European bank-related anxieties resurfaced as the first full week of trading commenced across the globe overnight and they kept the euro under pressure and well under the $1.28 mark (it even touched $1.266) while gold made another retreat to near $1,605 ahead of the opening bell in New York this morning. Team “Merkozy” is set to meet today in Berlin in another attempt to present a unified position on the common currency. Still to take place on Jan. 30 is a meeting of Europe’s leadership. The markets however are treating the euro and the stock and bond markets of the region with very little in the way of ‘kindness’ these days, meetings of all sorts notwithstanding. To wit, bond yields are surging once more, the euro is scraping along 16-month lows, France’s ratings remain in limbo and banks stocks have taken a bad drubbing (see Italian banking shares which have fallen 37% in recent weeks).
Spot New York precious metals dealings opened on the weak side across the board on Monday. Gold started the session unchanged at $1,616 and change, silver climbed 14 cents to $28.89 but platinum was down $2 at $1,401 while palladium gained $1 at $614 the ounce. Crude oil hovered near $101.50 per barrel still reflecting Iran-related supply jitters while copper lost almost 1%. The US dollar gave up almost half a percent on the trade-weighted index as short-covering and positive comments coming from the Merkel-Sarkozy meeting lifted the battered euro from under the $1.27 level back towards the midway point to $1.28 level against it.
The latest batch of CFTC positioning reports in metals indicates that speculators continue to view gold’s near-term prospects and somewhat clouded. The net-long position continues to erode and the trade continues to watch the euro and the gold charts with a wary eye. While a slight amelioration in positioning was noted in silver last week, we must take note of the 2,287 tonnes of short positions on the books and contrast that situation with last year’s average of 1,140 tonnes. As well, the long positions are a…long way off from 2011’s average of 4,538 tonnes (currently tallied at 2,179 tonnes) indicating bearishness in abundance. For now, keep an eye on index funds rebalancing their portfolios (today is day one) and how they position gold (or not) in their stirring of the investment brew.
Physical gold demand still appears muted and India’s appetite to take in more bullion remains very much in question at this juncture. Commerzbank analysts have projected that 2012’s Indian demand might very well mirror that which was seen in 2011: Nothing special. “India imported only 125 tons of gold in the fourth quarter of 2011, with buyers hampered by a combination of high prices and high domestic interest rates. The World Gold Council was still anticipating in its November data that India would import 281 tons. ‘The gold price thus lacked an important crutch in the fourth quarter, as a result of which there was even an 8.4% year-on-year drop in Indian gold imports in 2011 as a whole to around 878 tons. This also put paid to expectations that India might for the very first time import more than 1,000 tons of gold within one year,’ the bank added.”
No fresh supportive developments were noted in the net positioning in platinum and palladium either, as regards higher levels of investment demand. Speaking of support (and resistance) let’s quickly note the latest figures for same, courtesy of the team over at Standard Bank (SA): Gold support is at $1,606 and $1,596. Resistance is $1,630 and $1,642. Silver support is at $28.52 and $28.13, resistance is at $29.41 and $29.91.Platinum support is at $1,391 and $1,383, resistance is at $1,416 and $1,431. Palladium support is at $603 and resistance at $635.
Despite the still incessant urgings to “back up the truck, honey” the gold market — at least as viewed from the point of view of moving averages — is looking more bearish than bullish at the moment. The weekly moving-average-convergence-divergence charts appear to indicate potential further erosion in gold prices to perhaps as low a level as $1,300 per ounce. Such charts have shown the 26 and 12 week moving averages violating a line beneath the nine-week one and — according to Streettalk Advisors LLC technical analyst Lance Roberts — the gap between them has been expanding. Others have referred to similar patterns as a “death cross.”
Back at the end of the year, Tim Riddell, head of ANZ Global Markets Research, Asia, said in a report that "A negative crossover in moving averages can be seen as a selling signal. But in gold's profile, it is probably a confirmation signal that gold has made a cyclical high in the third quarter, and will likely see a more protracted consolidation phase than the market would initially wish to see." For a thorough discussion of moving averages and the aforementioned convergences and divergences, do take the time to read this excellent explanation (complete with why gold and silver are facing significant resistance headwinds above current levels) by Forbes contributor Nigam Arora (whose good work we mentioned last week in these columns).
One of the possible factors to keep gold prices in check this year could be the Fed and its hitherto notable largesse in monetary policy. Current US economic conditions appear to have improved sufficiently to put the question of additional Fed easing (QE)…into question. No question, apparently, at least as far as one Fed member is concerned. James Bullard (he of the St. Louis Fed) said that the US central bank will probably not begin a new campaign of asset purchases on account of recently improved labor and manufacturing statistics. Albeit Mr. Bullard does not vote on matters of monetary policy in 2012, his voice is important to listen to, because he was actually the first Fed official to call for QE2 back in 2010. Thus, categorical predictions/assurances of a Fed QE3.0 still coming from various alarmist newsletter quarters should best be taken with a large grain of salty skepticism.
Something else to be viewed with a good dose of distrust are the various pronouncements about how China might make a quick exit from the rut it currently finds itself in, economically speaking. The “unusually uncertain” label formerly being used in conjunction with the US economy can now safely be transferred and applied to China, according to more than one market expert. The head of the World Bank, Robert Zoellick, has said that “there is widespread recognition that the Chinese growth model, that has been so successful past 30 years, will not work in decades ahead.” The “father” of the euro, Robert Mundell observes that “it is not clear [that] China’s system is favorable to shift to domestic demand,” and economist Lawrence Summers asserts that trying to divine the road ahead for that country is “the great unanswerable question.”
For the time being, we can only keep a closer eye on the facts and figures emanating from China and leave the speculation about its economic future to those (above) in a qualified position to provide such. The latest batch of economic metrics from Beijing indicates that both lending and money supply have grown at rates in excess of economists’ expectations. December loans surpassed $101 billion whilst M2 grew at 13.6%.
In addition, China is still trying to figure out how to cope with the potential demand shock arising out of the European debt debacle (40% of the country’s exports are funneled into the Old World). Coming up on the 10th of the month will be the official December import/export and trade balance data for the country. Following that, on the 12th we will learn about the official December inflation figures as well as about the country’s economic growth levels in Q4 and 2011 overall. Stay tuned. We could see a market-moving day (or two)…ahead.
Jon Nadler is a Senior Metals Analyst at Kitco Metals Inc. North America