Many Sold In May & Ran Away

That old adage took on a whole new meaning this time around. Last month was quite unkind to gold and to the other precious metals as well as to commodities overall. The headlines however are heavily tilting towards singling out just how bad gold’s price performance turned out to be this May. One computation found the 6%+ decline in prices to be the worst one since 1982; i.e., in 30 years’ time.

Another metric shows that the yellow metal has not fallen for four straight months since the start of the bull cycle back at the turn of the millennium. Still another calculation showed that gold futures experienced their longest slump since the year 2000. The latest EW midweek analysis indicates that albeit gold bounced on Wednesday and on Thursday the breach of the support shelf at $1,527 is “a matter of time,” and that the figure has become the focal point for many an investor.

For the time being, the US jobs data (which – at 69,000 jobs added – was not at all what the markets had hoped for) could provide the fuel for a short-term bounce towards the $1,600 area and once again reignite hopes for the Fed to offer some form of QE. More about that contentious topic will follow below.

A “meaningful market close” under that pivot point would “eliminate the possibility that a bullish triangle has formed” and that the initial downside price target of $1,300 could then be aimed for. EW believes that a five-wave rally from August of 1999 to last September’s high of $1,921.50 has ended and that gold could be in the process of correcting that entire advance in upcoming periods. There is still not much to cheer about on the physical offtake front as the latest calculations reveal a 33% slide in Indian gold and silver imports on the month of April. So much for festival season coming to the market’s rescue thus far this year.

Doing the math is a pretty precise…exercise and it leaves no room for positive spin. The negative performance math stacks up as follows for the month of May: Gold (based on the PM Fix): is down 6.8% an ounce. Silver (as based on the London Fix) has lost 9.5% per ounce. Platinum has declined by 11.5% an ounce. Palladium also fell by 11.5% per ounce. Rhodium has dropped 6.9% the ounce. US stock indices lost about 6% on the month as well. Talk about “sell in May and walk away” it was more like “sold all in May and ran away.”

Black gold, on the other hand, might just walk away with the “L” prize for the past 30-day period with a 25% decline from $105 to $84 a barrel. The commodity is now in a bear market. On the other hand, the US dollar started last month at 78.88 on the trade-weighted index and is currently above 83.30 on the same. The gain on the month is 5.6%.

The euro was at $1.32 and is presently at $1.23 tallying about a 7% loss on the period. The common currency touched an 11-year low against the Japanese yen overnight. The manufacturing PMI in the eurozone fell to 45.1 according to the latest of tallies and it shows a region in economic contraction. When and if “contraction” morphs into “contagion” is the key item to watch for.

Overnight, spot prices once again dipped under the $1,550 level, touching lows near $1,543 per ounce. The US dollar continued climbing and reached highs above 83.30 on the index. This morning’s opening quotes in New York had gold trading at $1,550 with a loss of $10 per ounce. Silver was down 44 cents at $27.32 at the start of the final session of this week. Platinum fell $21 to $1,390 and palladium dropped $13 to $597 per ounce. Crude oil suffered additional heavy losses and fell to just under $84 per barrel.

Numbers do not lie despite the numerous attempts at “damage control” coming from the perma-bull camp. It remains the order of the day to still associate bearish analyses with authors who are not of the Homo genus but belong to some reptilian order. On the other hand, a number of statements of a different type than what we have been habituated to since late 2008 have also slowly started to make their way into the financial market news flows. Whether or not these market characterizations are contributing some balance to a hitherto hugely bullishly-tilted paradigm remains to be seen, but do consider what some respected gold trade observers have been saying of late:

  • "If we had momentum upwards, there are still plenty of people who are bullish and who would buy into that, but at the moment, you have pressure from a strong dollar, or perhaps more accurately a weak euro, and people are just a little bit wary," Mitsui Precious Metals analyst David Jollie said. “If you are looking to make a profit, and you think it will be $20 lower tomorrow, there's just no reason to buy it today."
  • “Gold is behaving like a classic commodity and declining along with the pack,” Adam Klopfenstein, a market strategist at Archer Financial Services Inc. in Chicago, said in a telephone interview. “It’s like the dead man walking.”
  • “Though our long-term expectations for the gold price remain very positive, we believe there may still be downside risks if the U.S. dollar continues to remain strong,” said Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt.
  • “Investors don’t have the same strategic approach to gold as before,” Edel Tully, an analyst at UBS AG, said in a report today. “Much of the exposure to gold has been on an intra-day bias of late. The market is too highly correlated with risk for many participants’ liking.”

We could go on, but, you get the point. That type of shift in the number of diagnoses of a situation that has been developing since February is, indeed, notable. It does not yet however alter the intensity and the number of guarantees of absolute records in gold yet to come, even if the timeframe has been pushed back to an indefinite future by current “events.” Well, it would not be a market – especially a gold market – if such emotionalism were to be lacking. So, we have to conclude, stay tuned for more of the same -from both camps.

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