Gold Falls from Record, Stocks Retreat

New York gold futures on Thursday broke away from an eight day winning streak, falling for the first time in November. The yellow metal retreated from a new all-time high that was reached earlier in the morning after the US dollar rebounded from a 15-month low. Platinum and silver also declined, as did crude oil. US stocks closed sharply lower.

New York precious metal figures follow:

• Silver for December delivery fell 27.2 cents, or 1.6 percent, to $17.265 an ounce. It ranged from $17.350 to $17.780.

• Gold for December delivery slid $8.00, or 0.7 percent to $1,106.60 an ounce. It ranged from $1,103.70 to $1,123.40 — once again, an all-time high.

• January platinum declined $6.40, or 0.5 percent, to $1,363.20 an ounce.

Notable bullion quotes of the day follow:

"The U.S. dollar regained some strength and quelled that rally, but still the bull is on the run," Miguel Perez- Santalla, a sales vice president at Heraeus Precious Metals Management in New York, said in a report that was cited on Bloomberg.com.

"You’re seeing very short-term profit taking," Zachary Oxman, managing partner at TrendMax Futures, a commodities brokerage in Rancho Santa Fe, Calif., was quoted on MarketWatch.com.

"We see continuous inflows from financial investors almost on a daily basis, real interest rates are still lower and the dollar is weakening, so the three pillars of this gold rally are still in place," Peter Buchanan, commodities analyst at CIBC, said on Reuters.

After gold hit fresh highs early, the rest of the "Thursday session was spent concentrating on additional profit-taking, as the euphoria that carried bullion briefly to a new record high quickly dissipated with additional speed following a more robust climb by the US dollar," wrote Jon Nadler, senior analyst at Kitco Metals, Inc." [Click to read Nadler’s full commentary.]

In PM London bullion, the benchmark gold price was fixed earlier in the day to $1,114.75 an ounce, which was a decline of 50 cents from the day prior. Silver retreated 12 cents to $17.510 an ounce. Platinum remained unchanged at $1,365.00 an ounce.

Gold, considered a hedge during times of high inflation and economic uncertainty, tends to follow oil and move opposite to the U.S. dollar. A rising greenback makes dollar-denominated commodities, like bullion, more expensive for holders of other world currencies.

In related gold news, the US Mint raised gold coin prices on Thursday as a result of the higher gold prices. The Mint uses a weekly London Fix average, which came in at exactly the level — within one penny — to trigger the increases.

Oil and gasoline prices

Crude oil tumbled "as government data showed weak demand and higher imports pushed up U.S. inventories in the past week and as a stronger dollar weighed on dollar-denominated oil prices," Moming Zhou and Polya Lesova wrote on MarketWatch.com.

Crude supplies rose 1.76 million barrels to 33.7 million last week, according to the International Energy Agency (IEA).

"Despite talk of an improving economy, demand is very weak," Phil Flynn, vice president of research at PFGBest in Chicago, said on Bloomberg.com. "Refiners are reacting by cutting operating rates, which are well below average for this time of year."

New York crude-oil for December delivery dropped $2.34, or 3 percent, to $76.94 a barrel.

The national average for unleaded gasoline fell four-tenths of a cent — the same drop as Wednesday — to $2.650 a gallon, according to AAA fuel data. The price is 3.2 cents lower than last week, 17.2 cents more than a month back, and 44.8 cents higher than a year ago.

U.S. Stocks

U.S. stocks fell "as a stronger dollar weighed on commodity-linked shares and a guarded outlook from Wal-Mart Stores Inc led to worries about consumer spending," wrote Rodrigo Campos of Reuters.

"It’s getting harder for us to find opportunities out there in this market," Marian Kessler, co-manager of the Becker Value Equity Fund, said on MarketWatch.com.

The Dow Jones industrial average declined 91.98 points, or 0.89 percent, to 10,199.28. The S&P 500 Index fell 10.93 points, or 0.99 percent, to 1,087.58. The Nasdaq Composite Index retreated 16.13 points, or 0.74 percent, to 2,150.77.

Gold, Silver, and Metals: Prices and Commentary – Nov. 12
by Jon Nadler, Kitco Metals Inc.

Things We Do Not Mention In Church

Good Day,

Gold prices fell a tad for the first time in five, as the US dollar regained some ground against its rivals overnight. The greenback recovered against the euro and in New York early on Thursday, as euro zone economic data of the anemic variety gave rise to fresh apprehensions related to the on-going global recovery.

Such background conditions kept the euro from making fresh highs above the psychological $1.5000 mark. Meanwhile, the dollar index climbed 0.30 to 75.37 this morning. The pivot points of 75 on the index, $1.50 euro and $80 oil remain in sight but continue to present barriers that are hard to ignore by the spec crowd, and no convincing break-throughs have materialized above these key levels as yet.

It turns out that the number of Americans filing claims for jobless benefits last week fell according to this morning’s data. The figures could be an indication that the worst employment contraction since WWII is turning. Initial unemployment claims fell by 12,000 to 502,000 in the week ended Nov. 7, the lowest level since January. Bloomberg reports that "Firings may slow as the loss of 7.3 million jobs since the recession began in December 2007 probably means many companies have already cut staff to bare minimums."

