Good Morning,

The overriding overnight overseas theme was...drum-roll....risk aversion. Yes, good old-fashioned shunning of most assets in favor of short-term parking spots in the dollar and the yen was manifest among investors as the week got underway and is expected to bring with it not so robust second-quarter earnings reports from various parts of the globe. Little wonder that such angst was flowing under the apparently calm surface waters of these sleepy summer markets. Philips Electronics profits fell 94%, Google might report slower growth, and Intel is expected to report a hefty a drop in earnings. Big Blue will also chime in later on. As well, rising political uncertainty, brought on by the upcoming late August elections in Japan added to market nervousness.

Gold fell in London following the aforementioned gains in the dollar and crude oil's inability to make any convincing case for spending much time above the $60 mark. Updated forecasts on the economy are due this week, and while markets would likely not welcome any tightening of rates posture in the upcoming testimony, early next week, of Mr. Bernanke before the US House, the same markets are fully expecting that such hikes will be on the menu within one year. Currency analysts, meanwhile, are turning more bullish on the dollar as well as the yen as the green shoots of recovery are suddenly showing a lot of brown spots...

New York spot gold prices got off to only a small bit of a rocky start for gold bullion, and some degree of recovery is thought to be possible after last week's 2% loss in prices. The yellow metal opened with a $0.30 drop, resuming last week's decline at $912.70 per ounce. The $900 mark remains in the target as the next likely testing of support area, and $880 cannot be ruled out either. Last week's calls for a second US stimulus package round fell largely on deaf gold market player ears. As of now, only sustained closings above $935-$945 could reignite the bullish tilt in this market. The $915 area of previous support - now seen as resistance is the first prize for the bulls the have to take home.

Silver lost another 14 cents on the open, quoted at $12.51 pr ounce. Platinum also continued to drift lower, opening with a $13 loss at $1092.00 per ounce. Palladium was off $ at $230.00 an ounce. Carmaker Honda announced plans for an expansion of its line of hybrid automobiles in an effort to compete with rival Toyota. Not much else was in the news this mid-July morning, other than a steady dollar at 80.10 and a stagnating crude price, at $69.04 per barrel.

We bring you now, the COT report for the recent reporting period, as offered by the sharp eyes and productive pens over at GoldEssential.com:

The weekly CFTC Commitment of Traders report showed that open interest in gold futures (excluding options) dropped 6,214 contracts or 1.64 pct in the week to Tuesday July 7. Over the reported period, net speculative length dropped 0.03 pct or 42 contracts (0.1 tonnes), the consequence of 3,619 longs being liquidated and 3,577 shorts being liquidated on behalf of speculators. Speculative net length as such was at 164,144 contracts (510.5 tonnes). Over the same period, the price initially fell $2, from around $925 to $923.

The drop in speculative long positioning suggests long liquidation on the COMEX has taken place, although given the witnessed short-covering also points to a drop in overall market participation, and as such extended the speculative net length to open interest ratio. Comparing this to the same week one year ago, it is clear that open interest is markedly lower at -15.8 pct where speculative net long positioning fell 13.4 pct year-on-year. The price of gold has risen by 0.41 pct year-on-year, visible on the following graph.

As such, analyzing the year-on-year movements, we conclude that prices are comparable to those one year ago - although looking at the underlying -, we see that the non commercial speculative net length to open interest ratio has risen from 0.42 in the same period last year to 0.44 in the week to June 30 (+1.6 pct in comparison to last week). This ratio reached an over 2 year peak in the week to June 9 2009 at 0.49, after which overdue liquidation was seen unfolding and pressurizing the ratio to 0.43 (-11.6 pct). Nevertheless, the apparent long-liquidation over the latest week has failed to extend this ratio to the downside, given the nearly equal drop in non-commercial short-positions, which as such eventually mainly impacted the open interest component of the ratio.

