Gold brushing record highs

Good Morning,

Overnight gains in precious metal prices brought gold within striking distance of its June highs as the yellow metal entered its 50th week spent at above $1,000 an ounce. Some media reports assigned the climb to the $1,255.00 level as due mainly to concerns about economic growth. Virtually at the same time during the night, we were treated to headlines announcing that stock futures rose due to an easing of economic concerns. Stop us if you too are befuddled by some of the things you run across in your morning reading.

At any rate, the malaise about global economic growth took a breather overnight as news of a rebound in Chinese manufacturing activity – following a multi-month slippage – and of a surge in Aussie economic growth prompted investors to once again consider risk assets. And now, for the hard(er) part: upcoming US data and what it might do to such budding positive sentiment.

ADP’s private sector employment figures were on tap this morning, and they revealed a decline of 10,000 positions in the month of August. The addition of 30,000 jobs in the service sector was offset by a 40,000 position fall in the manufacturing sector. While the net number may appear small, at the end of the day it represents the first such drop after a six-month string of gains. The news release failed to dent apparent bullishness in stock index futures, but the markets were still awaiting ISM manufacturing and construction spending data, as well as auto sales figures.

Gold opened the midweek session with a $5.70 per ounce gain, quoted at $1,253.40 per troy ounce basis spot bid. The rise in gold took place as against a sizeable, safe-haven-position-unwinding-based slippage in the US dollar (down 0.63 to 82.47 on the index) which accounted for a true increase of $10.30 per ounce in the metal at opening time.

The differential and net gain was accounted for by predominant selling in the physical market (to the tune of a $4.60 decline) noted at the same time. In other gold-related news, Indian buying remained muted overnight as near-record prices made for scarce shoppers in local bazaars according to our sources, Russian (central bank) buying largely offset IMF selling for the month of July (16.2 tonnes versus 16.85 tonnes), and ETF holdings grew by almost 4 tonnes amid the latest rally in prices.

Some will, of course, not at all fail to notice this other bit of news, which, according to the Street.com, announces that “JPMorgan (JPM) will close its commodity proprietary trading desk to meet with the recent financial reform law. Its prop desk is in London and it's unclear as to how its absence in the market will affect the gold futures market.” Manipulation forums-it is reported-are despondent about the fact that fingers will no longer be able to point to JPM and its sinister, putative interventions into the gold market (at the behest of Uncle Sam, no less).

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