Gold starts week down on Fed uncertainty

Good Morning,

Additional declines were noted in gold prices during the overnight hours as the emergent resurgence in the US dollar helped prompt additional profit-taking on the back of that already having been witnessed last Friday. The yellow metal appears poised to retrace some of its recent chart steps all the way to possibly the $1,327.00 level, according to analysts at Barclays Capital.

This, as bullion failed to hold the record $1,387.00 mark and then broke its previous channel high at $1,368.00 the ounce. Barclays team notes that so long as gold manages to remain above $1,300.00 and its 10-week trend line, the bullish tilt would remain in place.

Similar observations were tendered regarding silver, this time by GFMS’ Chairman Philip Klapwijk, at a conference in Shanghai over the weekend. He noted that the silver market remains in a substantial surplus position even as investors continue to mop-up the excess tonnage in the marketplace, and that – in his view – “silver is likely nearing a top now, and that is has more downside in the short-term than upside.” GFMS remains bullish on the white metal in the long-term.

Speaking of China, the country’s Ministry of Industry and Information Technology announced over the weekend that gold production will likely rise to 340 tonnes in the current year, to record an 8% gain over last year’s output levels. China remains the world’s top producer of the precious metal and shows no signs of having trouble with the putative ‘peak gold’ conditions that have been warned about (mainly by hedge fund managers) during gold’s climb towards current levels.

On the other hand, the US dollar’s current depressed levels have apparently begun to worry a handful of countries’ finance ministers. As said ministers, along with others, gather in Seoul, some currency analysts expect some type of ‘calming’ statement to emerge and give the markets an opportunity to at least pause before the Fed finally makes its next policy step clear(er) come November 3. Whether or not they will be able to patch the emergent row on currencies over in the South Korean capital remains to be seen.

Speaking of “Seoul-searching” the country’s head of the Bank of Korea, Mr. Kim Choong-soo, said this morning that his institution might consider placing part of South Korea’s foreign exchange reserves into gold but “cannot help but be cautious about investing in gold because of its high price volatility.” Evidently, the Governor has not been reading many a bullion-bully website that dismisses such caution as ‘lunacy.’

This, even as the Aden Forecast notes that (while it still allows for even higher values) “the gold price is turning parabolic” while also observing that “despite all the reasons why stocks shouldn’t be rising, the fact is they are.” Chalk those two strange and in-tandem-performing bedfellows up to hedge (fund) hogs, say we.

Currently, very little attention is being paid to the fact that the day prior to the Fed meeting, mid-term elections could alter not only the makeup of the US political scene but also impact the willingness to throw more money at a problem (chiefly unemployment) that is probably not likely to be cured by the same.

Market participants take the Fed’s signal that it might want to ease by buying assets with ‘naked money printing’ of the type that is sure to bring [the] Weimar [Republic] to Washington. Perhaps a little “Crises of Capitalism 101” should be mandatory viewing for all those who are trying to lay blame so nonchalantly on certain parties at this juncture.

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