By Jon Nadler
Weighed down by a retreat in crude oil and the dollars ascent to 72 on the index, gold prices took a nearly 2% tumble in the early morning prior to the New York opening.
Yesterday's comments by Eurogroup head Mr. Jean Claude Junckers that the recent pace of euro appreciation is undesirable sent yet another clear message that officials could be seeing the 1.60 level as some kind of line in the sand beyond which the I word could replace such adjectives.
Last week's G 7 jawboning had apparently been misunderstood by markets. Thus, the sharp clarification issued yesterday, a day when the currency threatened to break that evidently important barrier.
New York spot gold opened sharply lower, having hit a low of just above $912 earlier, but was still showing a $22 drop at $917.60 bid. Evidently, the markets got the euro message this time, and then some. The US dollar was trading significantly higher, at 72.20 on the index, and at 1.5787 against the euro. Some crude oil longs evidently unwound as well, as the per barrel price fell to $113.75 this morning.
News that Citi lost $5.1 billion in the first quarter actually came to benefit the dollar, as the write off was not as large as had been expected, thus raising the possibility once again that the worst may be over for the big firms out there. The bank is apparently in the midst of an all out effort to clean up and shape up after a total of about $39 billion it had to send to the shredder on the subprime debacle.
Gold now threatens to undo this week's handsome gains and could finish at a net loss, should it settle beneath $925. The apparent lack of conviction and the stalls in momentum seen this past week were seen as problematic by some analysts. Silver fell by 51 cents on the open, quoted at $17.73 while the noble metals also reversed most of their previous gains with platinum losing $34 at $2018 and palladium shedding $8 at $451 per ounce respectively. Copper, which headed south on US slowdown apprehensions dented silver this morning, but other base metals were down by about 2% as well as the complex was being vacated by weak longs.
Our good friends at China's CCTV inform this morning that:
Thursday was a milestone in China's financial market it was the 100th day since China launched gold future trading. 2.5 million contracts were traded that first day, with turnover of 556 billion yuan. But the market has been lukewarm since then. In the past month, investors have dumped their stocks, and the price of major contracts has fallen by nearly a fifth.
At the trading hall of Beijing Jingyi Future Brokerage Company, many investors are holding a wait and see attitude. Mr. Zhang, an investor said The direction of the market isn't clear. I need to watch for a while. Investors hailed the launch of gold future trading at the beginning of the year. Many future brokerages saw more new accounts opened in that time than they have seen over the past two or three years. Zhang Bizhen, General Manager of Beijing Yijing Futures Brokerage said Although many investors opened accounts, only a few have actually done any trading.
The minimum for a contract is 1000 grams. The risks and profits of future trading are both large. And the frequent fluctuations in the international and domestic markets recently have made many investors hesitant. The gold future price is currently higher than the spot price due to the appreciation of the Chinese currency. Some are worried about maintaining value in the future market. But experts say it's a common phenomena and can be an opportunity for arbitrage.
Whether the skittishness seen in this lukewarm start to gold speculation in China is a result of a wait and see on the gold price or an expression of preference for physical, remains to be seen. In any case, it serves as further confirmation that conventional wisdom is frequently wrong when it comes to early projections.
Today's question becomes How low? and Where does support lie? although the better query is where the dollar might end up and oil as well. At least the tinfoil clubs will have something to talk about or, at least, theorize.
Jon Nadler is Senior Analyst with Kitco Bullion Dealers Montreal