Thursday, March 31, 2011

Gold, Although Off From Daily Highs, Closes With Decent Gain

March is over, and so is the quarter. Gold managed to seal a tenth consecutive quarterly gain with a decent gain on the day. Its gains were accompanied by WTI crude oil closing its own pit session at a two-and-a-half year peak of $106.72. In Portugal, the lack of support for the second austerity package led to Parliament being dissolved and a general election being called for June 5th. Also influencing gold from the Eurocrisis arena was the result of Irish bank stress tests, which concluded that Irish banks need 24 billion more Euros in capital to stay solvent in assumed turbulent financial weather. The Middle East trouble spots are still bubling over but no outright boiling erupted today.

Gold started off regular trading muddling around just above $1,430, but jumped to $1,438 at 8:50 AM ET. Crude's rise influenced that jump, as higher crude evinces higher inflation. Although making a later run that peaked at $1,440.80, it spent the morning muddling around in the high 1430s. A brief slip at 12:20 was reversed quickly.

It stayed in the high 1430s zone until well after the electronic-trading hitch began. The pit session ended with a new record close of $1,438.90, even though the spot interday high is more than ten dollars over that figure. Gold's slide between 2:00 and 2:30 was largely recovered from, but the metal turned downwards again a little before the U.S. Dollar Index jumped up. Its slump continued for the rest of the day, and left the metal well below the high 1430s that it spent most of regular trading in. As of the close, the spot price was about where it was at the start of regular trading: $1,431.80, for a still substantial gain of +$8.00 on the day. The Kitco Gold Index split the gain into +$6.90 for predominant buying and +$1.30 for a weakening greenback.

Gold's six-month chart, from Stockcharts.com, shows it touching $1,440 but dropping off:



The rule for gold's Relative Strength Index (RSI), found at the top of its chart, held up again. When a bullish wind is at the metal's back, it tends to regain its footing when the RSI line gets at the 50 neutral level. Its latest slump didn't quite pull the RSI down to 50, but the reversal came all the same. Gold's still well below its record high, but the chart pattern looks encouraging. It made a slightly higher high followed by a much higher low. It's on track to set a new interday record high.

As for the U.S. Dollar Index, a late-afternoon jump didn't keep it from showing a loss on the day - but it managed to eliminate much of its loss as of this morning. Reaching as low as 75.7 a little before its own pit session started, the Index rallied but got stopped at 75.95. That level would hold it down until 4:00. After another unsuccessful try, it settled down around 75.85 before jumping and trying to surmount 76.15. Not doing so, its pullback still left it around 76.0. As of 5:30, it was marking time at exactly 76.00.

Its own six-month chart, also from Stockcharts.com, shows today's decline as fairly small:



Despite the bulge of the lower wick of today's candlestick, indicating how low it sunk over the last twenty-four hours, the Index is continuing to slump at a fairly leisurely pace overall. It has less than a point to go before making a new fifteen-month low, but its action so far suggests it won't slide through that new low soon. Instead, it may bounce and muddle around. One driver that would push it down to a new low would be a rate hike by the European Central Bank. The next meeting takes place April 7th: if the expected rate hike comes, it should strengthen the Euro to the point where the greenback is pushed to that new low.

Gold ended the quarter with a creditable record today: a new closing high for the pit session. It's only eighteen dollars away from making a new interday high; at its height today, it was less than ten away. Things are becoming salubrious for the metal again. Even if today's gains are whittled away in the overnight session, it's unlikely that gold will revist $1,420 even at its low - let alone $1,410.

Jim Cramer Recommends A Gold Exploration Stock

Although he's been recommending gold stocks for some time, Mr. Cramer has confined himself to senior producers. Although he qualified his recommendation of this stock with the proviso that it's speculative and should only be bought by dedicated gold fans who can be expected to know what they're getting into, he did have some bullish words to say about International Tower Hill Mines.
International Tower Hill Mines (THM) is a future gold mining company located in Canada. MIne construction is expected to start in 2014 and actual production will begin in 2016. While this mine is not large, the company's stock is only $9 and its market cap is $800 million. Once the mine operates, it is expected to generate 600,000 ounces of gold a year.

Jeff Pontius discussed the rigorous approval process for the mine, but he understands that the government wants to ensure that the environment is protected. He sees a significant upside for the company, especially since barriers to entry in the industry are high and finding new gold assets is increasingly difficult. When Cramer asked about partnerships with Chinese companies, Pontius responded that the company has had significant interest in partnerships from China and he will consider an attractive proposal of a partnership....

In terms of market cap, THM is worth about US$865 million. It's not yet at the pre-feasibility stage, and its Preliminary Economic Assessment projects a Net Present Value (NPV) of only $579 million with gold at $950/oz. Initial capital costs are estimated at $631 million.

Yes, this stock is one for speculators who expect the price of gold to rise substantially in the future. The metal doing so would ramp the NPV up to well above a billion. Given its deposit, it'd be a fine stock should gold get kayoed like in '08. Sadly, if gold gets pummeled, so will THM. Its 2008 low was a little below a dollar per share - a tenth of where it is now.

On the other hand, it's a more plausible buy for a gold mania that tops out after the mine goes into production. By that time, not only will the NPV be much higher but also the capital will be easier to secure. Banks and others tend to lend eagerly at the top of the market. As a speculative third stage bull market gold stock, THM has got a fair bit going for it.

Poland To Commemorate John Paul II With Gold, Silver Coins

To celebrate his beatification, the native land of John Paul II will issue special commemorative coins with his image on them and Poland's national eagle on the other side.
The most precious are 500 gold coins worth 1,000 zlotys ($350) each bearing Poland's state emblem of an eagle on the face and a portrait of the pope on the reverse. The collection also includes gold coins worth 100 zlotys ($35) and 25 zlotys ($8.75), as well as a silver 20 zloty ($7) coin, each bearing the pope's image.
They'll be available for sale next month. No picture of them accompanied the report.

U.S. Factory Orders Fall 0.1% In February

February isn't looking like that good a month, if recent data from the U.S. government is to be relied upon. The latest disappointment was in factory orders, which declined by 0.1%. Expectations were for a 0.5% rise. Shipments of manufactured goods, though, rose by 0.3%.


The gold market, already rising, stumbled a bit before the data were released but jumped from $1,425 right before and on the finding. Its subsequent rise carried it up to $1,439, although WTI crude breaking through $106 also helped push the metal up.

Not Every Goldbug Agrees With Murray N. Rothbard...

Nathan Lewis is defintely one of them. He has little more than scorn for Rothbard's plan to restore the gold standard by revaluing gold in terms of the greenback and then mandating 100% conversion between one and the other. His six objections to the Rothbardian plan are:
1. Neither the US or British gold standards of the last 300 years, nor many of the others around the world, worked like this. Rothbard is just making stuff up.

2. A gold standard is NOT dependent on the amount of bullion in a vault. We saw that this was never the case. There were a few exceptions – China used Silver Bullion exclusively as money into the 20th century – but in the Western European world that was the rule.

3. "Defining the Dollar" at [Lewis' hypothetical value of] $1555 per ounce (from perhaps $350 per ounce when Rothbard was writing) is a devaluation. It's just the same as when Roosevelt "changed the definition of the Dollar" from $20.67 per ounce to $35 per ounce in 1933. You would think this would be what Rothbard and the other hard money types would want to prevent. (In fact the result of this devaluation was to make the US's gold holdings worth more than the monetary base, for a little while.)

4. This "100% backing" would be very brief. The normal operation of a gold standard would soon cause base money to diverge from whatever the bullion inventory happened to be. If you kept base money stable, then its value would diverge from the gold target. You only get to target one thing, value or volume, and the other is a residual. A gold standard is a value target, not a bullion reserves/volume target.

5. Although a small country, like Fiji, could implement some sort of "100% backing" system, there isn't enough gold in the world to do this on a global basis. That is why goverments tended toward "economizing on gold" for centuries. People who argue that it is possible that you could do it by "revaluing gold" fail to notice that this would be a devaluation. For example, let's say you "revalued gold" at $14,000 per ounce today. That would be a 10x devaluation of the Dollar. Eventually, prices would rise by about 10x. Then, you would need ten times as many Dollars to do your business. So, the amount of Dollars in circulation would have to rise, which would mean that you wouldn't have "100% backing" anymore.

6. What if the gold isn't there anymore?

Lewis prefers a Currency Board, like the one established by David Ricardo that revalued the pound in 1821 to its pre-Napoleonic-War parity. In Ricardo's own words, "it is only necessary that its quantity should be regulated according to the value of the metal which is declared to be the standard." 100% convertibility isn't needed. Interestingly, one of Lewis' further objections to the Rothbard plan is that it isn't stable enough! The initial target would have to be followed by a bout of floating as the called-forth supply of gold equilibrates with the new demand for it as a medium of exchange. Lewis pegs that as a devaluation if gold risies higher.


