Gold starts new week in the red

Good Morning,

Gold prices opened weaker on Monday, after breaking the lower end of the $1,345-$1,355 overnight range in early trading. Spot gold was quoted at $1,343.30 at 8:20 NY time and it subsequently dipped to just under the $1,340.00 mark as a rise in the U.S. dollar and a slippage in crude oil prompted additional selling. Silver opened with a 7-cent loss and a quote on the bid-side at $23.15 the ounce.

Similar profit-taking conditions pushed platinum prices lower by $18 (to open at $1,683.00). Palladium remained resilient, not shedding any value initially, and opening at $584.00 the troy ounce. Most of the decline in gold values –as seen on the Kitco Gold Index – was due to active selling by speculators and only about one dollar’s worth of losses were attributable to the slightly higher (at 77.24 on the index) U.S. dollar.

Could it be that Friday’s knee-jerk bounce was in fact a head-fake and that Thursday’s decline was possibly the start of a long-overdue correction of an as-yet-unknown magnitude? Not by some market metrics, but the level of nervousness is on the rise with record-high bullishness percentage levels defining the speculative crowd.

The TimesLive of South Africa notes that “As it is, the usual gold bugs are predicting Armageddon and calling prices several multiples of current levels so long as U.S. budget and current account deficits are not addressed; gold coin dealers are egging on the innocent to buy with predictions of fabulous profits to come.”

However, the paper also cautions that “According to strategists at Barclays Wealth and Commerzbank, rising gold prices have been self-feeding or self-sustaining. They have created their own momentum. And ETF buying has been partly responsible for the gold ‘bubble.’"

“The gold market, it is argued, is close to a tipping point, at which millions of individuals offload their gold investments because there is little prospect of further price rises and because interest rates (and, therefore, the cost of holding gold) inevitably rise. Recently, Barclays Wealth apparently suggested to clients that SPDR shares be shorted as a precaution against a gold price fall.”

At least two icons of hard-money investing let certain words that can only be interpreted as ‘rising caution’ slip into their vocabulary over the past few days. Words such as “good times do not last forever” and “the higher an asset goes, the less I like to buy it” were noted (even as said gurus remain long-term gold bulls). Dennis Gartman made it more obvious than that; he will become ‘interested’ in the market around the low $1,200s level, when/if that comes about.

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