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.