Another wild ride for gold unfolded over the past two-and-a-half trading sessions as sellers and bargain hunters played tug-o-war with the market’s price rope and sent the yellow metal over a relatively wide spectrum of quotes.
However, the general tilt was biased to the downside and while putative support at near the $1,550 mark was not quite broken, the still-strong dollar capped would-be gains fairly tightly and, thus far, well under resistance at $1,595-$1,600 per ounce.
Spot gold ended at $1,572 last night while silver finished at $27.21 per ounce. The yellow metal is poised to record another weekly loss in value despite this morning’s advance on the back of a "risk-on" trading sentiment. It has already given up last month’s gains and it is down 1.4% on the month-to-date. The SPODR Gold Trust (GLD) has witnessed an outflow of almost ten tonnes of bullion thus far this month.
UBS-sourced market analysis summed up the current paradigm in gold as follows:
“Unless physical players and/or opportune investors step in significantly at these levels, we see little standing in the way of further gold weakness in the near-term. In the absence of fresh catalysts, market participants have focused on technicals, and from this perspective, gold looks vulnerable to the downside.”
Barclays Capital, identified chart resistance in gold at $1,595 an ounce and it suggests selling the metal into rallies, owing to the fact that
“risks remain for a retest of the larger range lows at 1525/26 before looking for signs of a base.”
Physical offtake remains firmly depressed by the summer doldrums period and by still-too-high a price as regards would-be Indian buyers. Once again, that country’s central bank has been drafting plans to curb the locals’ appetite for the yellow metal. The RBI’s deputy Governor, Anand Sinha, stated that
"curbing [gold] import is one aspect; the other aspect is that gold which is already existing in the country, whether you can bring it out to satisfy the demand, by devising financial instruments which can mimic the return on gold. So several proposals are there. There is a committee that is looking into all the aspects. We will take a decision later."
As mentioned in our last posting, the over-reliance on "Fedspectations" of further monetary stimulus does entail risks for the gold bulls and those risks were heavily underscored once it became clear from the FOMC meeting minutes that, while the Fed is cognizant of the problems surrounding US economic growth and job creation, it is still less than willing to pull an already overused trigger (QE) whose efficacy might be the subject of some serious questioning.
Some of the "questioning" — from here forward anyway — will undoubtedly be of a political flavor. Up to this point, the Fed could generally be seen as acting at arms’ length from the Obama-Romney race. However, whatever (if anything) the US central bank does in August or later this year will immediately draw a penalty whistle from the GOP side of the ring.
Oddly, whatever criticism Mr. Romney might throw at any further Fed stimulus (he went on record on June 1st by saying that the Fed should stand aside: "I don’t think we’re looking for more, a QE3 if you will, I don’t think that will have any more impact than QE2 did."), the enactment of a full-blown QE3 would actually put him in a position to be able claim "ownership" of the economic progress that it might bring about in America, circa a year from now. Provided, of course, that he is then the VIP occupant at 1600 Pennsylvania Avenue.
There were, in fact, a few smiles to be had by reading various websites (some bullish, some bearish) and getting their take on what this most recent Fed-related news item really meant: "Few Fed Officials Backed More Easing" Some simply added an "A" to that title and called the minutes bullish for gold and other assets, while others took the "Few" to mean precisely what it meant: a minority of FOMC team members willing to ease. This, folks, is what it has come to.
In any case, the head of commodities at French financial giant Natixis, Nic Brown, noted that
"the [gold] market can pretend that QE3 isn’t important but it is one of the fundamental factors that are supporting gold prices. It is a case that any hints, any clues that are coming out of the Fed over when they might do it, whether they might do it are absolutely central to gold prices."
In the market’s background, troubles continued for the euro in the wake of once again soaring Spanish and Italian bond yields. The common currency dipped to a two-year low at just under the $1.22 level and it has almost rendered true the previous "outrageous" calls for a dip to $1.20 against the greenback. Trouble is, now there are new schools of foreign exchange thought that are projecting $1.10 and potential parity between the euro and the American currency.
