Tuesday, September 12, 2006


Gold Closes Under 200 DMA

Bloomberg reports on gold markets. "Gold fell in New York, erasing earlier gains, on speculation a drop in the cost of oil and other raw materials will reduce the precious metal's appeal as a hedge against inflation. Gold has tumbled more than $50 an ounce in the past five sessions and is down 19 percent from a 26-year high in May. 'Investors are trying to get out of their long positions,' said Nick Ruggiero, a trader in New York. 'There are no support levels. It's going the keep the bear forces here.'"

"Oil fell as low as $64.11 a barrel today after reaching a record $78.40 on July 14. 'By the end of the year, I could see another $25 to $50 downside' for gold, said Alan Mandel, a trader in New York. 'Crude oil and other commodities are dropping.'"

"Gold closed under the 200-day moving average for a second straight day. 'It has broken the long-term trend,' said Michael Sander, a commodity broker. 'A close down at those levels was very negative. That's an extremely bearish sign.'"

"December gold fell $3 to settle at $594.30 a troy ounce on the New York Mercantile Exchange, after falling below $600 the day before for the first time since June. December silver gave up 10 cents to $11.14 an ounce."

"December palladium also slipped late in the session, settling down $3.95 at $312.10 an ounce. However, October platinum managed a $7.90 gain to settle at $1,208.50 an ounce. The platinum futures had fallen more than $100 from last week's high to Monday's low."

The Street.com. "Gold's failure to convincingly break through psychologically important resistance at $600 an ounce Thursday sparked another bout of short-selling as investors shrugged off worse-than-expected economic news and a botched terrorist raid in the Middle East."

"'There was a lot of short-selling Monday that returned to the market just moments before the session closed Tuesday,' says Carlos Sanchez, an analyst at CPM Group, 'It's bearish that prices didn't close above $600 an ounce, but bullish that they didn't fall all the way to $580,' the likely zone for the next major support level."

"He still expects to see a rally that could follow the pattern exhibited by the metal in June, when spot prices sprang back from a low of $567.25 an ounce on June 14 to hit a high of $671.50 on July 17. Sanchez warns that investors should anticipate increased metal price volatility during the days to come."

"Other news shows the European Central Bank system stepped up its pace of bullion selling as holdings of gold and receivables dropped by 114 million euros, or about 7.5 tons, last week, compared with 28 million euros in the prior period. That means the bank still has about 150 tons of potential selling available in its quota, under the terms of a multilateral sales agreement that expires Sept. 26. The ECB is not, however, obliged to reach the full allowance."

"Some observers blame Monday's selloff on the ECB trying to offload even more metal as the central bankers rebalance their reserves. In the absence of major news, investors, who hold more gold than all central banks combined, will no doubt remain skittish to such suggestions."

"Countering the bearish effect of the ECB sales was information that South Africa, the world's largest producer of gold, saw production drop by 7.2% in the year to July."

So we are finally back to the old central bank selling rumor-mill. This isn't good news if you want gold prices to rise. In the 80's, CB's knocked gold down on every spike up like a carnival game. These technical measures bear watching, as the next support level could be near or far.
A number of countries are either net gold buyers or at least are not selling. If the stock market, or the USD, or both, roll over gold will rise. If you believe in fiat currency, inflated asset prices, massive deficit spending, and borrowing for consumption don't buy gold. Me, I think I will view this as a correction/buying opportunity on the inflation highway.
In history there has never been a fiat currency who's value has not gone to zero. The value of gold/silver can never become worthless. Time will show how this plays out.
I'm not going to add to my gold position. Silver production regularly falls far short of industrial usage, and is IMO a much better precious metal play. Platinum is another, due to its incorporation into many catalysts. There was a guy (Jim Hinefeld or something) at Brookhaven National Lab who used to bind antibodies to gold particles and image them with an electron microscope - not sure where that research went but perhaps industrial uses for gold are out there. Until then, Gold - eh, it's pretty to look at, but that's about it.
iTulips' ka-poom theory sort of jibes with my scenario, although Janszen thinks the Fed will more easily counteract the initial deflationary trend:

No Deflation! Disinflation then Lots of Inflation
"not sure where that research went but perhaps industrial uses for gold are out there."

there are lots of industrial uses for gold, including in your computer and most of the gadgets you use.
If this is CB selling, we can all allow our knickers to untwist, as they have an uncanny knack for selling their holdings on the lows. Meanwhile, wait for the COTs to come out on Friday to see if anything changed substantially; realize that some know the bull market isn't over; there is good physical demand by people who are not hypnotized by CNBC; and comic relief is available for goldbugs.
hi john law - that is true, but I think there are alternatives if you are just considering the fact that gold is a good electrical conductor...
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