Meanwhile, gold’s Wednesday rally continued running on the carry-trade fuel and lifted its 14-day relative-strength index, (a gauge of whether a commodity or security is overbought or oversold) basis spot, to above the level of 70 viewed by some investors as a signal for a retreat. Today’s index was 74.35, according to Bloomberg data. Here is the quick and dirty, from GoldEssential.com for the early hours of Thursday:

"Gold was seen hitting fresh record highs above the $1,120 an ounce mark early on Thursday in Asian trading, as the U.S. currency remained weak and as sentiment remained positive towards the yellow metal, although with traders commenting on the increasing risks for short-term top formation. "There were a few decent sized sell orders passing on our screens as the COMEX December contract fell back below $1,120 an ounce and later $1,117.00", he added. Technically, the December contract had now exactly hit its current Sept-Oct-Nov channel resistance, currently equally at $1,123.40 an ounce and rising by around $2.4 per day.

"The risk of short-term top formation is very real now", said Evelyne Winters at Goldessential.com, as both an overbought reading, nearby chart resistance, expected option plays at $1,100 an ounce and other very stretched tools could spark a short -term correction". Winters put forward a downside target of $1,151 initially, the channel bottom.

Moreover, one FX-trader said in an interview that "over the last few days, the dollar index has hit a fresh fifteen month low, although with the EUR/USD pair having thus far failed to take out its current yearly high at around 1.5061, and with here also the increasing risk of a forming "double top pattern’, which could spark reversal ."

The rest of the Thursday session was spent concentrating on additional profit-taking, as the euphoria that carried bullion briefly to a new record high ($1124.00 basis spot offer) quickly dissipated with additional speed following a more robust climb by the US dollar on the index (at last check up 0.51 at 75.59 and at 1.4868 against the euro). Gold was off $14.20 at last check, quoted at $1102.60, and threatening to break to under $1100.00 per ounce. Such mirror-image moves once again bear out just how much (okay, all) the move in gold can be interchanged with a dollar decline story and the resultant carry-trade gambling in the big casino in NY.

A hefty ($2.46 per barrel ) pullback in oil on the back of the rising dollar and a surge in US inventories also helped drag gold away from chalking up a sixth day of additional gains. Silver (losing 31 cents at $17.26) and copper fell away on the day as well, as risk traders were spooked by the greenback’s sudden gains. Platinum suffered a $17 drop to $1353 the troy ounce.

Palladium however, shone fairly nicely (rising $6 to $348) and rhodium popped $40 higher (touching the $2K mark). The former is getting some serious flirtatious nods from jewellers preoccupied with way too costly gold and with the prospects of a bleak holiday selling season (discounts will be generous, and pervasive) – and are thus thinking "substitution" at the moment. But, we’ve already mentioned this (and rhodium’s decent prospects) lately…

Somewhat "heretical" (given the current temperature readings in the bull camp)  in nature words about gold were heard from a mining company (?!) CEO. Normally, all we get from the heads of mining firms are firm assurances that he rally in gold is basically permanent and open-ended, and, on occasion, we are also told that future gold price moonshots will also be predicated on dwindling mine output (although that kind of forecast is not exactly a good thing to mention if your stock values depend on healthy future production activities at your firm – but, hey). Anyway, whether his firm got religion (or not) before or after closing the hedge book, Barrick’s chief opined overnight that:

"Gold may ease from current record highs but the chances of prices falling below $900 an ounce are slim, the chief executive of Barrick Gold Corp told the Financial Times. "There is no reason why we should expect gold not to sell off," the paper quoted Aaron Regent as saying. "It is a commodity like any other."

Gold shot up to another record at $1,121.60 an ounce on Thursday as a weaker U.S. dollar lifted the metal’s appeal as an alternative investment to currencies. Bullion has now renewed record highs for six out of the past eight sessions. But Regent said forecasts of the long-term gold price falling below $900 an ounce were "on the light side", adding that bullion remained susceptible to sell-offs despite its bullish outlook."

Wow. No ‘gold is money’ or ‘gold is different’ nod from this mention. Surprising.

Finally, let’s look at the central bank gold buying/selling hoopla once again. Yes, it is another taboo to dismiss the Indian gold buying event as perhaps a less-than-significant happening given the emotional temperature out there in the gold market these days. Well, we’ve been know to talk in church. Even about s e x…

The subject at hand (not sex), this time as filtered through the sharp analytical eyes over at Belgium’s GoldEssential.com. It is important to consider this alternative view, because the breaking story was being fed to the media and to uninitiated investors with the gravitas and rapturous overtones of ‘a new era’ that the landing of an alien civilization on Earth would be expected to result in:

"With much of the last weeks hunt for records in gold prices in part attributable to the market’s altered expectations on central bank reserve allocation interest into gold, the question remains whether there any fundamental shift in central bank reserve exposure is imminent. Gold was seen rising above its previous record high of $1,072 an ounce nearly weeks ago, rising to $1,123.40 (COMEX Dec benchmark gold futures) on Thursday after India’s Central bank recently announced it had bought 200 tonnes of the 403.30 available tonnes of IMF gold between Oct 19 and Oct 30.

