Gold nearing overbought after GOP ignites gold standard debate

In The Lead: “Standard Fare”

The new trading week started with small losses in the precious metals complex despite a 0.14% drop in the US dollar and a near-$1 advance in crude oil. Small-scale profit-taking was cited after gold market players attempted a test at the $1,680 resistance area but failed to deliver a victory just yet. A larger than expected decline in Germany’s Ifo index and continued wrangling over what exactly to do about Eurozone bonds and such added to indecision patterns in the early part of Monday’s session.

Spot gold traded at $1,670 on the bid-side while silver remained very close to the $30.75 mark in the minutes following the New York opening. The four principal precious metals are flashing the “overbought” signal in the wake of last week’s “Fedphoria-induced” rallies – their Relative Strength Indicators are all above the 70-mark (historically a level at which taking profit has proven the wiser course of action).

Platinum slipped $3 to $1,542 and palladium fell $1 to $648 per ounce. Rhodium was quoted unchanged at $1,150 per ounce. There is plenty of “meaty” data on tap for the week, including Wednesday’s US GDP reading and the survey of US consumer confidence slated to be released tomorrow.

The above notwithstanding, the upcoming Fed symposium in Jackson Hole, Wyo. is taking the front row-center seat among market players’ preoccupations this week. Some have dubbed the gathering as “Action [in] Jackson” time and are expecting it to yield the unveiling of the much-anticipated (make that: Much-demanded by speculators) QE Fed gesture. This is not to say that the also imminent Fed FOMC meeting is not being factored into the equation – certainly not when viewed within the context of the parsing of and the conclusions that were drawn about the FOMC meeting minutes that were released last week. This, despite some analysts who still see the Fed acting on some type of QE (if any at all) only in October or perhaps early next year to avoid potential political shading of its actions.

Background factors surrounding the European situation have become more muted as Fedspectations rule the trading day. However, even with the euro managing to tread water above the $1.25 level there are certain news items that bear watching before taking the plunge on the long-side in the common currency. To wit, the President of the German central bank — Jens Weidmann — said yesterday that he is categorically against the European Central Bank buying government bonds and that doing so could make saving the euro more difficult down the road. Mr. Weidmann said “central bank financing can be as addictive as a drug.”

Meanwhile, physical demand in the world’s largest gold-consuming nation — India — continues to be weak, at best. The Daily Bhaskar reports that at 31,100 rupees per 10grams, gold is “losing its sheen and rubs buyers the wrong way.” Locals are taking their existing gold ornamental pieces and are asking tradesmen to remake them into upgraded new designs. Net new gold purchases = not many at all. Sources in Jaipur indicate that the regional gold demand has collapsed by about 50%. Pakistan’s Daily Times relays that India’s second-quarter gold imports have fallen by more than 56%. A London-based bullion banker in attendance at Hyderabad’s International Gold Convention said that “for the gold price rally to continue, someone else would have to step in to replace India.”

Now that hurricane Isaac no longer seriously threatens Tampa Bay, the US Republican Party is set to fully start its national convention tomorrow. Some of the policy items to be talked about include a constitutional amendment to grant personhood to embryonic cells and a total ban on abortions, without exceptions. However, reports that the GOP also plans to adopt a platform that calls or an audit of the Fed and — wait for it — the appointment of a committee to study the feasibility of a return to the gold standard by the US have really set many Internet forums ablaze with chatter over the weekend.

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