Gold trading sideways as dollar recovers

Good Morning,

The US dollar recovered from the eight-month lows it touched on Monday, rising another 0.22 this morning to reach 77.73 on the trade-weighted index. Such a bounce helped dent crude oil values somewhat more as Tuesday trading got underway (down 86 cents to $81.35 per barrel) and it took some of the energy out of advances in copper prices (down 1% this morning). Fed meeting minutes will be subjected to minute parsing later today, in a forward-looking-backward-glance attempt to guess what the US central bank might have up its sleeve come November.

Although similar patterns were becoming manifest during the late afternoon hours on Monday, they did little to staunch a recovery from the morning lows seen in the gold and silver markets. The yellow metal finished 60 cents from the top end of its Monday range, (at $1,355.50) after having paid a few milliseconds’ worth of a ‘corrective’ visit to the sub $1,340.00 area. However, bullion retraced steps to the $1339.90 marker in early Tuesday action, with a $13.00 drop on the back of the aforementioned stronger greenback. Market opening levels had gold quoted near $1,345, silver still above $23.15 and platinum and palladium off by $3 each art $1,679.00 and $583.00 per ounce.

Marc Faber apparently shifted gears all of a sudden and declared that the US dollar and interest rates will both begin to rise within the next 90 days. The world is heading for a ‘major inflection point’ he said, as he then advised an audience ready to hear more doom and gloom from the original doom & doomer to…get ready for a …boom – in stocks (!).

Curiously, no mention was made of what gold might do in an environment of rising interest rates and dollar values (though we know what it ‘normally’ does under such conditions). Surely, $2K gold is still in his visions? After all, so is $X-thousand gold in others’ crystal balls. X= pick a number, any number, and then spin the wheel.

Ultra-bullishness in gold and corresponding super-bearishness in the US dollar (Marc Faber now excepted) remains the overwhelming order of the speculative trading day, but that kind of unanimity in sentiment raises certain…questions (addressed in this MarketWatch video by Barron’s contributor Mike Santoli). The bullish percentages (even higher at 98% in gold and 97% in silver than those noted by Mr. Santoli) confirm that which we pointed out in Monday’s article; namely, that they are at unsustainable extremes.

The greenback’s slump (and expected further erosion on the heels of a yet-to-come easing) has been the single most identifiable catalyst for the feeding frenzy in certain ETFs that are geared towards emerging markets, commodities, and precious metals. In the case of gold and silver, pretty much the only identifiable factor. That is precisely the type of finding that should raise concerns, but is falling on bullish-inebriated ears. Such type of ‘hot’ money can, and does, move at warp speed when conditions appear unfavorable to those who direct its flows. Look no further than last Thursday’s mini-meltdown in metals amid spiking volumes in the GLD.

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