Gold down 6% for year, worst since 1997

Monday evening’s spot metals prices closed with solid losses across the complex. Gold fell to $1,334.50 after hours, losing $7.90 per ounce. Silver dropped 58 cents to end at the $26.95 level on the spot bid price scale. Platinum lost $13 to finish at $1,813.00 while palladium ended down $11 at $810.00 the ounce. Rhodium finished at the round figure ($2,400.00) after being static for the day. All of the above unfolded despite a slightly lower US dollar (down 0.10 on the index, at 78.02) but the 108-point surge in the Dow may have contributed to the on-going long liquidation in metals.

Tuesday morning’s start to the market action brought…more of the same. Gold fell $7.50 out of the starting gate, trading at $1,327.00 per ounce, after first having slumped to a fresh three-month low near $1,321.70 on the bid side overnight. Silver dropped 22 cents to open at the $26.73 mark per ounce, it too, having first visited the lower end of the price scale at $26.55 during the wee hours. The “round” figures ($1,300 and $25) are being mentioned a bit more often now as potential to-be-visited support levels. However, before that happens (if it does) we are told to brace for more volatile action in the markets.

Platinum was off by $32 this morning, showing a bid-side quote at $1,781.00 the ounce, while palladium lost a hefty $29 to open at the $781.00 level per ounce. No change was reported in rhodium prices from our New York sources. In the background, the US dollar continued to make progress to the upside, rising 0.32 to the 78.34 mark on the trade-weighted index.

Crude oil fell by $1.20 per barrel (last quote: $86.68 pbbl) as technical selling signals offered some participants a chance to do just that; sell. Sell they did; bringing black gold down to an eight-week low as fears that OPEC will bump output up and that US inventories gained roiled the market for that commodity. As for copper, expectations of $11K/tonne orange metal have also been…scaled back just a tad, with technical analysts now projecting a possible dip to the $9K/tonne level before any resumption of the upward trend that has been fueled by perceptions of net deficits in the metal.

The outflow of fund money has shown that it can take a toll on previously overheated markets, to be sure. Just as gold undergoes its worst slump in value (-6.0%) for the start of a market year since 1997 (!), the data supplied by the CFTC shows that hedge funds (our favorite finger-pointing target for the past three years) are still bailing out of bullish gold positions, and at quite a clip. What clip is that? How about a 21% decline in net-long gold and a 24% drop in net-long silver positions since the end of December? That kind of “clip” (not on the menu at Supercuts).

Friday’s glimmer of hope – offered by a sizeable inflow into gold ETFs – unraveled rather quickly on Monday, when the same investment vehicles ended up shedding some eleven tonnes of the yellow metal. This is not holding up very well as a continuing argument for “profit-taking” and/or “asset re-weighting” any longer, even if the “correction” has not yet reached the (rather small) ten percent level (as yet).

Surprising it is to hear that Goldman Sachs now believes (as this author has already opined) that the decade-long gold bull cycle could now top out in the current year, as opposed to the next one. The scaled-back forecast (time-wise) is largely due to…you guessed it: the rising US interest rate environment. More on that “little” topic of potential…interest (groan), further below.

Apparently, it is not just the visible part of the speculative crowd (yeah, those pesky funds) that is cutting exposure to gold as a safe-haven. Said havens appear to be safe enough for the average investor to have commenced thinking about just how much protection a portfolio is in need of, absent the failure of the skies over Europe or America to have fallen to the ground.

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