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Good Afternoon,
The bullion market showed some signs of mild profit-taking after yesterday's valiant attempt at overcoming $915.00 brought its RSI to near 90. While this is not nearly as sharp of a pullback as could be expected, and another run to the upside is still possible, but the market is now seriously evaluating the magnitude of the remaining upside potential against the risks that the recent price trajectory poses to its core demand elements. It is also conceivable that an interim top has been put into place near $916 the other day.
The US dollar continued weaker, but only a bit as Citigroup losses for the past quarter were finally quantified (although-even at $18 billion - perhaps not quite fully as yet) and as participants digested this morning's PPI and retail sales figures as they hit the news pipeline. Inflation was showing a bit of moderation last month but did not look too good for the year, while retail sales which were first seen as virtually flat, ended up below expectations, making for the slowest retail season in circa five years. At any rate, retailer stocks were hit and hit hard today, not to mention the overall Dow which lost nearly 200 points on the financial woe news at Citi.
The dollar index showed the greenback at just above the 75.50 mark. Crude oil was lost a whopping $2.78 per barrel to fall to near $91.50 per barrel on the heels of the very thinly disguised pleas by US President Bush to the Saudis to try to take action on production and/or prices. Thus far, his requests were met by a collection of poker faces. Maybe the market speaks for them. If not that, the expectations of a fall-off in demand during the expected contractive phase in the economy (US and maybe global) were surely doing the trick.
Estimates of the Fed action range from an almost certain 50 bp to as much as one full point. Depends on your definition of the word "aggressive." Never mind that: "Mr. Lorenzo Bini-Smaghi, a member of the European Central Bank's executive council, warned yesterday that the tumbling dollar may now start to foreclose the option of US rate cuts and force the Fed to keep monetary policy tighter than it would like. "I would not be so sure about the movements of the Fed. There is a serious problem with the dollar in America. We will see what margins they have for further rate cuts," he told Italy's La Repubblica newspaper." - This, according to the UK's Telegraph.
New York spot gold finished Tuesday's session losing $1.30 and barely hanging on to the $900.00 level (by 60 cents) on the bid side, while traders assessed the aforementioned figures and then proceeded with the business at hand -some of which did involve cashing in a few chips. Silver closed on the downside, shedding 9 cents to $16.20 while platinum declined $14.00 to $1576.00 per ounce. Fears of contracting industrial demand at work.
Hate to tell you that we told you so, but we feared all along that the almighty engine of Indian gold demand might start sputtering in the wake of record rises in the beloved metal. Especially if such gains were not seen as sustainable. Whereas some so-called pundits tried to hammer their cocksure expectations of a 1000 ton 2007 gold demand from that country over our collective heads for months, we now learn that those numbers may well end up being perhaps only half to two-thirds as large. And, it's not just Indian gold demand that is at risk here.
The Economic Times reports that: "India's imports of gold in calendar year 2007 could have fallen by 20 percent due to a surge in prices, the president of the Bombay Bullion Association told the media on Tuesday.
"Indian gold imports may be 20 percent less than last year," said Suresh Hundia. Gold rose on Tuesday and held near an historic high of $914 an ounce hit the day before. In 2006, India imported about 715 tonnes of gold and is the world's largest consumer of the precious metal."
A glance at Reuters this morning also reveals that:
"Record high gold prices have weighed on sales of the precious metal for jewellery in Dubai, deterring buyers and depressing their value by 14 percent for 2007, a top industry executive said on Sunday.
"The market was going really well most of the year, but the high prices we started to see in the last quarter drove buyers away," Tawhid Abdullah, managing director of the Dubai Gold and Jewellery Group, told Reuters.
Insatiable Chindia anyone? Yes, but only at a price. Evidently, not this price. In fact, as we mentioned yesterday, the most palpable effect of the current value of bullion has already elicited a quadrupling in the amount of scrap metal coming to market in India over the past six weeks. The next six weeks coincide with the year's first marriage season in India, as well as the Chinese New Year. Let's hope no one smells...a [price] Rat.
Remain on continued alert for swift and often-shifting currents as this market remains in the midst of a jet stream of fund money and as long positions reveal a tower of nearly 270,000 contracts. [Perhaps pyramid is the better suited word.] Sheer momentum could still aim for $915-$925 but progress shows some signs of anxiety emerging. In the meantime, gold has made its way to the front pages of USA Today and into the cabin of the average taxi in NYC...Draw your own conclusions.
Best Regards,
Jon Nadler
Senior Analyst
Kitco Bullion Dealers Montreal
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Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication. |
