Market action began to slow and participation commenced thinning out in the precious metals' space as the pre-holiday week got started this morning. Gold prices dipped under the $1,600 pivot point once again overnight and then clung to small gains above that same figure as New York trading got underway but neither the direction nor the level of conviction among players were too clear in the initial minutes of trading. The same lack of energy was manifest in other assets as well however; the dollar meandered around the 80.10 area while the euro held onto the $1.30 figure for the time being. Crude oil gained about two-thirds of a percent but copper slipped about one-third of the same.
Spot gold dealings were slow and prices at last check were quoted near $1,598 per ounce on the bid-side (down less than $1 and up from the $1,583 lows recorded overnight). Silver fell 75 cents to the $28.99 bid level and the business in those pits was equally lethargic. Platinum dipped $2 to the $1,415 mark while palladium gained $3 to climb to the $624 level. Rhodium remained at $1,350 per ounce on the bid.
Physical demand was fairly encouraging in some markets, albeit not in India at this point. Buyers there are apparently anticipating a larger decline in prices and are reportedly holding out for such an eventuality. Swiss bank UBS notes that gold is "plentiful" in the local (Indian) markets.
Eyes are now slowly turning towards China at this time as observers attempt to gauge what that country's demand for bullion will be ahead of the upcoming Lunar New Year. There is some modest anxiety about how much the Chinese public might be willing to spend on gold now that prices of homes have fallen in 49 out of 70 of that country's cities and investors suddenly do not feel as flush as they did before. China is clearly slowing; partially on the government's active efforts to avoid inflation, and partially on account of the real estate situation which appears to be sagging under its own weight.
Meanwhile, the dollar reportedly "got a lift" (but gold did not) from the death of playboy-at-large, self-anointed inventor of the hamburger, world's largest buyer of Hennessy cognac, and former trend-setting fashionista, Kim Jong-Il. The departed dictator's son is set to take over at this juncture albeit it remains unclear whether he will be sworn in while dressed in a jogging suit or not. He will however be coming in with the moniker of "Brilliant Comrade."
The next several trading sessions will be characterized by slim participation, year-end book-squaring and perhaps a few out-sized moves that will really not have too much to do with logic or with financial market news. Spectating might just be the most prudent course of action for small retail investors at this juncture. Placing one's money at risk this late in the year is not something to recommend just now. Gold was reportedly on the defensive after a fresh warning by Fitch's Ratings as regards France's status.
A Reuters poll of hedge fund pros, economists and metals traders concluded that gold will fall below the $1,500 level over the next 90 days, despite some quite vocal assertions to the contrary still audible from certain quarters (the usual ones, that see, and have seen, gold as strictly a one-way avenue towards the heavens). Half of those surveyed by the news agency projected that the yellow metal might dip to the $1,450 figure per ounce or even $1,400 if conditions warrant. One fund manager (Christoph Eibl of Swiss firm Tiberius) opined that in 2012 "of all metals gold will be the worst-performing."
Last week's price rout has managed to shift many a formerly ultra-bullish perspective among professionals in the gold niche. The fact that bullion is headed for its first quarterly loss since the gloomy days of the fall of 2008 is not helping either. Again, 50% of those polled by Reuters feel that if in fact gold were to be able to stage another attempt towards previous highs, it might not do so until late 2012 and some see that possibility as only coming around as late as 2014, if at all.
In its latest market positioning report, the CFTC observed that the amount of managed money present in the gold futures and options' space shrank for the second week in a row last week. The net speculative long position declined by 51 tonnes last week; it now stands at 612 tonnes according to our analyst friends over at Standard Bank (SA). On the other hand, the net speculative short position climbed by 88 tonnes prompting the analytical team to note that "deleveraging in the futures market continues."
One such money manager, Investment Protection Solutions' Dominick Paoloni, who had held 10% of his clients' funds in gold, sold 90% of those positions off last week. Albeit in the bigger scheme of things the $8.5 million liquidation by IPS is but a drop in the proverbial gold market bucket, the possible developing trend ought to keep some up at night wondering what it is that such money managers see out there. Perhaps they are becoming convinced that gold is less appealing amid developing deflationary conditions, perhaps they are tying its performance to the beleaguered euro, perhaps they have come to realize that gold's inability to overcome $2K amid perfect "storm" conditions this fall means that something has changed in the market's psychology.
Indeed, consider the fact that the euro has come under an existential threat, and that certain governments are running up debt tabs faster than you can say "bailout!" Gold has not responded "properly" to such alarming news or to the fact that there has been a trend by a few central banks to buy the metal despite record or near-record values. If the situation appears puzzling to some, then they ought to look no further than the US dollar and its supposedly impossible "revival" lately. This is because if there is one asset that the European crisis has indeed bolstered (and then some) then that would be the supposedly moribund greenback. Given the divergent paths that gold and the dollar have been on since the Fed pushed rates to near zero, the current state of affairs should not surprise too many (yet, it does, and to a degree that is astounding).
Veteran market observer and publisher of the Value View Gold Report, Ned Schmidt, notes in his latest missive to subscribers that "denial has been rampant in the markets for some time." He points to silver as an example of a metal which "has been in a bear market since April, though some continue to deny that reality." Mr. Schmidt diagnoses the current market paradigm as the "withdrawal of inflated expectations" (the double-entendre of "inflated" should be noted here). He calls the previous forecasts for 2.5, 5, and 10K gold just as "irresponsible" as those that had promised is $100 per ounce silver to be a concrete reality by now.
According to one market forecasting tool that Mr. Schmidt includes in his latest analysis, there is additional pain to come in the precious metals' space. However, noting that "markets do not go down forever" either, Mr. Schmidt goes along with the projection that gold might yet make a run to new highs, perhaps in late 2014/ early 2015. However, "that high may not be significantly above the highs already achieved" concludes Mr. Schmidt. As for the current or near-term bottom in gold, the author of the VVGR does not expect that to be put into place until about April of 2012 and the figure could be as low as $1,110 "if no events positive for the price occur."
Jon Nadler is senior metals analyst with Kitco Metals Inc. in Montreal.