The trouble with Lewis' plan is that he's arguing in a circle. How is the value of gold determined? By the market price. How would the convertibility ratio be determined? By reference to gold's market price. What if that market price changes once the Currency Board sets its own price? What then? How would a gold drainage be prevented, except by setting the price higher than the ratio warranted? Doesn't that mean a last one-shot burst of inflation? And what's to stop Gresham's Law from asserting itself if the inflation carries over after the Board begins operating? Since Gresham's Law applies to currencies whose prices are fixed, what will happen once it asserts itself? Will the Board have to outlaw the private possession of specie? If so, then what kind of gold standard can it be?

There's only one way to break the circle: redefine the currency to be a fixed weight of gold and nothing other. That approach, though, leaves the rather large issue of what will happen to the extant greenbacks.

Welsh Gold Found For Royal Wedding Ring

The bride's, of course. Despite the Wales gold industry grinding to a halt, there are still some nuggets out there. One is in the hands of the Crown Jeweller, the nugget for Princess Diana's ring now being too small for use.
The last fully functioning Welsh gold mine closed in 2007, though Clogau gold has been busy keeping the Welsh gold dream alive, offering its rich, rosy hued gold which contains small elements of Welsh gold. Nevertheless, it looks as though supplies will run out by 2016.

For Kate, her story goes back to 1981, when the Royal British Legion presented the Queen with a new chunk of gold to be used in future royal wedding bands. The 36g nugget of 21ct gold Welsh gold was used for making Sarah Ferguson's ring in her marriage to Prince Andrew, along with the ring for Sophie Rhys-Jones and later for Camilla Parker-Bowles marriage to Prince Charles in 2005.
So, the tradition continues. There might be enough gold for Prince Andrew's upcoming wedding.

Indian Physical Demand Expected To Rise to 1,200 Tonnes By 2020: WGC

The World Gold Council's estimate of Indian demand for 2010 has been tightened to 963.1 tonnes. They expect demand to keep rising, though not by a great amount in annual terms. They're forecasting Indian buying to reach 1,200 tonnes by 2020.
“The rise of India as an economic power will continue to have gold at its heart. India already occupies a unique position in the world gold market, and as private wealth in India surges over the next ten years, so will Indian demand for gold,” WGC Managing Director, India and the Middle East, Mr Ajay Mitra said in a statement here.
Despite prices quadrupling in rupee terms over the last decade, Indian demand had risen 25% in that timeframe.

Indian Physical Gold Buyers Cautious Ahead Of Payrolls Data

According to a Reuters report webbed by the Economic Times, Indian traders are hesitant about buying gold before tomorrow's release of the payrolls data.
"A few bookings are there, but still, traders want clarity on prices. They are waiting for Friday's jobs report," said a dealer with a state-run, bullion-importing bank.
A stonger rupee helped limit the price rise in local-currency terms.

Gold Gains Again In Overnight Session, Boosted By Eurozone Inflation Data And Weaker Greenback

Counterintuitively, the unexpected jump in March Eurozone inflation to 2.6% was good for the Euro. That's because the rise from 2.4% in February is almost certainly going to mean the European Central Bank will raise its rate from the current 1%. There's hints of wage pressure in Germany, where unemployment is low. Although not explicitly disclosed, there are hints that the core rate of inflation is spiking up too. Inflation was also a worry in the U.K., where there's been concern expressed that the next national budget will be inflationary. One estimate said the U.K. rate will be boosted 0.4% because of tax hikes.

The jump in Eurozone inflation and sinking of the greenback did some good for gold - but the metal's rise began last night after sinking to $1,420. The U.S. dollar started descending at about the time gold began ascending: 8 PM ET. Rising above $1,425, it remained stuck in that zone as night turned into morning. Its second rally, more uneven than the first, started around 5 AM. Initially bumping against $1,430, it bested that level two hours later. As of 8:14, the spot price was $1,431.40 for a gain of $7.60 on the day. The Kitco Gold Index split the gain into +$1.90 for predominant buying and +$5.70 for a weakening greenback.

As the last figure indicates, the U.S. Dollar Index didn't have a good night. Although intially rallying to 76.15 while gold fell, it turned around and started its descent shortly before gold turned around. At first sliding down gently, its decline accelerated when the Eurozone inflation data and policy interpretation hit the Net. Bottoming at 75.65 just after 5 AM, it bounced up in a relief rally that took. As of 8:20, it was taking a breath at 75.81.

A Bloomberg article said gold, supported by safe-haven buying, was on track to notch up its highest quarterly winning streak since 1979. Libyan rebels are being beaten back, raising the possibility of a protracted war and higher oil prices as a result. (The price of WTI crude did rise about a dollar in overnight trading, to above $105.)
“Given the unrest in the Middle East and North Africa region, increasing debt issues in the euro zone and the environment of historically low interest rates, gold and silver should continue to remain underpinned and test towards recent highs,” James Moore, an analyst at TheBullionDesk.com in London, said in a report.
The article also mentions a new turn in the Libyan mess: Foreign Minister Moussa Koussa, the same fellow who announced agreement to the ceasefire shortly before he was overruled and the Coalition moved in, fled his post and is now in exile in London, U.K. Also mentioned was Eurozone inflation, and the continued efforts by emergency crews to contain the hazardous radiation in Japan's sticken Fukushima Dai-Ichi nuclear plant.

An earlier Reuters article said gold was on track for its 10th consecutive quarterly gain, supported by some cautious bargain hunting.
"I think sentiment is slightly bullish because there are still many uncertainties around. Even though the euro zone is expected to increase interest rates, it will only be a small increase," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.

"I think we are waiting for tomorrow. Nobody really knows what to do," said Leung, referring to the U.S. jobs report.
The article also quotes European Central Bank Executive Board member Lorenzo Bini Smaghi as saying that any rate hikes will be gradual. In the Singapore markets, Indonesian buying continued, and Thailand demand surfaced, which kept premiums steady at a moderate level. A Singapore dealer is quoted as saying that demand from mainland China is still good. Holdings of the SPDR Gold Shares Trust were unchanged again yesterday, at 1,211.84 tonnes, but it's on track for its largest quarterly decline in holdings ever.

A Wall Street Journal report said gold gained on a weaker greenback, although traders were still cautious ahead of tomorrow's nonfarm payrolls data.
"The market has been muted for a few days now but the weaker dollar is certainly providing some support," said Commerzbank analyst Daniel Briesemann....

[W]hile volatility is likely to continue into next week amid conflicting economic news, the medium- to long-term trend is still to the upside for gold, according to Mr. Briesemann.

"We still expect gold to rise in the coming months, as it should be well supported by numerous uncertainties," he said....
Those uncertainties were the list of the usual.

U.S. initial jobless claims, covering last week, were released at 8:30; they fell by 6,000 to 388,000. But, that decline was prompted by an upwards revision of the previous number from 382,000 to 394,000. Gold rallied just before the release, but pulled back a bit when the number hit; overall, it dithered when regular trading got rolling. As of 8:44, the spot price was $1,431.90 for a gain of $8.10 on the day. The Kitco Gold Index divided the gain into +$3.40 for predominant buying and +$4.70 for greenback weakening. The U.S. Dollar Index hesitated, but still inched upwards before making another jump. As of 8:47, it was fording ahead at 75.91.

For gold, it was second time fortunate. The hex on it was broken, as overnight trading again showed an overall gain. Instead of being feared, the early-morning stretch is being welcomed. With no new drivers, though, the metal's likely to stay range-bound. Of interest is the fact that a now widely-anticipated rate hike by the European Central Bank hasn't knocked it down. Gold may flounder around again in today's regular trading, but the month will likely end with another daily gain.

Wednesday, March 30, 2011

Gold, After Flailing About, Closes With Modest Gain On Weakened Greenback

It was quite a ride today. In Libya, hopes of a steady rebel advance was frustrated by Gadaffi's forces recapturing a strategic oil town. Despite Coalition airstrikes, the rebels are far from enjoying a cakewalk because Gadaffi's ground forces are better trained and organized. In Syria, President Assad is claiming that the protests have been inflamed by a foreign conspiracy. In Japan, engineers are weighing whether or not to entomb the entire Fukushuma Dai-Ichi plant to halt the radiation leaks. That would mean Japan Electric would have to write off the entire plant, but entombing has a good chance of making the area safe again.

