Tuesday, May 31, 2011

Gold Has Dither Day, Closes With Mild Loss

After bumping up against $1,540 in overnight trading, gold settled back into the high 1530s but slipped below $1,535 in the morning. Losing its footing, the metal spent almost all of the afternoon in the low 1530s. Unlike silver, which managed to hold on to a decent gain, and unlike WTI crude oil, which made a run at $103 and closed with close to a 3% gain from its $100 starting point, gold ended the day with a loss. About half of that loss erased the trickle-trade gain yesterday, but the metal still ended up below last Friday's close.

Today was one of those days when the first half hour of regular trading foreshadowed the rest of the day. The first time gold fell below $1,535 today, other than a blip, was at 8:30 AM ET when it slid to $1,533. Picking itself up afterwards, it first bumped against $1,535 and then jumped up to $1,538. Then followed some climbing and sliding, which became more volatile until the metal touched $1,540 again in late morning.

Afeterwards, it tired out and slid back down to $1,533 in light trading. Having reached that level right after noon, it stayed in the low 1530s except for brief blips as it lumbered to the close. Trading became lighter and lighter as the end of the day approached. At the close, the spot price was $1,534.30 for a loss of $4.80 on the day. The Kitco Gold Index attributed -$11.90 to predominant selling and +$7.10 to a weakening of the greenback.

Gold's six-month chart, from Stockcharts.com, shows its small loss coming on the heels of last Friday's much larger gain:

Since Stockcharts.com doesn't include the data that came from the miniscule trading yesterday, today's decline follows on the heels of Friday's trading. Despite several tries, the metal has been unsuccessful at getting above the $1,540 resistance level. Even though the greenback has sunk quite a bit since its peak, its fall has been able to push gold only so high. When $1,540 approaches, there are too few buyers to fend off the sellers. Despite that block, gold's in a fairly good position as June approaches. Although May of last year was better - back then, the metal managed to recover almost all of an earlier plummet - this May has seen a decent recovery after the rout at the beginning of the month. Seasonally, there is a risk of further drops in the summer: gold's mid-year low last year was in mid-July. For the patient, there's likely to be a bargain during the dog days of summer. Until then, gold may disappoint despite its fine showing this month.

As for the U.S. Dollar Index, it stayed in a range it carved out just before regular trading started. The bottom of the range was 74.5. The top was extended slightly just before noon, when gold slid to the low 1530s, to 74.69. Since the earlier top was only slightly below that new high, the Index essentially stayed in its range for the entire day. As the afternoon wore on, it eased downwards to 74.6 and started fluctuating around that level. When 5:15 came, it was torpid at 74.595.

Its own six-month chart, also from Stockcharts.com, shows how much has been taken off its earlier countertrend climb:

As of now, the Index has retraced close to half of its earlier run-up. Its Moving Average Convergence-Divergence lines, found at the top of its chart, have made a bearish cross. Its Realtive Strength Index, found at the top of its chart, is now well below neutral. It has definitely made a technical breakdown, as seen by its descent to well below the old 75 support level. However, it might turn around yet although not to a high higher than its 76.5ish peak. It might haul up to the 75s again: today's candlestick makes for a gap relative to last Friday's, and those gaps tend to be filled. For a downward gap, that means a rebound.

Although headwind season is here, gold is still making out all right. It should have some troubles in the summer, but its long-term bull market is still intact. Should the seasonality hold, the metal will forge ahead to new highs in the fall. If next fall sees a run like last fall's, $1,600 will yield and $1,700 might. I really don't know how high gold will go, as easy money and global inflation are still very much with us. I can only warn: once the turning point comes, once the long-term bull turns into a bear, few people will see it at the time. Gold is not in a mania phase yet, contrary to my expectations, but it's getting there. I have little doubt that it will enter one before this bull market ends. Should gold go crazy, the best advice I have is to sell down to the point where you're playing with house money except for your core holdings. Get your cost basis to zero or below, in other words.

That advice pertains to some indefinite point in the future. For now, despite any seasonal headwinds, the long-term direction for gold is up.


You may have noticed that my postings have become more irregular recently. That's because I've had personal committments that are clashing with the time slot in which I write for this blog. Accordingly, but with regrets, I'm folding the tent up because I can't assure anymore that I'll be able to post in a timely manner.

There'll be one more post after this one explaining where I got my items from, which will be up by early tomorrow morning. It'll be for anyone who'd like to keep up for themselves. I really regret giving this blog up, but it's time for me to head to a different pasture - one with a more flexible schedule. Thanks so much for reading what I've posted; those thanks are given especially to any regulars. I got into blogging about gold because I thought I'd be blogging though a blooming mania, which has not come to pass. My underlying motive was to warn everyone when I thought the bubble was about to burst. Right now, there's no need to. Gold will continue to fluctuate, but there's no mania as of yet. I still might write such a piece when gold does go manic, but that could be years away.

Again, thank you and take care. May the gains rain softly on your portfolio.

Consumer Confidence Falls In May

The May reading for the Conference Board's Consumer Confidence Index dropped to 60.8 from April's revised 66.0. That drop confounded expectations for a rise to 67.5. Hardest hit was the future-expectations index, which dropped eight points; the present-situation index hardly budged. This reading conflicts with the Consumer Sentimant Index, which showed a rise for May.

Gold didn't react much to this number, although it did get a short-lived boost from the pessimistic Case-Shiller index released at 9:15. The metal stayed in the high 1530s, despite a poke at $1,540, until the early afternoon when it slumped down to $1,532.

Case-Shiller Index Has Housing In Double Dip

The March reading of home prices by the Case-Shiller index has the average sinking below its April 2009 low, implying that housing is in a double-digit recession.
“Home prices continue on their downward spiral with no relief in sight,” said David Blitzer, chairman of the index committee at Standard & Poor’s. Read the full S&P release.

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 have not, waiting for a more favorable environment.

On the demand side, many consumers are still having difficulty qualifying for mortgages, even though rates are low.

There may be hope for the housing market from an unexpected source. If you've spent some time poking around the real-estate market, you've undoubtely read, heard about or even seen the new white elephants. Unlike during the 1930s, these are not mansions with huge carrying costs. They're regular homes that have been in foreclosure for years, and/or are in gutted neighbourhoods. Some are offered at a near-home price, but some are offered at nominal amounts. There were lots of houses in Detriot that could be bought outright on a credit card. The trouble is, they're money pits.

That's not just because they take a whole lot of dough to fix up due to being gutted, vandalized and-or rotted. In some shifty neighbourhoods, which are housing-destitute, they're occupied by rough characters who are squatting. I've read one person relating a tale about fixing up a house for resale only to find that the new furniture and fixings were stolen, just like the old ones were.

Even if thieves don't take advantage of improvements, a lot of those houses are little more than tear-downs now. They're formally counted as inventory, but as time goes by and damage increases they become more unsalable. A tear-down might as well be raw land.

That, believe it or not, is a salvation for residential real etate: time, wreckage and rot turning shadow inventory into unsaleable imaginary inventory - now kept on the books because the banks are afraid to write them off. There's already a substantial differential between new and used homes, and the former are moving. Word had gotten out that a used house is becoming like the used car of old legend. Once the wrecks are written off, inventory will necessarily shrink.

Plague Of Fake Gold In Melbourne, Australia

Fake-jewelry scammers are starting to get sophisticated. According to the man who got scammed in Melbourne, the fake gold looks like it's coming from China.
National Council of Jewellery Valuers (NCJV) Melbourne president Rikki McAndrew, who operates a gold trading business, discovered the ‘fake’ gold pieces when his customers unwittingly tried to sell them to him.

“Most of them were blocks of tungsten and silver coated quite thickly in gold. Just last Friday someone came in with a chain that was stamped 14ct gold but turned out to be copper nickel,” McAndrew said.

“I believe someone is making gold bracelets and watch chains that are in actual fact gold on copper. I’ve came across a lot of them that are stamped 9ct gold but just feel wrong,” he added....

“I would guess China because of the style – the clasp is a very Chinese clasp,” he said.

McAndrew said it would be near impossible for retailers and consumers to ascertain if pieces they bought were fake or real. One of the pieces he had discovered was slightly rough but had the right weight.

“That piece was particularly convincing and probably the best [fake] I have ever seen,” he said.
McAndrew believes that fake jewelry is being sold on eBay. Word to the wise.

Fake gold bars in Vietnam- partially filled with tungsten - seem to have come from Hong Kong. Although it isn't confined to the Chinese area, two cases make for a pattern. Caveat emptor.

U.S. Debt Woes, Though In Background, Still Lurking

That's why Michael Power, Investec investment strategist, believes gold will continue going up. The more immediate if underacknowledged influence is macroeconomic data from Asian countries. With respect to mainland China, the current tightening may reverse if it takes too big a bite out of economic growth.
"We are beginning to see them really become very big players and the more people focus on what's happening in the west to the detriment of not really focusing on what's happening in the east, the less they're likely to get the overall picture right."

That said, there is reason to be concerned not just about what is going on in Europe but, also the developing situation in the US.

According to Power, the biggest question in the global economy at the moment, albeit not the most immediate one is what is likely to happen to U.S. debt.

