Gold’s safe haven status coming into question

In the Lead: “The [Mining] Wizards of Oz”

The final week of what has been a tumultuous (to say the least) trading month opened on a downward-trending note for certain precious metals this morning. The mere fact that the market did open for business on Monday was a welcome relief to many who had feared that Hurricane Irene was going to leave much of lower Manhattan looking like just another body of water punctuated by high-rise “islands.” Most markets are expected to try to regain some composure this week as the (market and actual) storms that Jackson Hole and Irene represented have now passed and participants can focus on options expiry and the upcoming long holiday weekend.

Economic data released this morning shows Americans spent their money at a 0.8% higher rate in July even as incomes only gained 0.3% on the month. The inflation-adjusted personal consumption metric gained 0.5% in July. Something else that also gained last month was inflation; it climbed by 0.4% as based on the reading of the personal consumption expenditure index. Core PCE inflation readings came in at the 1.6% per annum mark. Thus far, US consumers remain hesitant to single-handedly kick-start the sputtering economy as they keep a wary eye on the stubbornness with which the unemployment level remains above the 9% mark.

Later this week we get a plethora of other important economic news heading our way. Chief among them is not a particular statistic, but the reading of the Fed’s meeting minutes; you know, the one gathering after which the possibility of keeping rates near zero until sometime in 2013 was mentioned for the first time. For the time being, at least one Fed official, Mr. Bullard, sees that conditions in the US economy are not at a juncture where the Fed needs to ease further. No easing on the mind of the PBOC over in China, at all. The Chinese central bank made good on its promise to turn it up a notch on the tightening front as it broadened banks’ reserve requirements to include margin deposits from Sept. 5 forward.

Friday’s jobs report will be a ‘biggie’ as well because some economists fear that there might have been an outright decline in employment in the USA. Add the ISM report on the state of manufacturing activity in America, and you have a complete picture of what’s in the list of ‘coming attractions’ for traders to ponder.

Spot gold dealings started the Monday trading session with a drop of $15.70 per ounce at the $1,813.40 level on the bid-side. Following Friday’s rally that was largely based on anticipation that there is more no-cost money coming in the pipeline courtesy of the Fed, the market finished the trading week on an optimistic note despite the 3% give-up in value that gold tallied overall on the period.

Some of gold’s safe-haven attributes came into question last week when nearly $215 of value was shaved from its price per ounce tag in a matter of hours (48 or so) at one point. Some technicians noted that Thursday’s as well as Friday’s advances in price took place against a background of declining volumes; a not-so-comforting signal.

Others, such as Bullish Review of Commodities Insiders’ publisher Steve Briese pointed to the market’s recent positioning and remarked that “the long side of the vast futures and options market has been in “weak hands [while] the net short position of traders whose business involves dealing in actual gold has been at near-record levels over the past few weeks. In other words, the smart money, while not always right, has been voting with its dollars that gold will fall. It has mainly been the speculators who have been voting for a continued price rise.”

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