Gold continues descent on “bear flag” pattern

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The urgings of “back up the truck, honey!” that virtually exploded in the wake of gold’s $400 slide last month did not appear to resonate all that strongly with the American investing public (which now appears a tad uncertain about its favorite metal’s near-term price prospects).

To wit: the US Mint managed to sell 35,500 ounces of gold (that’s a little more than one tonne) in October thus far. Presuming that the final tally for the month comes in near 57,000 ounces (based on trend extrapolation) then gold Eagle sales might be 40% lower than they were one year ago for the same month. Not quite the stampede being incessantly chatted about in various forums…

Analysts at Standard Bank (SA) are not quite ready to concede that recent correlations and price patterns imply that gold’s safe-haven status is totally at risk or that it has been stripped away. They do however point to a risk that gold faces; that of the liquidity squeeze that has risen in the wake of the situation in Europe. In so many words (their words) the situation shapes up as follows:

“It is important to note that, like equities, volatility in daily gold returns has increased sharply since the beginning of August. This increased volatility has coincided with tighter conditions in the Eurozone money market — represented by the rising three-month Euribor/Overnight Swap spread, a proxy for the liquidity premium. These tighter money market conditions have been largely the result of the Eurozone debt crisis and the strain that this is having on the region’s banking sector.

“Consequently, we feel that as long as these issues remain unresolved, we will continue to see gold exposed to heightened volatility. In addition, as we have highlighted before, should the effects of the sovereign debt crisis and possible contagion to European banks lead to a breakdown in the money market, even if temporary, this would be bearish for both equities and commodities, including gold.”

Silver lost 40 cents on the open this morning and traded at $30.92 the ounce after it too visited lower value zones overnight (near the 30.40 area). The white metal did not make much progress in recent session, meandering between $30 and $32 but a drop beneath September’s $26 low appears to still remain on the radar of potential odds.

The targets being mentioned involve the $22.45 to $24.55 area. Barclays Capital Analyst Suki Cooper opines that silver’s “fundamentals still look very weak” and that “the downside still looks much more vulnerable, given that we’re not seeing the same strength in industrial demand that we have seen previously, and given that mine supply still looks very healthy.” Barclays expects the white metal to average $27 in the current quarter

Platinum and palladium sank this morning as well, as a host of industrial commodities felt the brunt of selling precipitated by economic growth-related jitters among investors. The former lost $27 to trade at $1,486 and the latter declined $10 to be bid at $592 the ounce. Copper lost 2.8% and nickel, zin, and lead all recorded falls ranging from 2.2 to 3.8 percent. Iron ore suffered its worst price rout in nearly a year and a half as China’s economy is manifestly undergoing a slowdown.

US initial unemployment claims fell modestly once again in the latest reporting week, according to the Labor Department. Filings totaled 403,000 (down by 6,000). The four-week running average is…running at 403,000 for now. And now, we too, have to be running…but not before one last news bit for the day: US leading economic indicators climbed 0.2% in September, for the fifth straight month albeit the data contains enough divergent metrics to label the state of the US economy’s growth as “sluggish.”

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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