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.

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.