Gold retests $1,800 on a rising U.S. dollar

In the Lead: “My Computer Did It”

The new trading week got off to a fairly rocky start in the precious metals’ complex this morning as slumping equity markets and a stronger US dollar sapped more value and bullish enthusiasm from the sector. Spot gold was down about $40 near the $1,820.00 per ounce level ($1,800 appears to have come into play once again) while spot silver lost about 75 cents to trade near $40.60 the ounce.

Platinum and palladium were not spared in the sell-off, as the former fell $23 to ease to the $1,807.00 level and the latter declined $21 to reach $715.00 on the bid-side. Platinum-gold parity has once again shown up on the investment radar and some investors appear ready to take advantage of the (rare) occurrence. Do note that on Wednesday at 2:00PM New York time, Kitco News will be webcasting the CPM Group Platinum-Group Metals Seminar; an event at which yours truly will address the investment demand and patterns in that niche in recent years. You may sign up to attend the event right here:

Gold has tested the sub-$1,820 area this morning and some technicians have opined that it may well fall beneath the $1,700 mark (near $1,680) prior to attempting an assault on the $2K mark, later in October. On the other hand, a more sizeable correction of from 28 to 35 percent (something that the yellow metal has not experienced since 2008) could bring values down to anywhere from $1,250 to $1,380 the ounce, were it to occur once again.

Either scenario would continue to yield very choppy and unsettling patterns in the so-called “ultimate safe-haven” as the presence of hedge funds makes for a potent and flammable brew in this market. Computer-driven programs have already manifested their influence over bullion’s value in both directions during most of last month as the aforementioned speculative entities dove in and out of the market amid the worsening European situation and following the S&P downgrade of US debt. Many a fund came through the market storms of August thanks to their nimble moves in and out of the gold market at a time when equities offered little more than loss propositions almost on a daily basis.

However, most everything has a flip-side to it. Validating our concerns that the influence of hedge funds is stripping away at least one of gold’s long-standing attributes (stability in the face of fluctuations in other asset classes), one Singapore-based wealth manager said that “Gold has become a very volatile asset class so if you’re good at trading through the volatility you can profit from it.” That’s a fairly big “if” for most small, retail-sized investors, to be sure.

A Japanese hedge fund manager cautions that, “Continuing to be overweight gold, or holding more bullion relative to benchmarks, to boost performance might not be prudent. Betting on gold only just because the mandate allows you to do so may be too risky. If you are looking for a mid-to-long-term gain, you should be diversifying your assets; after all, gold is just one of many asset classes.” As of late last week anyway, many of the aforementioned players appeared to be increasing their speculative long positions in gold and silver. CFTC data released last Friday shows that net spec longs in gold experienced a gain in numbers after their ranks fell for four straight weeks previously.

In the background, more contradictory positioning was also taking place in other commodities. Crude oil prices fell initially, reflecting concerns that the protracted European debt situation will put an unwelcome damper on regional growth. Check. However, spec funds, at the same time, increased their bullish bets on raw materials largely based on the bet that the Obama jobs stimulus plan would boost demand for assorted “stuff” when and if it goes into effect. Check, too. It is true that most analysts estimate that as much as 2 points might be added to US GDP levels if the $447 billion jobs package manages to see the light of day as opposed to getting gutted (or worse) by the GOP/Tea Party warriors in the US legislature.

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