Gold hits resistance as QE3 frenzy fades

In The Lead: “Winged Migration”

In the background, crude oil climbed by about $1 and backed away from recently-touched six-week lows but players remained aware of plentiful supplies and wobbly global demand patterns. The euro remained under the pivotal $1.30 level but then retook it in the wake of the Spanish rumors, while the dollar initially gave back 0.12% of previously achieved gains and traded near 79.30 on the trade-weighted index. In EW’s market perspective, the greenback has bounced off the 78.50 low that almost completed a 50% retracement of the rally from early May of 2011 (at 72.70) and with a Daily Sentiment gauge as low as 7% it stands to try some “base-building” before the initiation of a push to higher ground.

Market analysts cautioned this week that the largest gains in the year-to-date in commodities may have come to an end owing to the fact that, despite assorted monetary accommodations (ECB, Fed, BoJ) seen in recent weeks, the policymakers around the world are not tending to the fostering of demand for same in the face of rising supplies. One Swiss money manager noted that “this is not as much of a one-way ticket as it has been in the previous two instances [of Fed QE] and the tug of war is between how much is already priced in and how much poorer is the underlying commodity demand.”

One metric that corroborates such a view is the fact that the S&P Goldman Sachs Commodity Index was trading at more than 5% beneath the level it was at when the Fed unwrapped QE3 on Sept. 13. None of that stopped Bank of America Corp from handing out its visions of $2,400 per ounce gold by the end of 2014 – even if that Holy Grail of a figure keeps getting pushed back by a year or two as we near the end of each year. Lloyds TSB Banking Group opines that equities and high-yield debt will likely achieve higher returns on the money than will commodities: “We’re heading for a period of underperformance in commodities after years of outperformance.”

We close today with an unfortunate report on mining equities and investing in that niche. While the vast majority of firms in the industry can be considered safe places to park one’s hard-earned cash (despite the underperformance that has been manifest in the sector for some time now) with the hope that they will eventually benefit from being undervalued, there are also those firms whose shares were once worth something based on science-fiction undertakings. It has been learned this week that more than $260 million of investor money is at stake in the trial that is rocking Vancouver at the present time. We’ve said it once, we’ll say it again: “Caveat Investor!” Translation: When something sounds too good to be true, it usually is.

Have a pleasant weekend,

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About the Author
Jon Nadler Jon Nadler is a Senior Analyst at Kitco Metals Inc. North America
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