Friday, April 29, 2011

Gold Shoots Up To Yet Another New Record On Momentum Buying

The lack of any significant pullback during the overnight session evidently reassured the gold market that the metal's current nosebleed levels don't contain any hidden pitfalls that would drive it down. Instead of today's regular session repeating yesterday's volatility in both directions, the only volatility exhibited in today's session was upwards. Gold's latest record high, made during the session, was about twenty-five dollars above the record made in the overnight session. Despite the metal being seriously overbought, it managed to put on nearly thirty dollars today on what was essentially momentum buying. The usual enabler, the greenback, hardly dipped at all in today's session. WTI crude oil did climb this afternoon, by about a dollar to close at $113.72, but that jump acted more as catalyst than driver. In the final analysis, gold got there on its own due to the aftereffects of the Fed's continued easing and earlier U.S. dollar drop. In a word, momentum.

For the week, the metal chalked up another gain - one stronger than usual for the period. Since Good Friday's truncated close, gold gained $58.00 or 3.85%. Normally, weekly gains are around one or two percent.

The session started off slowly, with gold meandering in the high 1530s in the early part of the pit session. The first hint of what was to come took place at 10:00, when gold managed to rise to $1,545. There were data on the U.S. economy released at that time, but the only item that showed bad news - a drop in the Chicago Purchasing Manager's Index for April - was expected and came down from an unusually high level last month. Stuck just below $1,545 until 11:00, the metal dipped downwards at that time and was again frustrated from climbing above. Breaking through at noon, it went up to $1,550 before being stopped again.

The big breakthrough above $1,550 came at 1:05. In two hours, gold climbed up to its new record of $1,570.60. Again blocked, the metal slipped to below $1560 before scrabbling back into a range in the low 1560s. Mustering enough power to break above $1,565 near the end, the spot price ended the week at $1,565.70 for a gain of $29.90 on the day. The Kitco Gold Index split the gain into +$28.70 for predominant buying and +$1.20 for a weakening greenback.

Gold's six-month chart, from Stockcharts.com, shows its rally continuing to power higher:



It also shows how overbought gold has become. Gold's Relative Strength Index (RSI), found at the top of its chart, is not only way above the overbought level of 70 but is also well above 80. More and more, this run-up resembles last fall's. Last week, silver went parabolic; it's now becoming gold's turn. Despite gold advancing to new record highs this week, silver barely beat its old high from last week. Seasonality is to gold's advantage now, but typically the seasonal tailwind ends next month. I have to admit that gold has continued to surprise me to the upside, and that I underestimated its strength after it broke through $1,500. Still, I have to be the apparently foolish party pooper and say that gold is even more vulnerable to a pullback. Interestingly, a serious drop now might pummel it down to $1,500 - the level at which I got nervous in the first place.

The U.S. Dollar Index did some more falling in the overnight session, but not that much during regular trading. Instead, it fluctuated in a wide range between 72.85 and 73.1. It did not make a new thirty-one month low during regular trading. Recovering from a dip below 72.85 when its own pit session started up, it zipped up to the top of its range but lost its ground at 10:05 after triple-topping at 73.09. Slipping to 72.95, it made another run for the top but peaked at a slightly lower level at noon. Then sliding, it got to the bottom of its range before regaining traction and climbing back up near the top of its range. At the end of the week, it settled at 73.03.

Its own six-month chart, also from Stockcharts.com, shows yesterday's slump continuing today but more gently:



The Index's own RSI, found at the top of its chart, remains firmly in the oversold zone. Again 73.0 provided spongy but effective support. Perhaps gold took off this afternoon because a rebound in the greenback was expected today but did not materialize. I have to say that the greenback is overdue for one.

Gold's performance today was unexpectedly strong, and its gain for the week was unexpectedly good. Yesterday, I broached the slight possibility of gold tipping over into an all-out mania. It's still too early to make that conclusion, tempting as it is to frustrated skeptics and bears, because gold's seasonality still favours climbs right now. As of now, it can only be said that gold is taking advantage of early-spring seasonality more strongly than it did last year. Amazingly, less than two weeks after breaking $1,500, it's within shouting distance of $1,600. Wiil it make that level before crumbling? Given its performance this week, that question's no longer rhetorical. I'll confine myself to repeating the now-staple warning about the metal being seriously overbought. I don't want to ruin the weekend.

Speaking of the weekend, I hope you enjoy whatever warmth you're granted. Again, thanks for dropping by; if you're long, congrats for holding on.

Chicago Purchaing Manager's Index Falls, Consumer Sentiment Rises

Two additional data on the U.S. econony were released within ten minutes of each other. At 9:45, the April Chicago Purchasing Managers' Index (PMI) showed a drop from March's 70.6% to 67.6%. That drop was slightly lower than expected; the subindex covering new orders plummeted. Despite the drop, the PMI still shows expansion: any reading above 50 says more firms are expanding than contracting.

9:55 saw the release of the Thomson Reuters/University of Michigan Consumer Sentiment Index. The April figure rose from March's 67.5 to 69.8. This reading was also slightly below expectations.


Gold didn't react to the first figure, staying stuck around $1,537.50. It did start to rise when the second figure was released, but didn't make a jump until 10:00. Then, in quick order, it got up to $1,545 and hung between that level and $1,543.50. Perhaps those figures did have an influence, as gold jumped before the greenback slipped.

Despite Auspiciousness Of Akshaya Tritiya, Retail Gold Sales Expected To Fall 10-20% On Festival

India's enjoyed a lot of growth, and Indian farmers have enjoyed a nice boost in their incomes due to rising agricultural commodity prices, but some gold traders are expecting the high price of gold to cut into the volume sold on that gold-buying festival.
Traders and retailers are expecting a fall of 10-20% in volume though value of gold bought is likely to rise, thanks to rise in gold prices....

“This hike in price will affect the demand for gold on the auspicious day. Interestingly, gold price is continuously rising but so is demand. However, the demand is increasing in terms of value of gold bought while volume may shrink,” said Rajkot-based bullion trader Pankaj Lodhiya.
The article notes that, despite the expected fall in volume, traders are still stocking up for the festival.
"Traders and retailers usually start buying gold one month prior to Akha Trij. But this year with such exorbitant prices, everyone is afraid of a fall in sales," said Rajnikant Choksi, director of Ahmedabad Choksi Mahajan Association.

Maybe. We won't know until the sales figures are in. Indian consumers have surprised to the upside, volume-wise, before.

Princess Kate, Duchess Of Cambridge, Has Wedding Ring Of Real Welsh Gold

That news has been confirmed officially by the official Royal Wedding Website.
The gold was made into the wedding ring by Wartski, a family jewelry business founded in 1865, the official royal wedding Web site said.

Elizabeth presented the Welsh gold to William shortly after his engagement was announced, the Web site said.
The jeweler might have a little explaining to do. When it came time to put the ring on her finger, Prince William had a bit of a tough time. To my eyes, it looked like they made it a little too tight for her ring finger.

Special Gift For Goldbugs: Shredded U.S. Currency

Although currently out of stock, the U.S. Bureau of Printing and Engraving did sell bags of shredded Federal Feserve Notes with approximately $10,000' worth therein for $45. Globe and Mail blogger David Berman observes that it makes a great gift for a goldbug. (I'm sure the shreds won't add up to even $45 worth of legal tender, try as some might to reassemble them.)
Here’s an ideal gift item for the gold bug in your life: A five pound bag of shredded U.S. currency.

Now, $45 (U.S.) might sound like a steep price to pay for such a product, especially if you feared that it contained filler – such as inferior currencies like, well, the Zimbabwe dollar.... [T]he gold bugs come in [because] these shredded notes provide a lovely metaphor for their beloved commodity, which is widely seen as an ideal store of money in an era when the value of paper money is being, wait for it, “shredded.”

In the spirit of fun, there's another line of gag currency that would be a treat for a goldbug. Right now, the Bureau produces bills in no higher than $100 denomination. Legal tender, as far as I know, stops at $1,000: that leaves higer denominations up for grabs in the fake department. You've seen those fake million-dollar bills? How about one with Ben Bernanke's face on it, from the "Reserve Bank Of Inflation?"

"This note is worth its intrinsic value for all debts, public and private."

[Oh, yes. The back of the note needs a helicopter dispensing you-know-what.]

Yukon Staking Frenzy

As reported by the Wall Street Journal, there's a veritable gold-rush frenzy in the Yukon right now. It's gotten so excited, stakers are now working year-round in the cold, cold Yukon. The number of claims staked in the cold months of January to March have been more than the average for the entire year pre-rush.
Denis Jacob has been staking claims for gold-company clients since 1975. But he's never seen a frenzy quite like the one playing out in the Yukon—Canada's western-most territory and the site, more than 100 years ago, of one of history's greatest gold rushes.

Mr. Jacob is part of a small, secretive band of "stakers," who hike miles at a time across the territory's mountains and forests, hammering wooden stakes into the ground. For years, they've quietly marked off and registered land for mining companies, who then have the right to explore for riches underneath....

"As soon as gold went up, bang, everything changed," says Mr. Jacob, 60 years old. "Staking has become wild, quite wild."
There's an art to staking, although the general rule is to stake properties that are beside ones that have already generated interest or have similar mineralization. The way the winter is foiled is to begin the stake hunt poring over geological maps and poking around the records office, asking what the article called "very specific questions." Then, the team goes out into the snow...carefully.


