Gold prices rallied by more than 2% on Thursday and by nearly 1% early this morning as the US dollar appeared to slow its upward progress on the trade weighted index. Nevertheless, the dollar – trimmed gains and all – was still up for a 15th day in a row in pre-market action. The jump in gold was characterized as mainly a “short-covering surge” and that kind of “profile” probably should not have come as a big surprise to certain players, given the low RSI and extremely low Daily Sentiment Index levels that we had mentioned in Wednesday’s commentary. The bottom line is still that May has thus far greeted gold and silver players with ten down days versus two (perhaps three after today) to the upside. Sell in May? Ummm…yes, and then some…
There was also a mild “QE3 hope” overlay present in the marketplace to help gold recover from the deep loss it incurred on Wednesday. That kind of optimism came from players reading certain things that smacked of potential QE into the FOMC’s just-released meeting minutes, and from just plain reading the numbers related to the Philly Fed manufacturing index and the US’ leading economic indicators (both only so-so). Follow-through action remains essential in order to be able to begin talking about the bear tide having turned. On the physical side, Chinese demand softened notably after the price recovery dampened buying appetite according to Standard Bank’s daily report.
But – as Reuters reports – “with the euro and US stocks in decline and Greece still on the brink of leaving the euro zone, many traders saw the gains as little more than a "dead-cat bounce", slang for a small but temporary rally that follows significant declines. Milko Markov, an investment management analyst at SK Hart Management LLC, said about yesterday’s action that: "When the move to the upside is so elastic, it suggests a lot of people caught at the wrong side, but also confirms the medium negative trend."
Similar sentiment was manifest in the comments made by UBS analyst Edel Tully this morning when she noted in a report that “To see a return of gold reacting positively to macro stresses is indeed refreshing, but it is still far too early to make any firm conclusions from here that gold has indeed turned the corner. Follow-through buying will have to kick in to encourage investors to jump in.” The good news? Nothing (in the markets) goes straight up or down. Ever. Not for long, anyway.
Spot New York dealings this morning showed gold trading at $1,588 per ounce on the bid-side, silver quoted at $28.38 an ounce and platinum and palladium modestly higher as well. The former gained $6 to open near $1,455 and the latter climbed $2 to $603 an ounce. The PGM market is once again manifesting fears about supplies, following the break-out of hostilities between two rival mining unions at Implats’ Rustenburg mine (the world’s largest platinum mine). One worker seriously injured and tensions remain high. Standard Bank reports that “As of this morning, the company reported that “everything is calm” and that the incident had not affected production.”
On the negative side for PGMs there are reports that the slowing Chinese economy is swelling the number of unsold automobiles on the country’s dealership lots. Automakers Honda, Chery, and Geely are now carrying an estimated 45 days’ worth of inventory and the development comes as a warning sign that not all is well with the economy (read more about all that, below). In a country that normally sells a new car every 2.3 seconds, the total vehicular sales tally fell by 1.3% in the first four months of 2012 and that could turn out to be the worst such showing since 1998. Caution: bumpy road ahead.
More PGM niche-related news for you today: India’s Geological Survey announced that nearly 20 million tonnes of “platinum-group elements” have been found in exploratory surveys across that country. Major PGM findings were reported from the Eastern State of Odisha and Southern States of Karnataka and Tamil Nadu.
Background market indications showed the US dollar steady near 81.40 on the index and the euro mired close to the $1.272 level against it, while crude oil gained 22 cents to rise to $92.75 per barrel. Dow futures pointed higher albeit the past week has not been kind to that market and we won’t even mention what European shares (or Asian ones for that matter) have been subjected to of late.
The latest blows to the EU’s financial system came from Moody’s which downgraded 16 Spanish banks and from Fitch’s which downgraded Greece’s sovereign debt rating to CCC (read: “poor quality with possibility of default”). Germany’s Finance Minister said that-as he sees it-the upheaval in the region’s financial markets might drag on for another two years. The G-8 meets today in the US and will try to once again “do more” to put out the fires in the system.
The heavy fall in gold prices has, of course, once again, given rise to a plethora of allegations about the market being manipulated by unnamed (okay, sometimes even named) evil sources working for the ‘Gubmint’ or for Mr. Bernanke, or for Dr. Evil, or for Auric Goldfinger. Well, here is something this author thought he’d never report on; a major "defection" in the pro-gold camp over to the manipulation-skeptic side.
None other than noted financial newsletter writer and gold advocate Doug Casey wrote a brilliant piece that appeared on LewRockwell.com in which he dissects the possible manipulation-related questions and concludes that they are little but rhetorical. Mr. Casey advises his readers to buy gold “even at current prices” but he instructs them to do it for “the right reasons.” Fighting “manipulation” is not one of them.
As Mr. Casey sees it, the “arguments about gold manipulation are more redolent of religious belief than economic reasoning.” Wow. That kind of straight talk, will hopefully not earn Mr. Casey the kind of e-mailed death threat that this author “enjoyed” last week, but it is sure to swell the “inbox” that he gets to read every day. Evidently, he did not realize that talking in “The Church of Gold” is strictly verboten. For his courage, applause is due.
Meanwhile, Business Intelligence Middle East notes that gold has not only experienced what it calls “heavy falls” since February, but that “Since mid-Q3, when equity markets turned on better US economic data, the price of gold has essentially followed risk appetite.” You have, no doubt, seen numerous headlines on the Kitco news site over the past half a year that have linked gold’s daily trials and tribulations to “risk-off” type of sentiment manifest in the markets.