He says, "Someone this morning likened it to a Charlie Chaplinesque cartoon where you see a guy tied to a railway track and the engine is coming from afar and you can hear it coming and they're lying on the track looking at you and saying help me get out of this. I don't think that the Americans have quite realised yet that the debt train is coming and its big and at some point they're going to need something to do about it."
Needless to say, he's skeptical about the chances of any budget discipline coming down the pipe. He's of the opinion that U.S. legislators are still in denial.

Fake Gold Creating Concern In Vietnam Gold Market

Recently, some goldsmith shops in Vietnam got a solicitation to buy bars coming from Hong Kong. Instead of being pure gold, they were about 60-75% gold with the remainder being a fine powder that examiners suspect is wolframite (tungsten.)
The information has immediate caused big worries among Vietnamese people, who have the habit of keeping gold as their assets in the context of high inflation, but they do not know for sure if the gold in their coffers are real gold or imitation gold. The problem is that the imitation gold cannot be discovered with modern machines....

The information about imitation gold has immediately made the domestic bullion gold market “fall into a crisis” as said by Nguyen Minh Chau, General Director of Bao Tin Minh Chau Gold, Silver and Gemstone Company.

“The bullion gold trade turnover of goldsmith companies has decreased by 50 percent. Especially, many companies have seen the turnover drop by 60-70 percent and they are at the risk of having shut down business,” Chau said.

He went on to say that the gold business has fallen into crisis because of the people’s psychology.

Oddly, the news story that reports on this disturbing development tries to put a happy face on the discovery and subsequent buying strike by saying it will help bring down inflation! The author, or a government censor, holds the unusual idea that a rise in gold causes inflation rather than revealing inflation. It's as if they believed that a rise in the mercury in a thermometer caused the weather to get hotter.

Regarding the tungsten: the crooks behind that scam are dangerously sophisticated. A normal con artist would plate gold over tungsten in order to maximize the theft, short-term. That kind of fraud can be detected with a touchstone.

Unfortunately, hollowing out only the centre and stuffing tungsten inside is much harder to detect. With that kind of sophisticated scam, the only recourses might be either sawing the bar open and/or melting it. Tungsten's melting point is much higher than gold's.

As a result of such scams, assaying costs to confirm good delivery on bars might well shoot up. Fortunately, there are other techniques available - looking for: soldered bars, bars that are mocked up to look like standard bars but aren't, bars with irregularities that indicate being sawed open and remelted. Sad to say, if the tungsten scam spreads it'll be harder to sell non-standard bars.

The remedy might be buying legal-tender bullion coins instead of high-weight bars. They're hard to counterfeit, and government mints may co-operate by making them even harder to fake. Bar smelters could help out too, by lining their bars with hard-to-duplicate riffings along the edges - something like the ribbing on coins. If such comes to pass, sad to say, the newer bars will go for a premium relative to older and less secure bars.

Indian Physical Gold Demand Weak Once More As Monsoon Season Approaches

According to a Reuters India report, demand dormancy extended from last week to this one as gold held steady.
"It seems wedding season demand is over. From rural India, demand has fallen significantly as farmers are gearing up for the kharif [monsoon growing] season. They are spending money on seeds and fertilizers, not on jewelllery," said a Mumbai-based dealer with a private bank.

What they sow, they reap: the demand lull, although extended, should be temporary.

Gold Slumps Despite Greenback's Tumble

The creep-up that took place on razor-thin trading during yesterday's holiday reversed itself this morning, despite the greenback tumbling last night. WTI crude oil managed to gain $2 a barrel, and silver put on close to 40 cents an ounce from yesterday, but gold failed to follow in either of those other commodities' wakes. The holiday hiatus over, the metal dropped to $1,537. After a challenge of the $1,540 resistance level, which got it well above $1,540, it sunk to $1,535 and fluctuated in the high 1530s. Around 4 AM ET, with the greenback slumping again, gold again challenged the $1,540 resistance level and got up to $1,541.40. Again, that challenge would be defeated: the metal slumped down to the high 1530s and stumbled around. Not helping gold, but helping the Euro, was a report that May Eurozone twelve-month trailing inflation unexpectedly slipped to 2.7% from April's 2.8%. Although the official explanation has not been given, the most common-sensical reason is a drop in oil prices. That slip is not expected to stop inflation from peaking above 3.0%; nor is it expected to deter another rate hike by the European Central Bank.

As noted above, gold didn't get any real boost from the usual source even though two other inflation-linked commodities did. As of 8:15, the spot price was $1,536.10 for a drop of $3.00 on the day. The Kitco Gold Index attributed -$9.30 to predominant selling and +$6.30 to a weakening greenback. Link
The U.S. Dollar Index, as indicated above, greeted the return of normal trading with an extended skid as the Euro recovered to erase about half of the loss it sustained early this month. From around 74.95, it first slipped and then tumbled last evening to bottom around 74.45 last night. A recovery climb topped out at a little above 75.65 which was reached at 3:10 AM ET. After that peak, the Index slid to 74.475 but double-bottomed there. It then climbed up to 75.65 it settled into a range. As of 8:24, it was slipping back at 74.60.

A Reuters report said that gold was pulled in two different directions by nervousness over Grecian sovereign debt and a rise in oil, which the article said held gold back. The Euro was lifted by a Wall Street Journal report saying that the German government may make concessions to facilitate another bailout of the Grecian one. Still, gold's down on the month and is having a tough time climbing.
"We have the Greek and the U.S. debt issues, it is all supportive, but what is going to make gold go back up to the highs of the year? Can it achieve that just by renewed interest or does it require some big-impact event?" said Mitsubishi analyst Matthew Turner.

"We've seen after a brilliant start to the year, the global economy has slowed quite quickly, partly due to Japan but also because of a slowing China and a slowing U.S. and so on ... the question is can the economy recover on its own or will it get worse, or will we see more stimulus measures?"
Speculators increased their holdings of gold contracts for the first time since mid-April last week. Gold ETFs, although still down on the year, have attracted more cash than other commodity ETFs this month. Because of the Memorial Day holiday, holdings of the SPDR Gold Shares Trust were unchanged yesterday at 1,213.17 tonnes.

A Wall Street Journal report said that spot gold came close to making a four-week high on Eurozone concerns. The article saying that the German governnment may drop its demand for Grecian sovereign debt to be rescheduled as the price of the second bailout, helped the metal somewhat.
In a monthly report, Swedish bank SEB said the persistent speculation over the debt crisis, including the recent impasse over Greece's funding needs as well as the increasing risk of contagion within the euro zone, is lending strength to the market.

Continuing demand for the metal as a hedge against inflation in China is also supportive for gold and should help the market to "easily" pass above $1,600 per ounce in the short term, the bank said.
Gold ETF holdings are also creeping up.

With no economic data to influence it, gold sunk to the low 1530s after regular trading started. Although initially holding above $1,535, it sunk below on the greenback reversing direction and making a run at 74.65. As of 8:42, the spot price was $1,533.90 for a drop of $5.20 on the day. The Kitco Gold Index assigned -$11.35's worth of change to predominant selling and +$6.15's worth to greenback weakening. After making that jump, the U.S. Dollar index slipped back after encountering resistance, but it got its strength back and tried again. As of 8:46, it had slipped again at 74.61.

Yesterday's gains were reversed, which isn't that much of a surprise since trading was very thin and unrepresentative of a normal day. Despite two tries at breaking $1,540, gold fell further below its close last Friday once 8:30 arrived. It's not a very auspicious start to the shortened week, but the first half hour of regular trading isn't often representative of the rest. Still, gold is going to endure some volatility today as the greenback shakes off last night's tumble. With luck, there'll be another try at $1,540 but the odds don't seem good for a sustained break above that resistance level.

Monday, May 30, 2011

Gold, On Hair-Thin Volume, Creeps Up

There was a bare trace of trading until 1:15 PM ET, in which gold snuck up. Although it made a new 3-week high by briefly touching $1,540.40, the volume was so thin that it would have to be endorsed on a regular day's trading. Thin days tend to see wider bid-ask spreads. Gold's climb was fairly smooth if the granularity is omitted. Since it's Memorial Day in the U.S., there are no six-month charts for either gold or the U.S. Dollar index today.

At the end of today's blips of trading, the spot price was $1,539.10 for a gain of $2.60 since Friday's close. The Kitco Gold Index attributed +$6.60 to predominant buying and -$4.00 to a strengthening greenback.

The U.S. Dollar Index did trade for the entire day, but it barely budged. Moving up early this morning from 74.9 to 75.0, it failed to break above that resistance level and trudged around the 74.5 level. It sank very slowly throughout the afternoon. As of 5:15, it was slipping at 74.925.

That was it for this U.S. and U.K. holiday. As a result of gold's sneak-up, the end-of-day benchmark for tomorrow's trading is going to be a little higher. If today's gain is endorsed, there'll be a challenge of the $1,540 resistance level in overnight trading. Where gold really stands will be made evident tonight and tomorrow morning.

If you're celebrating the holiday, I hope you're enjoying yourself. Best wishes.

