Serious price as well as psychological damage was incurred in the precious metals complex on Thursday as frustrated market participants got tired of waiting (as they ought to have) for the conclusion of the EU meeting and liquidated long positions en masse after sell-stops were touched during the late morning. Spot gold cratered by over $28 to touch lows near $1,546 and to also close at the lowest level in futures since late May, while spot silver slid to but four pennies above $26 and broke the all-important support shelf at $26.58 per ounce.
The white metal traded at its lowest price since November of 2010 and closed at $26.32 down 62 cents or 2.3%. Spot gold finished at $1,552 down $22.20 0r 1.41% per ounce. Platinum and palladium were not spared the brutal selloff either; the former fell to a low of $1,381 and the latter to a low of $557 – a fresh one–year low. Not that it was much of a “consolation” but crude oil also lost over 3% on the session and fell to an 8-month low before narrowing those losses late in the session.
Of course, Europe played a role in the “risk-off” kind of trading day that Thursday shaped up to be, and with news such as the deepening economic crisis in Italy, (once again) soaring Spanish and Italian bond yields, and lowered expectations for a crisis resolution out of the now 19th (!) summit of the EU leadership, there were plenty of justifications for such an attitude to rule the day. As regards the aforementioned expectations, they may have turned out correct; the late evening announcement that the EU has agreed to spend 120 billion euros to stimulate growth and to create jobs went over like a non-event in the after-hours markets. The debt debacle has devolved into Europe’s leaders being seen as playing more at this game of political grandstanding rather than some serious fiscal soccer:
Once the market adopted the bearish tilt on the day, no amount of mildly supportive news was able to right the listing ship. There was a mention of the fact that Germany could be softening its stance and might allow Italy and Spain to tap into the EFSF’s 440 billion euro kitty even though it remains staunchly opposed to the creation of a region-wide bond. There was at least one news story that Turkey is beefing up its Syrian border troops after it warned that the downing of one of its fighter jets will not go ‘unpunished.’ Neither story lifted the euro back above $1.25 or made for fresh gold safe-haven oriented purchases. The common currency is still being seen as reaching $1.20 against the buck inside of 90 days’ time. It finished at 82.72 on the trade-weighted index last night.
Market talk attributed some of the losses in precious metals as well as part of the Dow’s earlier (1.2%) losses to the surprise but huge victory that the US Supreme Court handed to President Obama with its affirmation of a key part of the administration’s healthcare overhaul. "Individuals are perceived to have less to spend on other goods and services, and companies are less willing to take on additional projects, so you see industrial metals as well as gold and silver sell off," said Phillip Streible, senior commodities broker at futures brokerage R.J. O'Brien. Bloomberg News’ survey of gold analysts however turned in its sixth weekly bullish forecast for gold last night with a tally of 16:10 voting for higher prices next week. The projections have obviously missed their targets for the better part of that month-and-a-half as you will see below.
Meanwhile, Credit Suisse commodity market specialists are in the process of revising their price forecasts for gold, oil, and copper in coming weeks but they have already given indications that, in their opinion, there are no big price advances being factored in, in the wake of the recent losses in the sector. The difficult situation in Europe, the modest growth levels (1.9% reported yesterday by the BEA) of the US economy, and the apparent slowing of China are all converging to result in such price projection revisions, and not just those being made by Credit Suisse. Here is another take on the matter by market strategist Yoni Jacobs as told on CNBC the other day. Ready for $700 gold? The gentleman apparently is.
Also of note is the fact that ABN Amro cut its [annual average] forecast on gold from $1,600 in January to $1,550 in May. Barclays reduced its outlook by 8% to $1,716 and RBS cut its forecast by $25 to $1,725. Morgan Stanley cuts its gold price average projection by 8.1% to $1,677 yesterday. The ETF Guide.com’s Ronald Delegge remarks that “the early warning signs behind gold’s fall beneath key trading levels have been months in the making.”
He added that “gold flirted with falling 20% from its peak multiple times during the second quarter and has already forfeited the gains from its strong start earlier in the year. In the three months up through the May 24 market close, the SPDR Gold Shares (GLD) lost 12.09% in value. From a technical perspective, GLD is trading below both its 50 ($158.57) and 200 ($164.63) simple day moving averages, which means the trend is still down.”
The final trading session of this week started with a “euro-bang,” as the bulls were emboldened by the surprise overnight announcement that the EU leadership has agreed to recapitalize certain banks with funds from the EFSF and that a single supervisory banking agency might be created. However, gold is still set to finish Q2 with its worst decline in eight years and that is a fact that ought not to escape the perma-bullish crowd.