Is There a Commodity.com Bubble?

Gold experienced quite a turbulent session on Tuesday as the sellers wrestled with the bargain-hunters against a background of rising economic optimism punctuated by renewed eurozone jitters. Bullion prices initially swooned to the sub-$1,635 area (an important support zone at this time) only to claw their way back to nearly unchanged (down $2.90) status at around the $1,650 pivot-point by day’s end. Silver, platinum, and palladium all eked out small gains for the session, albeit palladium’s advance was quite notable, at nearly 2%.

The news out of South Africa on the PGM production front was once again not very good. The country experienced a 47.6% decline in the output of said noble metals last month, owing to labor strife at major firms Impala and AngloGold. At least 196,000 ounces of platinum were not produced at the two firms due to six weeks’ worth of strikes at Impala and to safety stoppages at AngloGold Ashanti.

This morning, the midweek session in New York opened lower as gold notched a fourth day of losses, and traded near $1,640 per ounce. Anxieties connected to China’s economy flared up once again this morning in the wake of reports that home prices in that country fell once again, with 46 out of 70 urban areas that are being tracked showing declines in March. Housing (as was the case in the US) remains the principal risk factor in whether or not China touches down gently or impacts the economic runway with brute force.

The general situation in gold was characterized by one chief trader as follows: “We are seeing very little demand from the physical dealers, very little demand from the investors, it's pretty much come to a standstill and I think we have to come off (in price)." Dealers and technical analysts are still targeting the $1,600 pivot-point as the next logical test for the yellow metal, since bullish news that would propel it back to last week’s high near $1,680 are indeed scarce.

Meanwhile, sadly misinformed fund managers who are unwilling to accept the obvious downtrend in gold continue to tilt at windmills and chase ghosts that do not exist, by declaring that the gold market is being “manipulated” against the will of the masses. Thank you, but the investing public can do without such fantasizing. Really. Silver fell 20 cents to the $31.50 support zone once again, but platinum advanced $3 to $1,582 and palladium gained $1 to climb to the $662 mark per ounce.

Over in India, that country’s central bank cut its short-term lending rate by half a percent as it showed worries about economic growth. On the other hand, after having recently focused on the gold import problem (as a contributor to current account deficits and to India’s macro-economic woes), India’s officials are now going after non-bank financial companies and the plethora of gold loans they now have on the books. It seems that the “gold problem” is now under scrutiny along several regulatory fronts in India.

The RBI has directed regulated Indian banks with ties to such lending firms to reduce their exposure to them by 25%. The RBI warned that “There has been significant increase in loans by NBFCs against gold in the recent period. There are also complaints against some NBFCs that they are not scrupulously following proper documentation process and know your customer (KYC) norms, among others, in order to quickly dispose off [sic] the cases relating to gold loans.”

Meanwhile, amid sales that are nearly 80% (!) lower on a daily basis than they used to be, India’s gold dealers are wringing their hands and they are not expecting too much in the way of good sales news despite the fast-approaching auspicious day on the Hindu calendar. The chairman of the All India Gem and Jewellery Trade Federation notes that “No imports of gold have taken place in the last one week after the market opened. The demand is lackluster and there will be hardly any growth in the Akshaya Tritiya period this year." 

Switching locales, reports out of China appear to indicate that the country is far, very far, from the scenario that seems to be continually on offer in various hard money publications. You know, the one about China suddenly getting a serious case of an allergic reaction to the US dollar and US debt instruments, and diving headlong into gold – to the tune of hundreds or thousands of tonnes.

Well, the US Treasury tallied an increase in China’s holdings of Treasuries $1.18 trillion in February. Japan was not far behind China, taking $1.096 trillion of same. In all, not only is China not getting ready to dump things American on the financial side, but aggregate net purchases of US Treasuries climbed to $5.1 trillion- a record. Just don’t tell that fact to your favorite “US Doomsday Monthly” publisher. They might cut your subscription off, for you.

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