Peter Brimelow: Gold May Be Signalling Hyperinaflation

That opinion isn't (necessarily) his own; it's his distillation of goldbug opinion over last week. Both gold and gold stocks, as measured by the Amex Gold BUGS Index, did well last week. Trader Dan is of the opinion that gold will make a try for $1,550. Unsing Fibonacci analysis, an anonymous ScotiaMocatta analyst says gold is clearing the way for a try at $1,600. The Aden sisters like what's happening to gold stocks, as based on their proprietary advance-decline line comprised of 26 gold stocks.
This sense of financial crisis is widespread. On Friday, The Gartman Letter uncharacteristically engaged in a blistering denunciation of the Fed for letting the “adjusted monetary base” surge: “In only five months, the base has risen 30%. ... Where are the adults, we ask?”

From Australia, The Privateer notes: “Today, the Fed’s balance sheet is more than three-and-a-half times the size that it was in late 2007.”

At JSMineset, veteran Jim Sinclair pulls seniority: “Here we are at that place we have anticipated for the past 45 years, knowing that all the games being played had to play out.”

Sinclair predicts hyperinflation — in language that I won’t even try to get past MarketWatch’s editors!

Gold's Sluggishness Due To Tug Of War?

The Wall Street Journal's David Cottle answers that question with a "yes," as bad economic news and the Eurocrisis battle against unfavorable items for gold like the recent rise in the greenback and the ending of QE2 in about a month. Dennis Gartman believes that the current doldrums are a preface to gold rising again:
"There is a decided lack of 'frenzy' in the gold market at present, and indeed, we find it passing strange that with gold only a few dollars from its all time highs, there is very little if any speculative enthusiasm. Instead, bullish enthusiasm is high, but it is not rising and certainly it is not at 'nosebleed' levels consistent with previous interim peaks," he added.

It remains to be seen if gold can defeat the usual seasonal weakness that creeps in about this time.

Gold As Inflation Hedge, Or Something Else?

In his latest "Wealthy Boomer" column, Jonathan Chevreau makes the case for holding some of one's wealth in gold to hedge against the beast. In a talk with Nick Barisheff, he learned about the term "hyperstagflation" (which is, by the way, a real term.)
Consumers and investors well know garden-variety inflation and continual rises in the cost of living. Governments tolerate (and arguably create) modest annual inflation rates of 2% to 3%. This seems innocuous, but purchasing power of dollars will steadily erode unless you can generate real returns beyond inflation. With interest rates near historic lows, short-term savings vehicles have negative real returns.

The fear is governments and central banks will fail to maintain a balancing act between mild inflation and economic growth, with runaway inflation morphing into the kind of hyperinflation Weimar Germany experienced in the 1920s or currently afflicts Zimbabwe.

Gold enthusiasts like Mr. Barisheff believe the best protection against debauched paper currencies and inflation is physical precious metals....

It's a settled argument in the goldbug world that the gold bull market is forecasting or calling attention to high inflation in the developed world. A Bloomberg editorial begs to differ, though.
Buried amid the standard reportese is a statistical review of worldwide gold demand in 2011’s first quarter. The data show that gold’s ascent is being driven by extraordinary demand from India and China, where rising prosperity is making it easier for millions of people to buy gold in all its forms, particularly jewelry.

The WGC estimates that Indian households own more than 18,000 metric tons of gold, the largest holding on the planet. (By contrast, U.S. official gold reserves total about 8,100 metric tons.) Indian consumers aren’t done buying. In this year’s first quarter, they purchased an additional 206 tons of gold jewelry and 85 tons of gold bars and coins. China’s appetite is growing rapidly and could soon overtake India’s.

Or come at it another way: Strip out Chinese and Indian purchases, and the rest of the world isn’t nearly so vibrant. Some new buyers have shown up; some prior speculators are cashing out....

This take on gold's rise - that it's due to Asian demand - is likely the reasoning used at the Federal Reserve to dismiss gold's rise an an indicator of inflationary trouble down the road.

Preparations Being Made For Using Gold And Silver In Utah

Now that the Utah Legal Tender Act of 2011 is law, some preparations are being made to use gold and silver as money. Craig Franco, a coin dealer, is making arrangements with a bank to set up a debit system so people can use gold and silver to make purchases. The Old Glory Mint, in Spanish Fork, Utah, has issued a commemorative silver round featuring a depiction of the Mormon "Miracle of the Seagulls."
So far, there hasn't been much of a rush to use gold or silver. Part of the reason is the presence of the federal capital gains tax on gold and silver.
But here in Farr West, about 40 miles north of Salt Lake City, there is at least some precedent for such transactions.

Decades ago, the rambling Smith and Edwards store, a kind of giant 7-Eleven from the Old West that sells everything from survival kits to sporting goods and copies of the Constitution, had a special sale, offering a very favorable rate if people made purchases with “junk silver” dollars and half dollars. In the 1980s, the store sold a man a $1,200 air compressor for a little less than 4 ounces of gold, recalled Bert Smith, one of the owners, who is now 91.

Mr. Smith said that he liked the new law, and that he was ready to accept silver and gold. But he does not expect to see much brought to his registers.

“I don’t suppose there’s going to be a big run on it,” Mr. Smith said, “because people are going to hang on to their gold and silver more than ever.”

And, of course, the federal capital gains tax encourages them to do so.

Indian Gold Loan Market Expanding

The lucrative nature of the Indian gold market is spawning a bigger industry, with more entrants and increasing competition.
Public sector banks have now started offering competitive rates for gold loans for agricultural purposes with Canara Bank offering loans for a low rate of 5% per annum while other major banks are offering from 6-8 per cent interest rate per annum. New generation banks such as HDFC Bank and ICICI Bank have also come in the forefront promoting gold loans for the common man.

Bankers say the default rate is much lower for gold loans because Indians do not want to risk losing their family jewelry. And unlike traditional personal loan, no credit checks are needed for gold loans.

According to estimates, the organized gold loan market in India stands at Rs 350-400 billion and has grown at an compound annual growth rate of 40% during 2002-2010 and is expected to grow at an annual rate of 35-40% over the next three years....
One finance company that's the largest in the business is taking the show on the road to the U.K. Muthoot Finance Ltd. is planning to open up three or four branches, hoping to capture business from Asian immigrants.

So far, the gold loan market has not made any real inroads into North America. That's because people aren't used to the idea, seeing jewelry as largely ornamental rather than as a store of wealth. If they want to turn jewelry into money, they prefer to sell outright. Those who have gold for savings or investment purposes prefer to hang onto it rather than make a loan on it.

As a result, the gold-loan business (such as it is) is still dominated by pawnshops.

Indian Physical Gold Demand Stiil Weak; May Increase Due To Normal Rainy Season

According to a Reuters report webbed by the Economic Times, a stronger rupee didn't help demand for gold.
"Demand was very weak for the past few days. There wasn't any special occasion to attract retail buyers. They have already finished [wedding] season purchases," said an official at Kiran Jewellers from Jaipur, Rajasthan.

On the other hand, the rainy season looks like it's going to be normal this year - which should boost this fiscal year's Indian demand to 1,000 tonnes from last year's 930 according to the Bombay Bullion Association. Their fiscal year ends on March 31st.
Sales of precious metals typically rise when rains are good as farmers, many without bank accounts, buy gold and silver ornaments when they have a bumper farm output and surplus income. As much as 70%-75% of India's gold demand comes from rural buyers, mainly comprising farmers.

Monsoon rains this year are forecast to be normal and they have set in on Sunday, two days in advance, over Kerala, the southern state through which the weather system enters India's mainland.

"It [monsoon] has come at the right time," Mr. Kothari said.
Had the rains been below normal levels, Indian demand this year would have shrunk to 650-700 tonnes.

In the more immediate term, though, the dry season for gold demand is continuing. Gold is being quoted at a slight discount from spot price.

Gold Dawdles Around $1,535

The beginning of the week saw gold hardly moving. Sliding gently down to $1,535 last night, it stuck around that level all morning before slowly climbing at 5 AM ET. WTI crude oil fell a little bit, touching $100 after sinking to as low as $99.75. Silver also fell, subsequent to a jump last evening. Both of those other commodities were influenced by a recovery in the greenback, which affected gold little. As of 8:08, the spot price was $1,536.40 for a loss of $0.10 since Friday's close. The Kitco Gold Index attributed +$3.30 to predominant buying and -$3.40 to a strengthening greenback.

The U.S. Dollar Index climbed to 74.9 yesterday evening, a level at which it hung around until midnight. Then climbing further, it touched 75.0 before sliding down. From 2:15 to 4:40, it slipped from 75.02 to 74.85. Fluctuating in a range subsequently, centered at 79.88, it marked time until jumping up after 8:05. As of 8:16, it had reached 74.95.

A Bloomberg report said gold may continue to rally on fears of accelerating inflation and worries over Greece. Gold hit a record high in renminbi terms. Even though he didn't win support from opposition parties, Greece's Prime Minister George Papandreou said he'll try to enact new austerity measures.There's still worries that the Grecian government will not be able to pay its debts.
“Gold’s uptrend remains in place, with people being fidgety about Europe’s debt crisis,” said Chae Un Soo, Seoul- based trader with KEB Futures Co. “The metal is going to approach a record this week where it also could face heavy sell- offs to moderate rapid gains in prices.”
Seventeen out of nineteen participants in a Bloomberg straw poll of traders, analysts and investors said gold will rise this week.

