Weekend Notice

Because of an out-of-town commitment, I won't be able to post the usual summary/comment on the parts of the Financial Sense Newshour podcast that deal with gold. I regret not being able to do so, but I won't have the time this weekend. Thanks.

Gold Surges Up In Morning

Regular trading began with gold already on a roll. At the start of the pit session, the metal was already above $1,202 and was in the process of shooting up above $1,210. In a two-stage rally, gold made it to $1,214.80 around 10:20 AM ET before pulling back. Although $1,210 was breached in the pullback, $1.208 wasn't; the metal bottomed twice at that level around 10:45 and 11:10. Since then, it's pulled up above $1,210 again although the rise is at a slower pace than earlier jumps. As of 11:52, the spot price was $1,211.40 for a gain of $12.90 on the day. The Kitco Gold Index attributed +$15.40 to predominant buying and -$2.50 to a strengthening greenback.

The U.S. Dollar Index, after making it above 84 early in the morning, settled down to just below that level. Descending slowly to just above 83.85, it began bobbing around 83.92. As of 11:55, it was at 83.94.

It's been good enough of a day to suggest the recent doldrums are now at an end. Gold may not hold at these levels in the afternoon, but closing above $1,210 would be an important sign.


Update: The late-morning rise peaked at a level slightly below the daily high made at 10:20. From that secondary peak, gold slid down to $1,208 again, establishing a range between that level and $1,214. The rest of the pit session saw the metal drifting at the lower end of the range. As of the end of the session, or 1:30, the spot price was $1,209.90 for a gain of $11.40 on the day. The Kitco Gold Index assigned +$14.50' worth of change to predominant buying and -$11.40's worth to greenback weakness.

The U.S. Dollar Index continued drifting at just below 84. As of 1:31, it was at 83.97.

So far, the metal has mostly held its gains from earlier morning, which is a good sign. There may be a pullback as the week's trading pulls to an end, but the action is likely to be quiet.


Update 2: The rest of the session was quiet, with a slight upwards bias near the end of the final hitch of the week. With the exception of a short-lived spike just before 2 PM ET, the metal stayed between $1,208 and $1,210 until 4:00. The crawling above the latter level was slow at first, but picked up a little just after 4:30; it came to a stop when $1,212 was reached. As of the end of the week, the spot price was $1,211.40 for a gain of $12.90 on the day. The Kitco Gold Index attributed +$16.40 to the predominant-buying category and -$3.50 to the strengthening-greenback one. The changes in both categories sum up to the raw change on the day.

Last Friday, gold closed at $1,211.30. Surprisingly, given the doldrums the metal faced until today, gold managed to eke out a gain for this week - the smallest one possible in raw terms. Ten cents separates this Friday's close from last's, making for a 0.00826% rise in percentage terms. No zeroes were added in the transferring of that figure.

As for the U.S. Dollar Index, its fluctuations were very narrow in the last part of the session. Not moving above 84.0 or below 83.9, it fluttered directionlessly until a small jump right at the end. As of 5 PM, it closed at 83.98.

The Index's daily chart, from Stockcharts.com, shows its recent downturn abating today:



Going by the interday lows, its fall has flattened at around 83.6. Today's recovery left it only a smidgen below 84; it might try for a close above that level next Monday. Both today's and yesterday's interday highs were above 84.

There's no guarantee that it will, though. The last two-day stall took place last Friday and this Monday, which gave way to another solid drop. On the face of it, there's less chance now because the Index is closer to a outright oversold level now than then. Its RSI value, found at the top of the graph, is less than seven points above the oversold border at 30.

Turning to gold, its own daily chart shows a nice recovery from Wednesday's bottoming:



Although yesterday was a down day for gold, the higher interday low and today's strong rally makes it in retrospect the first day of a short-term recovery. Interestingly, the width and position of today's candlestick body is almost exactly the same as last Friday's. Not only was the close almost the same on both Fridays, but also the open; today's was only slightly lower than last Friday's. That day was a recovery day after the July 1st plummet.

Interestingly, gold's RSI level is higher today than at the end of last week. It's only a modest divergence, but it does add a little hope for a continued rise next week.

