The Bear Facts of the Bullion Market

The uber-critical $1,527 line of gold’s price defense came into play overnight as we had recently pondered here, and this time around, despite all the denials of the fact and protestations to the contrary, the gold market entered the cave of the bear. Granted that with RSI levels near 20 and with bullish Daily Sentiment indicators perhaps only in the single digits an overdue counter-trend rally might yet delude the bulls, but this is where the market highway junction that really matters is to be found. 

A quick round-up of the midweek opening quotes showed gold prices being bid near $1,540 the ounce. The yellow metal has lost $255 per ounce since Feb. 28 and $385 since last September’s peak. Spot silver was quoted at $27.55 per ounce and platinum posting a small loss of $1 at $1,426 per ounce. Palladium lost $5 to reach $586 while rhodium was unchanged at $1,325 after having shed $25 recently. In the background, the US dollar hovered near 81.33 on the index but crude oil slipped $1.40 to $92.60 a barrel (a six-month low), copper was off 1.4%, while the euro continued to struggle near $1.27 against the greenback. 

While the majority of recent gold market commentaries kept reaching in vain for any possible explanation for gold’s continuing melt-away, the simplest of all reasons evidently eluded most of their authors. We have now been treated to excuses that range from the silly to the preposterous, as to why gold is not acting in the manner that we had all been promised it would, when and if serious financial conditions such as we are witnessing these days would materialize.

Thus, we are being treated to gems such as: “Gold is down because the putative ‘bankster elite’ wants it to be down” and “gold is down because some ‘paper market’ is deluding people to the ‘reality’ that, in fact, gold is up and that the demand for coins and bars has never, ever been better” and “ advanced algorithms that control commodities and stocks make real price discovery impossible“ or “gold is down because we just had a 'Super Full Moon' event.” We could go on…but it is not worth your time. 

If anyone cared to dig just a tad deeper, they would have found the principal agent of change in gold prices staring them in the face; the US dollar. Yep, that debt-ridden, good-only-for-fireplace fodder, no-good, sickening green piece of paper, just recorded its 12th session of gains in value. That kind of streak has not been seen since – in the words of Marketwatch – “at least 1985.” Talk of the target level of 90 on the index has suddenly materialized, and such talk could be validated by a breach above the 82 mark on that scale. 

If you think that is merely heavy lipstick on a terminally ill pig, the consider the virtual flood of dollar obituaries which have been coming our way for the past six years, and how they might appear to today’s readers in light of what has not happened. You get the point. In what may have sounded like trite remark at the time, this writer told Bloomberg’s Tom Keene (in an early January interview) that gold will go where the dollar does not.

That point is that, gold prices, aside from all the unpleasant happenings in Europe, closed at their lowest level of 2012 after having probed even lower (around $1,540) during the trading day on Tuesday. The point is that silver (also purported to be around $80 by now, for sure) tested price zones very close to $27.00 an ounce instead of vaulting three times higher. The point is that the dollar’s aforementioned streak has now been updated and that its 13-day long advance has now been classified as the longest winning one ever since the trade-weighted index has been created. 

The point also is that, as was the case in 2008, this is the perfect environment for gold to show its mettle and to attract serious amounts of worried global money, and, yet, it is failing to do so. In fact, this May has been so cruel to bullion prices that analysts can now talk about the worst semi-monthly performance in the yellow metal in seven year, and not just since 2008. 

If there is any “comfort” to be found by disillusioned gold and silver investors who had loaded up on the metals in anticipation of that which never came, it would be the fact the misery loves company. Commodities as a group fell for a tenth day on Tuesday, putting in their worst losing sequence since 1998. Oil, for example, traded near $92.50 per barrel early this morning. 

Copper fell to the lowest level since January. Last week, according to Standard Chartered, investors pulled another quarter billion dollars or more out of this fast-sinking niche. A huge portion of recent gains in this space was attributed to the ear of “easy money” courtesy of the Fed. Now that questions have arisen about the continuation of that kind of largesse, well, you can see the (initial) results; pain and devastation. 

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