Monday's near-$50 losses turned into Tuesday's near-$40 gains as month-end book-squaring and fund rotation activities continued to churn gold. Thus, the one asset that is supposed to help one get a better night's sleep is having many actually pacing around wondering what this kind of volatility might ultimately result in. While the yellow metal is seen as currently trading inside of the broad $1700-$1900 price band, the darting back and forth between the $1780-1850 areas has been quite vigorous and indecision patterns have been dominating the action for several trading sessions now.
Spot precious metals dealings opened firmer on Tuesday as the aforementioned departure for other pastures partially turned into a reverse stampede that was good enough to confuse spectating retail investors. Gold was bid at $1,827.80 the ounce and showed a gain of $39.30 on the open. Monday night's EW short-term update opines that the recent top at $1912.70 (August 22) and the subsequent decline to $1702.70 (just three days later) is shaping a downward reversal pattern that might initially draw bullion to the $1480-$1500 area.
If and when gold were to breach the $1650 support zone, the EW team believes, then the bearish implications of a complete five-wave rally from the 1999 low is considerable and that it possibly portends a correction of that entire advance in a process that should unfold over several years. How many, if any, believe that such a development is possibly in the making is the question of the day/week/month/year. It would be tough to find adherents to that stance at a time when $2500 gold promises/expectations are firmly at the top of the current headlines.
And, EW allows for that turn of events to be pushed back if gold manages to overcome the August 22 high in a renewed upward push by the bulls. But, hey, that's what a market makes. Hopefully, there is room for disparate opinion. For the moment, some of the gold/silver bulls are presently focused on heavily slamming the CME in various forums as having derailed the never-ending gold rally in a sinister, orchestrated way, with last week's margin hike (just as it allegedly did with silver back in May).
Silver added 66 cents to start at the $41.54 mark on the bid-side. The white metal seems to have begun its own descending pattern following the August 23 high at $44.28 the ounce (also in the view of EW analysts). The counter-trend bounce back up to the $41.90 level could mark a near-term stopping point and the $36.96 level still remains under scrutiny as the near-term objective for the bears. Vaulting above the aforementioned $44.28 price point would postpone the next selling waves in silver.
Platinum and palladium made sizeable advances this morning as well as traders saw short-term opportunity in the metals' proximity to the $1,800 and $750 levels and bought fresh positions. The former climbed $18 to open at $1,838 on the bid-side while the latter rose $12 to start at the $764.00 mark per ounce.
This morning was hardly an exception to this recent rule as gold gained ground along with the US dollar (such a tandem rise is lately being dismissed as becoming 'acceptable') and despite a near 1% decline in crude (behold the shrinking number or allusions to the gold-oil relationship as well, of late). While US equities climbed higher on Monday as investors gauged the damage caused by Irene to be lower than had been feared (somewhere in the range of $2 to $3 billion), overseas equities presented a mixed bag to investors.
On Monday, Greek stocks staged a 15% rally in the wake of a merger that created the country's largest bank (a process that the Greek government has been very supportive of). This morning the going got a bit rougher in the eurozone equity markets however. As the euro lost ground, the greenback benefited; it was able to recapture the 74-mark on the trade-weighted index with a rise of nearly 0.50%.
The eurozone's debt debacle also presented a fuzzy picture to traders this morning. Stories related to once again rising jitters about the situation made the rounds, but so did the news that Italy cobbled together a fresh austerity plan and that it was able to move a decent ($11 billion) chunk of debt instruments at auction (at lower rates, to boot), albeit observers characterized the reception the offering got as disappointing.
No word on what such market observers expected out of this Italian sale. Crisis? What Crisis? -Supertramp once crooned. Recent news out of the Old World have seen a decline in the frequency of the usage of the C word. Plus, Moody's and S&P have been relatively quiet after all the noise they both made this summer; something that has also been helping investor psychology. On the US side, currency watchers are watching for the release of the FOMC minutes to ascertain how the buck will react to the reading of those particular tea leaves.
Not far from the Fed's marble halls, US President Obama is likely putting the finishing touches on his upcoming jobs speech amid calls from his supporters to go bold with this one. Given what has been perceived as weakness on the President's part when he recently compromised with tantrum-throwing Tea Party and/or GOP troop leaders, Mr. Obama might just have to stop nibbling around the edge and show a clear-cut strategy.
For now, Mr. Obama has nominated Harvard Ph.D. (and current Princeton Professor) economist Alan Krueger to head the White House Council of Economic Advisers; a choice seen by many as a possible precursor to a more aggressive participation by the government in the process of revitalizing the US jobs scene.
Next week's address might indeed be his last/best chance to recapture whatever it is that has been lost in the process that brought him a recent 38% approval rating; a laborious task for a post Labor Day address. Given this morning's sagging US consumer confidence numbers, the President's job will more closely resemble a session with Dr. Phil when counseling a depressed patient on the sofa. Anyway, this might be a kind of speech you don't quite hear...every day.
Here is something else you do not see/hear very often: PIMCO's Bill Gross saying that betting against US sovereign debt was a mistake large enough to cry in one's beer about. In fact, it is safe to say one never expected to hear this kind of admission, given the level of confidence on display in the early part of this year.
Mr. Gross' wagers fired up the gold partisan community like few other official trading positions and/or opinions had in recent years. The fact that PIMCO showed total lack of confidence in the US, its debt, its currency, etc. was validation that was worth its weight in...you-know-what. After all, someone running an $8 billion shop must always be making only the best of bets. But, you know, fund performance (or the lack thereof) has a way of stubbornly coming up into official tables after some time elapses and it can be compared to...other funds' performance. So, sometimes, the best laid plans/wagers/assumptions can turn out to be in error. Where is the surprise in that? Keep looking...
Jon Nadler Senior Metals Analyst
Kitco Metals Inc. North America
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