Gold heads lower as dollar strengthens

In the Lead: “Mumbai, We Have A Gold Problem”

Gold prices posted another weekly decline at the close on Friday and they finished the session at $1,584 per ounce. Albeit the net weekly erosion in value was on the order of only two-thirds of a percent, the overriding sentiment among participants was still indicative of significant disappointment about the Fed not handing out a fresh batch of “easy money” as well as of a lack of a perceived safe-haven premium that the yellow metal ought to carry instead of behaving like a risk asset.

The new trading week was off to a rocky start in precious metals as, despite only a relatively small, 0.20% advance in US dollar (to just above 83.80 on the index) the complex headed for lower price ground overnight and at the opening bell in New York. Spot gold touched lows at under the $1,563 level losing $22 in pre-market action, while spot silver reached $26.75 per ounce and fell about 60 cents. The latest Standard Bank (SA) analysis and market positioning report highlights a “decidedly bearish” outlook in the silver futures market. Total short positions in the white metal stand at nearly 103 million ounces and are now approaching their one-year record that stood at 109.6 million ounces.

Platinum dropped $23 to a quoted bid at $1,388 and palladium declined $9 to $565 the ounce. Rhodium was bid at $1,200 per troy ounce. The platinum-group metals’ sector is experiencing some major pain in the wake of falling prices and the fact that the South African noble metals’ output has fallen some 25% through the end of May as compared to one year ago is not yet helping values amid this risk-off maelstrom. Shares of certain miners have fallen dramatically; among the worst hit are Aquarius (down almost 84%) and Eastern Platinum (down more than 75%). Aquarius has actually halted the majority of its production at this juncture. Amplats had something to say about the situations as well.

In other markets crude oil fell 1.31% and copper…topped base metal declines with a loss of 2.56%. The euro flirted with the $1.20 pivot level as the Eurozone crisis flared up once again in the wake of soaring Spanish bond yields and the IMF’s cutting off of Greek aid. Italian equity markets suffered a 5% shellacking today as investors ran for the crowded exit doors. Dow futures appeared to portend an unpleasant day in the making in New York.

The UK’s Telegraph notes that “almost all of this year’s gains have been wiped out, with the gold price now just 1%. above its end-2011 level.” The Kitco Charts and Data page shows that gold started 2012 at $1,598 per ounce and that it is thus down 1% from that level as of this writing. The Telegraph remarks that “[The] gold bugs are banking on QE3, a further round of quantitative easing from the Federal Reserve, to get the price moving again. But as the year progresses it’s nowhere in sight.” Meanwhile, Commerzbank analysts pointed to the continuing gold ETF outflows as evidence that the precious metal is “currently in lower demand.” Nice euphemism.

Speaking of demand, specifically that on the physical side of the gold equation, the Reserve Bank of India’s Deputy Governor, Dr. K.C. Chakrabarty, sounded a bit like…Warren Buffett over the weekend when he addressed the issue of his institution’s attempts to curb Indian gold demand for the sake of righting the difficult current account deficit that his country faces. Dr. Chakrabarty remarked that “there is no intrinsic value in the speculative investment of gold” and that “the precious metal can't be used for anything productive, [that it] gains in value only because of a "mad rush" for the commodity among speculators, and the day [that] this will end, the price will fall sharply.”

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