A Reuters said gold was buoyed by the simmering Eurocrisis while gains were held in check by a decision of the Shanghai Gold Exchange to increase margins.
"The margin hike in Shanghai Gold Exchange is adding pressure to prices," said Peter Fung, head of dealing at Wing Fung Precious Metals in Hong Kong....

Fung said $1,500 should offer strong support to gold, and prices are likely to reach $1,600 by the end of the year as investors continue to buy bullion to protect themselves against economic uncertainties, a view echoed by other market players.

"The speculators are coming back, mainly driven by the European debt crisis," said a Singapore-based trader. "Gold is likely to slowly move up during the summer unless we see big headlines, such as the U.S. raising interest rates earlier than expected."
European Union officials are expected to pronounce a verdict on the Grecian government's attempts to bring its budget under control. Holdings of the SPDR Gold Shares Trust shrunk 0.91 tonnes last Friday to 1,213.17 tonnes.

An earlier Wall Street Journal report said gold sunk slightly in Asia as the market awaits a slew of U.S. economic data this week.
Greek leaders Friday failed to reach a consensus on a plan to manage the country's economic crisis, heightening worries about the ability of the European Union to deal with member-countries' sovereign debt.

A weaker euro, which analysts said is a possibility early in the week, could weigh on the markets.

Commodity markets remain "at the mercy of what's happening in the currency markets," IG Markets institutional dealer Chris Weston said. He expects the yellow metal to touch $1,600/oz before the end of 2011.
Since recent data have been largely disappointing, there's an expectation for futher misses in the week ahead.

The U.S. is celebrating Memorial Day today, and the U.K. has a bank holiday, so the markets are closed. Gold, at the time when the pit session would normally open, shifted around between $1,536 and $1,537.50 before coming to a rest in the higher half of that range. As of 8:25, the spot price was $1,537.20 for a gain of $0.70 on the day. The Kitco Gold Index assigned +$4.50's worth of change to predominant buying and -$3.80's worth of change to greenback strengthening. The U.S. Dollar Index, still trading, stayed stuck just below 75.95. As of 8:46, it was still stuck at 74.94.

The overnight session didn't see a resumption of gold's upward climb, but the metal did hold its own. Once trading resumes, gold is likely to keep dithering as more clarity on the U.S. economy and Grecian sovereign debt is sought. The latest word on the latter is: the European Union is seeking a stricter new bailout, which would authorize intenational intervention in tax collection as well as privatizing government-owned assets. More austerity measues would be included too.

If you're celebrating a holiday today, enjoy the break for all it's worth. Happy Memorial Day to Americans: at the very least, the American government doesn't have to have its financed pawed by outside parties.

Sunday, May 29, 2011

Bail-Out: A Short Story

It was early 2014, and gold's bull market was almost at the thirteenth anniversary point. Hugh Mueller had gotten a junior analyst's job, in 1998, with the now-huge Japteus gold fund. He was promoted to fund manager in 2006, over the heads of more senior analysts who didn't care. They were happier at their desks and staying private investors.

Mueller was now the officially recognized #1 manager of a large fund for 2013. He had arrived. The money was pouring in faster than he could invest it. He was no longer shunned; he was popular. His gold niche was no longer laughed at; he was close to revered. Everything was going much better than he could have reasonably expected. The big guys - the Masters of the Universe - were welcoming he and his wife into their circle.

He was triumphant - but what bubbled up from his psyche jarringly clashed with the fame bestowed upon him. Hugh Mueller was becoming a nervous wreck, now enslaved by the fear of losing it all....

[Warning: This story's for adults. There's one graphic bit.]


“You’re fired.”

It's said more politely, and is often laced with euphemism and even humouring. There are a hundred ways to get it across. Still, those hundred variants meant exactly the same thing:

“You’re fired.”

Hugh Mueller shook his head rapidly, to get those words out of his seared inner eye. The taxi still stopped, he could not get away. The foreboding words came from a restaurant, of all things. After blinking, and running two fingers across his forehead, he looked again and saw “Our fried chicken can’t be beat!” It was in the more modest, more picturesque part of the city he was passing though to get back from his interview. He had just been feted for running the #1 large fund of 2013. The interview went well; the interviewer had been congratulatory without being fawning. All of the questions were of the “how’d you do it?” variety. Standard for the winner.

He was the manager of the Japteus gold fund, had been since 2006. The return on the fund had actually been much better in 2009, but then the fund had been small. As knowledge of gold’s gains had spread, and the now-exploded deflation scare had turned into universal recognition of the inflation problem, the trickles into Japetus’ coffers has become a flood. With the press that the award had gotten, the flood had become an inundation.

Maybe that illusion had come from the taxi driver. Mueller had been using taxis regularly since late 1998, when he started off as an analyst. He had landed in the gold field by accident. Like so many of his peers, he had tried to hold himself up as a high-tech analyst. Having tried for the brass ring, he became familiar with the world of first, second and third interviews. He had garnered several first interviews, but only three seconds and one third. That one, he had blown because he was not technical enough. The firm was targeting the swelling accounts of programmers and Internet mavens, and wanted the tech equivalent of a detail man. He got beat out by someone whose MBA was about the same as his but had designed an HTML Webpage on the fly in the interview.

The offer from Japetus, in retrospect, was a lucky break. He had sent his résumé as part of a flood in the hopes that a scatter-shot approach would turn up some prospects. The name of the game was to collect several job offers from lacklustre companies, then use them as leverage in the interview process for the sought-after jobs. Dropping the fact that one had a job already waiting, made one more desirable to the interviewer: such was the game plan. It had worked, but not enough for young Hugh Mueller. The cream of the crop went to the top, and he wasn’t among the top. Nor could he make up for it by any greater technical skill than familiarity with the jargon.

Japetus, around since 1978, had been looking for a new junior analyst to fill the shoes of a retiree: that was the only way they could justify a new hire back then. Having been thwarted, Hugh had accepted the offer as a way of marking time. Sure, gold had been dead, but he had thought he could put in time and draw a salary in a beaten-down job that seemingly had no future. Nine-to-five’ ing would free up his time in the evening to bone up on HTML, Perl, and the then-new language PHP. That way, he could jump back into the big arena and grab one of the plums.

Six months on the job had cured him of that desire. The CEO of the fund-management company, a cynical but cheery old gent by the name of Maurice Perrin, had walked him through what a bubble was and how it got people deranged. By May of 1999, young Mueller was convinced that the Internet was a bubble. He saying so to his friends, which Mr. Perrin also recommended, had hazed him into the right attitude for his future life. They thought he was nuts. Thankfully, they had no opinion on gold that would have compounded his alienation. That came later.

When the bubble broke in March of 2000, Mueller was already devoting his evenings to pick up what he could on gold-mining geology. While on the job, the easiest part for him to learn was hedging; it had the closest tie to what he had learned in business school. When he had enthused about methodologies to forecast earnings, his older colleagues smiled at him. “Find out what the price of gold will be and then plug it into your crystal ball.”

He found out that even calculating intrinsic value was problematical. Thus hazed, he adapted himself to the more standard metric: gold companies' net asset values at present gold prices. The custom of taking the mean of the average gold prices over the last three years, standard for exploration companies' economic assessments and feasibility studies, he went along with because there was nothing better.

2001 was the year that gold took off and tech cratered. Mueller was very glad he hadn’t got the dream job he had sought so eagerly three years prior. It would have been two years of glory and one year of sweating, followed by a canning and possibly an indictment. As the stocks he watched took off, he found his friends starting to joke about his field. He heard that, as a gold man, he should put his salary into a retreat a hundred miles from nowhere and stock up with food and guns. He heard veteran gold men he respected, some he admired, being described as mentally pathological. His alienation became complete; soon, his only friends were in the gold world. Banded together like outcasts all over the world, they bonded by reminding each other of the inevitable fate of fiat currencies everywhere.

Further adding to his newfound clannishness was the sight of Japetus piling up double-digit gain after double-digit gain – and no-one caring. 2001 saw a percentage gain that any other fund manager would kill for. Japetus managed $739 million in May of 2001. May of 2002, long after 2001’s gain of 109% was published and even made the base of advertisements, its assets under management were $932 million. Not only was there hardly any new business, but also many of the clients had cashed out some. Some, he had found out, had cited the work of someone by the name of Robert Prechter, an Elliott Wave specialist.

How long ago that was! Back then, when he had treated himself to a taxi, all he had gotten were blank stares and discussions of basketball games by the drivers. Content in his safe subculture, Mueller knew well what his new friends meant when they flipped off about the “sheeple.”

This year, the driver had known who he was on sight. Rather than fawning, he was bending Mueller’s ear about the opportunities in exploration stocks. “Rowntree Gold!” he enthused through his rounded black moustache. “Symbol R-W-G. RTG was taken, you see.

“Around fifty cents two years ago. Now? It’s more than eight bucks! A guy I know, he put his life saving into it when the explorers sold off. He sold it at seven, and now owns three cabs. There’s room for you to get in. You see, he couldn’t believe his good luck so he got nerves and sold. Never had the taste for it; he’s old-fashioned. I got 10,000 shares, and I tell you: twenty-five, easy. Fifty’s not out of line.”