Last Tuesday, the metal had had a bad day. Opening around $1,210, it closed well below $1,200. After Friday's rally, it had been a disappointing day. Its close marks the cut-off for the weekly Commitment of Traders data, as graphed here. Total open interest shrunk for the second week in a row; unlike last week, this week's shrunk a fair bit. Interestingly, commercial longs rose by 5.86%. Non-commercial longs dropped by a large 10.3%; given that the short-term bottom came a day later, that category has another week to add to a certain overall reputation. Detracting from its own overall rep was a larger 19.7% increase in the non-commercial short category. Both categories of non-commercials, overall, were caught flat-footed in retrospect. Commercial shorts shrunk by 6.13%.

The CoT graph for the U.S. Dollar Index, found here, had its cut-off on a day that saw the Index drop a fair bit; that drop would peter out the next two days. Open interest dropped for the fourth week in a row; it shrunk to levels not seen since the beginning of last September. Commercial longs, little more than a sliver on the chart, shrunk by more than 20%. Commercial shorts also shrunk by a large margin. Non-commercial longs shrunk slightly. The only reportable category with an increase was commercial shorts, which were up by a whopping 59.1%. (The Index did drop somewhat subsequently.) Using the non-commercial shorts as the group to watch suggests there will be further declines in the Index next week.

Turning back to gold, a post-pit Reuters report characterizes gold as being in a range, with the upside capped by sellers. Amongst the points made therein, these were included:

* Though trading took prices to a brief excursion above $1,210, the upside was capped around that level - traders.

* Sellers continued to protect that $1,210-an-ounce resistance area on each attempt to drive prices higher - traders.

* Noting that the 6-1/2 week low at $1,185 reached on Wednesday held on Thursday and Friday's session when higher highs were attained, prices seem to have stabilized - traders....

* For now, $1,200 an ounce seems to be the fluctuation point around which gold will continue to trade until there is something offering gold greater direction - analysts....

* For now, traders pointed out that the stock market also seems to be consolidating around current levels along with gold - traders.

The above sources show an unusual amount of uncertainty, if not skepticism, about today's rally. I don't want to hold out too much hope, but the caution could be pointed to as a wall of worry.

Next week will show if it's worry, prudence or indecision. Thanks for stopping by and reading what I've got to write; may your weekend not be blistering.

Playing Off The Gold Bull

The price of gold has continued to rise this year, and at times it seems to have been driven up by hype. Until relatively recently, the gold stocks have not followed. Over the last few years, the stocks have been disappointing relative to gold because of raw materials cost squeezes taking away the profits from any rise in the gold price; the '08 crisis added to that disappointment by pummeling gold stocks far harder than gold itself. The raw-materials situation has changed, with the possible exception of oil. That's the reasoning behind "Avoid Paying the 'Hype Premium' for Gold: Buy Gold Mining Stocks Instead" by Daniel Long. Three stocks he recommends are Golden Star Resources, Gammon Gold and Capital Gold Corporation. The first and the last are recommended because of relatively low valuations, and strengthening balance sheets, while Gammon is recommended because it's been beaten down by an earnings misstatement that has since been cleared up.


Some financials-oriented investors might well be leery of investing in Gammon because of a (ofteny well-placed) suspicion that a compnay that overstates once is likely to do so again.

Russian Gold Reserves Make Post-Soviet Record

There are already rumours about Russia moving to a gold-backed ruble. Further grist for those rumours is evident in that country's central bank now holding gold reserves that exceed the previous post-Soviet record from 1993.


Given the continuality of recent Russian central bank buying, it's a safe call that new records of this sort will be made in the near future.

Goldman Frowns On Some Senior Producers

Goldman, Sachs has downgraded two major gold producers - Randgold Resources and Anglogold Ashanti - to "sell" from "neutral," on the basis that the rising price of gold and successful execution of their strategies is already factored into their price. Another producer, Hochschild Mining, was cut to "neutral."


Those downgrades clearly show skepticism about the gold sector. Although they may be rated, it's clear that Goldman's gold analysts don't expect a boom in the sector. It shows that the gold stocks are far from being in a manic phase (and that gold-mining top executives don't have a lot of political clout with respect to brokerage firms.)