Early this morning, gold got a boost from the bad news for Libyan rebels as did oil. Instead of tumbling, as it did in two previous early-morning streches, the metal rose. Accelerating as regular trading began, it peaked at $1,431.40 at 8:30 AM ET. The March ADP report, showing private-sector payroll growth of 201,000 jobs, either helped or at least didn't hurt the run-up. From that point, though, the metal tired out and sagged back to $1,424 by 10:30 AM.

Then, a tumble came. Overwhelmed by a greenback rally, gold skidded from $1,424 to as low as $1,417 in a ten-minute selling blast. Recovering to $1,420, it again lost its footing and slipped down to a daily low of $1,411.10. That skid took place despite the greenback itself falling at 10:45, which coincided with a relief jump by gold.

The selling wave, perhaps prompted by panic, proved to be overdone. The metal reversed course at 11:15 and climbed fairly swiftly to as high as $1,425. A futher tumble of the greenback provided the lift.

By that time, gold had had it; so did the greenback. Peaking just before 1:00, it spent the rest of the afternoon drifting between $1,422 and $1,424. It managed to climb up to the higher end of that range just before regular trading ended. After all those leaps and skids, the metal was left with a fairly decent gain. As of the close, the spot price was $1,423.80 for a rise of $5.10 on the day. The Kitco Gold Index split the gain into +$3.50 for predominant buying and +$1.60 for a weakening greenback.

Gold's six-month chart, from Stockcharts.com, shows it breaking its four-day jinx:



A bounce-back had to happen sometime. Despite the gold market moving largely away from watching Libya, perhaps because traders assumed the situation was well in Coalition hands, a surprise Gadaffi victory had enough impact to give the metal a bit of a boost. Still, it's an open question of whether today's rally was caused by the recent decline going too far for too long. The Relative Strength Index, found at the top of gold's chart, did indicate a bounce when it moved down near the 50 neutral level. As for now, that rule still works. It doing so indicates that the prevailing winds are to gold's back.

As noted above, the U.S. Dollar Index fared well in early morning but had it bad when late morning came around. From indecisively muddling around between 76.25 and 76.3, the Index climbed up to a little above 76.4 by 10:30. Failing to rise further, it hung there for about fifteen minutes and then stumbled to just above 76.2. A relief rally didn't go very far; by early afternoon, the Index stumbled again and touched 76.0. The next relief rally was more durable, but exhausted itself. For the rest of the afternoon, the Index rambled sideways around the 76.08 level. As of 5:30, it was still aimless at 76.08.

Its own six-month chart, also from Stockcharts.com, shows it pulling back from yesterday's slight advance:



The Index fell back after its own Relative Strength Index approached the 50 neutral level from the lower end. That's a sign that the wind's blowing in its face. Its chart looks as if it's going to resume its decline again, but so far the action's been fairly leisurely. It should continue to waver between 76.5 and 75.5.

Gold had a rough climb today, but climb it ended up doing. Deep bargain hunters waiting for a decline below $1,400 have been disappointed again. Unlike yesterday, today's daily low took place in regular trading rather than in the overnight session. Again, though, the metal rallied when it approached $1,410. Gold may face more rough hoofing in tonight's overnight session, but $1,410 looks like a viable bargain point.

Gold Nanoparticles Facilitate Delivery Of Anti-Cancer Drug

Gold skeptics may like to portray gold as a metal that's a relic of a bygone era, and is of little use, but that talking point is more and more divergent from the facts. As far as gold and this era are concerned, GoldMoney (not to mention its predecessor E-Gold) has shown that gold, computer technology and the Internet dovetail quite well. Even if the law intrudes, in E-Gold's case.

As for "gold having no use," that sentiment clashes with the use of gold nanoparticles in cancer treatment. The latest development from this growing field comes from a team at the University of Syracuse, who've managed to bind gold nanoparticles to DNA strings. That complex is then hitched to the anti-cancer drug Doxorubin.
"Since the system carries a large number of drug molecules and it can potentially release them within or in the vicinity of cancer cells, it can produce considerable lethality in a specific region," Syracuse researcher James Dabrowiak told In-PharmaTechnologist. Dabrowiak said the gold nanoparticles would "bring a high payload of toxic drug into the cell," increasing the chances that the tumor cell would die.

That's where the "nano" part comes into play. Millions of nanoparticles can direct the drug specifically into cancer cells and "not rely on the cell to simply absorb the drug from blood passing in the vicinity of the cell," Dabrowiak told In-PharmaTechnologist....
Dabrowiak also said that the same team is looking into other ways gold nanoparticles can deliver other anti-cancer drugs. The well-known side effects of those drugs come from their lack of specificity - when administered in the regular way, they can go anywhere in the body and wreak damage on healthy cells too - so a reliable delivery systen would cut down those deleterious effects.


Gold and the future...they mesh well together.

Utah Gold Standard Bill Becomes Law, But May Be Less Than It Seems

Utah's governor has signed the gold-standard bill into law. But, according to a CNN Money report, he did so largely because it enacted tax relief and took a politically popular swipe at the Federal Reserve. U.S.-minted gold and silver coins are legal tender, but only at face value - not market value. Presumably, one of the tasks that the study committee the law authorizes will be how to adjust legal-tender tax rates to the market price of the metals. As for the capital-gains elimination, it does not nullify federal taxes. Those still apply, at collectible rates.
According to a person close to Herbert, the governor signed the bill because it eliminates capital gains taxes on a popular investment. The other stuff, not so much.

"If somebody is stupid enough that they want to buy a Snickers bar at 7-Eleven with a gold coin worth thousands of dollars, they will be able to do that," the source said.
The same source threw cold water on the idea that the study committee will go all the way in setting up gold and silver as full-fledged alternative currencies, claiming that there would be major constitutional issues that would get in the way.


Desite its limitations, it's still an important symbol and milestone. It certainly shows how much political gain can be mined by bearding Ben Bernanke. Given the passion behind the bill in the House, I think a sneak was pulled to get the Governor to sign. That source may scoff, but it's still law. How broad the study committee's mandate will be, is going to be the next political battle for the gold standard. Once the idea spreads, those limitations should largely dissolve.

Can't Win 'Em All, Even Though Won In One

Given the decades-long headwinds that the gold standard has faced, it was a real breakthough to see the Utahan legislature approve of gold-standard legislation and Utah's Governor sign the bill into law. Once the law is enacted, the state capital gains tax on the metals will be eliminated. Utahans will be able to buy and sell using U.S.-minted gold coins voluntarily. A committee will be set up that will determine how they can pay state taxes in gold and silver, and look at other means by which the metals can be used as money. The bill explicitly recognizes gold and silver Eagles as legal tender in the state.

In so doing, the Utahan goverment has rolled back an "advance" that has been in place since 1933. Believe it or not, it was illegal for U.S. citizens to buy and keep gold until 1975.

An important precedent at the state level has been set, but that doesn't mean other states are going to be following anytime soon. In Montana, House bill 513, which would have established a state reserve in gold and silver using the tobacco tax revenue stream and required dealing in gold and silver with some contractors and/or taxpayers, was defeated in a close vote of 52 to 48. Democrats, and many Republicans, voted against the measure. Amendments to include coal and copper were soundly defeated.


A shame, but Rome was not rebuilt in a day. The fact that the Montana house was close to approving it shows that state restoration of the gold standard is an idea whose time has come. The article indicates the kind of scare-talk that such initiatives call up: one Democrat intimated that the gold-standard bill was part of a secret plot pushing Montana to secession.

[Interesting role reversal, that. How does it feel to be on the inside of a purported conspiracy?]

GFMS Chairman Says Gold Drivers Still In Place

As summarized at Mineweb, the chairman of GFMS, Paul Walker, believes that the same long-term drivers that have pushed gold up in the last ten years are still in place.
"There is a backdrop here of ultra-low interest rates, macro-economic dislocation, fears of global imbalances - the wrath of these things still remain solidly in place and that's really the bedrock of the gold bull rally... the essential underlying glue that holds this whole story together in my view, is ultra-low interest rates, negative real interest rates, growing imbalances across a range of asset classes. And, as a result gold has benefitted."

" We've always said gold is the canary in the coal mine here that's signalled that something is not quite right and trust me, the macro-economic situation is still not quite right," he says....
GFMS' interest-rate forecast calls for ultralow interest rates in the developed world to continue through next year. They won't stop until the bond vigilantes come out of hiberation, which the firm does not expect to happen anytime soon. Demand from mainland China and India should continue to push gold price up.

However, the metal is highly dependent upon investment inflows. Should those flows choke off, then gold will undergo a sustained tumble. Walker doesn't see that happening anytime soon, though; GFMS is confident that gold will reach $1,500 sometime this year and perhaps sooner.

