Precious metals, crude oil, equity markets, and certain currencies spent the first trading days of this week basically treading water and fast-forwarding to the last three days of sessions; days from which market participants are hoping to be able to extract some benefit if – but only if – central bankers are willing to play along. While gold prices held above the $1,600 pivot level the action in either direction was anything but orderly and it often did not take more than the mere hint of a delay in easing actions by the Fed or the ECB to send enthusiasm withering. Once again, the situation underscored to what a large extent the price action to the upside in late July was owed to the rise of cyclical – and by now predictable – “Fedspectations.”
Thus, it was once again a time to read headlines such as “Oil Falls on Speculation Fed To Forgo Stimulus” and “Gold Modestly Higher as Central Bank Actions Awaited” followed by “Gold Down After Housing and Income Reports.” At the end of the day, indecision reigned supreme and traders went home without their favorite asset being able to chart a clear course into a higher or lower direction. Gold finished near $1,610 per ounce, silver settled right at $28 and the Dow fell 64 points. The US dollar remained near the 82.70 level on the index while the euro showed signs of strain holding the $1.23 level in the wake of German hardline posturing regarding the ESM and the possibility of its being granted a banking license.
In fact, the Merkel coalition government flat-out rejected the issuance of such a permit to European Stability Mechanism with one of its members calling it a “wealth-destroying weapon” that would lead to a inflationary path. Another Merkel coalition official warned that the ESM ought not become the ECB’s “bad bank” at any cost. Such verbal turmoil of course managed to temper a great deal of the post-Draghi statement euphoria to which we alluded in last Friday’s commentary.
Suddenly “we will do anything it takes” when it comes to the euro and the crisis started to sound like “we might do anything that Germany allows us to do without jeopardizing the entire union.” Little wonder then that the IMF came to the conclusion yesterday that the euro-zone crisis will not see a quick resolution (let alone an easy or cheap one) and that it still threatens global financial stability. Estimates for solving the turmoil range from at least half a year to several years but for now we have to settle for a visit by US Treasury Secretary Geithner with Europe’s Who’s Who and his call that they act “more forcefully…to calm the financial pressures that are doing so much damage to growth.”
The week in gold trading started off against a number of background news items that still merit the attention of current and would-be gold holders. Notably, CFTC’s market positioning reports once again indicated that speculators in the yellow metal have turned away from the bullishness they had exhibited during the preceding reporting period. Net-long gold positions showed a decline of 17,535 contracts and the market positioning saw the addition of 607 gross short positions. Hedge funds, money managers and other speculators are currently the least bullish on gold since 2008.
On the physical side of the gold market, India was once again in the headlines with a fresh estimate that the country’s July imports may have fallen by as much as 35% owing to near-record prices for the yellow metal. The July gold import tally by India may only come to 40 or 50 tonnes. Demand for gold in India’s rural areas remains very poor at the moment and the weak monsoon (below normal for the first time in three years) could further depress the final 2012 import figures for the country.