Contract stakers make a nice living, but on-spec stakers often have a hard time. Typically, if the latter are fortunate enough to get a property that a junior explorer takes on, they get a five-figure cash payment and a hunk of shares in the explorer. Sometimes, they don't even get the shares.

Indian Physical Gold Buying Fades Back On High Prices

According to a Reuters report webbed by the Economic Times, Indian traders and stockists have had their fill of buying and are now waiting for lower prices before stepping back in.
"There are no big deals today as the market is holding at higher level," said a dealer with the state-run bullion importing bank.

"They are waiting for levels of $1,511," said the dealer.
That's a fair bit below where gold is now. Evidently, they've decided to wait for a real pullback.

Gold Marks Royal Wedding With Another New Record

Would that it were so, but gold marched up to a new record high on quotidian reasons. Like during the last overnight session, the metal hardly moved last night. Sagging a little to the low 1530s, it moved sideways as night turned into morning. After slumping gently to $1,532, it recovered and then broke to a new record on the news that Eurozone inflation for April moved from March's 2.7% to 2.8%. Unemployment for the region stayed steady at 9.9%. European Central Bank President Jean-Claude Trichet was cagey about the news, not chivvying the Bank to any imminent rate increases. WTI crude oil also jumped a bit as the greenback sunk. Gold's new record high is $1,541.00, which it reached just before 8 AM ET. As of 8:08, the spot price was slightly below that record at $1,539.50 for a gain on $3.70 on the day. The Kitco Gold Index attributed -$1.10 to predominant selling and +$4.80 to a weakening of the greenback.

The U.S. Dollar Index, after starting the overnight session around 73.1, first sunk but rose to 73.2 a little after 9 PM. Then thwarted, it sunk back to below 73.1 and then very slowly descended - until 4:20, when its decline accelerated after it broke through 73.05. Pausing at 72.95, it stumbled some more but recovered after sinking below 72.85. Although it was close, it did not make a new thirty-one month low. As of 8:13, it clambered back to reach 72.89.

A Reuters report said that gold was on track for its seventh weekly gain largely because of the slumping greenback.
Gold's inverse orrelation to the U.S. dollar makes it cheaper for non-U.S. investors and means it draws more strength from weakness in the greenback. Highlighting gold's dependence on the dollar is the tepid performance of the metal versus other major currencies such as the euro, against which it has barely moved this week.
Holdings of the SPDR Gold Shares Trust were unchanged again yesterday at 1,229.64 tonnes.

A Bloomberg report also credited the falling greenback.
“The sinking dollar is driving people to the gold market,” said Lim Han Jo, a Seoul-based trader with Tongyang Futures Co.
Bloomberg's weekly straw poll of 21 traders, investors and analysts had eighteen predicting a higher price for next week. Three predicted a lower price.

Consumer spending firmed up for March, and was revised higher for January and February. In nominal terms, spending rose 0.6% which roughly matched expectations. Feruary's was revised up to a 0.9% nominal gain and January's was revised to 0.5% from 0.3%. Personal incomes rose more highly than expected. After inching up to a new record high of $1,541.70 before regular trading started, gold slumped to the high 1530s again and took a two-and-one-half dollar dive on the news. As of 8:43, the spot price had recovered a little to $1,538.60 for a gain of $2.80 on the day. The Kitco Gold Index assigned -$1.20's worth of change to predominant selling and +$4.00's worth to greenback weakening. The U.S. Dollar Index continued to recover from its early-morning nadir: as of 8:45, it had stalled at 72.93.

Gold just keeps going up, although it's been unusually steady for most of the overnight session. What's absent is any sustained downturn. There may be some volatility in today's regular trading, as there was in yesterday's, but it looks like no major damage will be done unless the greenback turns up.

Thursday, April 28, 2011

Gold Makes Another New Record On Weakened Greenback

Gold didn't react that much to the tumbling greenback in the overnight session. But, it did react when the currency fell anew in tandem with a jump by WTI crude oil to almost $114 in late morning. Both provided enough strength to gold for it to make a new record of $1,539.50 at 11:30 AM ET. Although the metal couldn't hold on after making that record, it did climb back high enough to make for a gain that was close to double digits.

Helping to energize gold and push down the greenback, although not immediately, was the first-quarter GDP number for the U.S. economy. It came in at an anemic 1.8% annualized. Although slightly beating recently lowered expectations, it gave teeth to some recent economic reports that indicated stagflation brewing in the States. One of the reasons why real GDP growth was so low was inflation picking up. Nominal consumer spending was fairly robust, but real consumer spending was a drag-down. Stagflation, of course, puts the Fed in a bind because inflation and unemployment are both high - making the traditional tradeoff painful either way. Ben Bernanke has already indicates which side of the trade-off he prefers right now.

After slumping to the high 1520s when the pit session got rolling, the metal jumped to $1,532 on the GDP and initial jobless-claims news. The latter was also unexpectedly disappointing, showing a jump to 429,000 claims that counfonded expectations for a drop. Not getting much traction afterwards, gold slid back to $1,530 before it got solid footing thanks to a stumble by the U.S. Dollar Index. Then hoofing it up to $1,536, it got a further boost when oil marched up; that final push let it achieve its record at 11:30.

Then, a selling wave was triggered by a recovery in the greenback and slump in oil. From its lofty record height, the metal tumbled to $1,528 before getting a respite. Fluctuating between $1,527 and $1,530, it got a bit of traction but lost footing again around 1 PM. That spill got it touching $1,526 at the bottom.

Then, at 1:45, the metal regained its footing more durably. Hiking up in mid-afternoon, its pace slowed as it got from low 1530s to high. By 3:30, it rambled sideways around $1,536 and stayed horizontal for the rest of the session. As of the close, the spot price was $1,535.80 for a gain of $8.50 on the day. The Kitco Gold Index split the gain into +$3.80 for predominant buying and +$4.70 for a weakening of the greenback.

Gold's six-month chart, from Stockcharts.com, shows it again shaking off what was in retrospect a minor decline from two days ago:



As its Relative Strength Index (RSI) at the top of its chart indicates, gold is now quite overbought. The last time its RSI was this high, was at the climax of its fall bull run in mid-October. A fairer comparison is to late September, after a run from late July's low that's comparable in length and strength to the present one that started at the end of January. A more seasonally-matched comparison is to last year's run from late March to early May: sad to say, that earlier run turned into a sharp pullback a short time after gold became overbought. This string of overboughtedness, despite the seasonality mismatch, is more comparable to the fall run. That one had a few weeks left before turning down. From a seasonal perspective, though, next month tends to mark a top. The old adage "Sell in May and go away" kicks in at the start of next week. This present run, although impressive, is getting advanced in age and might well be living on borrowed time.

The U.S. Dollar Index made a new 31-month low, of 72.86, in overnight trading. Unlike the last time it visited those depths, its recovery today wasn't much of one. After recovering to 72.275 right after regular trading started, it double-topped forty minutes later after being knocked out of climb mode by the GDP news. That double-top preceded a more serious decline which brought it all the way down to 72.955 by 10:10. Then recovering, it couldn't make its way to 73.3 despite two tries. After the second try, at 1:30 PM, it gave up and slid down to 73.1; it spent the rest of the session nearby. As of 5:15, it was still rambling at 73.11.

Its own six-month chart, also from Stockcharts.com, shows its tumbling continuing for the fourth day in a row:



The Index's own RSI, found at the top of its own chart, is even more oversold than it was yesterday. At this level, the Index has about two points to go before it reaches depths unknown to it for the last twenty years - at least. That said, 73.0 is proving to be a durable if spongy support level. I'd watch for a secondary recovery, even if the currency's trend is most definitely downwards.

Again, gold set a new record. Given the risk of traders selling on the Fed news, it's notched up an impressive day. Unfortunately, the month that's about to begin tends to correlate with an intermediate-term high. The seasonality isn't exact, but it's tended to work as long as the part about staying away 'til Labour Day is ignored. Last year, gold's summer seasonal low was in late July: earlier than expected. Still, the metal's overboughtedness and upcoming seasonal weakness (if it behaves normally) makes for moving to the sidelines if you're in it for the longer term.

There's a small possibility of gold shrugging off that seasonality, but I don't even want to go down that road. I'll confine myself to saying: if gold goes up in late spring, then it'll be moving in accordance with a crystallizing mania.

March Pending Home Sales Index Climb 5.1%

The National Association of Realtors' index of pending home sales climbed to 94.1 in March from a downwardly-revised 89.5 in February. Despite conflicting data, it suggests the housing market is getting a break right now. As for the index, 100 has been roughly calibrated to be mid-range healthy.
"Based on the current uptrend with very favorable affordability conditions, rising apartment rents and ongoing job creation, existing-home sales should rise around 5% to 10% this year with sales growth of lower priced homes likely to outperform high-end homes," said Lawrence Yun, NAR's chief economist.
Also reported was the 30-year fixed mortgage rate, which ticked down to 4.78% last week from 4.8%.


Gold had already risen to $1,536 before the news was released, and got stuck at the release time. Moving through the blockage, the metal managed to break above $1,536 at 11:15 and hoof up to a new record high of $1,539.50. It then slipped back to $1,535.

