Gold gives up gains as dollar stops descent

In the Lead: “Advantage Minus”

Half of Monday’s gains in gold and all of the advances in silver were given up in New York this morning by the two precious metals as the US dollar stopped declining and as crude oil fell back about half a dollar. Yesterday, the markets (most of them) surged on the back of renewed pledges by French and German leaders to support and to strengthen Europe’s banking sector.

Rising risk appetite lifted…everything once again, as investors wet out to buy stocks, commodities and even (!) the euro. However, this morning’s sentiment was tempered despite indications that Greece might receive its first tranche of funding soon. As well, rumors that the EFSF’s revamping plan might not make it past the Slovakian (!) parliament threw of a bit of cold water on Monday’s rising risk-taking temperatures.

The ECB’s Mr. Trichet warned that threats to the region’s financial fabric have reached “systemic dimensions” and that the problem must be tackled head-on. Thus, with the debate boiling down as to whether investors might have to take haircuts ranging from the original 21%, to 50% and now to 60% (or, likely, more) and the “Merkozy” plan to end the banking crisis not slated to roll around until the end of the month, we are back to jittery markets and the by-now-routine see-saw patterns in most assets.

Spot gold dealings opened with a loss of $18 per ounce and a bid-side quoted at $1,658 while silver dropped sixty cents to the $31.44 mark in early dealings in New York. Gold’s safe-haven attributes have once again been brought into question in the wake of such scary day-to-day “gyrations” as we have been witnessing all summer long. In any case, an 11x valuation on gold versus its 1977 price is certainly raising some eyebrows and has led to some interesting computations by this Seeking Alpha contributor.

Futures Techs technical analyst Clive Lambert illustrates the chipping away of gold’s historical safe-haven attributes based on the recent divergence of its weekly and daily price charts. While he does not identify the culprits (we say it’s the funds) for this development, he does bring several price points into focus; ones we might be well-advised to watch. Mr. Lambert also pointed to $1,200-$1,300 as potential downside targets for the yellow metal, should the supports at $1,585 and then at $1,535 be breached.

On the resistance side, the targets to demolish remain the $1,685 and, more importantly, the $1,705 number; the breach of which apparently resulted in the sell signal in gold and the double-top having been identified. Platinum and palladium drew closer to their respective round-figure pivot points at $1,500 and at $600 by sliding $12 and $16 respectively. The former was quoted at $1,511 and the latter at $599 the ounce. Japanese machine orders figures will be in the pipeline today and platinum-group market watchers will try to ascertain what the data reveals in terms of the progress of the recovery of that nation’s automotive industry.

Rhodium remained unchanged at $1,725 on the offer side. In the background, black gold was sitting at $84.91 per barrel and the greenback advances 0.15 on the trade-weighted index to rise to the 77.78 level while the euro attempted to hold on to the $1.36 quote against it. Remember the topic we brought you on Friday regarding the warehousing of metals and potential conflicts of interest by owners of such facilities?

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