Gold Buying In India Forecasted To Increase This Year

Contradicting a recent Morgan Stanley analysis forecasting a drop in Indian gold demand for this year, the Economic Times has webbed a report predicting gold buying will rise 15%.
Jewellers say buyers have been investing more in the yellow metal to cash in on the uptrend in prices. "Price rise has not stopped people from buying gold jewellery for the wedding season. We are expecting a 10-15% growth in gold jewellery buying this season," Bachhraj Bamalwa, founder partner of Nemichand Bamalwa, said.
There is some price sensitivity, though. Some people, particularly middle-class consumers, are looking for light jewelry with a heavy look. But, tradition still trumps price sensitivity when it comes to weddings; heavy jewelry is still preferred for those occasions. The wedding season is geared to start up in the second week of April; what's been underway are preparations for it.

Some jewelers note that price sensitivity is blunted by the fact that gold keeps going up. In some cases, the metal's bull run is fuelling buy-now demand.

Indian Physical Gold Buying Fades Away Due To Higher Prices

According to a Reuters report webbed by the Economic Times, traders pulled away from buying after seeing the gold price rise.
"Traders want lower prices, a fall below 20,500 rupees could be of help," said a dealer with a state-run bullion importing bank.
That price is about 1% below where gold was trading at in rupee terms at the time the article was written. A stronger rupee helped staunch the increase.

Gold Recovers Somewhat, Helped By Rise In Oil

For the previous two days, gold had been pulled down in the early-morning part of overnight trading. This morning, the chain was broken. Helped by a rise in the price of WTI crude to well above $104, with news from Libya encouraging rather than damping morale of gold bulls, gold rose in overnight trading although not by that much. It seems that Hong Kong and London traders have seen the partial reversals in North American trading, squared it with events in Libya, and adjusted accordingly.

With respect to the tsunami-stricken Fukushima Daiichi Nuclear Power Station in Japan, Tokyo Electric Power announced that it's scrapping the first four reactors and is likely to scrap all six of them. Although doing so means a multibillion dollar write-off for the company, it would make for resolution of the crisis. A U.S. Treasury official has ruled that the Libyan rebels can sell oil from rebel-held oil fields, but not through any Gadaffi-linked company. They're currently having trouble holding on to the oil fields they've captured. If they prevail and start selling licit oil, those sales would tend to depress the crude price. One of the reasons why oil shot up on the Libyan civil war is because of interdiction of oil supplies from that country, which the U.N. resolution forbidding Gadaffi-linked exports adds to.

Gold's re-start yesterday evening was a muddle. At first hesitating, it briefly sunk to $1,415 before recovering a little at midnight ET. Then, it got its footing and started climbing. Worry about mainland Chinese inflation helped it upwards in Hong Kong trading. (As an example of that worry, the government is cracking down on large price hikes that have caused panic buying. Said panic buying shows inflation psychology in miniature.) In four hours, it reached its early-morning peak of $1,424.00. Its subsequent relapse didn't bring it as low as last night's stumble; it reversed course again, and climbed back to $1,420 before picking up the pace. As of 8:13, the spot price was $1,424.70 for a gain of $6.00 on the day. The Kitco Gold Index attributed +$7.60 to predominant buying and -$1.60 to a strengthening greenback.

The U.S. Dollar Index continued its late-afternoon slump yesterday evening, troughing at 76.075 before turning on a dime and striding upwards. Within an hour and a quarter, it had reversed the entire afternoon decline and touched 76.35. Its subsequent journey was ragged, with a spill in early morning; the overall direction was downwards. As of 8:20, it was recovering from a skid at 76.20.

A Bloomberg report said gold was gaining traction from the Libyan fighting, as the rebels are being held back, and lingering worries about Eurozone sovereign debt.
“It is certainly the geopolitical factors which are still playing a role,” said Peter Fertig, owner of Quantitative Commodity Research Ltd. in Hainburg, Germany. “The situation in Libya is quite open and far from over. There is uncertainty” on Europe’s debt issues, he said.
The article also notes that the fighting in Libya is now the most violent it's ever been.

An earlier Reuters report said that the Libyan fighting plus firmer equities in Asia helped gold with a push, although gains may be capped from the recovery trade and increasing hawkish talk from both Federal Reserve officials and the European Central Bank.
"You've got to ask yourself, how bad is inflation? I think, really, you've got to get the economy moving before anything happens," said Jonathan Barratt, managing director of Commodity Broking Services in Melbourne.

"I think the market itself will probably get a little bit headstrong if, in fact, we continue to get concerns in the Middle East. I think gold is really being played out by what's happening in the Middle East and risk aversion trade."
The article also mentioned Syrain President al-Assad setting up a counter-demonstration to show support for his regime. A Hong Kong dealer noted that buying pressure was being largely offset by selling. Dealers in Singapore noted that there's some buying from Indonesian sources. Holdings of the SPDR Gold Shares Trust were unchanged yesterday at 1,211.84 tonnes.

A Wall Street Journal article said that buying pressure was subdued despite gold's gains. Central bank hawkishness means gold market skittishness.
"Gold's downside is still well supported by uncertainty over Libya and Japan, but there is no demand drive on the upside," said VTB Capital analyst Andrey Kryuchenkov....

"While the Fed is not saying that monetary tightening is necessarily going to happen immediately, the focus seems to be firmly on managing inflation," said Mr. Kryuchenkov. "This means that opportunity cost of owning gold is going to increase, likely capping the metal's gains in the second half of this year."
Given that gold has become semi-mainstreamed in large part because of near-zero opportunity costs, that's how EU and U.S. rate hikes will be interpreted by the gold market - at least in the short term. Over the longer term, as noted by Deutche Bank, gold doesn't deteriorate unless real rates are at 3% or more.

The ADP payrolls report was released at 8:15, shortly before the pit session started. For March, as estimated by the payroll-processing firm, private-sector companies added a total of 201,000 jobs. That reading sqaured with expectations, but February's number was revised downwards from a gain of 217,000 to 208,000. The gold market liked the result, which tied in with optimism over the metal's overnight-trading gain. After breaking through $1,420 shortly before 8:00, the metal's climb accelerated until bumping against $1430. As of 8:46, the spot price was $1,429.60 for a gain of $10.90 on the day. The Kitco Gold Index assigned +$14.00's worth of change to predominant buying and -$3.10's worth to greenback strengthening. The U.S. Dollar Index recovered from its funk to best 76.3 again; as of 8:49, it was still climbing at 76.33.

Four days of declines was a long stretch, and it looks like that string is over starting today. Gold may give up some of its rise in later trading, but the metal seems assured of notching up a gain on the day. The funk is being shaken off.

Tuesday, March 29, 2011

Gold Meanders To Slight Loss As Early Morning Slump Largely Undone

Gold tumbled down in overnight trading, following crude oil down. Today's nadir of $1,410.50, though, was slightly higher than yesterday's. With respect to the usual trouble spots, there was some lack of clarity on the Coalition end game in Libya today. A London conference failed to settle some questions about what'll happen to Gadaffi. Regarding Syria, senior lawmakers with the U.S. government had thumbs-downed intevention on the protestors' behalf. For now, anyway.

The metal seems to be looking for more trouble spots rather than at the headline-grabbers. For example, a bad consumer-confidence reading released at 10:00 AM ET today points to a recovery that's more vulnerable than believed. Although expectations were for a sizable drop, the bad news entailed by the number helped gold in its morning rally. Again today, the metal started climbing just before the pit session started up. The rally, although uneven in spots, continued until it reached its day's peak of $1,424.60 just after 11:30.

Then, it turned down in part because of increased risk appetite that pushed U.S. stocks up. This time, gold's slide was not caused by a rise in the greenback. The slide lasted an hour and twenty minutes, with gold down to $1,415 before reversing course at 12:50 PM. For the rest of the day, the metal inched upwards in a very gently rising trend that looked almost horizontal for most of its stretch. That shuffling wasn't enough to turn a loss into a gain. As of the close, the spot price was $1,418.70 for a loss of $2.20 on the day. The Kitco Gold Index attributed -$3.50 to predominant selling and +$1.30 to a weakening greenback.

The metal's six-month chart, from Stockcharts.com, shows it declining for the fourth day in a row:



Gold is indeed looking ahead. With the Libyan situation largely in hand, and the other trouble spots experiencing little more than mass protests combined with hopes of peacefully transferring power, the gold market's eyes have shifted to the U.S. So far, there hasn't been much to bestir the metal upwards. With gold stuck in consolidation, any further falls might not be that extensive. A plummet will likely be met with a lot of bargain hunting, as buying the halt of the last one worked out. Gold's Relative Strength Index (RSI), found at the top of its chart, is close to the neutral level 50. During bull runs, the RSI sinks to that level and gold then turns up. This rule has worked so far, and it may work again.