Indian Gold Buying Picking Up A Little

According to a report by the Economic Times, there was a trickle of buying in India as prices had remained in the doldrums.

Gold buyers trickled in on Friday as traders anticipated a further fall in prices to stock for an upcoming festival season, even as a strong rupee acted in support, dealers said. "There are deals but the deal size has shrunk. Earlier it was 5-7 kgs, now it is 1-2 kgs,"...

"I have bulk of my orders at $1,184-1,185 (an ounce), very few are placed are above $1,190," said another dealer with a private bank.

Now that gold's on a run, those price points may shift upwards - but they may not. Resellers seem to be afraid of getting stuck with overpriced inventory.

Gold Drifts In Overnight Session, Jumps In Early Morning

Overnight trading wasn't that exciting, as gold stayed in a range bordered by $1,195 and $1,200. Although dipping below the former number around 9:00 PM ET, the metal quickly recovered to move back in the range. Another downward test took place around 5:30 AM, making for a daily low of $1,194.20. Again, the range was restored. Just before regular trading opened, gold was still below $1,200.

That changed when the pit session was about to open. A slow rise that started within the range around 6:00 accelerated, breaking $1,200 just before 8:15. Regular trading began with gold on the way to making $1,204. After hovering around that level, the metal jumped up above $1,210 in short order starting at 9:00. Although sliding back, it bottomed above $1,206 and kept most of the day's gains. There was no immediate news item to explain the leap. The U.S. Dollar itself leapt up a little before gold did.

After the post-jump pullback, the metal resumed its rise, slicing through $1,210 easily. As of 10:24 AM ET, the spot price was $1,212.40 for a gain of $14.70 on the day. The Kitco Gold Index attributed +$16.70 to predominant buying and -$2.00 to strengthening of the greenback.

The U.S. Dollar Index also drifted around in the overnight session. Stuck around 83.85 last night, it took a dive starting at 2 AM; the subsequent decline took it to just above 83.6. Reversing, it then forded up to 83.9 before pulling back yet again. Starting at 8:00, the Index then took off to break 84; it topped out its run at 84.1 forty minutes later. At this time, gold had jumped up to $1,204 and was stuck there. Pulling back, it sunk a little below 84. As of 10:31 AM, it was at 83.91.

A Wall Street Journal report said that gold was resting before shooting up.

"Gold is reaching for stability," said Sterling Smith, market analyst at Country Hedging in Inver Grove Heights, Minn. "We are consolidating around $1,200."

The euro, often seen as a higher-risk currency than the U.S. dollar, is moving lower amid concerns over Japanese elections and euro zone debt. S&P 500-stock index futures are lower [at the time of the initial surge-up.]

Also cited is another analyst who said the rise was due to traders getting back into positions they had sold.

An earlier Reuters report, webbed at about the time today's rally started, said that bargain hunting was beginning to euchre out speculative selling.

"We see a lot of people buying gold on dips, below $1,200. However, what we see in these past few days is a bit of indecision in the market," said Ong Yi Ling, investment analyst at Phillip Futures in Singapore.

"In the long run, I don't think that the economic recovery is still entrenched yet. People are still waiting for more signs that the economic recovery is really on track."

Also mentioned in the report is the SPDR Gold Shares Trust's holdings slipping by 0.44 tonnes to 1,316.04 tonnes.

The second leg of the morning rally topped out at $1,214.80. Although an unexpected decline in wholesale inventories was listed as a cause, the number was released more than fifteen minutes prior to the second leg. After settling back to above $1,212, the metal continued to dip; $1,210 fell too. As of 10:46 AM, the spot price was $1,209.00 for a gain of $10.50 on the day. The Kitco Gold Index assigned +$10.50's worth of change to predominant buying and -$2.20's worth to greenback strength. The U.S. Dollar Index churned, failing to make it back above 84; as of 10:48, it was at 83.92.

The overnight session wasn't that great, but it wasn't that bad either. More to the point, the last couple of hours saw a base being built that foreshadowed a decisive break above $1,200 just before regular trading started. The dry spell has come to an end, making those who said that the previous doldrums represented a buying opportunity look fairly good.

Myself, I slipped up in the time department. The reason for this report covering a later period is because I got to the computer late. Thanks for your patience.