The ratio hit a 2 year low of 0.15 in the week to June 26, 2007, when gold prices were around a low of $640 an ounce. Looking at this historic price data, we see that this [2 year] low reading on the non commercial speculative net length to open interest ratio coincided [in 2007] effectively with the lowest gold price in over 2 years. As such, we come to the same conclusion as last that one written last week, we feel that this ratio remains stretched for now, and still doesn't bode well for a sustainable move higher on the long-term.

Meanwhile, the flow of gold out of women's bedroom treasure chests and into the furnaces of the dough-for-gold firms that have sprung up at a faster pace than Starbucks branch openings many moons ago, continues with hardly any pause. This, despite rising howls of dissatisfaction among consumers who are starting to realize that perhaps getting 75% back on what you thought was $910 gold means you are actually getting (and this is really interesting- albeit coincidental) about...$680 for said gold. Grandma would not approve of what these quests for insta-cash are doing to her gifts from the 80's. This writer believes you ought not settle for anything less than 5 to (maximum) 10 percent under spot prices for your bauble. That is, if you are wise to sell them, at all. Prudent Press reports (and you are taking notes, right?) that:

Numerous complaints about payout and customer satisfaction have lead to a significant distrust in this industry. One popular cash for gold company that recently purchased a large media spot during the Super Bowl has received close to 400 complaints in the last 36 month according the Better Business Bureau.

With this number of complaints, customers should exercise caution when dealing with a precious metal dealer. During a recent independent study by a major news corporation, one metal dealer was found to pay approximately three times more for your unwanted jewelry than its average competitor. When dealing with cash for gold company, there are a few things you should watch out for - to avoid being scammed:

  1. Are they BBB (Better Business Bureau) Accredited?
  2. How long have they been in business?
  3. Have they been reviewed in any independent studies?
  4. Are they willing to send your jewelry back if you don't like the appraisal?

Make sure you are able to answer in the affirmative for all of these questions about the company.

At the time of this article gold is approximately $910 per ounce of gold. By sending in your scrap gold, you should be able to receive at least 80% of that value. If you do stumble upon a website that you feel will give a fair price for your gold, do not be hesitant to request your free gold pack. The gold pack will typically have more information about the company. Some companies will even state how much they are willing to pay you for your jewelry before your send any precious metals in by requesting your free kit. This is a sure way to safely exchange your metals for cash.

More information about the company's gold-back guarantee will also be in the free gold kit you will receive in the mail. After you send your gold, silver or platinum in the envelope, a few days later you should receive a check in the mail or even be paid by PayPal if you so choose. Most companies guarantee that they will pay within 24 hours of receiving your precious metals.

Typically, legitimate cash for gold company will allow you at least 10 days to decide if you accept the appraisal. A company will generally not allow more than 15 days for you to decide if this check is fair since cash flow can be difficult for businesses dealing with slim margins and paying high prices for your unused jewelry.

If you do not accept the appraisal, they should send everything you gave them right back to you. This should be free of charge, as well. Also, this should not be a hassle. There is a lot of documented research into customer service at the large cash for gold companies, as well. You may read up on reviews and ratings from actual customers. Many have documented the exact jewelry they had sent and then got in return.

Remember to ask yourself the four questions listed above before deciding on which cash for gold company to send your jewelry to. You can always decide just to get the free gold pack first and then decide if that company is right for buying your gold. Requesting multiple gold kits is typically the best choice.

There you have it. The possibility of getting $680 for an ounce of gold in North America, while someone else (in South Africa) will offer you gold coins for $1320 per ounce. Nice spread, eh? This is the same planet, based on the same $910 gold price, folks. However, someone in South Africa will likely be very happy in coming years. The local law prohibiting gold bar ownership (on the books since 1911) was just lifted. Thus, South African gold bugs can now consider gold bars at reasonable premia as possible additions to their portfolios. Coins and jewelry, often sold at exorbitant (145 percent or more) markups have been the only choice up to now. Rejoice.

Happy Trading.