Turning to the U.S. Dollar Index, it sagged a little in today's regular trading but it didn't lose that much ground. Slumping down to 76.20 in early morning, it indecisively fluctuated around 76.27 until 3:30 when it slumped again. Despite some testing, 76.15 stopped the Index from falling further. As of 5:30, it was resting at 76.165.

Its own six-month chart, also from Stockcharts.com, shows it continuing to decline today:



The Index's secondary upturn might well be over, but its rate of decline doesn't give much hope for a resumption of its speedy falls. For the second day in a row, its Moving Average Convergence-Divergence lines (found at the bottom of its chart) have been in a bullish configuration: the bullish cross was made yesterday. As today's slump indicates, that cross may be misleading. The MACD lines have been quite close to each other for more than a month, so yesterday's bullish cross may be a fluke. Given the Index's bearish trend, further slumping is more likely than a significant upturn.

Again, gold slumped in the wee hours of the morning - at the time when the Libyan news cycle is most active. The metal seems to be discounting an eventual rebel victory and return to stability for that country. For the second day in a row, American trading has partially reversed London's gloomy assessment of the metal's fortunes. Bad economic news consistent with stagflation would make gold rev up again, but there's little to no indication of a stagflationary phase yet. So, the rambling continues. We may see a repeat of the gloominess in overnight trading, particularly if the Libyan rebels keep advancing with Coalition help.

Northern Gold Mining: A Thin But Deep Deposit (Updated)

Northern Gold Mining has had the knack of landing drill holes with long intervals of thinly-graded gold. The latest hole from the Garrcon deposit on its flagship Garrison gold property graded 58 metres of 1.08 g/t gold.

To somewhat experienced eyes, 1.08 g/t is a pretty thin grade. Normally, mining companies don't get excited over grades that are less than 3 or 4 g/t. A prudent person would advise a cut-off grade of about 6 or 7 g/t. Then why is the company proceeding? Why bother going to the trouble of putting together a resource estimate for the deposit, composed of 207,000 ounces of gold indicated and 776,000 ounces inferred? Why the cut-off grade of only 0.5 g/t gold in the resource estimate?

The answer is, because the deposit is very close to the surface. The rock can be strip-mined, which is far less costly than burrowing underground and hauling the rock up to the surface. That's the rationale behind deeming near-surface grades as low as 0.5 g/t to be economic.

I should say that this deposit does not have any preliminary economic assessment behind it yet: no estimate as to how much the net present value is or what the capital costs are. Northern hasn't advanced that far yet.

Still, the market has put a fairly generous value on what the company has. The drilling Northern's now doing on Garrcon is fairly low-risk in terms of getting numbers, as it's "infill" drilling. Infill drilling is designed to move resources from the "inferred" category to the stronger "indicated" category. The new holes will make for a solider resource estimate even if the total stays the same or shrinks a little.

Northern is moving towards another estimate. A preliminary economic assessment isn't planned as yet.

Here's a one-year chart of the stock, from Stockwatch.com:




The Moral Of The Story: Putting together a resource calculation is an important intermediate step for a junior explorer. The financial numbers aren't there yet, but a resource calculation is expected to use a cut-off grade that approximates economic viability. Some speculators like to jump in at this point, particularly if the resource has at least a million ounces of gold all told. [Garrcon has 207,000 + 776,000 = 983,000 oz.] Others, backing away from the excitement prefer to wait for later in the deal sequence - in part because many properties fall off. I don't see the Garrison property falling off excpt through lack of financing, but Northern's stock may drop in the interim because of a gold pullback or because the project becoming boring. Waiting while bored can be profitable.


Disclosure: None.


Update: Jay Taylor, in the March 17th edition of his Gold, Energy & Tech Stocks, put a buy recommendation on Northern Gold. According to a Stockwatch summary,
The Garrcon deposit... appears to have the potential for a bulk-minable open pit. It holds 674,000 ounces at 0.94 gram per tonne gold. This resource estimate includes data from drilling to a depth of 200 metres, in an area measuring 760 m by 300 m. Mr. Taylor expects the Garrcon resource to substantially increase when the results from holes beyond that area are made compliant. He also predicts a stripping ratio of zero and a recovery rate of at least 90 per cent for the Garrcon operation.
He does qualify his recommendation of Northern, saying it'll work out only if gold keeps rising over the next few years. Taylor seems to have sized up the Garrcon as a high-cost deposit despite its attractive qualities.

James Turk Says Gold Accelerating In Hyperbolic Pattern

Drawing a distinction between a parabolic rise and a hyperbolic one, claiming that the latter is faster, James Turk points to an acceleration in gold's rose over the past few years.

He includes a chart of gold in U.S. funds, one of three charts in his commentary, which shows what he's talking about:



His commentary on it:
From 2000 to about 2006, the gold price was confined within a linear uptrend channel, marked by the green parallel lines on the above chart. Thereafter, gold’s pattern changed to what looks like a parabola, but is actually a hyperbola because the above chart is prepared on a log scale.

This observation means that the gold price is rising at an accelerating rate, so there is in my view only one logical conclusion that can be made from this chart. Given that gold remains the world’s numĂ©raire by which things are measured because it is money, the other so-called ‘money’ being measured in the above chart – namely, the U.S. dollar – is losing purchasing power at an accelerating rate....

It's a fascinating chart because log scale illustrates compond growth. A linear trend on such a chart means that gold's value is componding at a fixed rate. As best I can tell, the linear channel's slope translates into compunded annual growth of about 11%.

A hperbolic, or even parabolic, rise on a log chart meant the rate of compound growth is itself accelerating. If you had a tax-free bank account whose interest rate goes up smoothly as your balance grows, that balance would show parabolic growth if plotted on a log chart. Such a rise is characteristic of a market that's heading towards a blow-off top.


I have to say, though, that gold looks fairly linear after 2009 or so. The blow-off top may not be here yet. Should gold shoot up this year, it would be consistent with Mr. Turk's hyperbolic rise, but it would have to jack up to more than it did last year (a minimum of 25%, say) and would have to get rolling soon.

Political Risk: The Case Of Uzbekistan

The Republic of Uzbekistan has the fifth-largest reseves of any nation, which makes it ostensibly attractive to gold explorers and mining companies. It boasts the largest mine in the world, the Muruntau, which has produced over 50 million ounces to date. The mine's reserves are expected to last until 2032. It's operated by the Navoi Mining and Metallurgical Combine.

Despite the attractiveness of the reserves, Uzbekistan's government has a taste for seizing gold properties from Western companies on arguable grounds.
The State Committee for Geology and Mineral Resources (Goskomgeologia) oversees the mining industry in Uzbekistan. While the Uzbekistan government allows foreign investment in mineral reserves- historically, there has been a great deal of conflict between foreign minerals at the state committee. In 2006, Newmont Mining Corp. (NYSE:NEM) was ejected from the country. Newmont had been extracting gold through a 50-50 partnership with Uzbekistan’s government; however, the company was accused of non-payment of taxes. The Uzbekistan courts quickly sided with the tax authorities and within a month of their ruling, the Republic of Uzbekistan seized all gold, silver and unfinished products belonging to the Newmont venture, according to the company’s 2007 annual report to the US Securities & Exchange Commission. Following the ruling, Newmont filed a grievance against Uzbekistan with a World Bank arbitration panel, and reached an undisclosed settlement....

[A] recent dispute between British-based Oxus Gold (LON:OXS) and the Uzbekistan government has halted the joint venture. Oxus Gold announced in March 2011 that is had called force majeure, and completely halted its operations in Uzbekistan. Oxus Gold, the only publicly listed gold mining company with primary operations inside the Republic of Uzbekistan is now preparing for a legal battle to challenge “that the commission appointed by the government to audit Oxus’s stake in AGF was not evaluating the assets of AGF in good faith- and appeared to be using the process to find reasons to justify putting AGF into liquidation,” according to the company’s statement. In addition, certain licenses and permits essential for AGF’s ongoing operations have not been renewed. The dispute could leave the Uzbekistan’s lucrative gold industry under near-total government control. The partnership between Oxus Gold and the government has been plagued with challenges since the get-go....

Those two incidents make for enough grounds to be wary if an exploration company snaps up an Uzbeki property. Like Venezuela, Uzbekistan looks like a country to give a pass to.

Consumer Confidence Tumbles In March

Although there has been some optimism expressed about the U.S. economy by a few Fed figures, the latest consumer-sentiment index number suggests the recovery is hitting rocky terrain. From 72.0 a month ago, the Conference Board's Consumer Confidence Index number for March dropped sharply from February's revised 72.0 to 63.4. Economists were expecting a lower number than the one reported, and the drop was accentuated by an upward revision of February's number from 70.4, but the fall was still substantial. Impacting consumer confidence were worries about the price of food and gasoline - inflation worries, in other words. An economist was quoted as saying that the drop was big enough to have an impact on consumer spending decisions.


