Gold lost nearly $60 in overnight trading action and it did so despite the US dollar retreating from the 76 mark on the trade-weighted index. The yellow metal's decoupling from the US dollar and the emergence of a parallel trading syndrome between it and the greenback has been manifest in recent weeks as disoriented investors have sought protection from the maelstrom in various markets and regions around the globe.
As well, gold continues to exhibit a degree of volatility which is anything but comforting and it certainly does not smack of what a reserve currency is thought to offer under certain (even abnormal)l circumstances. Over the past two weeks, bullion has set two new records at roughly the same level (raising questions about a double-top); it fell more than $200 in two sessions, then recouped all of the losses, and has now declined more than $100 over the course of 24 hours. Technicians are also mindful of the presence of a bearish divergence in gold' Stochastic Oscillators versus its declining open interest levels.
The recent metal's chart is not only looking like a bad EKG, it is likely giving arrhythmias to many who have sought it out for the protection it is presumed to offer at a time when everything else is wobbling in scary fashion. Thus, one has to once again remark that this type of roller-coaster ride in gold is anything but 'normal.' This is the one asset that is presumed to offer a better night's sleep; it has instead kept many a small retail investor fully awake of late.
There has also been some renewed attention being paid to the presence and possible influence of gold-based ETFs in the marketplace. Analysts have not been able to ignore the fact that GLD bullion holdings (at over 1,200 tonnes) are larger than most central bank stashes, save for the top four.
The take-away conclusion in the particular Investment University analysis being mentioned here is that the (more) recent gains in the price of gold are not supported by empirical demand data and that gold-oriented ETFs may have helped drive gold into a bubble. More importantly, even assuming that this is not the case, even up to this juncture (and that's a stretch) the influence that ETFs will exert on prices (and physical supplies) when/if a bubble pops or gold turns lower, will be...noteworthy, to say the least.
This morning's spot precious metals' market opening offered...more of the same. A decline of $40-$45 out of the starting gate was noted in New York spot prices; the bid came in at $1,833.70 per ounce. Silver lost another full dollar plus three pennies; it opened at $40.93 after having touched $40.38 in overnight dealings. Platinum inched closer to the $1,800 mark as it lost $21 to open at $1,831.00 the ounce.
Saab Automobile has filed for protection from its creditors for the second time in two years as it seeks to reorganize itself, said its owner, Swedish Automobile NV. The firm's summertime engagement to two Chinese auto firms has yet to send any cash into its corporate coffers. As things stand now, this could turn out to be a Phoenix-like tale, or a...SAAB story.
Palladium dropped only $3 and opened at $747.00 the ounce. Our perception that it (palladium) may offer a somewhat lesser degree of downside risk has thus far been corroborated by the noble metal's recent behavior. Palladium has traded within a 5% band in price since mid-August (consider that gold has lost 2% overnight and silver has fallen 2.3%) and it continues to offer better supply/demand fundamentals than, say gold.
Referring to such fundamentals, HSBC analysts note that although gold has much to recommend it, [they] expect high prices to deter jewelry and other noninvestment physical demand and to increase scrap supply. Rhodium remained bid at $1,850.00 per ounce based on the latest indications from New York trading rooms.
Over in Europe, following the biggest ever decline (9.9%) in the Swiss franc versus the euro, the Swiss National Bank took a wait-and-see attitude to learn if its efforts have indeed deterred the heavy influx of safe-haven-seeking monies. No sooner had the SNB turned the fire hose on to douse the red-hot franc, that another currency began to emerge as the target of haven-seekers worldwide; the Norwegian krone.
The country's currency is now being...crowned as the next safe-haven must-have by many. This, despite assertions by its central bank that the crown (krone) is not liquid enough to play that role. The fact that the Norwegian currency has vaulted to an eight-year high against the euro did elicit some fear-laden statements from the central bank's Governor in which he said he hopes to avoid the Swiss situation.
Maybe enough attention will be paid to that currency from here on out so that the SNB might not have to go out and buy anywhere from half to a full trillion dollars' worth of foreign currency in order to stem the hitherto incoming tsunami of money that threatens its unique economy.
In the wake of the declaration of currency 'war' by the SNB, the CME (no surprise) raised its margin requirements for trading Swiss franc futures effective today. With gold (and silver) doing what they have been doing of late, the SGE over in Shanghai will raise its margin requirements for trading them, effective on Friday. The CME following suit is quite possibly a question of only when, not if.
Then, the most bullish of forecasters of the Swiss franc- Wells Fargo- scrapped its calls for 1.06 in the franc-euro exchange rate; in essence acknowledging that the SNB means business. Swiss firms of all types cheered the SNB's intervention yesterday. Looks like you may be still able to afford that bar of Lindt and/or that swanky Longines timepiece...for a while.
Until tomorrow, keep some Sominex handy, please.
Jon Nadler Senior Metals Analyst
Kitco Metals Inc. North America
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