While it may be true that some central banks may show interest in adding gold as a part of their reserves, it is important to look at the whole picture, said Matthias Detremmerie, director and precious metals analyst at Goldessential.com. The central banks that are touted as buying candidates are mostly limited to emerging countries such as China, Brazil and Sri Lanka. Even India falls under this denominator.

Detremmerie added that there were two important consequences. One is that these emerging nations are not likely to cause a paradigm shift in the global gold-as-reserve picture over the longer term. Whereas 200 tonnes may sound as quite a lot, it is actually limited in terms of global official gold holdings, which are estimated to be around 30,000 tonnes. A shift in the whole picture is also unlikely due to the second reason, being that mature central banks – and thereby currently the largest official holders of gold – are likely not to significantly increase their reserve exposure to gold, he said.

Currently, most of the world’s official gold holdings are situated in the U.S. (approx 8,133 tonnes), the Euro-zone (10,800 tonnes) and the IMF (roughly 3,000 tonnes, after subtracting the recent 200 tonnes sale to India’s Reserve Bank.). Certainly, the U.S. and Europe have been hit the hardest by the financial crisis. Both are left with budget imbalances for many years to come following the financial aid to the ailing economy, Detremmerie added.

Therefore, it seems viable that some of Europe’s central banks – which can act separately on gold sales under the limitations of the Central Bank Gold Agreement -, are going to look for opportunities to fill the gaps. There’s good evidence that central banks are well aware that gold could be nearing a cyclical high, and that it could be profitable to unload some of it, as it is what any sensible investor wants to do; buy at the bottom, sell at the top. Even for central banks, gold implies a wanted profit-post on balance  sheets.

As such, this puts things in perspective. Whereas our firm doesn’t believe that spectacular central bank sales are going to hit the market anytime soon, we’re convinced that these mature central banks are not interested in buying gold at current prices. Sales under the CBGA this year could as such come in on higher levels than last year if you follow this line of thinking, Detremmerie concluded.

In the last year of the previous 5-year CBGA, which ended in September, signatories to the pact only sold 155 tonnes of the allowed 500 tonnes quota. For the next five years, the total annual cap has been lowered to 400 tonnes, bringing the total to 2,000 tonnes over the entire timespan."

To the above, with which we completely agree by the way, you can add the re-statement of the opinion we posted last week, in the wake of the media frenzy that followed in the wake of the Indian central bank’s purchase:

"Will they? Won’t they? Does it really matter? Central bank policies and active and overt or covert foreign exchange reserve management will continue – regardless of the price of gold, and/or the value of the US dollar. Banks whose management considers holdings to be ‘underweight’ will buy, whilst those whose policy makers consider holdings of gold to be beyond previously established targets, or actually need money for a particularly rainy day, will sell.

Was is ‘heresy’ for Russia to consider selling 20-50 of its recently accumulated tonnes? No more than Switzerland’s lightening up on its holding by a lot more than that, in the not too distant past. Is it ‘silly’ for the US to value its 8.000+ gold tonnes at $42.20 per ounce? No more than Canada’s 3 tonne holding, that is smaller than that held by Bangladesh, or the Hon. Ron Paul’s futile calls for a return to the gold standard, or the abolition of the Fed.

As stated in these columns many times before, the vast majority of those central banks which wanted to offload their gold holdings, -for whatever reason- have already done so. Wise or unwise, ill-timed, or not, symbolic, or not. 

Way too much is being read into such actions, or the lack thereof, even though ALL the gold in the world (163.000 tonnes of it) adds up to 0.6% of total global wealth, and that it is not about to make a comeback as the de facto ‘currency’ of the realm or peg among the world’s central banks.

Can adjustments over the next three decades take place that take away some of the dollar’s dominance and bump up gold’s position in the hierarchy take place? Why, sure they can. Will the be tectonic shifts that completely reverse the status quo? Nope.

The gold standard as we knew it, is history, let us face that inescapable fact. And that, is not just Nobel laureate Paul Krugman’s take on the matter. None of this, however, should preclude you, and/or any other investor from making it your own ‘standard’ if that is your preference.

For the majority of individuals, the same exact average that the computation of the official sector’s average holdings amounts to (roughly 10%) is a perfectly adequate level. Notwithstanding Portugal’s 90% or Canada’s practically zero gold allocation levels. As we said, these are matters of personal preference, and not standards by which to judge other countries, or individuals’ allocation decisions.

Thus, there is very little to be gained by constantly pointing to this sale or that purchase as a harbinger of…anything, or a ‘vote’ on anything. You may rest assured that no change in central bank reserve management policies would come about, even given $5,000 per ounce gold. It simply does not matter."

Until tomorrow,

Check out additional market resources at Bullion Prices, the Coin Melt Calculator, and the US Inflation Calculator.