By Jon Nadler
A mild recovery in prices on the back of $117+ oil and a once again declining dollar overnight helped bring gold back to the $920 area after last Friday's rout.
The early range in bullion was limited to $915 $924 as players watched soaring oil values and another possible push by speculative currency traders towards 1.60 in the euro/dollar scale. OPEC has clearly exculpated itself from the current price levels and pointed fingers at speculative buyers loading up on contracts as the dollar slips lower.
There is no shortage if black gold and no need to hike output, according to the oil cartel. All things considered, this would be a time for gold to be trading at least $100 higher.
New York spot trading opened with a more substantial $7.30 gain at $923.50 bid, as the participants tried to patch a leaky ship following Friday's mass fund driven exodus. The news of the morning (see Bloomberg) is that noted advisor Dennis Gartman has decided to abandon this ship due to his (lack of) expectations regarding the prospect of higher prices, and will sell all of his gold positions.
The decision has sparked a storm of words in various gold forums some of them angry words but, curiously, they appear to be coming from some of the same quarters that have lavished praised upon Mr. Gartman when he was unabashedly bullish on the metal. Gold is a religion for many, no doubt.
There will be no economic data to sink teeth into this morning, therefore, the markets will largely be watching the developments in oil. Silver lost a penny at $17.83 and platinum dropped $13 to $2040 per ounce. All was quiet in palladium, which showed no change in price, quoted at $459 per ounce. No new developments from South Africa related to the power supply situation for the moment, either.
Mineweb's Lawrence Williams asks :Are we going to see another upwards push, a further fall back, or a steadying period?
and goes on to explain that:
While gold has tended to move with the strength of the US dollar, the correlation is far from an absolute one with many other financial and supply/demand factors coming into play as the price rises or falls. At the moment it seems that rising prices affect the jewellery market quite substantially and perceived peaks bring out investment profit taking. Conversely, as the price falls back towards the $900 level, both sales into the jewellery sector and investor hands have tended to come in to support the price.
The investment side of the market has been seeing some changes with smaller institutions entering the gold investment fray and a corresponding increase in the number of contracts, but at a lower volume, coming into play. To an extent this can make the whole sector much more volatile as these smaller institutions are perhaps less likely to be long term gold investors, but short term opportunists trading in and out on perceived peaks and troughs.
We remain on dollar watch and for now expect rebounds towards $931 or possibly higher, before the economic data flows resume tomorrow. Caution remains in order.
Jon Nadler is Senior Analyst, Kitco Bullion Dealers Montreal