Gold: Gold's correction has been quite sharp but given the extent of the rise since mid April (from $864/oz to over $980/oz or over 13% in just 6 weeks) it is not unexpected. A 50% retracement of sharp rallies is quite common and yesterday's lows of $925/oz is very close to an exact 50% retracement.
Gold rallied strongly yesterday to a high of $955, taking out the $945 resistance level in the process. Overhead resistance now stands at $967. The US dollar weakened significantly against all the major currencies as the negative sentiment towards sovereign credit shifted from the UK to the US in the wake of the S&P report yesterday. S&P have put the UK on negative watch from a credit ratings perspective. The expectation that the US could possibly lose its AAA credit rating, triggered a sell-off in US bonds and the dollar simultaneously.
Recent intense deflationary pressure had taken the shine off gold but with the dollar sliding yesterday, inflation came back to the fore causing gold to rise by more than 1.2%. This morning the metal was over $943, the highest in 8 weeks. This is a strong signal and it could be time for the resistance levels to be tested. If $946 is breached, the next level to look for would be $967. Silver was a little more sluggish than gold with only a 0.5% gain. It touched $14.40 this morning before moving back to $14.30. This could signal a correction, as $14.40 represents a double top.
Gold Bullion Unique as No Counterparty Risk Gold is unique among asset classes as it is the only asset class not dependent on the performance of auditors, management, corporations, financial institutions, banks, politicians and governments. Nor should physical gold be dependent on the performance of trustees, custodians and or sub custodians. Gold does not depend on the performance and health of the wider economy and as importantly when you buy gold in its physical form there is no third party liability or credit risk. Or at least there should not be. Gold has an intrinsic value in and of itself that is not contingent on someone else’s or some entities performance or mere promise to pay. Thus, gold in its physical form is still the ultimate form of financial insurance. This is why every major central bank in the world still maintains a significant portion of their reserves in gold bullion and many, such as the Chinese, are now increasing their gold bullion reserves.
Gold demand soared 38% to 1015.5 tonnes in the first quarter of 2009 according to The World Gold Council’s “Gold Demand Trends” report. A combination of factors including diversification, safe haven buying and inflation hedge demand are attributed with the upsurge. However, George Milling-Stanley, the Managing Director of the WGC also cites the global shift in sentiment from “capital appreciation to wealth preservation.” Rumours that the Russian Central Bank may allow Russian banks to pledge gold as collateral are also circulating the market.
Global markets perceive that economic green-shoots may be growing on stony ground as the rally in the Dow ran out of steam last week. Inflation figures published in the US suggested that core inflation may be higher than previously expected, contributed to the down week for the Dow and a minor strengthening of the Greenback. Despite the dollar strengthening, gold benefited from the outflows from both stocks and commodities.
The Horse Race
Further consolidation was seen yesterday with gold and silver rising marginally again and both look set to have a second strong week of gains. While the staggering pace of economic decline has certainly abated, individual economies and the global economy continues to deteriorate as recessions deepen internationally.
Rep. Alan Grayson talks to the Federal Reserve Inspector General Elizabeth Coleman of the Federal Reserve, asking her questions regarding trillions of dollars that came from the Fed's expanded balance sheet and what the losses on its $2 trillion portfolio are. The Inspector General does not have the answers Grayson is looking for.
Gold and silver were essentially flat yesterday and consolidated on recent gains despite a slight dollar recovery and marked weakness in equity markets. Gold has fallen somewhat in Asian and early European trading but still looks good from a technical perspective.
Gold and silver rose again yesterday (1.2% and 2.3% respectively) as the dollar continues to come under pressure. The dollar has fallen not due to an increase in risk appetite but rather an increase in risk aversion coming from the dawning realisation that the very credit worthiness of the US is at risk due to the global financial and economic crisis. The former US Comptroller General, David Walker, warned in an op-ed article in the Financial Times that “America’s Triple A Rating is at Risk”.
Gold and silver took a breather from their gains of last week and consolidated yesterday with marginal losses for both metals. The dollar recovered somewhat from its sharp falls of last week as did long term US interest rates (10-Year: 3.180% -0.113) but US stock markets came under pressure. Gold threaded water in Asia but has risen sharply in early trading in Europe as the dollar has again come under pressure with the US Dollar Index falling to 82.40.
Gold and silver prices rose last week (gold was up 3.1% and silver rose sharply by 11.6%) as the US dollar fell sharply and broke down technically and US bonds continue to sell off aggressively. Stock markets remained sanguine as ever and continued on their merry way despite valuations looking very ripe and the recent bear market rally looking long in the tooth. Ostensibly the data was positive last week leading to more “green shoots” speculation but the jobs data was actually poor (previous months jobs number was revised upwards - March Nonfarm Payrolls revised to (699K) vs.
Gold rose for the fourth day yesterday and is up some 3.5% so far this week and set to complete a very strong week. As expected, under reported and leveraged silver has outperformed gold and surged more than 12% this week. A close above $14.60/oz, could see silver again challenge recent nominal highs at $20.88/oz. Gold’s rise in recent days has been volatile with sharp moves up followed by retrenchments and this is leading to an under appreciation of gold’s move up and a perception that gold is struggling. Some of the larger shorts appear to be engaged in a form of managed retreat.
Gold rallied 2% following news that China’s state holdings of the metal have been quietly raised by 76% since 2003. Rumours and speculation about Chinese buying have been rife for years, but many market participants remained in denial until this irrefutable proof was given. China is not only the world’s largest mine producer of gold, but also the fifth-largest individual country holder of gold with 1,054t.
Gold and silver rose marginally yesterday as the dollar again fell. Gold initially surged to over $914/oz (from $901/oz) prior to determined selling capped the price and saw it fall again below the psychologically important $900/oz mark. Silver was again more resilient and rose 2.8% to $13.40/oz. Both have gradually eked out gains in Asia and early European trading. Concerns about the international financial system and their implications for the dollar and other currencies and inflation going forward look likely to see gold remain firm for the foreseeable future.
Gold and silver both fell some 3% last week despite increasingly bullish technicals and fundamentals. Risk appetite remains high as seen in equity markets onward advance in the face of falling earnings and latent risk. Yesterday gold and silver soared as US stock markets opened and eked out strong gains of 1.8% and over 4% respectively, erasing last week’s losses. The dollar was marginally lower for the week and fell sharply yesterday. The dollar could be on the verge of the next stage of the dollar bear market after the recent bear market rally.
I have just completed an analysis of the performance of the spot price of gold vs. Berkshire Hathaway. I think you will find the results are a little suprising.
Gold and silver rose yesterday (the first day in three) after the worse than expected US GDP report saw the dollar fall in value. Gold fell after the Federal Reserve released its optimistic note but recovered almost immediately. Gold subsequently traded sideways in Asia and early trading in Europe prior to another bout of furious selling just after 1000 GMT this morning which again saw gold fall a very sharp $10 in a matter of minutes despite the lack of any market or economic news of great significance.
Gold fell marginally for a second day yesterday as it continues to consolidate after last week’s 5% gain. Gold’s trading was erratic yesterday with unusually large sell orders leading to sharp falls in the price in seconds prior to mild rebounds. Such sharp and speedy declines are very unusual and would suggest a large player wanted gold prices lower in the futures market.