How To Spot Gold Mania Cracking Apart

The author of this piece is far from being a gold skeptic: he's been in gold for about ten years. He reassures us that gold is far from being in a bubble right now, because it's underowned relative to housing in 2005 and tech stocks in 1999. But, gold's heading that way. Here's what to watch for:
Try starting up a conversation with your neighbor about the best silver stocks in the world... or why the geology of Nevada has made it such a prolific gold producer. Ask your personal trainer what the best places to store physical gold are. Chances are excellent you'll get a bunch of odd looks. They'll want to turn the conversation to baseball or the weather.

We'll know we're in the midst of a real gold and silver bubble when we can have those conversations at will. Or when, as my colleague Jeff Clark of Casey Research has pointed out, Silver Wheaton is a market darling... instead of a stock you occasionally hear about from "fringe" publications like DailyWealth.

In the gold bubble, we'll be able to ask any cab driver which gold stock he likes and get a quick reply. "Goldcorp," one will say. "It has the lowest cash costs and great growth prospects."
Or, even more alarmingly, a cab driver says "XYZ Exploration. Its drill results were so hot, it's guaranteed to build a mine!"


Pre-bubble investments are tricky except for those who like to hold on out of faith. To be frank, faith pays off when an investment's about to move into a bubble. The blockage to full bubble status comes from the investment's nosebleed level when compared to historical norms. That makes the ones who were there from the early days nervous. I remember a fellow who bought a lot of gold, from 2000 on up, selling in early 2009, when gold was around $900, because he thought gold wouldn't crack four digits. It's easy to smile in retrospect, but this guy was used to gold being much lower. $300 was a bargain. So was $500. $700? Not so much. The bulk of his accumulation was undertaken when forecats of $1,000 gold were mostly seen as absurd.

The tip-off towards a bubble approaches when an investment stays at nosebleed values long enough to assure people that there's not much risk at those high prices. Typically, these people are late entrants who hadn't heard about the investment until late in the bull market. For gold, this would be the new goldbug that got in because George Soros and John Paulson did. For the first crop of these people, $900 didn't seem that high. They didn't remember gold scraping along at $250-$300.

Those new goldbugs, if they held on, are sitting on substantial and fairly quick profits. They're also in a minority. The average Joe has heard about gold, but hasn't pulled the trigger - perhaps because gold looks so high and inflation isn't much of a problem right now.

It's those people that turn a third-stage bull market into a mania once they pile in: the cabdriver and personal trainer.

Faith comes into play when a bull market transitions from its first to second stages, not just from second to third. The first-stage investor gets in because the investment's a bargain, and gets jittery when the investment rises above fair value. The second-stage investor gets in for growth reasons, and gets jittery when the investment becomes overvalued even by generous growth metrics. The third-stage investor gets in when the investment looks like a sure thing, largely becasue even rational skeptics have been throughly discredited as boys who've cried wolf too many times.

With respect to gold, the first stage covers the time when it was undervalued as a commodity. The second-stage growth story is rooted in global inflation, Asian demand and central-bank buying. Transitions between stages can be seen when the air is thick with cries of "bubble," as was the case when gold was at $650 in '06. The third stage is usually an exaggeration of the second-stage growth story with a kicker. The kicker in this case would be developed-world inflation taking off, with a plausible rationale explaining why central banks won't do anything about it.

Right now, gold's transitioning to the third-stage blow-off. I wouldn't be surprised to see second-stage goldbugs get jittery right now, except for the ones waiting for the blow-off. In this kind of transition time, faith helps. Needless to say, the first-stage goldbugs who've held on are getting jittery.

The trouble with faith is, it hurts terribly once the blow-off is complete. One of the lethal side effects of faith, which enables people to shrug off false alarm bells, is it encourages people to shrug off real alarms that were obvious in retrospect. An example would be the Fed finally raising rates enough to make for a 3% real return, or the U.S. Congress implementing a real budget-trimming plan. In mania times, these turning points are laughed off as insincere or politically unsustainable. Mainstream goldbugs didn't realize that Volcker was serious until 1982, when it was too late for gold.

Mainland China Well On the Way To Overtaking India As #1 Gold Consuming Nation

India is still the number one gold-consuming nation, but mainland China is moving in close. If current trends continue, the latter nation will be the #1 gold consumer in a few years.
India, the world's biggest consumer of gold will probably be [overthrown by] China in the years to come, especially if they continue to purchase gold at the current rate. If the Indian investors seem to have become nervous when it comes to purchasing gold as an effect of the rising prices of the glittering metal, the Chinese don't seem to have a serious problem with this.

This has become obvious by the fact that the Chinese government has allowed the public to buy gold as until recently this activity was banned. Also various laws regarding mining for gold are also facilitating gold ownership.
Not only is ownership being facilitated, but also the government is encouraging its citizens to hold 5% of their savings in gold.


This encouragement shows in gold's continued rise. Ironically, the fact that Asian demand is pushing gold up gives central banks an excuse to push back tightening. Their experts can claim that gold's bull market say little about developed-country inflation, as it's being pushed up by developing-country inflation and the wealth effect as played out in Asia. I think this is why the Federal Reserve has ignored gold's rise in its deliberations.

So, there's more scope for gold to rise - and yet another rationale for tightening too little and too late.

Despite Gold Moving Up, ETF Holdings Shrink In First Quarter Of This Year

ETF holdings of gold have been a major driver in the earlier stages of this bull market, but not in the latest stage. Despite gold going up this quarter, ETF holdings have dropped by about 57 tonnes or about 2.62%.
Gold ETFs monitored by the WGC held 2167.4 tonnes on December 31 2010. This amount fell to 2110.3 tonnes by the end of the quarter.

Earlier this month Philip Klapwijk, chairman of leading precious metals consultant GFMS, suggested that cost savings may account for some of the moves out of ETFs and into physical gold ownership

"Some of this apparent slack in ETFs... is believed to have been taken up by allocated gold accounts, which can incur costs of as little as 0.1% per year," he said. "ETFs typically charge around 0.4% per year in fees for investment management, as well as charging brokerage fees for every transaction made."
This reason gibles with other statistics showing holdings of physical gold rising.

Experimental Bioleaching Technique To Be Used On Concentrates In Manitoba

The heap of concentrates is located in Snow Lake, Manitoba. It's fifty years old, weighs 250,000 tonnes, and has been leaking sulfuric acid and arsenic for quite some time. A Toronto company named BacTech Environmental Corp. is promising to get the gold remains out and clean the concentrates up at the same time through a new process called "bioleaching."
"This will be our flagship project," said Ross Orr, president and CEO of BacTech. "There are more than 10,000 tailings deposits in North America, some large, some small. Our job is to find which ones are the nastiest but can also provide a return on investment."

The technology, called bioleaching, involves introducing a cocktail of benign, sulphide-eating bacteria into the concentrate that will release the gold that is locked in a sulphide matrix.

It is technology that is already being used in about 20 mine sites around the world where conventional gold-mining techniques are not sufficient to release viable quantities of gold....
Sampling of the tailing indicate it contains 9 g/t of gold, which is enough of a grade to make for a profitable underground mine. At 250,000 tonnes, the expected yield is about 72,000 oz. with near-100% recovery.

The mine, formerly known as New Brittania, is being reopened by Alexis Minerals. The concentrate garnered by BacTech will need to be milled, so the company will be in need of Alexis' co-operation. Bioleaching does work, but it's more expensive than conventional methods: it's only used when conventional methods fail. Tailings are BacTech's target market because they're already mined, so the expense of the bioleaching is cancelled out by the lack of expense for hauling the rock up.


As an aside, Alexis is listed and so is BacTech. Only the latter is listed on the Pink Sheets.

Indian Physical Gold Demand Still Robust Despite High Prices

According to a Reuters report webbed by the Economic Times, traders were still buying gold even though the price leapt up yesterday.
"Buying is still there. I booked for 50 kgs at $1,529/1,532 (an ounce). I am closely looking at $1,530, as I have a large order there," said a dealer with a state-run bank in Mumbai.
A stronger rupee helped cushion the price increase, giving buyers a bit of a break.

Gold Stays Up, Makes New Record As Greenback Keeps Sliding

The greenback had a bad night, making a new thirty-one-month low of 72.86 shortly before midnight ET. Unlike during yesterday afternoon, gold did not thrive on the greenback's continued decline. Instead, it loped sideways in the high 1520s, barely touching $1,530 at its height, until shortly after midnight. The breakthrough to a new record of $1,535.60 had to wait until 4 AM, right after London trading got rolling. The preliminary figure for April German inflation was reported as being 2.4%, up from 2.1% in March, but import prices rose less than expected. The break above $1,530 was made as 12:30 AM; gold stayed above that level until 7:30. The Federal Reserve staying the course didn't prompt much buying but not much selling either; instead, gold held its own. As of 8:13, the spot price was $1,529.10 for a gain of $1.80 on the day. The Kitco Gold Index attributed -$0.50 to predominant selling and +$2.30 to a weakening greenback.

The U.S. Dollar Index, as mentioned above, continued tumbling last night until it bottomed at the 11 o'clock hour. After a pause of couple of hours' worth between 73.3 and 73.4 in the evening, its tumble took it down to that low of 72.86 and a double bottom. Starting at 11:30, it climbed back and managed to get into a range between 73.0 and 73.1. Just before 7:00, it climbed out of that range but was stopped just before 73.25. As of 8:22, it was stuck at 73.22.