Yes, the recovery doesn't look that strong now. Perhaps those optimistic words came from using the stock market as a proxy for U.S. economic health, as recent economic data don't exactly back up the rosy scenario. Gold, after falling back to $1,415 by 9:45, turned around and began climbing. The data hit the Internet in the middle of its climb, at 10:00, and helped ease the metal up to $1,420 before it tailed off a bit.

Mark Hulbert Says Gold Optimism Worrisome

In his latest Marketwatch column, Mark Hulbert says bullish sentiment for gold is at worrisomely high levels. Evidently, the metal's rebound from its plummet two weeks ago has gotten short-term timers excited.
Consider the average recommended gold market exposure among a subset of short-term gold market timers tracked by the Hulbert Financial Digest (as measured by the Hulbert Gold Newsletter Sentiment Index, or HGNSI). It currently stands at 67%, which means that the average gold timer is allocating two thirds of his gold portfolio to gold and gold-related investments, keeping only one third in cash.

To appreciate just how much bullishness this represents, consider that the highest the HGNSI has risen to over the last two years is 71.9%, only slightly higher than today’s reading. Over the last five years, furthermore, the HGNSI has never gotten higher than 75.2%.
In other words, optimism is close to being at a record high right now.


Given that gold's currently consolidating, and is not that far away from its record high, that level of optimism does speak to some froth in the market. No wonder why cagey traders, and bargain hunters, are awaiting substantially lower prices before jumping onto the slope.

Case-Shiller Hoising Index Down For January

According to the Case-Shiller Index, which gauges single-family house prices from 20 different metropolitan areas, housing prices fell 0.2% in January. Although above expectations for a 0.4% drop, it was stll a bad start to the year. Last year was bad, too: prices dropped 3.1% for 2010. The Case-Shiller is only 1.1% above its April '09 low.


The news was released at 9 AM. Gold didn't react much to it, blipping up about a dollar to $1,417 before pulling back to $1,416. It continued its rise later.

Indian Physical Gold Buying Edging Up

According to a Reuters report webbed by the Economic Times, Indian traders are back to buying gold again - although not in great amounts.
"Yesterday evening sales were good at $1,410-1,415 (an ounce). The deals are smaller now," said a dealer with a state-run, bullion-dealing bank.

"If gold goes below around $1,385, we could see heavy buying," said the dealer.
A stronger rupee helped lower prices for Indians. Despite the wedding season being underway, wholesale gold buying has been fairly light. Evidently, stockists are drawing down their stocks to meet demand from retailers.

Gold Keeps Slumping As Crude Keeps Dropping

There are still reports of trouble in both Yemen and Syria, but the crude market is focusing on a coming resolution in Libya. WTI crude had dropped to below $103, and was only a little above that price after a rebound. German consumer confidence is being impacted by inflation worries, as well as worries over the Middle East - North African trouble region, which suggests a constituency for the European Central Bank to raise its rate. The renminbi rose, anticipating further tightening by the People's Bank of China. OECD area inflation is up to 2.4%, the highest it's been since February of 2008. St. Louis Fed President James Bullard is warning about future inflation if the Fed stays easy for too long. Recent statements by he and other Fed figures could be just talk to placate anger at QE2, but it could be lobbying to do what they want to do but are barred from by political pressure.

Gold, following crude oil, dropped early this morning to as low as $1,410.50. After a step up when evening trading resumed, it sunk last night but didn't get below $1,415. Moving back to $1,420 by 2 AM ET, it then reversed when oil slid and sunk to that low which was reached around 6:00. The final part of that slump was prompted by the greenback fording upwards. Despite the drop, its low early this morning was higher than yesterday morning's. A later bounceback to $1,415 didn't hold as regular trading came up. As of 8:14, the spot price was $1,412.60 for a drop of $8.30 on the day. The Kitco Gold Index split the loss into -$5.30 for predominant selling and -$3.00 for a strengthening greenback.

The U.S. Dollar Index edged up yesterday evening but couldn't break above 76.25 then. Losing heart just before midnight, it turned downhill and slipped down to below 75.95. Then reversing, it climbed swiftly to surmount 75.35 as the oil-price drop finally kicked in. As of 8:23, it had pulled back a little at 76.32.

A Bloomberg article ascribes the overnight losses to recovery hopes and growing expectations of a U.S. rate hike.
“Prices are off slightly as the prospects of a sustainable economic recovery improve,” Marc Elliott, an analyst at Fairfax IS in London, said in a report. “Every positive economic figure emerging from the U.S. increases the prospect of interest rate rises.”...

“The more positive signs from the U.S. economy mean that the expectations of rate rises are starting to come back to people’s attention,” Darren Heathcote, head of trading at Investec Bank (Australia) Ltd. in Sydney, said today by phone. Higher rates “will inevitably take some of the shine off gold, decreasing its attractiveness to investors,” he said.
The article also notes that markets are now forecasting a 51% chance for the Fed to raise the Fed Funds rate by January of next year.

An earlier Reuters report said gold was largely steady before the morning slide because fears of rate hikes were balanced by safe-haven demand prompted by the current headline crises in the Middle East and Japan.
"Gold should stay rangebound between $1,410 to $1,440, with focus shifting to currencies," said a Singapore-based trader, adding that physical demand would emerge if prices dropped below $1,410.

Investors are still watching the ongoing Middle East crisis, as oil prices eased after Libyan rebels pressed forward against embattled leader Muammar Gaddafi.

"If Libya's situation stabilised, it would ease the fear on future inflation and dampen sentiment in gold," said Li Ning, an analyst at Shanghai CIFCO Futures.
A Japanese trader is also quoted as saying there wasn't much in terms of events to trade on right now. Holding of the SPDR Gold Shares Trust, in sympathy with the decline, dropped 2.12 tonnes yesterday to 1,211.84 tonnes.

The morning Wall Street Journal article said gold edged lower on expectations of further declines, but the losses were limited by some buying the dips.
"Unfolding events in the MENA [Middle East - North Africa] region and Japan have dramatically reshaped the risk profile across commodities, increasing the risk of pulling forward cyclically tight oil markets and pushing out cyclically tight industrial metals markets, while generating further upside risk to gold and agriculture," Goldman Sachs said in a report.

The investment bank said gold could see further gains in the months ahead "as demand for physical gold from gold [exchange-traded products] and government central banks continues to rise."
Although traders expect further slumps, they believe that such slumps would flush bargain hunters out to buy.

Starting with a decline, and with no news at 8:30 to either help or hinder it, gold started the pit session in a funk but shook the hesitation off to jump above $1,415. As of 8:40, the spot price had softened a bit at $1,416.70 for a loss on the day of $4.20. The Kitco Gold Index divided the lesser loss into -$1.60 for predominant selling and -$2.60 for greenback strengthening. The U.S. Dollar Index, after softening to 76.3, reversed its step-back and resumed climbing. As of 8:43, it has risen back to 76.35.

The overnight session was disappointing, but it largely knocked off the gains made yesterday. Regular trading today may be volatile, but the start of the pit session holds out hope that the overnight slide will be reversed. There's an outside chance that gold will reverse its string of losses and clock in with a modest gain.

Monday, March 28, 2011

After Tumbling In Overnight Session, Gold Recovers Somewhat

Gold was pushed down hard this morning before regular trading began, as a recovery in the greenback and a decline in the price of crude triggered profit taking that turned into another rough slide. Despite that tumble setting a gloomy overture for regular trading, the metal managed to climb a fair bit from the low and limit the loss from Friday's close to single digits.

When the pit session started, the metal was just off its daily low of $1,409.50. The U.S. economic news of the day was largely upbeat: in both release slots, 8:30 AM ET and 10 AM, gold's climb-back was halted. Still, those pause points didn't sustainably deter gold from a morning rise that became more uneven as early morning turned into late. The metal had the greenback to thank: after its overnight rise, it slumped back in the morning part of regular trading. Gold hit its pit-session peak of just below $1,424 at 12:10 PM.

Then, run down from the recovery climb, gold slowly slid down in early and mid-afternoon. Troughing just above $1,418 around 3:00, it trundled upwards for the rest of the session with a long rest just above $1,420 in the middle of the trundle. As of the close, the spot price was $1,420.90 for a drop of $9.30 since Friday's close. The Kitco Gold Index split the loss into -$8.60 for predominant selling and -$0.70 for a weakening greenback.

