 an ounce a week ago, is unlikely to be resumed before year-end." However, near the end, it mentions that Indian buyers are coming back into the market. "'People are buying on dips,' said a dealer at a Mumbai bank."

This chart, courtesy of stockcharts.com, gives a picture of gold's recent deterioration compared to its recent run-up (click to enlarge):

The line I want to draw attention to is the one at the top, the relative strength index. It's currently at a level that's about the same as the ones that prefaced the last three short-term run-ups. That level offers no guarantee, and all of the turnaround levels are well above what's normally considered a buy signal (30.) However, it does give recent precedents suggesting the correction has all-but run its course.

I should caution that the U.S. dollar is very much back in the safe-haven saddle. Ever since the Dubai World debt crisis, any international-financial trouble has pushed up the greenback. So has unexpected good economic news, because those items fuel hopes/fears of a Fed rate hike.


Formally, by the lights of technical analysis, the bull market is still intact. Along this line, Simon Constable's commentary says precisely that: "Over for gold? Not so fast." He does, however, use $1000 as a possible bottom. More and more commentators are using that figure, although some still use $1100.


Update: Vincent Fernando has posted the same chart as above, with this not-so-subtle comment: "It will be an important next few days for gold, it would appear. This chart is looking extremely ugly, and without some support, it could get much worse."

Two Articles Debating Buying Gold

The first article's been posted by the Wall Street Journal Online, and it's by Shefali Anand. The piece's title gives away the author's opinion on the matter: "Beware the Siren Call of Gold."Anand recommends only putting a small amount of one's wealth into gold, with a if-you-must tone, and also recommends doing so with a gold ETF.

The other article, posted in CBS MoneyWatch, is more balanced. The author, James Picerno, notes that the main reason for buying gold is to hedge against inflation - and there's almost none to be found nowadays. After noting this fact, he lists five reasons why gold should go up: the falling greenback, central bank purchases, an outpouring of greenbacks in the global economy, probable return of inflation, and increased individual and institutional demand. In addition to suggesting gold ETFs as a purchase vehicle, he also suggests that gold-buyers buy buying government-issued bullion coins.


Articles like the former one tend to show up after an investment drops. That's part of the news cycle, as more people are likely to read a piece panning an investment that's already gone down. Also, an author who's bearish can adopt a more confident tone if his/her conclusion's backed up by a recent plummet. Bearish authors writing in the headwinds of an advance tend to be more hesitant and conciliatory.

The first one could be seen as a short-term contrary indicator, but only to the extent that the news cycle itself can serve as one. If a contrary indicator, it's a weak one because the business press isn't flooded with similar saturnineness.

Seeking Alpha Article On Possible Wreckage Of Greenback

The piece is called "The Destruction of the Dollar: It's Nearly Inevitable." The timing of its publication doesn't gibe well with recent trends - the U.S. dollar is recovering from a recent slide - but it's well-argued. The author, Paco Ahlgren, distilled points from about fifty Seeking Alpha articles he's written over the last couple of years. The overall themes are: The U.S. is now a huge debtor nation, both in the government and private spheres, and has become accustomed to permanent trade deficits. The zero-interest-rate policy is an accident waiting to happen, as an unprecedented amount of debt is either short term or at floating rates. The U.S. government's luck won't hold out forever; once the reckoning comes, there's a potential for a vicious inflationary spiral as money creation tries to outrun compensatory lenders' strikes to jack up nominal interest rates in recompense.

The points may be familiar to some, but it's a useful summary. I have to say that the risk of that inflationary spiral is there. The U.S. government was lucky this time 'round; the luck may run out next time. There's no ordainment from God commanding investors to always see U.S. Treasury securities as the ultimate safe haven. One of the mysteries of the financial crisis (to me, anyway) is why the U.S. Treasury didn't go long-term in its new borrowings. Back in the days when 30-year rates were below 3 1/4%, and everyone had to have Treasuries, they could have sold almost all they could print at 3 3/4%. Instead, they kept the terms short.


There's another SA article that I'd like to bring to your attention. Although unrelated to gold, it is related to investing. It's by Paul Kedrosky, and it debunks what the author calls "naive contrarianism." Simply put, naive contrarianism is bucking the crowd in order to feel smarter-than-thou, leading to "stopped clock" performance that seems like genius when the stopped clock is right when all the others aren't. It's called "Contrarianism: The New Consensus."

Glenn Beck And The Mainstreaming Of Gold

Outspoken commentator Glenn Beck is taking flak for recommending buying gold while having the same gold vendor that cut a sponsorship deal with him advertising on his Fox News show. Some have decried it, citing conflict of interest and lack of disclosure; others have said that it's not that big a deal given that Beck's put his own money into gold too. Unstated is the fact that Beck isn't an investment advisor, he's "merely" a TV and radio commentator. No-one should expect him to be a professional in the area of investments because he isn't. Nor has he held himself up as one.

I point to this controversy as evidence of the mainstreaming of gold. The only mainstreaming of gold I've seen on the TV [I don't get Fox News, and I don't watch much TV] was the "Dollars4Gold" and allied ads asking people to sell their gold to the advertising company. I've seen occasional commercials pushing U.S. gold eagles, but the preponderance of them have been gold-buying companies. "Buy from us" has been outweighed by "Sell to us."

Thanks in large part to Glenn Beck, this preponderance may well change. Then, we'll see the mainstreaming of gold as an investment - one of the attributes of a potential bubble.


The Beck controversy is mentioned briefly by Lawrence Weinman over at Seeking Alpha, in a blurb entitled "Gold: Glitter in Decline?"

Gold Makes Another Low

As reported by MarketWatch, gold dropped yet again yesterday and last night as the U.S. dollar continues to recover from its slide. One of the comments from the story looks short-term bearish:

"For the first time in past three months, gold has had a successive lower close for three consecutive days," said Chintan Karnani, an analyst at Insignia Consultants in New Delhi.

"This is a short-term bearish signal for gold," he said, adding that if the trend continues into Friday, the market may see prices fall to $1,071 in the near term.

Gold prices need to trade over $1,108 to be in what he calls a "bullish zone."

Still, there will be "value-based investing at lower prices," he said.

Spot gold got as low as US$1125/oz late yesterday afternoon; currently, it's trading at $1145.00, about where it was the same time yesterday.