A Reuters report said gold made its new record on the slumping greenback, which attracted some new buying in non-American markets.
"Everything is dollar-related and safe-haven buying," said MKS Finance head of trading Afshin Nabavi.

"The Fed decision was not really a surprise, nothing has changed, but the tone of the statement from Bernanke left the impression that it is going to be a while before any rate hikes will be considered."
Physical buying in Asia was active, and there wasn't that much scrap selling. Sellers seem to be holding out for higher prices. Despite new records made yesterday and today, holdings of the SPDR Gold Shares Trust were unchanged yesterday at 1,229.64 tonnes.

U.S. first-quarter GDP was released at 8:30, and the suspicions raised by several disappointing reports were confirmed by the number. Real GDP grew at an annualized rate of 1.8% in Q1 of this year, down sharply from 3.1% for the last quarter of last year. The main depressive was a slowdown in real consumer spending, but real estate and government spending also acted as dampers. Measured inflation accelerated.

Adding insult to injury, the weekly jobless-claims report covering last week showed initial claims jumping by 25,000 to 429,000. Expectations were for a drop to 395,000.

Gold had sagged just before and at the opening of the pit session, to $1,527, but reversed course when the news hit the Internet. Jumping to almost $1,532 in a quick buying rush, the metal then slipped back but stayed above $1,530. As of 8:44, the spot price was $1,531.20 for a gain of $3.90 on the day. The Kitco Gold Index assigned -$0.50's worth of change to predominant selling and +$4.40's worth to greenback weakening. The U.S. Dollar Index skidded on the news, from 73.27, but managed to regain its footing at 73.15. As of 8:49, it had managed to hoof back up to 73.17.

The slide of the greenback still dominates the gold story, although continued signs of higher inflation still exert an influence. The overnight session did not see a pullback, as the Fed annoucement removed prior uncertainties. Today's regular session may a boost from the GDP news, as it plays into the stagflation story. Certainly, today's GDP figure and initial jobless claims number gibes with the Fed's reasons for staying easy.

Wednesday, April 27, 2011

Gold Make New Record After Fed Stays The Course

The news the gold market was waiting for proved to be quite reassuring. The Federal Reserve Open Market Committee kept to the zero-interest-rate policy for an "extended period," and will not cut short the final stage of QE2. Also, proceeds from the Fed's mortgage-backed securities portfolio (the result of QE1) will be reinvested in Treasuries - making for a QE Lite. The decision was unanimous. In his later press conference, though, Chairman Bernanke did downplay any QE3 and he did raise the possibility of the Fed extinguishing the dollars it gets from its portfolio. The Fed raised its estimate of inflation for this year.

Although the start was a little slow, gold got energized by the announcement at 12:30 and the press conference at 2:30. After a morning spill, it spent most of the day climbing. A lackluster start gave way to a new record of $1,531.40 and a twenty-dollar gain. Helping push gold up was the greenback falling: it made a new thirty-month low this afternoon when it bottomed at 73.25.

Gold actually sagged at the start of regular trading today, moving from $1,510 to the high 1500s before recovering. A climb above $1,510 at 9:10 held for less than an hour before the metal slipped down to $1,505, where it hung around for another hour.

Its climb started slowly: when the Fed announcement was made at 12:30, the metal was still below $1,510. Evidently, there was still some uncertainty about Fed policy until dispelled at that time. Once the central bank confirmed that it would not follow the lead of the European Central Bank, gold jumped to $1,515 but then hung at the low 1510s until 1:15. Then, the first buying wave propelled the metal up to almost $1,525. Again, it sunk back; when the press conference started at 2:30, it didn't react that much. Not until 2:45 did a final two-stage buying boost come in that got the metal to its record at 4 PM. Gold then slid a few dollars, but the last hour of trading saw it shuffle along sideways. As of the close, the spot price was $1,527.30 for a gain of $20.20 on the day. The Kitco Gold Index split the gain into +$11.30 for predominant buying and +$8.90 for weakening of the greenback.

Gold's six-month chart, from Stockcharts.com, shows it shaking off yesterday's miniscule decline with today's leap:



With that jump into new uncharted territory, the metal is even more overbought. Its Relative Strength Index, found at the top of its chart, is well above the 70 overbought level: it's actually close to 80. There wasn't a buying panic today, but there was definitely a buying rush. How sustainable these levels are will have to wait for the post-Fed hangover, but the metal looks like it's left $1,500 behind.

The U.S. Dollar Index put pressure on gold by climbing from 73.75 to 73.95 in mid-morning. More oddly, it initially leapt upwards when the FOMC decision was released. That confidence in the Fed proved to be sorely misplaced. The abrupt reversal from 73.985 to 73.7 presaged a tumble that went on 'til the same time gold made its record. At the bottom, the Index made a new thirty-one month low of 73.25. Once it reached that point, it slowly climbed but without much power. As of 5:15, it was trundling up at 73.34.

Its own six-month chart, also from Stockcharts.com, shows its decline today pushing it to an outright oversold position:



Its Relative Strength Index, found at the top of its chart, is now below 30 - the level that marks the oversold border. It faced a mild wipeout today, starkly confirming its downtrend. Now that it's been inferred that the Fed has no problem with a declining greenback, the Index may slip a little further - but it is overdue for a bounce-up.

Once again, gold confounded the skeptics who got nervous when it first crossed $1,500. Closing in the high 1520s has certainly made those awaiting a pullback (like myself, I have to admit) look like fools. The metal's oversoldedness, though, does create a high-vulnerability zone for such a pullback. So far, it doesn't look like any pullback will kick in tonight. Asian traders were more uncertain about the Fed than North American traders. Their assuaged uncertainty may provide a small boost tonight, if they don't sell on the news. Needless to say, most North American traders didn't.

Fed Changes Nothing, QE2 To End On Schedule, Unanimous Vote

The Fed announced its decision to hold rates steady and stay on course with QE2 at 12:30 PM ET. The vote to stay the course was unanimous.
Inflation has picked up and the Fed now says the economic recovery is proceeding at "a moderate pace," but the central bank still said the inflation pickup will be temporary and the jobs market is still a concern. The decisions were widely expected. The FOMC made only few changes to the language of the policy statement it issued in March and did not give guidance on the outlook of policy after the end of quantitative easing. The FOMC repeated that rates are likely to stay low for an "extended period."...

There wasn't any mention of a QE3 program coming down the pipes, which was also expected. Handicappers are expecting the Fed to hold off for a while, and step in if the economy slumps due to longer rates (and mortgage rates) going higher. However, the cental bank is already reinvesting any cash coming from its holdings of mortgage-backed securities into Treasury securities - making for a "QE Lite."


Gold, after being knocked down to $1,504 just after 10:00 and recovering to a little below $1,510, took off like a shot on the news but tailed back after hitting a day's high of $1,516.00. Rather than being anticlimactic, the announcement did remove some uncertainty lurking in the gold market. The U.S. Dollar Index, after intitally jumping to 74, was knocked down to 73.7 on the news.

Welsh Gold Tradition Continues, Sparking Imitation Sales And Talk

The Welsh gold in Kate Middleton's ring continues a tradition that's been alive since the wedding of Prince William's great-grandmother, Elizabeth Bowes Lyon, who became George VI's Queen and later the Queen Mother. As reported by the BBC,
In 1923, the royal ring was fashioned from a gift of Clogau gold with enough left over for the weddings of The Queen in 1947 as well as those of the late Princess Margaret, the Princess Royal and the 1981 marriage of Prince Charles and Diana.

The stock of the original Clogau gift is believed to be almost exhausted, having been replenished over the years with donations from several other Welsh mines.

Clarence House is remaining tight lipped over the precise source of the Welsh gold for Kate's wedding band.
Yes, the old stiff upper lip has been deployed. The continuance of the tradition has speaked a host of hawkers, including four shopping channels, selling Welsh gold themselves. Since the last mine in Wales closed in 1998, and the last commercial-scale mine closed way back in 1911, there's going to be some speculation about how "Welsh" the gold pegged as Welsh gold really is.

There's already speculation about the Welsh genuineness of the future Princesss Catherine's ring.

52% Rise In BullionVault Trading Sparks Fears Of Bubble

The U.K.'s BullionVault reported a 52% increase in buying and selling of gold for last year, prompting concerns of a gold bubble.
Paul Tustain, chief executive of BullionVault, unsurprisingly dismissed such concerns: “Gold has by far the best long-term record of deep and liquid markets of any financial asset in history, and I see this continuing. Conversely, Western governments have dug themselves ever deeper into triple-A rated debt, from which I still don’t see a credible exit plan capable of preserving value for their creditors.”

Of course, such concerns are easier to dismiss for those with long memories. The supposed popping of the gold bubble has been called for even when gold was in triple digits.

2012 Olympic Commemorative Gold Coin Set Unveiled By Royal Canadian Mint

Acting as agent for the Royal Mint, the Royal Canadian Mint is releasing a three-coin set commemorating the 2012 Olympic Games in London. The set also commemorates the Paralympic Games.
A three-coin set of 22-karat gold coins was recently unveiled by the Royal Canadian Mint which honors the London 2012 Olympic Games and Paralympic Games. This pays tribute to the essential function of gold in these games...

