In The Lead – BOWLing Green in Gold Alley

by Jon Nadler, Kitco Metals Inc. on August 23, 2011 · 0 comments

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Bullion BarsTuesday’s market trading sessions in New York opened under growing selling pressure in the entire precious metals complex. Following a fresh sprint to new overnight highs (very near a first Fibonacci extension level at $1915) and amid 98% bullishness levels (seen on both Friday and on Monday) gold retreated to as low a level as $1,862.00 this morning.

But, hey, $55 of a move in the span of a few short hours is like… so "normal" in the latest scheme of things. The very thing that gold is supposed to mitigate against to a certain extent (volatility) is the attribute it has taken on of late. This is a paradigm we might have to learn to live with for a while however. It is not like the spec funds have turned to "greener" pastures elsewhere just yet… as will likely be seen later in the trading day (and even turn-around on a dime that should not surprise anyone).

Spot bullion dealings opened with a loss of $19.40 but the yellow metal’s losses soon accelerated and a $35+ decline was noted within the first hour of trading this morning. Still, very few will conclude that this pullback can even remotely be labeled as anything more than a mere hiccup. Nevertheless, as of last night there was a (suddenly) growing list of observers who overtly expressed certain levels of "discomfort" with gold’s latest and greatest 400 meter (make that dollar) dash.

Elliott Wave short-term update issued on Monday evening noted conditions in the gold market as having shaped up in a manner whereby "because of the exponential, bowl-shaped advance [in gold], Wall Street’s talking heads uniformly agree that gold NEEDS to be "a part of a balanced portfolio." If the same people said this about gold back in 2001, they would have been classified as nuts." EW goes on to opine that gold is "now the last of the red-hot manias," even as it refrains from being "too aggressive about calling a top."

Current tally: 16% up — one month.

Silver continued not to confirm gold’s latest advances even though it put in a very decent "performance" on Monday, This morning however, the white metal gave back more than 50 cents (and at one point, $1.20) of its recent gains and fell to first open at $43.12 and then also visit the $42.50 area subsequently. From a wave-count perspective, silver remains inside of a window that could signal its final subdivisions up from $43.18 to $46.14. Breaking the $36.96 level might be the confirmation of the onset of a third-wave decline in the metal.

Platinum and palladium showed a bit of a divergence this morning as the former fell $20 and retreated to under the $1,900 mark ($1,881 at the open) and once again drew to virtual parity with gold. Palladium on the other hand managed an advance of $1 to start the day off at $762.00 the ounce. Rhodium retained its recently achieved small gain and remained quoted at $1,875.00 per ounce. We now have a developing three-way tie in gold, platinum, and rhodium and it does raise the question of which one (at least as regards Au/Pt) will "blink" first and either slide or advance and thereby reestablish a historically more traditional premium to gold.

Speaking of premia, a very interesting couple of e-mails came our way in the past 24 hours from… India. While the overt PR remains in favor of characterizing Indian demand for gold as "insatiable and inexhaustible" there are those "on the ground" so-to-speak, who describe the situation as… a bit different. Certainly, one must question a characterization of a market when (as noted in yesterday’s piece) the actual tonnage data is less than reliable, or accurate.

One reader from Surat, notes that "this [town] is where majority of the diamonds get worked on before shipping out to the rest of the world. It is one of the wealthiest city [sic] in India. As for "insatiable demand regardless of price" the reader relays that "as I have talked to my friends and family that are in Jewelry business in India, Gold buying has slowed down significantly at these prices. So I am not sure how record number of gold buying adds up. Majority of the gold in India was bought by the people during these wedding seasons. However it has been cut in more than half at these prices."

Another long-time reader (and Managing Director of a large New Delhi-based chain of… jewellery stores) of these posts observes (and this was copied verbatim) that his child’s teacher has adopted all of the new, conventional "wisdom" being disseminated in connection with gold these days and is convinced that:

"the gold price would increase to $3000/troy oz. Amongst the reasons were "demand in the market, tool against inflation, countries moving towards the gold standard again" etc.

For now, the markets are basically looking a few days down the road and are setting the stage for one camp or another to show disappointment regardless of the Jackson Hole Wyo. speech content to be delivered by Mr. Bernanke. As of this moment, it should be evident that some mighty large bets have been placed on the gambling table in the box that reads "asset inflation" and that such wagering has already shaped the "superbowl" seen in certain of the price charts being alluded to in the aforementioned Elliott Wave market diagnosis.

CPM Group’s analysts have remarked that "some precious metals traders could wait to see how this week plays out before coming back into the market. Gold’s recent move to near $1,900 an ounce is more technical-chart driven than based on fundamentals." Such a move, based on such metrics, and over the extremely short period of time within which it has taken place "could leave it vulnerable to a break — Futures and Forex broker PFGBest’s Mike Daly notes buying gold up here [at or near $1,900] as "scary."

Here is something else that — if not outright scary — should give some food for thought or at least pause for some: What is the world’s largest ETF? Who has nearly $77 billion in assets? Who knocked the S&P 500 SPDR out of its well-built long-time web? The… GLD. What ETF is dragging along at the bottom of a list of the 25 largest (by assets) ETFs? Vanguard’s REIT ETF. Now there’s a flip if you have ever seen one. Just as long as you keep in mind that everything (including life itself) is a cycle of tides. Also, curiously, (for some very tellingly and giving quite a "signal") the dog-house REIT fund is in close proximity with the … GDX. An symbol that is all too familiar to visitors of these here pages.

Until tomorrow,

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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