Gold bulls disappear as half of 2012’s gains are erased

In the Lead: “Shifting Grounds”

Gold prices retreated towards the $1,650-$1,655 area this morning as crude oil experienced a small setback and as the dollar climbed slightly on the trade-weighted index (last quoted at 79.82). According to the latest Bloomberg survey of gold traders, the crowd is showing the lowest level of bullishness in circa sixty days in the wake of gold having erased more than half of 2012’s gains recently. However, with an RSI figure nearing the 38 level (with 30 or so generally being sufficiently oversold to ignite some kind of recovery bounce) there is scope for a bit of a repair to take place in the metal.

Of course, that could depend on what the markets have yet to learn in coming days about the Fed and the US economy. On the physical side of the market, bullion markets in India shut down for a third day as participants tried to show their displeasure with the government’s proposal to hike import duties on bullion in an effort to address the country’s burgeoning current account deficit (to which gold demand has been a very significant contributor). We advise keeping a close eye on developments on this front.

Not much change was noted in the euro (seen near $1.315 against the greenback) despite data showing a fairly robust current account balance surplus gain for January. The common currency experienced hefty outflows that month from both portfolio and direct investment sectors. Black gold traded down 40 cents at $106.68 per barrel. Dow futures were flat-to-lower and most folks were mostly curious about what Apple might have to say about its huge cash hoard and what it intends to do with it. This [Dow] really has been an “Apple market” of late, many have proposed.

Silver dropped to the $32.25-$32.35 area as no fresh price drivers materialized in the early part of the morning. The white metal’s net speculative length declined once again in the latest CFTC reporting period. More than 205 tonnes of silver were shed from such bullish positions in the week that ended on the 13th.  Forexpros.com analyst Abigail Doolittle cites silver’s Bear Pennant formation as targeting the $27.50 level and she notes that unless silver makes a fast U-turn to above the $34.50 mark, the bearish elements in the metal’s current market paradigm could make for a decline of as much as 30%.

Platinum climbed very slightly to reach $1,679 on the offered side of spot this morning. Palladium fell $4 to $695 on the bid-side. The CFCT-reported speculative picture in the noble metals offered a mixed bag of findings. Platinum shorts added to positions and ETFs sold some metal for the first time this year, while long-palladium players added nearly 17,000 ounces to positions as they appear to anticipate that metal to do better than the rest of the precious metals’ complex.

There are a couple of background developments and impact factors worth keeping in mind at this juncture as gold tries to find its footing and the debates about its near and medium-term fate continue to rage on. First, it is quite notable that currency traders have not been as bullish about the US dollar since 1999. Not a typo. We have now had 26 consecutive weeks during which futures market bets on a stronger greenback have outnumbered their bearish counterparts. We have noted here recently that – without making specific forecasts – the cliché that gold will go where the dollar does not will be the one to keep in mind in 2012 and beyond.

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