Turning off his mouth, the driver’s black eyes saw an oddly nervous man in a two thousand dollar suit. It was the same guy: small pot belly, medium height, a full head of straight brown hair neatly coiffed, roundish face, thin eyebrows, fashionable small square glasses, light blue silk shirt. The same guy he had seen on those podcast interviews, excerpted from the business channel. The same guy he had read being quoted all the time. The same guy, on the top of the world, sweating as if it were a seventeen-year-old noob behind the wheel. “Hey, what’s it with you? I been driving twenty years, and I haven’t had an accident!”

The vision was still dogging Mueller as he rose up the elevator to the twelfth floor. The new building, where Japetus had relocated in 2009, was the opposite of nondescript. Thanks to the ’08 crisis, the firm had gotten a good deal on a full-floor suite in a skyscraper that the boys would have laughed at back when gold started its magnificent run. When Mueller had become a full analyst, there were only four others. Now, there were thirteen and two interns. He had been amazed at the number of résumés that had come in for those two positions. Back in 1998, there had only been two other competitors for the slot he got. Now, he had to wade through hundreds for only two unpaid internships.

The first intern, Dalia Mather, was in charge of reviewing the exploration stocks’ net asset values. The second, Adam Downie, was the analysts’ dogsbody. Mueller had asked Dalia to run through Japetus’ holdings, tabulate the net asset value per share of each, and compute a weighted average giving the net asset value per unit of the fund. It now boasted assets of more than $27 billion.

She was a dark-haired neat young woman who was in for the summer. Not much shorter than him, nature had blessed her with a small upturned nose that complemented her dark fine features. She would return to a final year of study in one of the best business schools in the country. Her future was assured, and she was convinced the future was in gold. Her suits were pedestrian, her grooming was tasteful, her self-confidence was Ivy-League élite, her manner was upbeat. Smiling as she brought the figures into the office, she chirped that the premium over the companies’ net asset value said that gold wouldn’t be long at $3,000.

Feeling his chest tighten, Mueller asked her if she had comped it out.

“Yep,” she answered bright-eyed. “Everything works out if gold goes to $4,800. Give it a year or so and we’ll be there.”

His chest pain gone, he found he became a zombie. Now detached, he saw and felt himself thanking her and exchanging pleasantries. When she left, he turned back to his work and ran though the list. Stock after stock, showing premiums over net asset values that were way out of whack.

The zombie that was him got through the day. The earlier urge of his eyes to clutch randomly at his surroundings was gone. Walking around the workstation-filled main office, with quasi-office cubicles for each analyst, he spent quality time interfacing with them. Most treated him with deference and respect. Egon, Wayne, Karl and Seth – the old boys who had been there when Mueller had joined – winked at him. All of them were older, and all had genially acceded to him being the catbird kid. They didn’t mind because they preferred staying in the shadows, and everyone knew that the big boss was really in charge. All of them left at 5:00, which none of the new kids did. Preferring the freedom of the private investor, they played their retirement accounts in a manner that would get them charged and run out of the business had they been fund managers. Wayne’s and Seth’s net worth were higher than Meuller’s.

After the interfacing was done, Egon and Wayne looked at each other. Something had seemed wrong with the kid. After conversing for thirty seconds, they figured it was the interview. Part of the poor kid’s job was to be a come-on for the sheeple: he had to be in the throes of the jitters. The newer employees noticed nothing wrong, chalking up their boss’ remoteness to overwork.

Still in zombie mode, when his day was done, Mueller greeted his kids while they were getting ready for bed; it was that late when he finally got to his two-story condo. Both Scotty and Freddie were enrolled in the Hartley School, not the best in the city but close.

At first, his wife Gloria though he was tired. It has been a great day for him, and national recognition can be stressful sometimes. After the kids had gone to bed, her gray eyes looked concernedly at his glassy ones. “You’re tired,” she stated.

Jolting out of his zombie persona, he blurted out: “No, not yet - but I’m going to be.”

Surprised, she didn’t know until he had unburdened himself that he had heard:

“You’re fired.”

Gloria was a compact, red-haired woman who had been a college libertarian. She was seven years younger than her Hugh, who had went gaga over her when she had met him at a gold seminar. She was wasp-waisted, attractive, studious, and genuinely interested in gold. She didn’t know that a large part of her appeal was based in she respecting what every other gal looked blankly at. She was an attractive, young, available woman who liked what far too many others had laughed off. They were married a year after they first met, on June 15, 2002. The ides of June.

She had gone straight from college to homemaking, which used to bother her. Now, it didn’t. She had fit well into the tight-knit gold world, and she was fitting in to the larger and more exclusive world her high-flying husband had brought her to. The stories she had heard from the other wives in their new circle didn’t register: she was sure that her husband didn’t even think of other women except as people. Unlike the other wives.

The celebration she had planned, a catered lobster dinner, he gnawed through as he mulled over what he had gone through after the interview. His eyes were jerking to the dishes, cutlery, decorative candles and even the pattern in the tablecloth. In order for the stocks Japetus held to be fairly valued, gold would have to go to almost $5,000. That price came close to discounting an outright return to the gold standard. Money was flooding in, hot money that expected another doubling in 2014. He was almost certain to get a raise, which would push his annual compensation into seven figures. All he had to do was to increase his beta relative to gold. Surely, $5,000 was inevitable – wasn’t it?

After the dinner and talk, his wife had gone from proud to concerned to confused. She had seen him stressed, but never like this. She found herself gently suggesting that he see a therapist. Something was wrong: on the day he should be triumphant, his self-esteem was worrisomely low.

“I’ll be in bed shortly,” he said when 10:00 approached. Nodding, sadly, she went upstairs to the master bedroom – leaving him to face the sweating and chest-tightening that his good fortune had bestowed upon him. Sure, he could take on more risk. Surely, gold had a long way to go. Even the taxi drivers were making money hand over fist!

Scuttling to his home office, the second room on the right in the hall tastefully hidden from the monstrously sized main vestibule/living room/dining room, he looked up Rowntree Gold on the computer. It was located an hour’s drive away from Skern River, an old mining town that had once again visited by good fortune. Three mines were within commuting distance of the town. Jerking up another browser window, he entered the search string “Skern River Real Estate.” Robotically going through the listings, he found houses like the one he had grown up in for between $300,000 and $400,000 – far less for the down payment on his condo. It wasn’t a penthouse suite, but it was contained in number seventeen on a list of the twenty most exclusive developments in the city. He had seen so in a magazine.

Breathing heavily, he set down to his chore of beta adjustment. Japetus had gone cloud, so he could access the virtual part of his office from his desk and chair at home. He had finished the calculations at 2:00. The shuffle he planned would boost Japetus’ gold beta from 1.48 to 2.53. Sure, it was risky, but what other way could he expect to keep the flood of new money happy? How else could he prevent the excited money from becoming angry money, which would gut the fund he ran? Didn’t he owe it to the firm to squeeze as much out of the bull market as was possible? Sure, it meant the fund would be jacked up from 19% exploration issues to about 45%, but that’s what everyone wanted, didn’t they?

Looking back at the house listings, he felt himself jerkily printing out a few. Skern River was a six-hour drive. He could go down, get in his BMW, drive up, and arrive in time for the real-estate agents to be open. Yes, that was the way out. He wouldn’t be fired at all – he’ll quit! Yes, that way was freedom.

The payments on the condo were onerous, but it would sell quickly. He could have his home sold in a week, and net more than enough to buy a Skern River house with cash. His kids would go to the local school – they would have to be pulled out of Hartley – and his wife would fit in fine. Maybe they’d homeschool; maybe he himself would teach them. Neither he nor Gloria had hailed from the august circle they frequented now, but they were accepted now. He was a big fund manager, whose name and face frequented the business media. They would be accepted easily in the more relaxed ambience of Skern River. There were a lot of miners, and he had worked in gold for his entire working life. They’d get along, he told himself.

With that desire, which he thought was a plan, Mueller walked to the vestibule and got his coat and street shoes from the closet. Checking to make sure he had his wallet and keys, he numbly walked out to the elevator that would take him to the parking garage and freedom.

Only a few lonely trucks passed him on the opposite side of the road over the last five minutes as he sped along the two-lane highway, settled into the leather of his chair. Even when the road was straight enough for his high beams to vanish off into flatness, he could see no cars moving in his direction. Except for those lonely trucks, he was blessedly alone. His driving became more and more automatic as he approached the freedom of Skern River.

He knew he would have to crack down once he made the offer on a home like the one he had grown up in. Gloria hailed from a similar neighbourhood; she could lose her new-found vanity. Wasn’t that it? Vanity? Who did they really think they were? Who did his new-found buddies, several of which commanded assets of more than $100 billion for companies that owned dozens of funds, think they were? Flotsam, on a bull market. Nothing more.

That subject disposed of, he drifted back to the memories of the good old days when his world was cozy and small. Sure, Japetus had been looked down on; that had hurt at first. But weren’t all pioneers? They were the ones with the lock on the future; they could see the turmoil and chaos the financial world would go though long before everyone had stopped laughing at him. The gold word was tight-knit and safe. Back in the days when an internship would have been unfilled: those were the good old days. The days when believers in gold were the vanguard, which more than made up for the empty dollars scooped up by the sheeple. Most of his former friends were making more than he at that point, but he was happier because he was with the future. Yes: those conformist dullards, who would be flapping around like oil-drenched wildfowl when the awful days of reckoning hit them, would finally see. O laugh now, ye who shall weep!

