more articles by

Jon Nadler


Click to enlarge Click to enlarge

 

Daunting Dhanteras

By Jon Nadler       Printer Friendly Version Bookmark and Share
Oct 15 2009 9:54AM

www.kitco.com

Good Day,

We saw the first more substantive drop in gold values in quite some time this morning. Gold spot prices have touched a low near $1045 in the hour immediately following the NY market’s opening. A bit of stability in the USD (trading near 75.55 on the index) and a small dip in crude oil (last seen at $75 per barrel) contributed to the emergence of profit-taking, but the overriding component in this morning’s roughly $13 drop (some $10) was attributable to predominant selling of the metal. Fund selling and worried miners and gold lessors (in RBC’s opinion) looking at evaporating fabrication demand have all added to stop-loss action and might play a role in coming days as well.

Gold has now managed above-$1K daily finishes since the first of the month, and has done so absent any significant retracement, consolidation, or profit-taking. The sole culprit as well as the sole catalyst here remains the USD – which, while obviously oversold, is not benefitting from any concrete official support aside from last week’s verbal nods and scattered Asian central bank buying (those were good for about 1 percent’s worth of a ‘rebound’). The situation has engendered calls for a 50 yen / dollar target and for $1200 gold as part of Santa’s bags of gifts this year. To be continued…

New York spot gold prices commenced trading on a down note this morning, with the yellow metal showing a $12.30 per ounce loss in the first few moments of action. Silver fell a quite substantial 44 cents at the open, and was quoted at $17.44 per ounce. Platinum lost $21 to start the session at $1338.00 an ounce, while palladium dropped $4 to $323.00 per troy ounce. Poor auto sales numbers certainly did not lack from the underlying factors that motivated noble metal sellers this morning. On the US economic front, we have a mixed bag once again. What else is new?

Initial jobless claims fell to the lowest level since this year began, while the Empire State Factory Index jumped to a 5-year high. Nice news, that. However, more importantly to those who have been overloading on gold with the Weimar spectre plastered on their foreheads, US inflation not only does not show signs of being a problem, but it actually shows that general price levels fell by 1.3% over the past 12 months.

Capacity utilization shows a yawning gap, wage pressures are nil-to-lower (!) while the ‘naked’ printing by the central bank / Treasury shows no signs that it has found its way into the lending pipeline. Banks are sitting on the money and not letting it go. Money supply (M2) is contracting. But, we are still being offered postcards from Harare as seen from New York (any day now) by newsletter vendors afflicted with near (or is that far?) sightedness. Oh, well. Nothing new on that front, either.

The breach of the $1050 level might engender additional liquidations in coming hours, however current support is thought to be found at near the $1030 level – should it be approached. It’s all about the dollar still, and will remain the case for the foreseeable future. The mountain of speculative, leveraged long positions looming over the NY market still presents plenty of questions and has more than one analyst fretting about the eventual outcome.

Holdings in SPDR Gold Trust (GLD 103.11, -1.07, -1.03%) , the biggest exchange-traded fund backed by physical gold, stood at 1,109.31 metric tons Wednesday, unchanged for a sixth session. "Notably, the price gains of the past few days were not accompanied by meaningful inflows into gold ETFs," said Carsten Fritsch, an analyst at Commerzbank. "In view of the large amount of speculative net-long positions, the risk of a correction is increasing."

On the Comex, net long, or buying, positions held by speculators rose to a record high of 239,668 contracts in the week ended Oct. 6, according to the latest weekly report by the Commodity Futures Trading Commission. On the technical side of things, the picture is still worth a thousand (okay, a thousand and fifty) words but we will just concentrate on the words offered by our analyst friends over at GoldEssential.com:

The recent record-chasing run-up has seen $1,070.40 an ounce printed as the latest all-time record high, thereby also pushing RSI-readings into firmly overbought territory. Some top-formation has been witnessed over the last few sessions, as price action has had to increasingly fight off profit taking attempts on stabs higher.

Wednesday’s (14 Oct) daily candlestick is seen as a valid spinning top structure, which – in combination with the record high setting -, is seemingly indicating that a short-term cool-off period is in the making. Technical support at $1,053 an ounce has been violated on Thursday, which has opened for some additional weakness to just below $1,050 an ounce.

Further downside – or a daily confirmed close below the $1,050 mark – is eying decent support at $1,048 an ounce. A breach below this level would confirm that a deeper correction could be underway, with a target set at $1,032-$1,030 an ounce. Interim support is still at $1,043-$1,040 and $1,036. Conversely, a push back above $1,055 an ounce resistance puts $1,059-$1,060 and $1,062 an ounce back into the picture, although we note that resistance ahead of the initial level is mounting.

Above $1,065 opens for a re-test of the $1,070 resistance mark and eventually the channel top of $1,076 an ounce. A daily close above the $1,065 mark is needed to convince that chances for a short-term correction scenario would diminish.?

The metal had already declined in earlier trade as investors cashed in gains amid concerns a rally which took the precious metal to a record $1,070.40 in the last session was overdone. "I wouldn't be at all surprised if towards the end of this week we started to get some more meaningful moves on the downside," said Simon Weeks, head of precious metals at the Bank of Nova Scotia."There is a lot of open interest on the speculative side, ETFs are holding very high inventories but not actually doing anything significantly further, (and) producers have pretty much all bought back (hedged positions)."

As such, the Thursday decline could not come at a better time as far as potential buyers in India are concerned. Today’s calendar marks the traditionally biggest day for gold sales in the country. Loc

Under normal circumstances, as much as 20 tonnes of the yellow metal finds its way into shoppers’ hands as a symbol and harbinger of prosperity on the occasion of this festival. India’s womenfolk and countless temples are thought to be hoarding as much as 15,000 tonnes of gold (482 million ounces of metal valued at over half a trillion dollars) or about 10% of the total stocks of above-ground gold. The country currently consumes two, or three times as much bullion as China does. More importantly, India is also sitting –literally- on approximately 20,000 tonnes of untapped underground gold reserves. In recent months, the Indian government has shown concerns about the country’s overdependence on imported bullion for satisfying internal demand.

Given this year’s stratospheric gold prices, the throngs of window shoppers in India might turn into actual buyers only provided they hunt for smaller pieces. Local dealers have been focusing on one and two-gram coins and the traditional premia associated with the purchase of fabricated items appears to be largely absent from price tags around India’s bazaars.

Reports received thus far today, appear to suggest that shoppers are indeed, biting. Not only the gold they are testing, but likely their tongues as well as they reach for the pocketbook – and heeding the calendar more than the 1,600 rupee per gram price tag attached to various small, shiny coins and other objects. Silver sales (at 875 rupees per ounce) could be the ultimate beneficiary of the spike in gold as Indian women are becoming increasingly attracted to the less costly white metal.

No such problems are in evidence over at Harrods London department store, however. A teaming up of the glitzy British retailer with Swiss-based PAMP refiners is now enabling well-heeled Londoners to step out of their Rollers and snap up a hefty 400 ounce (12.5 kilo) bar off Harrods’ shelves if they feel their wealth is being threatened. Back up the hand-truck, Jeeves.

Until later,

Jon Nadler
Senior Analyst
Kitco Bullion Dealers Montreal

 

****

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.