Gold rally in jeopardy as reality sinks in

In the Lead: “[Reality] Check, please!”

Gold’s best rally in ten weeks came to a halt and prices reversed course early this morning as the reality check that most markets were being subjected to by global investors took its toll. The yellow metal slipped back to under the $1,600 pivot point after having run into resistance near the $1,605 level and after thus far having been unable to recapture the important $1,620+ value zone. Spot dealings in New York this morning opened with gold down by $10 per ounce at the $1,593.50 level while spot silver fell 2.4% or 70 cents to a quote on the bid-side at one penny above the $29 mark.

The latest CFTC reports indicate that speculators have once again cut their exposure to precious metals. Kitco News reports a decline of 4,094 gross long positions and the addition of 1,138 gross short positions in gold which shrinks the net-long position in the metal to 111,919 contracts. A similar shrinkage in long positions was manifest in silver. However, specs increased their exposure to palladium; the metal now has 5,212 net-long contracts in place. Russian state-owned stockpiles of palladium are expected to be exhausted by the end of the current year.

The spy novel industry and gold conspiracy fans will have plenty of new material to deal with now that 20 fake gold kilo bars have been found on a commuter train near Paris. Mind you, ‘fake’ in this case does not mean that there was no gold in these bars. There was, indeed, a thin veneer of yellow metal covering what were otherwise nothing but base metal ingots. Who got duped, or who was about to be duped, remains to be seen at this juncture, but one may soon expect e-mails from some Hon. Barrister X offering to gift them a suitcase full of gold in exchange for simply providing their bank account information…

A few who did get duped last year were certain investors in the mining share space. The underperformance of the sector has been overwhelming. Consider the basic numbers (during a year in which bullion itself rose to record highs, to boot): large cap shares (GDX) lost 17% while exploration firm shares (GLDX) fell 44% on the year. The sector’s fiasco prompted Kitco contributing commentator Jordan Roy-Byrne to…write the truth (an act for which he will promptly be flooded with less-than-kind e-mails):

“The often hyped “juniors” have been a disaster unless you’ve been extremely patient and selective while getting lucky with your timing. The juniors are an excellent tool for speculation and only speculation. They cannot be bought and held. They have to be timed nearly perfectly. Ironically, many advisors who are “doom and gloom” types favor the juniors. Some of these types are super bearish on the USA. They’ve expatriated, waiting for the collapse of the USA while holding juniors. This foolhardy strategy has helped them sell newsletters but hasn’t been too profitable.”

As the time for handing out the Oscars fast approaches, we must note the winners of another type of contest. The LBMA normally announces the winners of annual market forecasts. It just did so, and we note with pride and on a congratulatory note that one of the top forecasters of 2011 has turned out to be our good friend Rohit Savant from CPM Group.

Those who frequently malign the excellent research firm and its chief executive, Jeffrey Christian, for its/his sometimes “unorthodox” market views should take note and rethink their position. Perhaps they are simply jealous… Mr. Savant correctly forecast the annual average platinum price ($1,715 versus the actual $1,720) as well as the one for palladium ($730 versus $733.63). Kitco frequently utilizes CPM’s research in the noble metals niche and we congratulate Mr. Savant for his fine soothsaying work. Other winners included UBS’ Edel Tully and Mitsui’s David Jollie.

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