Gold's six-month chart, from Stockcharts.com, shows today as the third decline day in a row:



As is also evident from the chart, today's decline was more serious than yesterday's. Despite last week's new record, the metal is still consolidating - and pullbacks like the one we've seen over the past three trading days are part of the consolidation. The rebels in Libya are making inroads into Gadaffi-held territory, and the Coalition maneuvers are going smoothly. There's still trouble in Syria and Yemen, but the gold market is becoming inured to the trouble in the Mideast region. There's some sign of weakening in the U.S. recovery, but not enough to prompt any further quantitative easing. If anything, Fed figures are sounding out the possibility of ending QE2 early. This all means gold lacks a new driver, and the old ones are losing their force. In the absence of a new driver that will give gold a nice strong push, the metal will continue consolidating. There might be some more pullback in store for it, especially if a breakthrough take place in Libya. Gadaffi fleeing, or being defeated, would not be good for gold.

As for the U.S. Dollar Index, its overnight gains did not translate into a good morning. As indicated above, the Index went for a tumble just after 8:30 that lasted for two hours and left it just above 76.0 from 76.4. Subsequently, it had its own partial recovery as it trundled back up. Defeated at 76.2 in early afternoon, it slid back but resumed climbing to hover around that level in late afternoon. As of 5:30, it was still rambling at 76.2050.

Its own six-month chart, also from Stockcharts.com, shows it slumping today from its open:



Despite that slump, the Index's secondary recovery is continuing. It pushed slightly above its previous short-term interday low, and came close to touching its then-support level of 76.5. Although such indicators tend to be misleading against the trend, its Moving Average Convergence-Divergence lines (found at the bottom of its chart) made a bullish cross today. The Index is drawing strength from Fed notables' jawboning about ending QE2 early and from some good economic news coming from the U.S. It may continue to hoof back up, but it will face resistance at 76.5.

Although gold closed with a sizable loss today, there is some interest in bargain hunting coming back. The price point vary from below $1,420 to below $1,400. If the metal does manage to slump below the latter figure, dormant bargain hunters will wake up. That's the flipside to the frustrating pullbacks in a consolidation.

Pending Home Sales Index Jumps To 90.8

Although there's been a recent string of data suggesting that the U.S. economy and housing markets haven't been doing all that well, the National Association of Realtors' pending homes sales index isn't one of them. For February, the index rose 2.1% to 90.8. Still, it hasn't reached the same level it was at as of the expiry of the first-time home buyer's tax credit.


Gold didn't like the news all that much. After a nice recovery from $1,412 to $1,418, its footing was loosened by the release of this report. The metal spent some time slipping before resuming its climb.

Trying To Estimate Impact Of ETF Sell-Off

One of the fears of gold bulls, and talking points of gold bears, is what would happen to the metal if gold ETFs started dumping their holdings onto the market. With approximately 2,100 tonnes of gold in their possession, they dumping would have the impact of a big IMF sale - more so, given that the IMF sells for reasons of its own and ETF holders would sell en masse because they expect the metal to tumble.

Analysts are actually divided. Some, like Jon Nadler, believe the gold market will cave in as a result. Others, like Juan Carlos Artigas, believe that the gold market could absorb those sales.
Artigas, investment manager at the World Gold Council, which developed the SPDR fund, says ETFs account for only about 8 per cent of gold demand. The biggest share of gold demand currently is jewellery, with about a 50-per-cent share, followed by bar and coin demand at about 25 per cent.

The gold market “is a very deep and liquid market,” Mr. Artigas says. He said the ETFs don’t lead to artificial distortions in prices due to their buying and selling activity because even without them, investors who wanted exposure to gold would find ways to be in the market anyway. The ETFs are “just another way to access the market,” he said.

The much-feared IMF sales, because they took place in a bull market, only had the effect of temporarily blocking gold's rise; they actually were absorbed by the market after some indigestion.

Where a person stands on this issue depends upon their opinion about why the ETFs would unload. If investors turn away from ETFs as part of a general selling wave of gold, then their sales will take a sustained chunk out of the market. If for other reasons, though, then the gold is likely to be absorbed by other sources of demand. The most that can be said is, ETF sales would exacerbate an already-existing bear market - but not cause one.

Two Years After Gold-Loss Scandal, Director Of Royal Canadian Mint Reappointed

Back in 2009, the Royal Canadian Mint's then-record profits were blotted out by a scandal where $15.3 million' worth of gold went missing. Later revealed to have been caused by an accounting blunder, causing the Mint having to book a huge loss as the result of the mistake, the Government of Canada called in the Royal Canadian Mounted Police to help track down the gold.

That embarrassment didn't stop the Governnment of Canada from recently reappointing the director in charge back then, Ian E. Bennett. His reappointment was one of the last acts of the government before Parliament was dissolved and the Canadian election got rolling. Back in '09,
[Then-Minister of State for Transport John E.] Merrifield and then-transport minister John Baird soon issued a joint statement calling the loss “inexcusable” and promising the mint would be “held accountable.”

The government also ordered the mint to withhold executive bonuses until the matter was resolved. A series of special audits later “fully accounted” for the missing 17,500 troy ounces of gold, though not all of it was actually recovered.

Sloppy bookkeeping dating back to 2005 was the chief culprit. As well, about $3 million worth of the precious metal was mistakenly sold at a fraction of its value to U.S. refinery slag recyclers. “Despite the explanations, I am disappointed that errors have occurred,” Merrifield said at the time.
That blunder ended up knocking $10 million off the Mint's profits for the year.

Brimelow: Gold Bugs Not Deterred By Drop

Despite gold going through one of its rough spells, Peter Brimelow found that the goldbugs he keeps an eye on were still confident. The recent drop-off in gold was explained by Dan Norcini as caused by Fed figures trying to rally the greenback through speculating about the Fed ending QE2 before its completion.
“…the U.S. dollar’s technical-chart picture is horrendous. It had broken through a critical support level near 77 on the USDX last week and had further descended down towards the tremendously important 75 level. … The ugly truth is that the dollar was on course for a major crisis if it violated the 75 level.”

“Enter the Fed officials today and yesterday. Apparently the strategy was to get several of the FOMC governors to hit the airwaves talking about ending the QE program. … Result? Up goes the dollar and down goes the precious metals market. Coincidence? I hardly think so.”
Gold shares, as tracked by the Amex Gold BUGS Index (the HUI), have been doing much better than gold itself recently. Although that outperformance could be the result of the shares being undervalued, it could also be forecasting better times for gold ahead. Physical premiums in Asian markets have been improving lately to a more normal level.

Indian Physical Gold Buying Tepid

According to a Reuters report webbed by the Economic Times, gold buying by traders is picking up but not by any great amount.
"Traders priced in for 45 kg of gold from the morning, but no one is rushing in to buy," said a dealer with a state-run, bullion-importing bank in Mumbai. "There is a strong support at $1,414 (an ounce), which traders are eyeing," said the dealer.
Buying wasn't helped by a weakening rupee, which eased back after several days of gains.

Gold Slides Back On Improving Greenback, Drop In Oil, Profit-Taking

The situation in Libya improved over the weekend for the rebels. Driving west, rebel forces have taken the town of Nawfaliyah. In Yemen, talks that would have led to President Saleh stepping down immediately have stalled. But, the fact that a deal was initially made suggests Yemen might calm down. The situation in Syria doesn't look that good, as President Assad seems to be backing away from an earlier promise of reforms. Turkey's government is beginning to put pressure on Asad to follow through.

Although mixed, there was a definite tilt towards the Middle Eastern - North African turmoil moving towards resolution. That led to WTI crude oil dropping below $105 a barrel and a decent rally by the U.S. dollar. Both put pressure on gold, which took a tumble this morning after skidding downwards when trading resumed last night. Concern over rising inflation in Latin America didn't help the metal.

After dropping to $1,425 from Friday's close of $1,430 right off the bat, the metal hung around $1,425 last night with only a little and reversed jump to break the monotony. With the greenback rallying, gold slumped then skidded well below $1420 in late Hong Kong trading. A climb-back to $1,420 at the time London was active and Hong Kong was closing didn't help the metal regain its footing; instead, just after 6 AM ET, the metal skidded further to a low of $1,413.60. The aftermath saw it only climb back to the $1,415 level before the skidding resumed. As of 8:15, the spot price was down to $1,411.10 for a drop of $19.10 since Friday's close. The Kitco Gold Index split the loss into -$14.80 for predominant selling and -$4.30 for a strengthening greenback.

The U.S. Dollar Index climbed right off the bat, inducing gold's skid when its own trading resumed. Shooting up from 76.1 to almost 76.4, the Index held its gains but fluctuated in a wide zone. Not being able to best that level, it contented itself with a range bordered by 76.25 and that same 76.4. As of 8:22, it was approaching the ceiling at 76.37.

