Gold still points toward lower levels

Good Morning,

The extended break from trading came to an end this morning as market participants returned from one set of fireworks hoping that they would not witness a return engagement of same in the markets they follow. The US dollar weakened somewhat, the euro gained a bit of additional ground, and European and Asian shares rose.

Gold prices spent Monday’s overseas sessions on the defensive and although a bit of a recovery was attempted prior to the opening of the NY session this morning (spot prices climbed as high as $1214 in early dealings), the tilt in the market appeared to still point towards lower values as trading resumed. Gold may yet “slip” to $1,172.10 after closing below its 55-day moving average.

So says Axel Rudolph, a technical analyst at Commerzbank, who, in a July 2 report citing technical trading patterns wrote that “the dip [beneath the 55DMA] "makes us question our previously bullish forecast." Commerzbank remains bullish on gold for the medium-term provided that the support line near $1158 is not demolished in a sell-off scenario.

Another Commerzbank analyst, Eugen Weinberg, observed that “most of these [recent gold] purchases were driven by fear, and fear seems to be leaving the market…and it appears measures by the ECB are enough to hold the crisis for the next month.’ Mr. Weinberg’s firm still envisions a possible $1,300+ gold price, come Q4. A scenario for that price development was not offered. Probably safe to assume it has to do something with the euro crisis re-igniting however. TD Securities over in Toronto envisions a $1.08 euro by the end of this year…

New York spot precious metals prices opened mixed, on this, the two-year anniversary of the date when a major slide in various assets began to take its toll on the markets and on investors. The liquidation wave eventually grew into a tsunami and culminated with the Lehman collapse and the near ‘breaking of the buck’ events in the fall of 2008. Gold was not immune from the frenzied quest for cash that summer; it fell from its March 17 high of $1035 to the $680’s by October of that year.

Spot gold started the session at $1205.50 the ounce, down $3.40 this morning. Shortly after the open, the yellow metal sagged and tested the $1200 psychological support level once again. Closing beneath the $1195 area could usher in more weakness in the precious metal. Silver showed no change, opening at $17.81 per ounce basis spot bid. It too, suffered chart-based technical damage during last week’s sell-off.

At the time, reference was made to the ‘very few’ who range the alarm bell on a possible sell-off in the making. We identified Active Trading Partners’ David Banister as one of the cautionary voices. However, also not to be overlooked are the June 24 and June 29 analyses from HardAssetInvestor.com, written by Brad Zigler. While neither author argues that the gold party is finished, they make observations that –at least for some who trade the stuff actively-have proven valuable.

If you prefer your gold-oriented decibels at a more moderate, but still quite ‘loud and clear’ level you have no further to look than Amazon.com, or Wiley & Sons for that matter. They both carry the newly published book by Jim Gibbons entitled “The Golden Rule.” The book is a compendium of two dozen essays about gold. Jim’s book answers many questions, including: How do you purchase gold and in what form? Why gold now? When should you buy? And, most importantly, from whom? Throughout the book, Gibbons puts gold in perspective and shows you why it belongs in every investor's portfolio.

Platinum and palladium each gained $6 per ounce at the open this morning, with the former starting at $1513.00 and the latter opening at $435.00 while rhodium was quoted unchanged at $2430.00 an ounce. Eskom’s union workers agreed to a 9 percent pay hike offer even as other unions (representing state workers) threatened to stage strikes within two weeks. Still, it appears that –for now- neither the World Cup nor mine output in the country will be disrupted by labour action.

Indian buyers made a more-than-tentative return to the local gold markets in the wake of recent price declines. Stockists and local bank bullion desks were delighted to be able to tell tales of hundreds of kilos leaving the shelves at $1210 and under per ounce as buyers appeared to stock up for August festivals

Over in Beijing, China’s State Administration of Foreign Exchange fired back at domestic and overseas critics of its policies this morning. The agency defended its allocation strategies and pointed to a clean investment record; one that managed to avert hefty losses during the global financial crisis.

Reaffirming that it is not in the habit of making rash decisions based on the wishes and perhaps agendas of others, the agency stated that it envisions Europe making it through the crisis, and that it is not fretting about what might happen should the US dollar return to a period of relative weakness.

In so many words, SAFE does not fear paper (unrealized) losses as it would only have to mobilize any held assets under dire circumstances (global war, a mega-crisis, etc.). Internet forums and ill-informed commentators can now go back to that which they do best: propagating urban myths. Of course, the mere fact that SAFE has spoken and that it said what it said, will be characterized as ‘propaganda’ or as something intended to mask the ‘real’ position of the agency.

Happy Trading.

Jon Nadler is a Senior Analyst at Kitco Metals Inc .North America

About the Author
Jon Nadler Jon Nadler is a Senior Analyst at Kitco Metals Inc. North America
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