These 22-karat gold coins feature Neptune, Mercury, and Diana. The one-ounce 22-karat gold coins feature Neptune, the God of the Sea, rising from the sea holding a trident. These coins honor sailing and the conquest of the wind, water and wave by the sailors participating in the games.

The God of Speed, Mercury, pays tribute to the runners, who are both agile and fast, through the first of the pair of one-fourth ounce 22-karat gold coins.

Diana, the Goddess of Hunting, honors the cyclists, who also hunt for the glory of victory during the Olympic games, through the second one-fourth ounce 22-karat gold coins.
According to the Royal Canadain Mint, they'll be available in early May. The list price is $C4,199.95. Here's a picture of the set, from the Mint's Website:

Gold Mines Reopening In B.C. Because Of Higher Prices

In a sense, this story is old news. Royal Oak Mines pioneered reopening old mines back in the 1990s; for a time, it was the darling of Bay Street. It went bankrupt in 1999 because of low gold prices.

With gold much higher now, Royal Oak is proving to be ahead of its time. As recounted in Gold Investing News, small-scale mines in B.C. are being rehabilitated and reopened because it's now profitable to mine the leavings. Gold's soaring has made previously uneconomic portions of the ore bodies profitable now.
“We’re seeing several projects being reevaluated currently with an eye to reopen, in light of the rise in metal prices that has been going on for six or seven years. I think you can track back metal prices to 2003 when they started to climb, particularly gold,” said Bruce Madu, Regional Geologist for South Central British Columbia. “A lot of mines shut down in BC through the 1990s as metal prices were particularly depressed in that period. I would characterize us as being onto a second or even a third generation for some of the projects.”

There have been 12 mines opened in BC since 2001 and eight in the last five years, including two small-scale vein gold mines in 2009. The most recent gold mine to reopen is the Bralorne Mine, which began producing in mid-April 2011 for the first time in nearly 40 years. Bralorne is a small operation, producing 100 tons [of ore] a day, and could expand to 280 tons a day by 2013. The mine closed in 1971 when gold was $35 an ounce after producing 4 million ounces in its 50 years of operation. As a past producer, Bralorne had an existing permit, as well as a mill and other infrastructure already in place, allowing production to begin in a matter of months....

Of course, it's often not that simple to reactivate a mine. There's flooding to cope with, not to mention the need to sample the ore that's left. Both take time and money. Repermitting takes time, and environmental requirements are more rigourous now. But, the price-cost differential has shifted enough to make old mines worth a new look.

The article points out, though, that reclaimed mines often have a short life. The bulk of the pay rock was cleaned out when the mine was originally running. A mining company that goes into production with a mine of this sort has to use it as a springboard to finding a more durable project or else it'll wind down fairly quickly.

New Hong-Kong-Based Commodity Exchange To Debut With Gold Contract

Mainland Chinese state-owned companies and a Russian billionaire have put together a new commodity futures exchange in Hong Kong, the Hong Kong Mercantile Exchange (HKMEx.) The first contract set to debut is for gold.
“Our new platform will offer Asia a bigger say in setting global commodity prices,” said Barry Cheung, chairman of HKMEx.

After gold futures, the exchange plans to introduce other products including precious and base metals, energy, agriculture and commodity indices.
There are gold exchanges in mainland China already, but they're closed to international dealers. The HKMEx won't have that restriction. Gold was chosen because Hong Kong already has a large physical gold market, and it's an important port for bringing gold into the rest of mainland China. The trading day will be an unusually long 16 hours.


All I can say is, it's about time. It'll be interesting to see what the gold-is-manipulated crew makes of it.

Indian Physical Gold Demand Still Active As Festival Approaches

According to a Reuters report webbed by the Economic Times, traders are still buying gold in anticipation of the Akshaya Tritiya festival on May 6.
"Yesterday there were sales and deals are continuing till today," said a dealer with a state-run bullion importing bank in Mumbai.
The rupee strengthened, which helped buyers by cushioning gold's slight rise.

Gold Takes Breather Before Conclusion Of Fed Policy Meeting

After slumping a little once overnight trading began, gold climbed because the greenback temporarily tumbled to below 73.5. The subsequent rally ended when the metal hit $1,510, and it spent the rest of the session drifting in the high 1500s except for a short-lived dip. A drop in WTI crude oil to below $112 and a temporary recovery in the greenback induced a selling wave that got gold down to its morning low of $1,503.10 a little before 4 AM ET. That stumble quickly reversed and gold settled back into its channel. Overall, the metal didn't move much; the jittery volatility of last session didn't carry over into the overnight stretch. For now, it's wait on the Fed and see. As of 8:11, the spot price had jumped up a bit to $1,509.40 for a gain of $2.30. The entire gain was attributed to predominant buying by the Kitco Gold Index.

The U.S. Dollar Index started the evening with a flash tumble that got it as low as 73.47 by 6:35 PM. After a relief recovery followed by further falls, the Index triple-bottomed in the next three hours. Having been saved from another tumble to a new low, it began to recover. Although jittery, its movement this morning was upwards albeit frustrated at 73.77 until just before regular trading started. As of 8:18, it had climbed above that resistance level to reach 73.80.

A Bloomberg article said that gold was steady while traders waited for the outcome of the Fed policy meeting. The greenback tumbled on speculation that QE3 is coming.
“A lot of gold buyers will be waiting for signals from the Fed,” said Bernard Dahdah, a London-based analyst at Natixis Commodity Markets Ltd. Any indications “on currency and interest rates could highly affect the price of gold. For the next weeks we view gold as being driven by the dollar.”
Walter de Wet is quoted as saying that gold's overboughtedness indicates a pullback in the near term, albeit temporary.

An earlier Reuters report said that gold inched upwards as traders remained cautious ahead of the Fed meeting's conclusion.
"The market is a bit mixed ahead of the Fed meeting, which will influence the move of the dollar and precious metals," said Peter Fung, head of dealing at Wing Fung Precious Metals based in Hong Kong.

Gold is likely to trade in the range of $1,500 and $1,510 before making a decisive move, Fung said.
Although dovishness might push gold higher, the market has handicapped the Fed staying the course.

A Wall Street Journal article said gold was steady but is vulnerable to a pullback even if the Fed does stay the course.
"It's fair to say that the Fed will likely continue with its current monetary policy, and while this will likely spark many to re-enter the market, I wouldn't be surprised if gold pulls back further before moving higher," said Standard Bank analyst Walter de Wet.

The durable-goods figure for March was released at 8:30: it showed a 2.5% rise, which was less than the expected 3.0%. That lesser gain was better than it seemed, as February's number was revised upwards from a small loss to 0.7% gain: had February's stayed where it was, March's would have beat. The gold market didn't react to the number. After stumbling about in the high 1500s, it was essentially unchanged when the pit session started up and the data released. As of 8:44, the spot price was $1,508.10 for a gain of $1.00 on the day. The Kitco Gold Index split the gain into +$0.85 for predominant buying and +$0.15 for a weakening greenback. The U.S. Dollar Index tailed back a bit after reaching 73.8: as of 8:46, it had paused at 73.77.

Some caution still remains as the Fed gets ready to announce its policy and Ben Bernanke prepares for his first press conference. The near-zero interest rate policy has indeed been kept for an extended period. It's got to end sometime, but the market doesn't anticipate an immediate shift. Gold should continue fumbling around until the announcement and press conference this afternoon, which may be anticlimactic.

Tuesday, April 26, 2011

After Rough Session, Gold Scrambles Back To Close With Miniscule Loss

On the eve of the Fed announcing the results of its two-day policy meeting, not to mention Ben Bernake's first press conference, gold had gotten the jitters. Because of a tumble last night, which was not completely made up for in early morning, the metal spent almost the entire day in the red. Its daily high, of $1,508.90, was made just before the afternoon ended. The last-hour surge that ended with that high lacked the staying power to keep gold from closing with a tiny loss. But, it was close.

The metal started off with a droop to $1,503, which was recovered from by a jump to $1,506. Then, starting at 8:45 AM ET, it began to lose ground in a selling slide that accelerated as it reached its nadir of $1,491.80 at 10:15. Unlike yesterday morning's tumble, this one ended without a false recovery climb. Instead, the metal made a real climb all the way back up to $1,502.

As noon approached, it sunk back to a range between $1,498 and $1,500. Some buying power came in, but only enough to get it up to the low 1500s. Staying stuck there for most of the afternoon, gold got some traction at 4:00 and managed to climb up to its daily high before slipping back a little. There was no evident reason for this climb, except perhaps for inflation influences seeping in to corporate earnings reports. Its run could be ascribed to a return of confidence, after the metal managed to regain $1,500, based in the greenback acting lackadasically. As of the close, a last-minute slip took away that only gain of the day; the spot price ended at $1,507.10 for a loss of only $0.30. The Kitco Gold Index attributed -$5.40 to predominant selling and +$5.10 to a weakening greenback.

Gold's six-month chart, from Stockcharts.com, shows its first unambiguous decline in nine sessions:



There's still a fair bit of bullishness, as indicted by the afternoon recovery from the morning spill. Despite today's downtick, gold's Relative Strength Index (found at the top of its chart) is still in the overbought zone. What's unusual about today's decline is, the first drop after a long stretch of gains is usually substantial; today's barely registers. Given that afternoon recovery, there's reason to believe that the Fed holding the course tomorrow is already priced in.

