Friday’s last minute “I won’t go home flat just in case” type pop in gold prices netted the yellow metal a $6.40 gain on the day but it fell short of erasing the 1.9% decline that gold suffered on the week. Polled market observers had gone into last week’s action convinced that bullion was going to build on the large gains achieved on the previous Friday. Alas, Fed Chairman Bernanke took the bullish wind out of their speculative sails with his poker face flavored (as regards further QE) presentation on Capitol Hill.
The new trading week got off to a relatively strong start overnight as gold prices opened firmer overseas and they briefly retook the $1,600 level shortly after the market opened at 6 p.m. New York time. The bulk of the gains were driven by the perception that the rescue plan for Spain’s banks would be euro-beneficial. As it turned out, at least during the evening hours, the euro climbed to above the $1.26 mark and the US dollar dipped briefly amid similar expectations of some temporary success in addressing the region’s crisis.
The Commitment of Traders Report (COTR) for the week ending Tuesday, May 29, 2012, tallied a notable increase in long gold positions, and a concurrent reduction of short positions. However it should also be expected that a sizeable number of those new long positions have already been stopped out or unwound in the aftermath of Mr. Bernanke`s testimony to the US Congress committee on Thursday and in the wake of the resulting aggressive sell-off in gold.
The silver market’s speculative positioning shows that only a modicum of unwinding has taken place among shorts and as such the development still points to a metal whose players have not abandoned their mostly bearish view of it. A somewhat similar lack of conviction is also apparent in platinum; however the ETFs have come back as net buyers into palladium and are showing a distinct preference for it within the PGM space.
While still remaining of the opinion that the “set up is in place of a break under the $1,527 support shelf, finally” Friday night’s EW update advises that “while not expected, a rally above last week’s $1,641 high” could alter the near-term forecast and suggest a more “protracted upswing” was underway. Whether or not an upswing in the share price of Barrick Gold (following the ouster of its last CEO) is in the cards, remains unclear at this point. It is, however, interesting to note that the very vehicle which the miners clamored to launch back in 2004 – the gold ETFs – may be the culprits behind the “performance dysfunction” of some of these stocks.
As MSN Money points out, “The pressure on the [Barrick] share price was also intensified by a growing investor taste for gold-backed exchange traded funds (ETFs). Demand for these financially engineered products has tripled in the past five years. They offer pure leverage to gold prices but without the risk of mining accidents, environmental judgments, cost overruns and asset write-downs.” Here is a classic case of “be careful what you wish for” and of a Frankestein-ian – “It’s Alive!!!!” all rolled into one.
Speaking of market forecasts and of the $1,640 value level in gold, the latest projections on gold from the CPM Group indicate that the firm expects the yellow metal to average…$1,639 per ounce this year. The consultancy said that “precious metals are at a cyclical peak in a secular, long-term bull market.” CPM also projected a $30 per ounce average price for silver for the current year.
The research and advisory firm identifies two of the components that are contributing to this “cyclical peak” in bullion prices as being: a) a waning investments demand owing to near-record prices, and b) a tempering of previously overblown anxieties about the system. CPM notes that “One should realize that a bull market, in any asset, carries with it the seeds of its own ending. Prices ultimately rise to levels that shift supply, demand, and investment demand.
The analytical group at CPM also cautions that “This is an immutable economic law, although one which investors repeatedly ignore, whether it is in gold, copper, bank stocks, real estate, Internet stocks, or so many other assets.” CPM said that investors [have] now distanced themselves from “the unbridled, sometimes irrationally overblown, fears of imminent financial system collapse and economic depression that had been driving them to buy enormous amounts of gold and silver regardless of the price, until September 2011 [when prices peaked at $1,920 and change].”
Spot metals dealings in New York this morning opened on the plus side for all components in the complex but gold. The yellow metal was quoted at $1,591 down about $3 while silver climbed 15 cents to $28.68 the ounce. Platinum was up $16 at $1443 and palladium advanced $6 to $619 per ounce. No changes were reported in rhodium at $1,225 the ounce. In the background, the US dollar held firm near 82.25 on the index while the euro retreated to just above $1.25 and overnight gains in Spanish equities and oil were pared after the effects of the Spanish bank bailout news faded a bit.
In general, while the news from Spain did encourage gloomy euro players initially, they are still seen as having greeted it with only tepid sentiment and they appear to now be anxiously focusing on the upcoming Greek elections on the 17th. Certainly, judging by the yield on Spanish bonds (now at 6.38% and up from Friday’s 6.24%) suggests that the market is looking beyond the bank rescue and is beginning to price in a sovereign debt “problem” (we don’t want to jinx this by using the word “default”). Some “vigilantes” have already begun looking even beyond Spain and are pulling Italy into the crosshairs.