Gold feeling pressure of increased volatility

In the Lead: “BOWLing Green in Gold Alley“

Speaking of premia, a very interesting couple of e-mails came our way in the past 24 hours from…India. While the overt PR remains in favor of characterizing Indian demand for gold as “insatiable and inexhaustible” there are those “on the ground” so-to-speak, who describe the situation as…a bit different. Certainly, one must question a characterization of a market when (as noted in yesterday’s piece) the actual tonnage data is less than reliable, or accurate.

One reader from Surat, notes that “this [town] is where majority of the diamonds get worked on before shipping out to the rest of the world. It is one of the wealthiest city [sic] in India.” As for “insatiable demand regardless of price” the reader relays that “as I have talked to my friends and family that are in Jewelry business in India, gold buying has slowed down significantly at these prices. So I am not sure how record number of gold buying adds up. Majority of the gold in India was bought by the people during these wedding seasons. However it has been cut in more than half at these prices.”

Another long-time reader (and Managing Director of a large New Delhi-based chain of jewellery stores) of these posts observes (and this was copied verbatim) that his child’s teacher has adopted all of the new, conventional “wisdom” being disseminated in connection with gold these days and is convinced that “the gold price would increase to $3000/troy oz. Amongst the reasons were “demand in the market, tool against inflation, countries moving towards the gold standard again” etc.

For now, the markets are basically looking a few days down the road and are setting the stage for one camp or another to show disappointment regardless of the Jackson Hole, Wyo. speech content to be delivered by Mr. Bernanke. As of this moment, it should be evident that some mighty large bets have been placed on the gambling table in the box that reads “asset inflation” and that such wagering has already shaped the “superbowl” seen in certain of the price charts being alluded to in the aforementioned Elliott Wave market diagnosis.

CPM Group’s analysts have remarked that “some precious metals traders could wait to see how this week plays out before coming back into the market. Gold’s recent move to near $1,900 an ounce is more technical-chart driven than based on fundamentals.” Such a move, based on such metrics, and over the extremely short period of time within which it has taken place “could leave it vulnerable to a break – Futures and Forex broker PFGBest’s Mike Daly notes buying gold up here [at or near $1,900] as “scary.”

Here is something else that – if not outright scary – should give some food for thought or at least pause for some: What is the world’s largest ETF? Who has nearly $77 billion in assets? Who knocked the S&P 500 SPDR out of its well-built long-time web? The GLD. What ETF is dragging along at the bottom of a list of the 25 largest (by assets) ETFs? Vanguard’s REIT ETF. Now there’s a flip if you have ever seen one. Just as long as you keep in mind that everything (including life itself) is a cycle of tides. Also, curiously, (for some very tellingly and giving quite a “signal”) the dog-house REIT fund is in close proximity with the …GDX. A symbol that is all too familiar to visitors of these here pages.

Until tomorrow,

Jon Nadler is a Senior Metals Analyst at Kitco Metals Inc. North America

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About the Author
Jon Nadler Jon Nadler is a Senior Analyst at Kitco Metals Inc. North America
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