Interest-ing Times for Gold

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After trying a test of overhead resistance near $820 gold prices retreated to the $810 area overnight but remained reasonably well supported by physical demand in the overseas markets. The euro skidded towards its lowest value against the dollar in nearly half a year as apprehensions about the state of the economy in the EU rose yet another notch. The common currency fell against a dozen actively traded currencies and showed that this is not simply a dollar-euro cross story of late.

Crude oil remained near $115 while the greenback recaptured the 77 level on the index and was last seen at $1.472 against the euro. Geopolitics remained somewhat of a concern as Russia did not appear to honor a cease-fire with Georgia (let alone withdrawing from the region) and as fears of a power vacuum in Pakistan became visible in neighboring India. Finally the BoE was in full hand-wringing mode as it pondered what to do about interest rates amid a rash carbon-copy economic syndromes that appear to have been imported from across the Pond (housing slump, slowing economy, rising inflation).

The mid-week session in NY got off to a fairly decent start, with spot gold gaining $1.20 per ounce at $814.90 as players watched the dollar eased back to one tick under 77 in early dealings, but had little else to look for, at least on the economic calendar. Firmness in oil may not be sufficient to hold the market up for the entire rest of the day. US mortgage applications fell to their lowest level in eight years as refi mania has obviously become a thing of the past. Now where will the money come from for that shiny convertible? The piggybanks remain empty.

Silver gained 3 cents to $13.27 and platinum rose $6 to $1351 while palladium lost $2 at $283 per ounce. Focus remains on trying to rebuild some of the recently opened gaping holes in gold's armor but worries persist about some of the background structural developments in the market. Reuters reports that: " SPDR Gold Trust, the world's largest bullion-backed exchange-traded fund, said on Wednesday its gold holdings dipped just over 1 percent on Aug. 19, its first outflow in more than two weeks. The trust GLD now has 651.37 tonnes of gold, its lowest holding in seven weeks, it said. ETF buying has represented a major source of demand for gold in recent years, but investors fear a sell-off of their gold holdings could have a significant impact on the price of spot gold."

In addition, a factor that our good friend George Gero over at RBC Wealth Management in NY has been warning us about quite frequently in his daily missives, has now made it onto the media's radar and - according to Bloomberg's Millie Munshi - goes something like this:

" Gold, down 21 percent from a record $1,033.90 an ounce in March, may be headed down after open interest in New York futures contracts for the precious metal plunged to the lowest level in 11 months. The CHART OF THE DAY shows open interest, or the total number of contracts yet to be closed, liquidated or delivered. This reached 365,611 on Aug. 12, down 26 percent from a four- month high on July 18 and the lowest since Sept. 10. Open interest on the Comex division of the New York Mercantile Exchange reached 593,953 on Jan. 15 -- the highest since at least 1994 -- before gold rallied another 15 percent to a record on March 17.

``Open interest in gold is down sharply and it just shows you people are running for cover from this market right now,'' said Ron Goodis, the futures-trading director at Equidex Brokerage Group Inc. in Closter, New Jersey. ``No one wants to get into gold now.''

Gold plunged 8.4 percent last week, the biggest drop in 25 years. Gold for December closed yesterday at $816.80 an ounce. Commercial users of the metal, including investors or mining companies, also have reduced their bets on price gains to the lowest since September. Net-long positions fell by 20 percent from a week earlier to 130,660 contracts on Aug. 15, the biggest drop and the lowest level since September.

``An outflow of passive and active investment money'' means ``it is hard to be positive about the out for precious metals over the next month or so,'' John Reade, the head of UB AG metals strategy in London, said in a report on Aug. 18. "

That's all for the morning brief on what up to now appears a slow news day. Keep the mice batteries fresh as trolling for impactful news will likely be the order of the day. More significant econ data is in the pipeline, as is Mr. Bernanke's set of remarks on Friday about financial stability. Of late, that has been quite the oxymoron. Linguists have already bestowed the honor of word of the year to 'subprime.'

Happy Trading