A Bloomberg article said gold declined on profit-taking on signs the U.S. economy was improving.
"The U.S. numbers have not been all that awful,” said Afshin Nabavi, a senior vice president at bullion refiner MKS Finance SA in Geneva. “The market has had a huge move up and the higher we go up, the more chance of a bigger correction.”
The good news in question was expected higher U.S. consumer spending as indicated by improvements in the labour market. James Bullard suggested last Saturday that the Fed might want to consider ending QE2 prematurely.

An earlier Reuters report said gold was weighted down by the firmer greenback, but still found safe-haven support.
Several Fed officials said on Friday that the central bank was unlikely to extend its bond purchase program with the U.S. economy now on a firmer footing, while others called to trim the program or raise interest rates soon, increasing the greenback's appeal and weighing on gold.

"The bar for future quantitative easing seems to have been raised, and this is weighing on the sentiment of the gold market," said Ong Yi Ling, an analyst at Phillip Futures.

The Fed's money-pumping into the economy has raised concerns of inflation down the road, helping gold extend its record-breaking rally. Some investors had expected the Fed to extend its loose monetary policy, which could further increase demand for gold as inflation hedge.
Asian physical buyers continue to await for prices to go below $1,420 before dipping in. Holdings of the SPDR Gold Shares Trust were unchanged yesterday at 1,213.96 tonnes.

A Wall Street Journal report said gold was pulled down in part by a broader slide in commodities. According to a London trader, bargain hunters are waiting for lower prices - perhaps below $1,400 - before entering the market.
Sentiment remains generally bullish for the short- to medium-term, though, and analysts continue to tip a break to fresh record highs in the weeks ahead....

"We have seen some clear profit-taking so far today, but in the longer term people are still expecting another move higher," the trader said.
Despite those hopes, as based upon labour-market data, real disposable incomes for February declined by 0.1% because of higher prices. Nominally, incomes rose 0.3%. Again, growth in consumer spending outpaced growth in consumer income. After a pre-pit-session slip to almost $1,410, gold reversed course after regular trading started and managed to get above $1,414 just before and at the release of that data. As of 8:47, the spot price had settled back somewhat to $1,412.90 for a drop of $17.30 since Friday's close. The Kitco Gold Index divided the loss into -$14.00 for predominant selling and -$3.30 for greenback strengthening. The U.S. Dollar Index, failing to sustainably breach 76.4, fell back after getting a little boost from the disposable-income data; as of 8:51, it was languishing at 76.31.

Bargain hunters are increasingly waiting for a breakdown by gold before snapping some up. As a result, the old bargain-hunting support that used to be there isn't now. Gold may continue to face a slippery slope in regular trading as a result.

Friday, March 25, 2011

Gold, After Decent Gain, Tumbles On Stronger Greenback; Closes With Slight Loss

The prosecution of the Libya warlet is now in the hands of NATO, and the top soldier for the mission is Canadian Lt. General Charles Bouchard. The brewing civil war in Yemen has unnerved Pres. Saleh to the point where he's ready to leave office now. He would be the third ruler in the region forced out by public uproar. In Syria, temporary martial law has not deterred more protestors from hitting the streets. Despite a promise from Syrain President al-Assad to look into recognizing some human rights, troops opened fire on marchers in several cities. The region's turmoil continues. There's some worry about what will happen in U.S. ally Yemen.

All of these events, gold ignored. In essence, the metal has already discounted the turmoil. That explains why gold went from a decent gain in the morning to an outright loss after the greenback leapt up. Although the loss was pared, gold's late-afternoon momentum was not enough to eliminate the deficit on the day. For the week, thanks to earlier gains, it was up $10.50 or 0.740%.

The metal essentially marked time in the morning after rising last night. As the pit session approached, it became more volatile but still moved sideways overall. A nice boost from a downward revision of the March number of the University of Michigan - Thomson-Reuters Consumer Sentiment Index provided leverage for a nice climb to $1,438 but the effect was only temporary. By noon ET, the metal was hovering around $1,434.

Then, prompted by a leap of the U.S. Dollar Index prepared for by an uneven climb, profit-taking again entered the gold market and the metal was driven down to $1,422. The downdraft lasted a half an hour and ended at 12:45 PM. From then, a relief climb set in thanks to the metal being driven down too far. The climb's momentum petered out in later afternoon, despite a last-minute jump; gold had diffculty regaining $1,430. As of the end of the week, the spot price was $1,430.20 for a loss of $0.80 on the day. The Kitco Gold Index attributed +$8.30 to predominant buying and -$8.90 to a strengthening greenback.

Gold's six-month chart, from Stockcharts.com, shows its volatility today and its miniscule loss:



Today's profit-taking tumble was the second one in as many days. Futher confirmation of its consolidation phase comes from those drops, which have pushed gold from its new record to a fair bit below. There isn't much wrong with the chart, although the pullbacks are frustrating, but it does indictate that gold is going to keep churning around instead of resuming its climb.

Turning to the U.S. Dollar Index: it made a nice gain in early-morning trading from the 75.75 level, which was partially lost thanks to a slide-back in later morning. But, starting at 11:50, it first climbed and then leapt up in a snapback from its recent funk. By 1:05, it was at 76.28. Another slide-back to 76.15 presaged a climb that only double-topped the Index. As the week came to an end, it slide down steadily to close at 76.13.

Its own six-month chart, also from Stockcharts.com, shows its secondary upturn gaining a second wind:



Now, the Index is far from oversold. In retrospect, its recent swift slide had invited a countertrend pull-up. I admit it confounded my expectation for a further churn in the high 75s. But, I still have my doubts about the staying power of its current thrust upwards. As the chart makes clear, its overall trend is downward.

Gold did end the week with a fairly decent gain, but it's also lost its footing after setting another record this week. The current crises don't have the same rally power that they used to, and another driver has yet to make its appearance. So far, the stagflation theme has only been foreshadowed. The Fed has not even hinted at a new round of quantitiative easing yet. The only hints given indicate it won't be hawkish anytime soon. Now that the weekend's here, gold looks as if it'll continue trundling along in its low-1400s range.

In closing, I'd like to thank you for stopping by to see what I've got on this blog. Another installment of "Shade In The Made" will be up on Sunday. Have a great weekend - a warm one if you're lucky enough to have the weather co-operate.

Malbex Reources Shows Froth Is Still In Market

Despite a recent pullback from the nosebleed levels of a couple of months ago, there's still some froth in the junior-exploration market. Sought-after stocks are still forging ahead on news that they're planning to drill on their properties. If a stock revs upwards on no results, only on the hope of future results, then the market is far from pessimistic or skeptical.

Malbex Resources did announce a drill-core result today, and its stock leapt up accordingly. It closed yesterday at 59 cents. Opening seven minutes after the result was released, it started off the trading day at 73 cents for a 14-cent jump. It was above 80 cents within three minutes of the open and made its day's high of 85 about fourteen minutes after trading began. Tailing off definitively about twenty minutes after the open, it got as low as 70 cents before bouncing around the price that it closed at: again, 73 cents. Malbex was another stock for which a rush to the entrance was imprudent for many. Anyone who bought about ten minutes after trading began - which could have meant having a market order at the open in a clogged market - was sitting on about a 10% loss at the end of the day.

The result in question was a doozy in terms of length: 2.12 g/t of gold over a huge 132.65 m. There was also 10.8 g/t silver in that hole. Also in that stretch of core, although in a different interval, was a 46m stretch of 3.31 g/t gold and 25.2 g/t silver.

Sad to say, the 132.65 m interval is iffy: it starts at 106 m below ground, more than 40 m below the end of the other result. It's not near enough to the surface to make for a viable strip mine, and its grade is well below the 5-6 g/t to make for a profitable underground deposit. The other interval from the same hole shows more promise: it starts at 18 m below the ground. That's close enough to the surface for a strip mine. Since strip mines can be viable with as little as 0.5 g/t gold, 3.31 g/t more than matches up.

The property from which the hole came, which was located 60 m to the side of another one with good values, is the Del Carmen. It's located near the southern end of the El Indio gold belt between Chile and Argentina. The fact sheet for the Norte part of the Del Carman concession shows some other holes that have gotten strip-mine-grade near surface results - but others haven't. This assay table [ .pdf file ] goes through the results meticulously.




The Moral Of The Story: It's always a good idea to pick through the drill-core results of any property. It's human nature to want to promote what you've got, and exploration companies are no different. Sometimes, a thorough pick-through of the results shows something a little iffy about ostensibly great results. Looking behind the clothes and grooming is one of the necessaries of proper due diligence.




Below is a one-year chart of Malbex, from Stockhouse.com:





Disclosure: None - I don't own even a share of Malbex.