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

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

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

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

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

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

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

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.