Things Are Freezing All Over The Place

Bullion prices wiped out yesterday's hard-fought gains as well as their initial overnight advances in the wake of China's implementation of lending freezes on local banks. The US dollar advanced rapidly once the news was out, gaining as much as 0.35 on the trade-weighted index (last seen at 74.50) and once again pushing the euro towards the precipice boundary represented by the 1.40 mark.

Alas, rising risk aversion (on the Chinese news as well as on the possible freezing or downgrade of Japanese sovereign debt ratings) did not manage to come to gold's aid overnight, and it was seen as being sold off by speculators in a nonchalant manner, along with other commodities. Similar liquidation patterns may emerge as February COMEX options expire later on today and players clean particular slates. About the only potentially gold-supportive agent for the remainder of the week might be a dovish Fed statement on Thursday, which could elicit some profit-taking among dollar longs.

On the physical front, the interest appears less than eager. Thus far this year, despite remaining the darlings of the world of ETFs, the bullion oriented funds have been stuck in ice and actually lost gold as: investment flows in gold equally proved little supportive, as movements in 2010 in the fifteen by Goldessential.com monitored gold-backed exchange-traded funds have slipped by nearly 22 tonnes, losing lustre in favor of recently launched PGM-backed vehicles.

New York spot metals dealings opened lower this morning, with gold off by $9.40 at $1087.70 per ounce as against the firm greenback and (still) slipping crude oil (last seen at $74.60 pbbl). Players remain concerned about a visit to the $1073-$1080 range, the lower end of which is a must-hold, lest they find themselves facing significantly lower prices. Others await just such an opportunity, as they remain convinced that this phase is nothing more than a 'back up the truck' event that must be taken advantage of. See wide and wild forecasts, below.

Elliott Wave analysis opines that so long as gold remains under $1120, it carries the risk of a sub-$1K event before the latest wave concludes. If, on the other hand, prices push above the $1120 mark, then last week's $1081.90 will have been a low from which the metal can march back up to above $1160 an ounce.

Silver fell 51 cents on the open, dropping to $16.61 an ounce. Its price prospects appear to target the mid-$15s at the moment, or perhaps even lower. Resistance is up above, at $17.50 and just above the $18 mark. Platinum continued its intense profit-taking sell-off, losing another $36 per ounce to $1515 at last check. The noble metal traded $126 higher as recently as one week ago. We called that meteoric rise ETForia for lack of a better label. Palladium fell $15 to $427 this morning, after having reached $466 four sessions ago. Rhodium eased a further $40 to open at $2400.00 per troy ounce. Significant ETF-based tonnage was added in platinum and palladium over recent weeks, but players feel that prices had gotten equally significantly ahead of themselves. Behold the results.

Something else that had gotten significantly ahead of the curve was the expectation of a continuing US dollar deep-freeze at extremely low levels. One cannot blame those who expected more of the same based upon what they had witnessed during the past couple of years, but some of the signs were there for those who looked closer. One such observer is PIMCO- the world's largest bond fund. We normally take PIMCO utterances with a nice grain of pink Himalayan salt and try to separate the market wheat from the book-talk chaff. However, according to Bloomberg, the firm sees the end-game to the dollar's free-fall (and then some):

The retreat in the dollar that sent the currency down as much as 17 percent from its 2009 peak against six main trading partners may be over, according to PIMCo.'s Paul McCulley. The Dollar Index has rebounded 5.3 percent from last year's low in November on signs of economic recovery. The U.S. currency is unlikely to resume declines particularly against sterling, the euro and the yen as the world's biggest economy improves, McCulley, a portfolio manager and member of the investment committee at Pimco, said in an interview in Johannesburg today.

Against the majors, we're pretty close to the end, if we haven't already reached the end of a bear market in the dollar, said McCulley at Pimco, which runs the world's biggest bond fund. The dollar bear market is almost done.

That said, PIMCO feels that interest rate hikes are not yet in the cards, and that fears surrounding the same may be a bit too intense:  Fears of a nearby move to monetary tightening in the U.S. are overblown, said McCulley. The Fed would purposely rather make a mistake in tightening too late rather than too soon. The Fed's likely withdrawal of its so-called quantitative easing measures, which involves buying bonds, will enable policymakers to tighten monetary conditions without raising benchmark rates, said McCulley.

As well, Mr. McCulley does envision certain currencies still managing to gain against the US currency in coming months and years. For example: Emerging-market currencies including the Chinese yuan, Korean won and Brazilian real will appreciate against the dollar over the next three to five years as economic growth in developing nations outpaces that of advanced countries, according to McCulley. The Canadian, Australian and New Zealand dollars are also likely to advance against the U.S. currency over the period because of their commodities exposure, said McCulley.

Part of the reasons for the tectonic shift in the US currency's fate will be the ability of the administration to get is fiscal house in order. US President Obama is expected to unveil a sweeping domestic spending freeze in tomorrow night's State of the Union speech in Washington. The proposal will affect a $477 billion pot of dollars, but could result in a savings of a quarter trillion dollars within the decade. What programs will be placed on ice, remains to be seen. However, it is a safe bet to point to non-essential ones as being at risk of getting the cryogenic treatment.