Why did so many now want to invest with him? He had seen them, buttonholing him in the upscale malls he went to with Gloria and the kids. Some of them looked as if they wanted his autograph, yet they were the ones who had laughed at him in those happy days when gold had turned majestically around. Blinking, feeling as if his eyelids had weights attached to them, he noticed that his car had begun weaving a little. He was driving ten below the speed limit, uncharacteristically slowly for him. It was now 4:27 AM.

Skern River: that was freedom. Or at least it seemed to be.

The lights in the opposite lane went from cheery to painful. Blinking robotically, Mueller realized that he had left his high beams on. Flicking the left lever, he was rewarded with the other lights diminishing to pleasant.

A hardened feeling then overcame him. Those new investors, they were really speculators. They wanted to make a quick buck. With the clarity of someone who claimed a psychic experience, Mueller was sure that they were the same people who made fun of him. Now they wanted a guaranteed double with him as the point man. For the first time on his ride, he considered turning around and going home.

Yes, it would be easy to shoulder that additional risk. He could warn the old boys, just by emphasizing the popularity of Japtus. They would see what he was doing. They knew what it meant when the sheeple flocked around you. Even if they didn’t, he could make them clue in otherwise. As for the rest, they deserved what they got once the great bull market was over. Like lemmings, they were just answering their fated call.

Now blinking loggily, he saw that he was in the middle of the road. Yes, his fine expensive BMW was straddling the single broken yellow line. His body now bunched up by his new line of thought, he concluded that he had every right to both lanes. Wasn’t he friend and neighbour to the Masters of the Universe? Weren’t people who used to scorn him now begging for his attention? He saw the image of the young, neat, educated, well-made-up, smiling Dalia Mather and suddenly felt a rush of lust through his loins. He was a Master of the Universe!

Moving to the right lane, although shakily, he let his concentration drift towards his intern’s “continuing education.” Yes, it looked like his fantasy of seeing her dark, shiny hair cover her whimpering head as her breasts rubbed against his desk was keeping him awake and energized. Deciding that he could drive like the best of them, he pumped down the accelerator until his speed was twenty above the limit.

The transport truck coming around the curve bothered him not at all, as he was a god. Looking down at the tenting of his $2,000 suit, the highway horn from the vehicle barely registered as he gazed down in wonder at his mastery…

…and his flayed heart separated from his aorta as the front crumpled.

Gloria’s face was masklike underneath her tasteful black hat. Her kids’ veered from crushed to unbelieving. Neither had cried, yet.

The coffin had to be closed: the accident that had killed her husband and father of her two children had been that bad. In retrospect, it had been obvious that there was something very wrong with him. In lieu of flowers, Hugh Mueller’s funeral announcement had asked that donations be made to a bipolar disorder foundation.

The wake had been well attended. His new friends had been smoothly sad; his old friends were distraught. Hugh had not really known how liked and respected he had been in the gold world. Gloria counted eight CEOs of mining companies who had shown up. She had met some of his university friends. All of them were saddened, all regretful, and some looked guilty. Every one of them took the view that old Hugh had been a destined high flyer whose greatness had been tragically cut off. All of them had donated to the bipolar foundation, as it neatly explained the odd career path he took before his inevitable success enveloped him.

Maurice Perrin looked and acted as if he had lost a son. “If he had only come and talked with me!” Miserably, Gloria began counting the times he had said that: she was up to ten.

She had found comfort in the words of his gold-loving compadres. Her misery temporarily lifted when the new widow that was she heard that her husband had been head and shoulders above the sheeple. Her children would be raised with the vision of their father as a solid, calm, kind, modest, unflappable man who did not mind being laughed at.

Friday, May 27, 2011

Gold Ends Week With Strong Gain Due To Sinking Greenback

Now that the latest phase of the Eurocrisis in no longer new and disturbing, demand for the greenback is fading and demand for gold is increasing. As the U.S. Dollar Index broke below its 75 support level, gold forded up to a new three-week high. For a time this afternoon, it was less than forty dollars below its all-time record high; its high point of the day was just below the $1,540 resistance level. Although almost all of gold's gain today was due to the weakening U.S. dollar, the currency tumbled enough to make for a strong double-digit rise. Turning the recent differential on its head, silver hardly budged while gold was energized.

Today was one of those days when the start to the pit session accurately foreshadowed the entire day. Gold started rallying from $1,525 at 8 AM ET and continued upwards to $1,530 when the pit session started up. Then blocked, it spent some time shuffling between $1,528 and $1,530 before a renewed tumble in the greenback gave the metal the energy to shoot up to $1,535 by 9:45. Blocked again, it settled into a higher range until late morning when another greenback stumble got the metal up to its daily high of $1,539.50. It hit that peak a little after noon, and spent early afternoon in yet another range - this one, between $1,536 and $1,538.

Later, the metal slumped down to the low 1530s, but its descent ended a little after 3:00 when the greenback slumped again. For the last two hours of the session, the U.S. dollar's continuing drop left gold unaffected as it marked time around $1,536. As of the end of the week, the spot price was $1,536.50 for a gain of $17.10 on the day. The Kitco Gold Index split the gain into +$0.70 for predominant buying and +$16.40 for greenback weakening. For the week, the metal gained $22.80 or 1.51%.

Gold's six-month chart, from Stockcharts.com, shows yesterday's decline being smartly reversed:

To be frank, I thought the two-day decline would spill over into today. Since it didn't, yesterday's and the day before's slumps were too ephemeral to count as an outright short-term decline. Today's gain counts as a the second higher high since the plummet of four weeks ago. That said, gold's uptrend has been made a little stronger. What makes the $1,540 resistance level significant is that it marks the point where two-thirds of gold's $120 plummet is reversed. Should gold get and stay above that level, the current recovery is stronger than a mere relief rally. Although it's unlikely that gold will continue upwards to make a new record high that's well above the current $1,578.20, the metal has shown enough strength to have fallen into an intermediate-term consolidation pattern. That's much better than a correction.

As indicated above, the U.S. Dollar Index spent most of today tumbling. Close to 75.2 at 8 AM, it was hit hard by the advent of regular trading. Bottoming at 74.905, it snapped back up at 8:35 with the news that consumer spending for April increased only by 0.4%: the same as income. Peaking at 75.2, the Index then lost its energy and dawdled in a range before collapsing a second time. Its second bottom, made around noon, was lower than its first. Unlike the first recovery, it couldn't get above 75. Starting at 2:00, it slid down slowly at first but accelerated as it lost more footing. At the end of the week, it was close to its daily low at 74.77.

Its own six-month chart, also from Stockcharts.com, shows its recent uptrend definitely impugned:

The Index's higher high, from which it's been falling, has now been followed by a lower low. That scattering does not an uptrend make. In form, its recent fluctuations resemble two-thirds of a head-and-shoulders top. Should the Index make a lower high when it next turns upwards, the bell is tolling for its countertrend rise. As a side note, its Moving Average Convergence-Divergence lines (found at the top of its chart) are very close to making a bearish cross.

With the last full week of May over, gold is showing a fairly solid recovery. The beginning of May was the time to sell, but gold hasn't gone away as yet. Given that it's likely to either consolidate or fall further in the coming few months, due to unfavourable seasonality, this rally could be seen as a blooming second chance to get out. Its recovery strength, though, shows that it's angling more towards a summer consolidation than a summer correction.

In closing, I'd like to thank you for stopping by and reading what I've got here. Have a great weekend, and enjoy the heat.

Consumer Sentiment Up For May, But Pending Home Sales Slump

The May reading for the Thomson Reuters/University of Michigan Consumer Sentiment Index showed a nice gain, jumping from April's 69.8 to 74.3. This month's reading was well above expectations. Credited for the rise was an easing of gas prices. The one-year inflation outlook fell from 4.6% to 4.1%, while the expectations barometer leapt from 61.6 to 69.5. The index of current conditions, on the other hand, fell from April's 82.5 to 81.9.

April's index of pending home sales, in contrast, tumbled to 81.9 from 92.6 in March; the latter number was revised downwards. This index measures signed contracts to sell existing homes. Although the weather was blamed, the drop suggests housing prices will fall further.

When these items were released, at 9:55 and 10:00 AM ET respectively, gold had already started pulling back from a new three-week high of $1,535. The metal reached that new high because of a leap, induced by the greenback turning downwards, that kicked in shortly after the equity markets opened. Gold seemed little affected by the news, slumping to $1,533 in that timeframe as it lost energy. It made a slightly higher peak a little later, prior to pulling back more.

Prospecting Heads Across The Pond

As the price of gold has risen, traditional placer-gold areas like Alaska and British Columbia have seen an influx of new prospectors; there've even been hopefuls in Alberta, a province more known for oil and gas. Gold fever has spread so far, it's now taking hold amongst hopeful prospectors across the Atlantic in the U.K.
As the price of gold continues to hit record highs, interest in finding it has grown despite the area's most experienced prospector admitting his biggest haul is a mere 11 pieces the size of a grain of sand....

Alf Henderson, 80, of Bowness-on-Windermere, has been hunting for gold for 40 years.

Now instead of just a handful of hardy hopefuls spending their spare time knee-deep in cold streams, he now finds himself joined by up to 40 people at a time....
He does pass along the same caution that experienced prospectors usually give to cool off gold fever: the chances of making money off the hobby are slim. Best to do it for the fun.