Turning to the U.S. Dollar Index, its own action today was flat-footed. The bulk of its declining took place early this morning, before regular trading started. The beginning of the session saw it recover to 73.95. Unfortunately, that was close to the high of the day: the Index spent the rest of the session doing the one-step-forward-two-steps-back routine. Losing ground, although slowly, the Index had trouble falling below 73.75 but got near as the afternoon wore on. As of 5:15, it was meandering at 73.77.

Its own six-month chart, also from Stockcharts.com, shows it bumping aginst the lower part of its recent range:



Not yet falling below the 73.75 resistance level, its decline today still brought it close. Rather than taking a stab at a secondary recovery, it instead languished. Needless to say, its trend is still down. The Index seems to be discounting continued Fed dovishness.

For a breakdown day after a long-toothed short-term rally phase, gold did fairly well. Although the metal may still face a rough time tonight, the uncertainty engendered by the Fed's policy meeting hasn't fazed it all that much. Nor has silver's breakdown from near $50 to $45. There's still a risk of an about-shift by the Fed tomorrow, which should weigh down the metal tonight. If the Fed stays the course, then things look fairly good for gold - unless traders decide to sell on the news.

Consumer Confidence Rises In April

Last month's consumer-confidence reading tumbled, but some relief came with this month's. March's has been revised upwards to 63.8, and April's came in at 65.4. That number was slightly above expectations for 65.0. As with last month's, this month's reading was dragged down by high gas prices. Interestingly, the index of current conditions was up for the seventh month in a row.
“Consumers’ short-term outlook improved slightly, suggesting that the uncertainty expressed last month is easing,” said Lynn Franco, director of the Conference Board’s consumer research center. “Although confidence remains weak, consumers’ assessment of current conditions gained ground for the seventh straight month, a sign that the economic recovery continues.”...

“The Fed will be pleased to see that the further rise in gasoline prices towards $3.90 a gallon does not appear to have put another dent in US consumer confidence or added to households’ inflation expectations,” wrote Paul Dales, senior U.S. economist with Capital Economics, in a research note.

The picture given is consistent with recovery, albeit a subpar one. Earnings season still shows a nice crop of earnings beats like Ford's and Apple's. Stagflation is approaching, but a double-dip recession isn't.


Gold didn't like this news, just as it wasn't too fond of the Case-Shiller number despite the latter showing housing in the dumps as of February. The metal started slipping at 8:45, and fell below $1,500 at 9:15. The consumer-confidence number provided the final drag-down to a new day's low of $1,491.80. After bottoming at 10:15, the metal did recover but only to $1,500- $1,502. Gold may have shaken off the consumer-confidence surprise, but it's still lower after all was said and done.

Suggested Option 1X2 Call Spead For Toppy Gold

The figures are a little out of date, as gold has done some falling since, but the strategy is worth considering. It's a mildly bearish call spread, from Fred Oltarsh of Libanman Futures, that takes advantage of volatility differences between gold futures options' implied volatility and the historical volatility of the underlying futures contract itself:
Here’s how the trade works. The historical volatility in August Gold Futures on a 30 and 60 day basis is approximately 11.75%. The implied volatility of the $1600 Call, however, is 17.75%. We’re going to Buy one $1550 Call with an implied volatility of 16.80% while selling two of the $1600 Calls. This provides us with the opportunity to establish a short delta position of approximately .14. In addition, we get short a bit of vega and hopefully can take advantage of the implied/historical volatility difference. The details are in the Table [in the article itself].
The trade leaves an $8.80 credit in the account using his figures, and has a maximum profit of $58.80. He suggests calling him for questions on how to implement it.


The strategy might be worth updating with current figures. Sadly, given gold's recent stumbles, the premiums of the $1,600 calls to be sold have likely shrunk relative to the $1,550 call to be bought - but that doesn't mean it isn't profitable still.

Globe And Mail Article Worries About High Prices Cutting Into Mainland Chinese Demand

There's a bit of spin in the article, but not of the real gold-skeptic sort. Despite the bulk of it highlighting strong mainland Chinese demand for gold as inflation bites, the headline is "Rising price threatens to break China’s gold fever." What makes this article worth a read is this point:
The country’s stock markets are volatile, and now new government controls are restricting property sales, another traditional target for investment, in hope of driving out speculators.

What’s left, increasingly, is gold, as middle and upper-class Chinese try to protect their savings from inflation hovering around 5 per cent.
In other words, the official squeeze on the housing bubble combined with official encouragement to buy gold has made gold close to the only game in town for protecting against inflation. Had it not been for silver, gold would be the only means.

The only backing for the headline is a quote at the end of the article:
“Housing’s out. I wouldn’t invest in housing now. And gold is getting expensive because people are buying like crazy…I have stock investments, yes, but of course I’m worried about them,” [42-year-old businessman Li Chau] said.

“People’s fear is driving them to buy now,” he continued. “People’s investment channels are narrow and they want to save money, so they buy gold.”

It's a bit of a thin reed for a skeptical headline. Evidently, it's the writer who's gotten the jitters from gold's high price.


That said, there is some reason to be nervous in the short term. Although gold has not enjoyed the parabolic rise that silver has, it's still gone a long way without a pullback.

Mark Hulbert: Gold's Inverse Tie To Greenback Less Strong Than Assumed

Lately, the greenback's gyrations have influenced gold more than usually. It's tempting, I know, to assume a rigid negative correlation between the greenback and gold because movements in the former have touched off inverse movements in the latter. However strong the relationship appears in the qualitiative sense, Mark Hulbert's number crunching found that it's not all that strong in the quantitative sense.
I fed into my PC’s statistical package five years’ worth of data for gold bullion and the Dow Jones FXCM Dollar Index (which represents the dollar’s value against a basket of the currencies of the U.S.’ largest trading partners). I was specifically interested in the extent to which changes in the dollar’s value led to changes in gold’s price.

As expected, I found an inverse correlation: Increases in the dollar’s value tended to correspond to decreases in gold’s U.S. dollar price, and vice versa. Crucially, however, I found that the ups and downs of the dollar were only able to explain about a quarter of gold’s gyrations.

(For the statistically minded among you: The r-squared for the correlation was never higher than 0.26, regardless of whether I focused on daily, weekly or monthly changes in the dollar index and gold.)

His finding makes sense, as the data he used included spaces when the U.S. dollar and gold were going up and down in tandem. The Eurocrisis stimulated demand for both safe havens.

Hulbert's results are presented as a soother for worried gold bugs fearing that the metal will plummet if the greenback snaps back. It's a nice gesture, but the negative correlation (qualitiatively) has gone up recently. Sad to say, a snapback in the greenback will hurt gold.

Case-Shiller Housing Index Down Again In February

March's new-home sales were up nicely, but February's figures were dismal. Confirmation of February's bad state was given by the latest number from the S&P Case-Shiller Housing Index. Home prices fell 1.1% as of February, making for a 3.3% decline from a year ago. Believe it or not, prices rose in Detroit: that was the only city out of 20 to see gains in February.
“There is very little, if any, good news about housing. Prices continue to weaken; trends in sales and construction are disappointing,” said David Blitzer, chairman of the index committee at Standard & Poor’s.

Housing has been plagued by issues that have created a Gordian knot for the sector.

On the supply side, an oversupply of distressed properties is pushing prices down. There are also worries of a so-called “shadow inventory” of homes that sellers and banks want to list, but are waiting for the right moment to do so.

On the demand side, many consumers are still having difficulty qualifying for mortgages even though rates are low.
There may be hope for March and in the future, particularly if the labour market improves, but the Case-Shiller uses a three-month average. Any improvement would be muffled.

Indian Physical Gold Demand Ramps Up After Decline

According to a Reuters report webbed by the Economic Times, gold's tumble last night jacked up demand from traders.
"We have done good sales from morning. I covered for 150 kgs at $1,498-1,504 (an ounce)," said a dealer with a state-run bank in Mumbai, adding "I have plenty of enquiries for silver as well."
A weakened rupee, though, made for less of a bargain.

Gold Tires, Falls Below $1,500 But Regains

Thanks to another slide in WTI crude oil, and a renewed climb by the greenback, gold took a tumble yesterday evening after beginning the overnight session with a sag. In quick order, starting at just after 8 PM ET, the metal slid from $1,507 through $1,500 to $1,496 before the selling wave ceased. As night turned into morning, it stumbled around the high 1490s. The morning low of $1,495.10 was made right at the close of Sydney trading. Then, bolstered by a recovery in the Euro and oil, the metal began climbing. European Central Bank President Jean-Claude Trichet repeated the vigilance theme in a speech in which he warned against "second round effects" of rising inflation expectations - i.e., higher inflation expectations kicking off a wage-price spiral. He said that he shared the U.S. government's official view that a strong greenback in is the U.S.' interest.

Be that as it may, the greenback lost its gains and more in early morning trading: that tumble influenced gold's climb-back to $1,505. Although briefly poking above that level, the metal couldn't hold on; instead, it slipped back to the low 1500s and racked up a small loss. As of 8:16, the spot price was $1,503.30 for a decline of $4.10 on the day. The Kitco Gold Index attributed -$6.70 to predominant selling and +$2.60 to a weakening greenback.