Mr. Obama is also expected to announce meaningful help for the US middle class, which has been battered by the economic contraction. Japan might take a lesson from such spending cuts in order to avoid a ratings cut by S&P: Standard & Poor's Ratings Services said Tuesday that it's placed a negative outlook on Japan's AA sovereign long-term credit rating, saying it would issue a downgrade to AA- if economic data remain weak and measures to boost medium-term growth are not forthcoming, given the country's high government debt burden and its weak demographic profile.  

And now, for something completely...the same. More wild and woolly gold price visions, from assorted sources. By now, everyone is familiar with most of the names that follow. Perhaps few are familiar with the extremes in gold prices that they envision. Let the Huffington Post and Dan Dorfman shed some light in these highlights we now bring you on the price matter(s). Warning: not for the squeamish (on either side of the fence):

• If deflation - an environment in which prices of everything from houses, to cars, to wages fall - does set in, gold, which in some respects is a hedge against inflation, is likely to fall precipitously in value, he expects. Gold is over-owned and overvalued and is about to resume a bear market, if hasn't already, said Robert Prechter [Elliott Wave].
• I think it could drop at least 40 percent from its peak value, [to $660] he added. Spot gold was trading at about $1,095 per ounce on Monday, after hitting a record high of around $1,226 on Dec 3, hurt by a firming dollar, and investors' ebbing confidence about economic growth and inflation prospects.
• Over about the next year, the dollar should continue gaining against the euro Prechter said. In October, Prechter said the dollar was bottoming. The dollar has rallied nearly 5 percent against a basket of currencies since a Nov 26 low amid expectations of higher US interest rates given strong economic data.
• Clearly the most bearish outlook I've come across--one that the gold bugs would surely be quick to characterize as off the wall--is what I heard from an investment newsletter writer, Harry Dent, Jr., editor of the HS Dent Forecast in Tampa, Fla. Taking note of $42 trillion in private debt, Dent expects half of that to disappear in a de-leveraging process within the next few years. That means, he says, the onset of deflation (falling prices), which will cause the dollar to go up and gold to go down.
• Under such a projected scenario, Dent looks for gold to drop to $250 an ounce, a giant-sized slide that he expects will begin to kick off this year. The fact of investment life, he says, is that the dollar is now going up and gold is now going down, meaning it's time to sell gold.
• One of the country's leading investment newsletters, Dow Theory Forecasts of Hammond, Ind., is also concerned about the metal--so much so that the front page of its latest issue features a piece titled Be Wary of Fool's Gold. Investors are getting carried away, editor Rich Moroney tells me. There's been too much speculation in the metal and too much bullishness, he says. Gold has had a big move up, but now, he believes, it could have a big move down. As for betting on a weak dollar--which has been the basis of gold's strong showing in recent years--Moroney says that seems like a crowded trade. In brief, too many investors acting on that view. Citing some gold concerns, he points to falling jewelry and industrial demand; likewise, gold mines, anxious to get out all the gold out they can, are going full steam.
• Meanwhile, buoyant gold forecasts are all over the place, with projections of $1,500 and $2,000 gold before year end quite common. U.S. Gold Corp. chief Rob McEwen is one of those who's forecasting that $2,000 number. In fact, he takes it one step further, noting that gold may rise to $5,000 an ounce between 2012 and 2014 as the U.S. government debt weakens the dollar.
• One long-term gold bull, online investment adviser Mark Leibovit, editor of the VR Gold Letter in Sedona, Ariz., is hoisting cautionary flags even though he told me a few months ago that he doubted we would ever see $1,000 gold again in our lifetime. Leibovit is now wavering on that provocative prognosis, observing that the metal appears ready to retest its recent low of $1,073, a price which he feels must hold less we see $1,000 again.
• Leibovit is by no means kissing gold goodbye for the long run, which he thinks could eventually produce a $3,000-an ounce price tag. Still, he once said $2,000 gold could be in the bag this spring. Now, though, taking note of the metal's sharp rise, coupled with its recent weakness, he believes a healthy retracement is not out of the question. It's unclear, he says, whether we're going to see new highs this spring or simply a retest of highs, but a caution flag has clearly been raised.
• Credit Suisse, on the other hand, doesn't mince any words, recently declaring there's a huge gold oversupply and it's time to sell. Significantly, it sees a downdraft in investment demand as the economic environment has taken a turn for the positive and that leads it to take a bearish gold stance in 2010.

And, that, folks, concludes today's pricecapades. Enough in there to make everyone happy (or not) depending on their particular leaning. Now, if we only know who will be proven correct...A guess? Neither side in real terms. Someone might come close, but with these ranges ($250 to $5000) -close is a matter of, oh...a few grand. Mere pocket change.

Happy Trading. Stay warm.