The article includes this informative graph that compares gold to silver and the U.S. dollar index:

Also included is a map of the hot spots for panned gold in the U.K.

Four Reasons Why Gold Makes For Good Collateral

On the heels of the European Parliament’s Committee on Economic and Monetary Affairs' unanimous decision to allow central counterparties to use gold as collateral, Commodity Online has published an article giving four reasons why they made the right decision. Those reasons are:
  1. Unlike sovereign paper, gold has no credit risk attached to it. As Doug Casey is fond of saying, it's the only (money-related) asset that is not someone else's liability.
  2. Pricing is transparent. Most transactions are done in over-the-counter markets, and trading is done almost twenty-four hours in every weekday. From Monday to Friday, various market makers are expected to put up bids and asks throughout the day.
  3. There's a deep and liquid market in gold. The total gold stock has been estimated by metal consulting firm GFMS to be 166,600 tonnes: at current prices, that's a value of about $8.2 trillion. About 38% of that gold is in private hands and the official sector.
  4. Other uses for gold, particularly jewelry, gives a diverse and robust character to the demand for it.
As the end of the piece points out:
Market demand for gold to be used as a high quality liquid asset and as collateral has been building for some time. In late 2010, ICE Clear Europe, a leading European derivatives clearing house, became the first clearing house in Europe to accept gold as collateral.

In February 2011, JP Morgan became the first bank to accept gold bullion as collateral via its tri-party collateral management arm....
So, it's no wonder that the committee approved.

Jelly Bean Magnate Introduces...Gold-Plated Jelly Beans

The founder of the Jelly Belly bean line, David Klein, has come up with an unusual luxury treat: jelly beans, with exotic flavours, that are coated with 24-karat gold. The price tag is $500 per jar.
They're not just blinged-out candy, though. The beans are supposed to represent "deconstructed meals," bursting with exotic flavors, like Thai Lemongrass Curry and Indian Mango Chutney.
Needless to say, the bulk of reactions balked at the price tag.

Well...it can now be said that you can eat gold if you want to. Some tony restaurants are already including gold-flecked dishes in their menu.

Underperforming Gold Stocks Leave Many Puzzled

Gold stocks have been underperforming gold itself for some time now, and that's got a lot of people perplexed - including some of those companies' CEOs.
Amazed at what has transpired, the producers are scrambling to generate any sort of interest in their stocks. “We are seeing ever increasing inclusion of ounces into mine plans where the degree of confidence associated with their location and existence is lower than previous consideration,” [CIBC World Markets analyst Barry] Cooper noted. “In many cases, the mine plans are now incorporating ounces that have not even made it to an inferred category let alone the usual required measured and indicated classification.”

For that reason, Mr. Cooper worries that net asset value could become less useful as a valuation metric, because no one can really trust the number.
Mr. Cooper himself believes that the stocks will eventually bounce back because the metrics he uses definitely say they're cheap.

It is an odd state of affairs. Gold stocks did much better than gold itself in the early stages of gold's bull market: from 2001 to 2007. Needless to say, the crisis of '08 wrecked the gold stocks, pushing them down much farther than gold itself. Since then, there have been times when the producers have outperformed gold but there have also been times, like now, when they've underperformed.

Since the '08 crisis, junior exploration issues with real deposits have done much better than the majors, although the mini-mania came to an end late last fall.

Indian Physical Gold Demand Weak For Yet Another Day

According to a Reuters India report, Indian gold demand remained weak as wedding season moves to a close.
"Households are not buying, while jewellers were waiting for correction," said a Mumbai-based dealers with a private bank dealing in bullion. "For the last few days trading activity has gone down and it seems it will remain like that for next week."
A strengthening rupee, which eases prices for buyers, didn't help.

Gold Rises Due To Sinking Greenback

The U.S. dollar tumbled last night, which gave enough energy to gold for it to rise above its sub-$1,520 close to $1,525. The greenback's action also boosted silver into a range between $37.50 and $38; WTI crude oil got a lift up to $101. After gold reached $1,525, around midnight ET, it stayed stuck around that level as the greenback recovered slightly. Fitch put another national government on negative credit watch, but not one in Europe. Japanese sovereign debt got that flag because debt levels are so high. Inflation in Japan for the month of April was reported as 0.6% from a year earlier, a shift from the no-inflation norm that's prevailed for the last two decades. Japanese GDP shrunk 0.9% in the first quarter of this year, making for a technical recession in the country since GDP also shrank in the fourth quarter of last year.

Gold did manage to make it as high as $1,529.90 around 4 AM, after recovering from a slump of as low as $1,522.20 just prior to that peak, but overall it stayed close to $1,525. As of 8:18, the spot price was $1,526.90 for a gain of $7.50 on the day. The Kitco Gold Index attributed -$2.70 to predominant selling and +$10.20 to a weakening of the greenback.

The U.S. Dollar Index, as noted above, plunged from the high 75.5s all the way down to 74.95. The tumble ended just before midnight, after which it snapped back to 75.05-75.15. After gaining enough strength to climb up to 75.35, it reversed and reintroduced itself to a sub-75 level. As of 8:25, it was still sinking at 74.97.

A Reuters report ascribed gold's recovery to safe-haven buying and a weaker greenback.
"The dollar is weaker, boosting commodities," said Peter Fertig, a consultant at Quantitative Commodity Research. "Also don't forget the situation in the euro zone, especially the latest comments from an EU official."

In the latest development on the Greek crisis, the head of euro zone finance ministers Jean-Claude Juncker said the International Monetary Fund could withhold the next slice of aid to Greece due next month.

"The chances of debt default by Greece are rising," a trader said, adding higher oil prices were also helping gold.
Holdings of the SPDR Gold Shares Trust stayed steady again at 1,214.08 tonnes.

8:30 saw the release of the consumer-spending report for April. Spending was up, but only by 0.4%: the same as income. Spending was hobbled by price rises, like at the gas pump, which are excluded from the core-inflation figures. Gold has already got a head of steam up, rising to the high 1520s on the sinking greenback, but the release of that report gave it a final boost that pushed it above $1,530. As of 8:42, the spot price was $1,530.30 for a gain of $10.90 on the day. The Kitco Gold Index assigned -$1.25's worth of change to predominant selling and +$12.15's worth to greenback weakening. The U.S. Dollar Index halted its decline on the news, but didn't rise. As of 8:46, it was stuck at 74.99.

Thanks to renewed pressure on the U.S. dollar, gold managed to reverse its declines from yesterday and come close to making a new three-week high. Safe-haven demand ebbing from the greenback, and consequent selling pressure, has actually helped the metal instead of hurting. Today's regular session may see some volatility, as a strong start tends to be a bad predictor of the rest of the session. Even if so, gold will still have held up fairly well.

Thursday, May 26, 2011

Gold Ends With Sizable Loss, Falls With Greenback Rise And Then With Oil

Gold started regular trading with a slump, but picked up smartly when the revised number for U.S. first-quarter GDP hit the Net. Instead of being revised upwards, as many had expected, the number stayed at 1.8%. Any upward revisions were cancelled out by consumer spending being revised downwards to 2.2% growth annualized from 2.7%. Despite that morning push, though, the metal ended up slumping because the U.S. dollar jumped up, albeit discouting most of the rise in advance. When the greenback fell mostly back down, gold didn't benefit because crude oil slumped and gold was dragged down with it. More broadly, profit-taking dovetailed with diminished safe-haven demand to leave the metal sporting a loss on the day that was more than six dollars an ounce.

After being boosted by the GDP revision disappointment, the metal reached $1,526 at 9 AM ET as the greenback was pushed down by the news. Despite the fact that the currency didn't trough until almost an hour later, gold was blocked from rising any further as selling pressure came in. The metal actually tumbled before the greenback had finished jumping up from 75.35 to as high as 75.86. While the currency was making most of its run, gold snuck upwards in a rising channel below $1,520; as noted above, the metal discounted the rise before it was complete. When the U.S. dollar began slipping, the metal didn't react all that much to the upside at first. Evidently, the gold market had a more optimistic view of the greenback's performance than what actually transpired.

It wasn't until the greenback slump turned gentle at 75.6 that gold got enough energy to hoof up to $1,525. Then, it slipped and then slowly slid downwards for the rest of the afternoon. Not only profit-taking slipped it down but also a drop in WTI crude oil, which ended up at $100 from $100.75. Although the metal was supported at $1,520, the gentle pressure on it pushed it below that level near the end of the session. As of the close, the spot price of gold was $1,519.40 for a drop of $6.40 on the day. The Kitco Gold Index attributed -$13.60 to predominant selling and +$7.20 to a weakening of the greenback.

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

Despite that decline, gold's Moving Average Convergence-Divergence lines (found at the bottom of its chart) made a bullish cross today. It wasn't much of one, and that indicator tends to be a little late rather than early, but that cross shows that gold's weak uptrend is real. The metal bottoming at any price above $1,490 or so will make for a third higher low, which will further confirm that it's doing a little better than a straight consolidation. Despite the Eurocrisis-related safe haven demand coming in, that demand is iffy and not consistent. Gold won't be given a big boost by it unless another disaster erupts, like the Grecian government seriously threatening to default or unilaterally reschedule. The latter now sports the euphemism "reprofiling."