As mentioned above, the U.S. Dollar Index first enjoyed a nice climb but tumbled later. After hovering around 74.00, it got its traction after a minor slip and climbed all the way up to 74.355 by 9 PM. Sinking back to 74.15-20, it tried for another climb at 2:15 but couldn't hold on. Instead, it tumbled for the next three hours until it reached as low as 73.77. Turning around, it hiked back but it couldn't clear 73.95. As of 8:24, it was stuck at 73.89.

A Reuters report, covering last night, focused on silver but said that the gold market is watching the upcoming Fed policy meeting closely. Traders will be scrutinizing Ben Bernanke's words during his first press conference. Large open interests at $1,500 and $1,520 should hold gold up for the nonce.
"The market will be watching out for any signs of what the Fed is going to do at the end of the second round of quantitative easing," said [Yingxi] Yu of Barclays.

"If Bernanke remains dovish, as he has been, it will provide indication that monetary policy will not be tightened significantly in the second half, which is pretty favourable for precious metals."
Holdings of the SPDR Gold Shares Trust were unchanged yesterday at 1,229.64 tonnes.

A Wall Street Journal piece said that the decline was induced by profit-taking. Traders will keep a close eye on the Fed today and tomorrow.
Investors in gold and silver, which are considered a good store of value in low interest, high-liquidity environments, will pay particularly close attention to comments by Federal Reserve Chairman Ben Bernanke in his question-and-answer session with the media Wednesday.

"The Fed meeting is in the market's consciousness today," said Tom Kendall, vice president of commodities research at Credit Suisse.
Uncertainties about the Fed's dovishness added to the weight on gold (and presumably helped the greenback.)

The metal took a bit of a slip as regular trading got underway, but its fall was halted at $1,503. The pit session's open saw it boosted up by a burst of buying, enough to get it up to $1,506, but it quieted down and settled around $1,505. As of 8:44, the spot price was $1,505.10 for a loss of $2.30 on the day. The Kitco Gold Index assigned -$6.40's worth of change to predominant selling and +$4.10's worth to greenback weakening. The U.S. Dollar Index stumbled after pausing around 73.9; as of 8:47, it had regained its footing at 73.83.

Although the overnight session did not show the continued strength I expected, the fall was overdue given gold's overboughtedness. If the Fed meeting shows the central bank sticking to its dovishness, gold should hold up. If not, $1,500 will be a memory. As a result of nervousness, today's regular trading should be choppy but inconclusive until we hear from the Fed.

Monday, April 25, 2011

Gold, Buffeted In Part By Fluctuating Greenback, Ends With Small Gain

Gold was doing quite well before regular trading started. Boosted by official speculation in mainland China about reducing its U.S. dollar holdings by two-thirds, and by a surge in silver, gold made it to the high 1510s before regular trading got rolling; at 4 AM ET, it set a new record of $1,519.30. It sunk down to the low 1510s by the time the pit session got rolling, but a sustained recovery in the greenback knocked it for a loop at 9:45 AM. Around the same time as gold's skid, WTI crude oil tumbled from above $113 to $111.

Before supported at $1,510, the metal slid down to $1,504 before the selling wave relented and it regained its footing - but not for long. After climbing back to $1,508, it skidded further to a day's low of $1,501.20. Only then did it get enough of a solid footing to climb, which it did in late morning to above $1,512. Oil pulled back up too, to above $112.

The afternoon saw the metal settle down into a range between $1,508 and $1,511. In sympathy with the greenback, which also settled down in the afternoon, gold stayed in that range until just before 4:00. It then slipped into a lower one bordered by $1,506 and $1,508. After all the volatility, it came to the close on the plus side - in large part because of the larger gains made in the overnight session. As of the end of regular trading, the spot price was $1,507.40 which made for a gain of $2.70 since Friday's close. The Kitco Gold Index split the gain into +$1.00 for predominant buying and +$1.70 for a weakening greenback.

Gold's six-month chart, from Stockcharts.com, shows its fluctuations today largely cancelling out:



Its Relative Strength Index, found at the top of its chart, paints a picture of a short-term rally that's living on borrowed time. Gold is still overbought, as it has been for all of last week. Its stretch of gains, admittedly due to a timing quirk of the chart, is now stretched out to a rare nine in a row. When this perspective is added, gold's tumble just before 10:00 is understandable. More remarkable was the recovery to $1,513. I know I've said this before, but the metal's still ripe for a pullback.

As for the U.S. Dollar Index, it had a good run this morning that got rolling before regular trading started. Stuck at 73.8 a little after 7:30, the Index forded up to almost 74.00 before slipping back to 73.87. Double-bottoming there, it mustered enough strength at 9:35 to jaunt up to 74.18 before it ran out of power at 11:20. Then slipping back, it descended into a slightly falling channel that turned into sideways motion. During the afternoon, it was largely quiescent as it hung around 74.00. As of 5:15, it hit 74.00 exactly.

Its own six-month chart, also from Stockcharts.com, shows it stuck around 74:



The Index followed its three-day plummet last week with hardly any movement at all. Although the interday fluctuations have been there over the past three trading days, the difference between open and close have been miniscule. So has its overall movement after having made a new 30-month low of about 73.3. It's almost as if the Index were licking its wounds. Its own Relative Strength Index shows that it isn't oversold, but it's close. The greenback, after it shakes off its lassitude, may be preparing for another countertrend jump.

Again, gold continues to show a fair bit of strength at nosebleed levels. Festival-prompted Indian demand is coming in strong, close to the level seen on bargain-hunting sprees, even with gold close to new records. Tonight's overnight session may see a little more gain squeezed out of the metal, despite its short-term rise becoming long in the tooth.

U.S. New Homes Sales Jump 11.1% In March

Several economic measures have indicated that March was not a good month for the U.S. economy. But, sales of new homes is not one of them. According to the U.S. Commerce Department, new-home sales rose 11.1% last month. Although a nice improvement, it plays off against a dismal February - but it was well above expectations.
“With March sales gaining in every region except the South, the data are another reminder that activity readings in January/February were restrained by severe weather. Builder sentiment data and mortgage purchase applications have shown no collapse or subsequent surge,” said Steven Wieting, an economist at Citi.

But by region, sales are between 9.1% and 34% worse than the same period last year. The still-high unemployment rate, a glut of cheaper existing homes on the market and the large number of underwater mortgages have all combined to depress the market for new homes.

“Distressed sales continue to rob demand from new home sales and construction activity,” said Yelena Shulyatyeva, an economist at BNP Paribas.
Adding to the not-so-rosy cast to this figure is the fact that the average sale price fell 3.8% from a year ago, although it rose 2.9% from February's revised figure. Inventories, though, shrunk to their lowest level since 1967.


It makes for a mixed report, whose bright spots are treated skeptically by the associated article. Evident is a two-tier market, where new-home sales recover while used-home sales languish. That's a healthy development, because it signifies the house returning to its old-time status as a durable consumer good rather than a speculation vehicle. For durable consumer goods, new is better than used.


The gold market seemed to take a little heart from the news after tumbling to the low 1500s at 9:45. That tumble was prompted by a recovery in the greenback. Sadly, the bump-up at the time of the figures' release proved to be only a relief rally. Gold has another stumble to go before it bottomed at $1,502. Needless to say, earlier support at $1,510 has evaporated.

Gold's Rise Inversely Correlated To Trust In Bankers

On the face of it, Julian Phillips's commentary about bankers reads like something you'd read in The Nation or The Guardian. He castigates bankers for single-mindedly pursuing profit while cutting ethical and even legal corners. He criticizes them for ignoring their "social responsibilites" - his phrase.

Yet, he ties distrust of bankers - in his eyes, thoroughly earned - to the bull market in gold.
We are of the opinion that there is little chance of bankers moving away from the profit motive or of lawmakers enforcing social responsibility on bankers.

What is remarkable in the last few years has been the increasing visibility of the actions of bankers and the very public loss of reputation. How long will it take for developed world investors to turn away from their financial systems as Indian investors have done for so many decades and use cash and gold and property in an ‘alternative' financial system? Or are they too locked-in to escape?...

In India, cash and gold yield income in the hands of its owners. Their activities escape corrupt bankers and government officials and corrupt lawmakers. They must laugh when they read reports such as the above and say, ‘haven't you learned yet?' Not only does gold provide for private commercial deals of many kinds, it increases in price. Their total return on gold has been nearly 500% in the last 11 years. What's been the return on the broad spectrum of developed world investments, including bank deposits? Who cares that there is no annual income on gold and silver, there's been an incredible total return? They would laugh at the concept of getting small ‘real interest' returns from their investment in banks.

Most importantly, gold and silver bullion, by itself, are places to escape dishonesty and all the common, unethical, core practices of the financial system. Precious metals don't lie, cannot be unethical, do not have conflicts of interest but are respected by all their investors, whatever the state of these investor's own morality.

So long as this situation persists in the banking world, gold and silver will be bought as long-term money and honest investments.

How's that for unusual? Given the central-bank bashing that's long been part of the goldbug world, and the increasing corporatist nature of the banking system, I wouldn't be shocked to see this long-term side effect of the '08 crisis: the rise of a new crop of left-wing goldbugs. It does seem time for the Guardian to take on a pet goldbug.

Stranger things have happened...

