Gold prices opened on the plus side for the midweek session in New York. The metal's gains were slim at the open, as rising global risk appetite (along with most stock markets) diminished bullion's momentary safe-haven appeal. Spot prices had shown near $6 losses prior to the start of trading. Current indications have gold quoted at $962.50 per ounce. More arm-wrestling is expected on the day, as clashing bulls and bears conduct their own 'stress test' of this value zone. Thus, it may well be a day to see both ends of the current spectrum on the boards: $975 and $950. For the moment, bullion is in the middle of that channel.
Silver held on to a nickel's worth of gains at the open, quoted at $13.81 per ounce. Platinum was flat at $1041 per ounce, and palladium dropped $2 to $197 per ounce. Crude oil made decent advances, buoyed by optimism on the future of the economy. The dollar continued above 87 on the index, adding 0.45 to values. Analysts at UBS expect the euro to sink to $1.25 against the greenback within 90 days.
Additional selling in the overnight hours pushed gold bullion prices down to the pivotal $950 neighborhood, one that proved to be a fairly tough one for the metal during its previous visits. The question as to whether a double top of elephantine proportions might be in the making, has now cropped up in several communiques from the analyst camp of the market. Take the Rorschach test and see what you glean from the red squiggles.
For the moment, such 'heresy' is being drowned out by the choir of 'To Da Moon! and Back up the truck, Honey! coming from the ever-reliable hyper-bull quarters. This is but a correction - so long as it turns out not to be the case, and then new labels will be applied to the event. Thus far, the three days of selling have deflated last Friday's confidence levels only superficially, although the latecomers to the February rally are showing signs of apprehension.
Dollar strength was manifest in the overnight markets, following the two-pronged assault on bad economic news coming from the Bernanke testimony and President Obama's primetime speech last night. Recognition of the serious current situation was offset by healthy doses of optimism coming from each gentleman. Audiences were promised a revival in the US economy after certain difficulties which are still present on the radar, are overcome.
The President recast the crisis as an opportunity to carry out nothing short of a remake of certain sectors of the economy, and address long-festering issues in others. Mr. Obama said that the 'cost of inaction will be far greater' than the costs the nation will endure on the way to daylight. Although somewhat short of specifics, the speeches given yesterday have placed bank nationalization fears on a lower shelf for the moment, while giving hope that niches such as the auto sector can be reshaped from the ground up, and rendered not only viable but vibrant, once again.
An uncommon warning about gold and attitudes towards it emerged from some unlikely quarters overnight. The Secretary General of the Beijing Gold Economic Research Centre had words of praise for the metal, but also delivered words of caution to those who are caught up in the speculative fever that surrounds it. China's CCTV reports that:
As financial markets reach some of their lowest points in decades, gold continues to shine in China. But analysts warn there could be high risks involved when buying gold now.
Gold investment in China is starting to look like a crowded marketplace. It's being boosted by the rising prices and market demand. And the unpleasant performance of the US stock market, low-expectations for the US dollar, as well as investors' concerns over the banking crisis have also pushed up people's need for gold.
Liu Shanen, Secretary General of BJ Gold Economic Research Center said Over the past 5 years, when gold investment was booming, more problems tended to appear in the market. Many investors have been hit really hard because they couldn't contain themselves, and continued to pour more money into it. So this is a critical time now where investors should be cautious with their gold investment.
Analysts warn that investing in gold can be quite risky. They say that small and medium investors should act rationally at the moment. Liu Shanen said Gold can be a very good product for holding its value. But the risks for paper gold and gold futures are nearly 10 times bigger than real gold investment. Buying gold related stocks can also be a risky move.
Analysts say that gold is a very solid asset. Buying physical gold does have advantages compared with other investments. But they stress that investments in gold-backed financial products and paper gold should be left up to the professionals.
Before jumping to conclusions, do note that the admonition is aimed at trend-following lemmings who, frustrated by their inability to get ahead in many assets, have chosen to follow the appealing shortcuts offered by leverage products and various gold other proxies in their quest for the quick buck...ahemm, yuan. As is the case in other market examples (dot.coms, FL real estate, tulips, etc.) the uninitiated stand to lose a lot more than just their pride when dabbling in assets they only understand because their brother in law has made money in them.
Just a bit of Chinese wisdom to calm those lascivious profit urges.