Turning to the U.S. Dollar Index: it was knocked down by the GDP news, slumping from the high 75.5s down to as low as 75.35. After a relief climb, it sunk again but double-bottomed. Then, it got its energy back and climbed above 75.85 by 11:00. Then sinking and topping at a slightly lower level, it turned south in early afternoon and slid into the 75.5s. For most of the afternoon, it was between 75.5 and 75.6 - about where it was before the GDP revision was released, making the regular trading session a wash for the currency. As of 5:15, it was recovering from a slump down to 75.505 to reach 75.54.

Its own six-month chart, also from Stockcharts.com, shows it declining for a third day in a row:

In so doing, it made its uptrend weaker and made my previous call for it to touch 76.5 before the end of the week unlikely. I have to say that I got too optimistic earlier this week. Although the Index sunk below 75.5 today, there was enough support at that level to push it above. The last short-term bottom was at 75.0. Should the Index keep declining and close at 75, its intermediate-term uptrend will become questionable.

Gold didn't make a fine show today, but declines come with the advances. Considering that its close today is almost exactly at a resistance level it would have been stopped at had it been merely consoldiating, today's decline can be taken as a sign that its short-term advance is weak but real. Since it's in decline mode, it may go farther - but it would have to bottom around $1,480 for its short-term uptrend to be impugned. The metal has a long way to go before sliding down that low; it likely won't. Tonight's overnight session may see more softening, but nothing alarming should take place.


Because of a personal commitment, the usual slew of gold-related news items won't be posted today. The next post will be the end-of-day wrap-up, which goes up around 6:30-40 PM. Thanks, and my regrets.

Despite Fall In Greenback, Gold Slumps Along With Silver

After peaking at about $38.75, silver lost more than a dollar and a half an ounce. Shortly after it began tumbling, gold did too. Despite the fact that gold didn't follow silver up by that much, the former metal followed the latter down when it got sold off. During the sell-offs, the U.S. dollar stayed in a range that was well below yesterday afternoon's values. The OECD recommended that most central banks raise their rates due to inflation pressures, now that the global recovery looks self-sustaining. It upped its inflation forecast for this year from 1.5% to 2.3%, and it urged the Federal Reserve to raise the Fed Funds rate to 1.0-1.25% by the end of this year. Jean-Claude Trichet's successor in November as President of the European Central Bank, Mario Draghi, is already advertising his credentials as an inflation-fighter.

Thriving on the greenback's slide, gold climbed a few dollars last night in a steady rise that extended as night turned into morning. From $1,526, its climb took it to a peak of $1,533.50 at about 2:30 AM ET. At that time, silver had already lost about twenty-five cents an ounce. Then sold off with silver, gold tumbled steadily without much recovery climbing until it reached a bottom of $1,514.60 a little after 7:30. A relief climb kicked in, but the metal had trouble reaching $1,520. As of 8:22, the spot price was $1,519.20 for a drop of $6.60 on the day. The Kitco Gold Index attributed -$13.20 to predominant selling and +$6.60 to a weakening greenback.

The U.S. Dollar Index, after a brief climb from 75.9 to almost 76.0, turned around last night and slid down to 75.6. It then entered a range between 75.67 and 75.5, whose top lowered to 75.6. As of 8:25, it was at 75.56.

A Reuters report said gold was knocked down from a three-week high by silver's plummet. The euro was strengthened by a report that claimed the government of mainland China was interested in buying Portugese government "bailout bonds."
"This is a major intraday reversal of some 8 percent, the potential right now is that we see one step forward and two steps back in silver and I think it can continue," said Commerzbank analyst Eugen Weinberg.

"The real problem is the price increase before was overdone and the market was overheated... speculative investors have not yet exited (their positions)," he said, adding: "This is a situation where the tail is wagging the dog."...

"We are in for a prolonged period of prices treading water and probably stagnating at around $1,500. I wouldn't be looking for as much positive dynamic going on, despite the demand for it as a safe-haven right now being fueled by the debt crisis," Commerzbank's Weinberg added.
Metals consultancy firm GFMS forecast that mainland China's imports of gold may be as high as 400 tonnes this year, as compared with 200 tonnes for last year. Holdings of the SPDR Gold Shares Trust remained at 1,214.08 tonnes yesterday.

A Wall Street Journal report said gold slumped along with silver, and noted that buying support might take lower levels to kick in definitively.
"Buyers of physical bullion from the Middle East and Asia have eased back on this run up to $1,530/oz in gold and we will need to see a more sizeable correction for them to come back in a big way," said Tom Kendall, vice president of commodities research at Credit Suisse.

However, confidence in gold's longer-term prospects remain high.
A European parliamentary committee voted unanimously to allow clearing houses to accept gold as collateral, bringing the metal closer to use as an alteranate currency. Although the measure has yet to be approved by the European parliament and the Council for the European Union, it's a step forward.

The weekly initial jobless-claims number came out, rising 10,000 to 424,000 for the week ending last Friday and confounding expectations for a mild decline. The number for the prior week was revised upwards by 5,000 claims. However, the total number of claimants receiving unemployment compensation dropped to a two-year low. Of more import was the Q1 revision for U.S. GDP growth. Despite expectations for an upwards revision, the number remained steady at an annualized 1.8%. Consumer spending growth was revised downwards, from 2.7% to 2.2%.

After slumping from around $1,520 to $1,517 when the pit session started, gold shook off its doldrum and jumped on the news. $1,520 was cleared easily. As of 8:49, the spot price was $1,523.60 for a drop of $2.20 on the day. The Kitco Gold Index assigned -$12.30's worth of change to predominant selling and +$10.10's worth to greenback weakening. The U.S. Dollar Index broke through the bottom of its range on the news, plunging to almost 75.35 before bouncing back. As of 8:51, it was still boucing at 75.40.

Gold did have a rough time in early morning, but it managed to best $1,520 again on the GDP news. Since it had put in a fair gain before its tumble, the loss on the day turned out to be not that bad. This regular-trading stretch may be volatile, but gold has a good chance of keeping its head above $1,520 when the day is done.

Wednesday, May 25, 2011

Gold Ends With Miniscule Loss, Outpaced By Silver And Oil

Despite breaking above $1,530 on a weakened greenback, gold didn't hold onto its gains for today; it closed on the downside but almost even. With this action, it differed from two other commodities more linked to economic performance. WTI crude oil jumped two dollars in regular trading to close at a little above $101, while silver continued climbing strongly: it gained more than $1.25/oz. The rebounds in both are the result of an impression that commodities in general have been sold off too much, which gold did not participate in because it cratered far less at the beginning of this month. The safe-haven demand that exists for the metal is still tepid, while more industrial-related commodities are rebounding smartly.

Gold started off regular trading with a slump from the high 1520s to $1,523. After rebounding at 9 AM ET, it then fluctuated between $1,526 and $1,529. A weakening greenback induced the metal to run up to a daily peak of $1,533.50, which was reached at 11:45. From that peak, the metal was hit by a selling wave that pushed it back down to $1,523. A slight recovery in the greenback was only partially responsible for the tumble.

After that sell-off proved to be overdone, the metal entered into a range between $1,525 and $1,528. It was tested on the low side a few times, but it held up. By the end of the session, the metal had drifted to the low end of the range and long given up its gains from the morning. As of the close, the spot price of gold was $1,525.80 for a drop of $0.30 on the day. The Kitco Gold Index split the loss into -$0.15 for predominant selling and -$0.15 for a strengthening greenback.

Gold's six-month chart, from Stockcharts.com, shows that today was a wash:

Today's slight decline put an end to the last three trading days' gains. I thought that the metal's Moving Average Convergence-Divergence lines, found at the bottom of its chart, would make a bullish cross today. They didn't, although they was close. After its recent gains, given that its short-term uptrend is weak, today's pullback wasn't all that disappointing. Gold did break $1,530, but it failed to hold on. As a support level, $1,520 was not breached.

As for the U.S. Dollar Index, it managed to pull up to 76.15 early on in regular trading but sunk to below 75.75 between 10:25 and 11:50. After doing so, it recovered partially but had trouble geting up above 75.95. In later afternoon, it settled around 75.9 and drifted. As of 5:15, it was still drifting along at exactly 75.90.

Its own six-month chart, also from Stockcharts.com, shows its early-morning recovery cancelling out:

The Index's pullback in yesterday's and today's trading is little more than a dip in a still solid intermediate-term uptrend. Although it's weakened recently, and despite the fact that its long-term trend is downwards, the safe-haven demand for the greenback due to the Eurocrisis means there's a good chance the Index will pull higher. Unfortunately or no, the U.S. dollar is still getting the bulk of the safe-haven demand. It hasn't challenged 76.5 yet, but there's still a good chance it will by the end of the week.

Despite being outpaced by other commodities like silver and copper, gold is still doing well given the greenback's strength. If the script for this flare-up of the Eurocrisis follows the original from last year, safe-haven demand will go largely to the greenback at first. Only later did gold pick up the bulk of safe-haven buying. This current flare-up might not last that long, as a bailout mechanism is already in place: if so, then the greenback will likely sink. Gold's weak short-term uptrend may turn into another consolidation.