Metals markets opened marginally higher on this US Election Day as the US dollar traded virtually flat and as crude oil advanced by about thirty cents per barrel. Speculative participants appeared to be willing to take only small bites at the market as uncertainty over the presidential election and a good number of bears still prowling on the scene kept risk appetite at minimum levels. Spot gold gained $4.90 to open at a dime shy of $1,690 per ounce while silver rose eleven cents to start the session at $31.30 the ounce. Platinum bucked the trend with a $5 per ounce loss at $1,536 and palladium climbed only $1 to $611 the ounce. No change was reported in rhodium at the bid level of $1,175 per ounce.
Last Friday’s near-$40 plunge (it was the largest one since June) in gold prices resulted in a dramatic reassessment of the bullishness that had pervaded the speculative crowd’s mindset since before the advent of the Fed’s QE3 program. Thus instead of being able to talk about new highs above $1,800 and/or $1,900 by now, the analytical crews at various financial publications have had to report lows in gold which have all but broken important 100- and/or 200-day moving averages near $1,670 per ounce.
If we need to mention silver in this story (okay, we will), we can only note that the white metal (basis the December contract price) shed 4.1% in last Friday’s debacle. Silver = Gold on Steroids (in either direction) we have noted here previously. Bullion Vault’s economist Ben Traynor noted that “The[$40 down] move takes us back to where we were just after [Fed Chairman] Ben Bernanke’s Jackson Hole speech at the end of August, and offers further confirmation that September’s QE3 buzz has now well and truly worn off.”
Veteran gold market analyst Ned Schmidt was a tad more…blunt with his take on Friday’s events and where they might now lead. He wrote that, “Until this [Friday] morning the [gold] market was assuming that the Federal Reserve would keep making QE-3 bigger and bigger. That belief was supporting gold, even though it had already rolled over. Note our past comments on how the mini parabolic had already been broken. We have noted several times that the failure of this pattern is always associated with pain. Friday was that pain.”
Mr. Schmidt then went on to assert that “As is evident to today, Gold seems to have no bottom. This reaction is not going to be reversed in a matter of days. Gold is going to be very vulnerable to selling, and buyers will be few. Remember, we are not talking about cash buyers driving the gold market on Friday, or recent weeks. Immature children are trading futures, and they act like lemmings. Gold has broken down in the charts this morning, and that is not going to change any time soon. As a discontinuity, we can almost throw out the chart before Friday. And contrary to suggestions of amateurs, chart damage did occur. A complete rebuilding of the chart is necessary, quite possibly from lower levels.”
For the time being however, late Monday night EW analysis indicates that we might witness a partial retracement of this latest large decline (from $1,800 to $1,671) owing to the fact that the Daily Sentiment Index at only the 9% level shows very few bulls left ‘roaming’ the market prairie. As a point of reference, back in May, when gold touched its 2012 lows at $1,527 the DSI showed a reading of only 5% bulls. The small traders’ commitment levels, albeit having declined from their largest position in 10 years, continue to show that what EW calls “the public” is still “overcommitted” to gold.
At any rate, at this juncture, despite Monday’s tepid, near-half-percent bounce in prices, a lot of repair work is still necessary in order to rekindle some of the cocksureness that had been on display up to the 5th of October peak in gold near $1,800 an ounce. EW opines that a bounce from here could carry gold to as high a level as $1,725 – give or take.