As for the latter, well, the break-out above a further previous resistance point at 83.55 on the trade-weighted index has prompted JP Morgan technical analysts to project a near-term objective at very close to the 85 level. This is turning into a broader US dollar move, and as we alerted readers in Wednesday’s commentary, the possibility of seeing the buck get up to around the 90 value zone on the aforementioned index ought not to be discounted at this juncture. A straight-line, such an ascent would certainly not be, but the target is what is of import.
The other important price-moving metric that we alluded to in last Friday’s "In The Lead" video commentary — US jobs and their ebb and flow — also contributed to the "malaise" in precious metals trends early on Thursday. Despite nine "dislikes" by YouTube viewers, our observation that there is an emergent trend (wavy as it might be) in the American employment/unemployment situation and ignoring it also carries its own risks because a good part of what the Fed might do/ not do is tied to this fundamental economic niche.
The US Labor Department’s latest jobless claims filings report showed that such applications fell by 26,000 (to 350,000) — the lowest level in more than four years. So, while some folks made a lot of noise about last Friday’s figure of 80,000 positions having been created, the same folks fell curiously silent yesterday morning (perhaps they had an agenda full of campaign speeches to deliver).
But let’s leave all of the above by the wayside for now. Some of us (include this writer) gave up viewing the latest episode of "Keeping Up With The Kardashians" to catch the latest installment of "Keeping Up With China’s Landing" last night at 10PM New York time. It was as important a news release as (at least) the one that had to do with whether or not the Church of Scientology did or did not play a part in the divorce of Tom Cruise and Katie Holmes.
The verdict: China’s second-quarter economic growth came in at the weakest rate in over three years. The 7.6% rate of expansion reading was half a percent lower than that recorded in the first quarter of the current year, however, the first-half advance of 7.8% compared very poorly to the 9.6% reading of the Chinese economy’s progress reported in the same period one year ago. All of this means that with the current reported growth rate China’s economy has been slowing for six consecutive trimesters.
As such, the string of slowing quarters exceeds the last such prolonged period of economic difficulties, last seen in the late 1990s. However, the 7.6% figure was in line with economists’ expectations and not that far from official projections of a critical-to-maintain 7.5% rate of expansion. While Asian stock markets initially advanced on the news, the perceptions that this slowing is very close to a serious problem for the world’s second largest economy remained palpable among investors and economists the world over. China’s trading partners are justifiably worried about the trend afoot in that country.
Moreover, some view the Chinese problem in the making as the opening act to a bigger drama yet to come. In the tradition of some of the best hard money doomsday newsletters available out there, Markewatch’s Paul B. Farrell paints a grisly picture of China’s "5 apocalypses" in his latest contribution to that site’s commentary section. Mr. Farrell warns that China’s local governments are sinking under the burden of a staggering debt. Some cities, such as Wenzhou, have resorted to auctioning off most of their fleet of luxury cars that were bought in the good old days of the seemingly never-ending boom.
Mr. Farrell also warns that the economic problems in China could mushroom into social disorder if they remain unaddressed. In addition, the fact that the country’s uber-wealthy are sending their money overseas by the wheelbarrow-full instead of mopping up the infinite rows of empty buildings across the country should also be a warning sign, according to the author. Piling on the issues of bailing-out billionaires, the prosecution of crooked officials, food-safety scandals, the inflation problem, debt, energy and environmental setbacks leaves Mr. Farrell with the grim conclusion that if they ever reach "critical mass" then we all (in the Western world) better look out.
At any rate, the fact that the Chinese statistics came in right at the expected level instead of worse has given a bit of encouragement to commodity bulls this morning. Still, the advances they have managed to post on the price boards in gold (0.83%), silver (0.81%), platinum (0.92%), and palladium (0.52%) have to be regarded with a wary eye and might be chalked up to Friday book-squaring, a bit of short-covering, and a "let’s try this for a change" mentality. In the background, we must note the fact that the US dollar only retreated 0.06% on the index, that the euro was hovering under the $1.22 level against it and that crude oil also only advanced 0.80% and change.
This is all we have for you today, please go and have yourself a relaxing summer weekend. That’s an order. Money-making and market-watching can definitely wait until Monday. Sunny days, on the other hand, have a finite quantity on tap.
Senior Metals Analyst — Kitco Metals
Senior Metal Analyst
Kitco Metals Inc.
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