Make Way For Mainland China: IMF Expects Its Economy To Be Biggest By 2016

I'm sure you've heard claims that the mainland Chinese government undervalues its currency to gain a trade advantage. Well, the IMF has published an unthought-of implication: the mainland Chinese economy is much larger than official statistics indicate. As Brett Arends passes on, the institution has valued mainland China's economy using a purchasing-power parity measure for the renminbi's "true" value; based upon that revaluation, and current trends, the IMF has forecast that mainland China will have the world's largest economy by 2016. Just in time for it to become an issue in the Presidential election after next.
According to the IMF forecast, whomever is elected U.S. president next year — Obama? Mitt Romney? Donald Trump? — will be the last to preside over the world’s largest economy.

Most people aren’t prepared for this. They aren’t even aware it’s that close. Listen to experts of various stripes, and they will tell you this moment is decades away. The most bearish will put the figure in the mid-2020s.

But they’re miscounting. They’re only comparing the gross domestic products of the two countries using current exchange rates.

That’s a largely meaningless comparison in real terms. Exchange rates change quickly. And China’s exchange rates are phony. China artificially undervalues its currency, the renminbi, through massive intervention in the markets....
Arends also goes into the implications for geopolitics. The last transition of economic leadership was from the U.K. to America. Both countries have a common language, similar systems of government and cultures. China has none of those similarities or commonalities. That disjoint will result in a transition that will be bumpier than the last one.


Of course, mainland Chinese are different from Americans in another way. Not having an extensive social-security system, they save a lot more than their American counterparts. They also love gold, whereas many Americans don't.

America has a better-developed financial system; geopolitically, it's still the hegemonic power. I know this is a mercantilist age, but economic dominance does not necessarily translate into geopolitical dominance. What does translate is military dominance.

As long as the American hegemon is still one, America will still be the world's leading financial centre. The U.S. Treasury has benefitted a lot from America being the king of the financial hill. As the history of the U.K. demonstrated, financial and military supremacy can endure for a long time after economic supremacy fades.

That is, if the hegmon's finances are in order at the time of transition. The U.K. government's were; the American government's aren't. As a result, the economic shift will appear to bite America in a way that the shift to American economic supremacy didn't bite the U.K. Sadly, U.S. government fecklessness will add to nationalistic and protectionist sentiment that will be inflamed by mainland China becoming the #1 economy.

Speaking of gold, Arends ends by saying it's not much of a surprise to see gold go up in these turbulent times.

Veteran Newsletter Writer Richard Russell Endorses Gold-Manipulation Thesis

As reported by Peter Brimelow in his latest MarketWatch column, those goldbugs who believe that gold is manipulated downwards now have a widely-known ally: Richard Russell.
Russell is a long-time gold bug, but for traditional inflationary reasons. He resisted the new argument, developed by writers associated with Bill Murphy’s Le Metropole Cafe website, that the gold price is manipulated by a Washington-Wall Street alliance.

But in his last post last week, on Thursday, Russell wrote:

“The desperate battle to keep gold below 1500 continues. I watched the erratic action of gold near yesterday’s close. I’m fascinated to see whether June gold can close above 1500 or whether the anti-gold contingent can manage to knock gold down (again) below 1500. The action is now so blatant that it literally screams of manipulation. At its high yesterday, June gold sold at 1506.50. At yesterday’s close, June gold was trading at 1498.10. It’s almost embarrassing to watch the action. What we’re seeing is the anti-gold crowd and the manipulators vs. the great primary trend of gold.”...
Russell is the best-known Dow Theorist in the market-letter crowd, and one of the best known period. A long-time gold bull, he believes that any manipulation attempt is doomed to failure because the gold bull will swamp it. Despite the recent publicity gold's enjoyed, he thinks it's still underowened. The average Joe knows about gold, but hasn't pulled the trigger yet.

Gold Records Bringing Out New Prospectors

Thanks to the gold bull market, and the newfound publicity for the metal, there's a lot of people catching the gold fever. As a result, prospecting supply companies are doing a land-office business in a place more known for oil and gas: the province of Alberta in Canada.
“Every day since Christmas, we've sold a gold pan. I've never sen anything like it,” says Kathryn Walters of Bedrock Supply in Edmonton. “I definitely see gold fever this year.”

And it isn't just pans that people are buying. Books on how to find gold are becoming almost as tricky to find as gold itself. New print runs have been ordered, and photocopied versions are filling the void until they're ready.

Neil Dougherty of Touchwood Enterprises in Edson, Alta. says sales of the top-of-the-line metal detectors he stocks have doubled in the last two years. They cost $5,595 and he sold 23 of them last year....
There was a bit of a gold rush in Alberta more than a century ago, centered on the North Saskatchewan river, and that's where Albertan interest is centered now. As is always the case, only a lucky few will stike it rich - and only those who treat it as a serious career will make a living off it. For most, prospecting and panning will be little more than a hobby - at times, a frustrating one.

Indian Physical Gold Demand Picks Up Despite Record Prices

According to a Reuters report webbed by the Economic Times, Indian traders aren't letting record prices deter them from buying a fair anount of gold in anticipation of the Akshaya Tritya gold-buying festival.
"I booked for 100 kg from morning at $1,538.5 (an ounce). Both my Delhi and Mumbai centres are active," said a dealer with a state-run bank in Mumbai dealing in bullion. "I have advance orders at $1,517."
After Akshaya Tritya comes the wedding season, which is expected to add to demand.


I have a hunch that the dearth of demand while gold rose was the result of traders, jewelers and stockists drawing down the inventories that they acquired at bargain prices. Now that those inventories are low, they have to go into the gold market to keep up with demand. It looks like this year's Akshaya Tritya is going to see a lot of gold buying at the retial leovel.

Gold Jumps Out Of Gate, Hits New Record Again

After closing with a gain in Hong Kong last Friday, gold managed another record high after jumping out of the gate in overnight trading. Jumping above $1,510 at the outset, it was pushed up by comments from high mainland Chinese officials to the effect that the People's Republic needs to cut its holdings of U.S. dollars from more than $3 trillion to about $1 trillion. The metal continued rising until it touched $1,514 just before 8 PM ET. Then pulling back, it still stayed above $1,510. As night turned into morning, it rose again before settling in to the high 1510s. The new record high of $1,519.30 was made at 4:00. Continuing in a range between $1,516 and $1,519, it abruptly fell down to $1,512 around 7:45 after double-topping just below the record. A recovery in the greenback provided the catalyst for the tumble. As of 8:13, the spot price had recovered a little to reach $1,514.00 for a gain of $9.30 since Friday's early close. The Kitco Gold Index split the gain into +$6.30 for predominant buying and +$3.00 for a weakening greenback.

The U.S. Dollar Index, despite that news from mainland China, started off the week by climbing a little. Reaching 74.1 from its start-off point of 74.05, it fell out of bed just after 6 PM and thus gave a boost to gold. Bottoming at 73.95, it shot up to 74.25 between 9:00 and 10:15. It was at that point when it began to lost ground and slide for most of the morning. Troughing at 73.8, it managed a quick recovery that induced gold's stumble. As of 8:20, it recovery fizzled: after peaking at 73.95, it had slipped to 73.92.

Silver rose more than gold, and came close to besting its 1980 record, so it garnered the attention normally accorded to gold. A Reuters report, devoted mainly to silver, quoted a gold trader as saying that gold is rising on the "'dollar play.'" Holdings of the SPDR Gold Shares Trust dropped 0.61 tonnes last Thursday to 1,229.64 tonnes.

An earlier Bloomberg report, covering last night's jump, said gold rose because investors were seeking protection from a weaker greenback and higher inflation; Middle East tensions also played a role.
“We do look at quite quick appreciation of gold in the coming months and it’s really driven by dollar weakness,” Dominic Schnider, director for wealth management research at UBS AG, said in a Bloomberg Television interview today.
WTI crude oil topped $113 for a time on the risk that violence in the Middle East - North Africa region will disrupt supplies.

A Wall Street Journal article, focusing on silver, mentions the mainland Chinese foreign-exchange-reserve connection:
Metals prices climbed as a Chinese news website reported that "relevant authorities" are studying a proposal by the People's Bank of China to create funds using some of the foreign-currency assets from the PBOC's balance sheet that could invest in sectors such as energy and precious metals, as well as a fund that will allow the central bank to influence exchange rates.
Tbe plan is to set up a sovereign-wealth fund like the Norwegian "Petroleum Fund."

With no news on the U.S. economy to influence it, gold gave up more of its gains after recovering to $1,515. The start of the pit session saw it tumble further, to below $1,511, before it managed a small relief climb. As of 8:42, the spot price was $1,512.40 for a gain of $7.70 since Friday's close. The Kitco Gold Index divided the gain into +$5.30 for predominant buying and +$2.40 for greenback weakening. After itself weakening, the U.S. Dollar Index regained its footing and strode above 73.95. As of 8:45, it was still climbing at 73.99.

Despite gold's bobble just before and right after regular trading started, it still made a strong showing as the last week of April begins. $1,500 has been cleared to the extent that $1,510 is providing support. Although silver is stealing the thunder, it approching its first new record high since 1980's short-lived spike, gold is climbing too. For perspective's sake: gold has to put on only two hundred more dollars per ounce before it doubles its own 1980 top. The excitement may fade during the rest of regular trading, but the proposal for a new mainland Chinese sovereign wealth fund had given gold enough of a cushion to make an overall gain likely.