Physical Demand Could Determine Gold Price Direction...

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How the physical market reacts to gold’s drop under $1,300 an ounce Friday could determine next week’s price direction for the precious metal, market watchers said.
December gold futures fell Friday, settling at $1,284.60 an ounce on the Comex division of the New York Mercantile Exchange, down 2.2% on the week. December silver fell Friday, settling at $21.317 an ounce, down 2.4% on the week. 

In the Wsj News Gold Survey, out of 34 participants, 18 responded this week. Of these, four see prices up, while 12 see prices down and two see prices sideways or are neutral. Market participants include bullion dealers, investment banks, futures traders and technical-chart analysts.
Gold prices fell under $1,300 after a much stronger-than-expected U.S. October nonfarm payrolls report. The Labor Department said 204,000 jobs were created in October, nearly double the expectations going into the report. September and August employment numbers were revised up by a combined 60,000, while the unemployment rate rose to 7.3% from 7.2%. That was likely an effect of the shutdown.

Analysts said they expected the federal shutdown to have impacted the jobs figures, but the Labor Department said survey responses appeared normal. One downside to the higher-than-expected figures was that labor participation, which showed the lowest reading since 1978.

Gold market watchers said prices fell on thoughts that the stronger jobs report, along with Thursday’s higher-than-expected gross domestic product data, mean the Federal Reserve may consider tapering its bond-buying program known as quantitative easing, earlier than expected.
Andrew Busch, founder and editor of The Busch Update, said the Fed may still be cautious even with the economic improvement.

“The U.S. economy is creating jobs and wage gains sufficient for the Fed to begin tapering in December if they want. They will most likely be cautious again and wait until January.  For the markets, this data along with the Q3 GDP supports the view that the U.S. economy has returned to being the major engine of global growth,” he said. 

Whether gold continues to fall next week depends on physical demand, which has been largely absent lately, said Afshin Nabavi, head of trading at trading house MKS (Switzerland) SA in Geneva, Switzerland. How Chinese and Indian buyers act on Monday will be critical in determining price direction.

“Monday is going to be really important. If there’s no improvement on demand in the physical front, prices could fall to $1,250,” he said. Physical buyers have been disinterested in gold because the market’s recent range-bound trade between roughly $1,350 and $1,275, he said. If prices slip out of the current range, that could spur physical interest, Nabavi said. Part of the problem, though, is the overhang of supply on the market which has outweighed demand.

Kevin Grady, owner of Phoenix Futures and Options, agreed. “If the market breaks support at $1,270-$1,275, prices could fall to $1,250. The key is the $1,250 area and if any physical buying comes up. We’ve seen that happen before,” he said.

George Gero, vice president with RBC Capital Markets Global Futures and a precious metals strategist, said now that it is almost mid-November, it will be time to watch the jewelry industry and see what trends emerge of the December holiday season.
He said he’s “not too optimistic on prices” for next week because of the jobs data, but expects some bargain hunting to come in which may limit the downside. 

Grady mentioned that open interest in gold futures rose when prices fell on Thursday, which is generally a sign of new short positions established and is considered bearish. Given how speculative traders increased their net-long positions in the most recent Commodity Futures Trading Commission’s commitments of traders report, there could be more long liquidation ahead, he said.
Looking toward next week, the U.S. economic calendar is light. Greater attention will be turned to China. Weekend economic data to be released include industrial production, fixed asset investment, retail sales and consumer price index data.

Additionally, between Saturday and Tuesday the historic meeting in Beijing, the Communist Party Third Plenum takes place which could have long-term ramifications for commodities markets. Details of what the plan might be are unknown, but China-watchers said focus is likely to be on financial, tax and social security reforms.

However, Barclays and Nomura analysts aren’t expecting a lot of details or decisive action immediately. That could mute the immediate impact on markets. However, the longer-term impact will be more important.


“The stakes are high for commodity markets. If Chinese policymakers decide on a set of moderate reforms while protecting robust economic growth, we expect the impact on commodities would be neutral to positive, as the recent strength in Chinese demand was supported by strong infrastructure spending. However, if the government sets out plans to rebalance the economy more forcefully, sentiment toward commodities demand, especially base metals, could turn negative,” Barclays said.

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News Source: www.reuters.com

GOLD OUTLOOK : Gold To Watch The Dollar, Bernanke Influence on Market...

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U.S. dollar direction and comments from Federal Reserve Chairmen Ben Bernanke will influence the gold market next week.The U.S. dollar’s strength was a factor in gold-price weakness this week, as the dollar index rose to its highest level since August 2010. Whether the greenback continues to rise or pulls back will determine where gold goes next week, market participants said. The dollar’s trajectory itself will likely hinge on what Bernanke says about the U.S. economy in two appearances slated over the next week.

June gold futures fell Friday, settling at $1,364.70 an ounce on the Comex division of the New York Mercantile Exchange, down 5% on the week. July silver slipped Friday, settling at $22.352 an ounce, down 5.52% on the week.

In the wsj News Gold Survey, out of 36 participants, 28 responded this week. Of those 28 participants, nine see prices up, while 17 see prices down and two see prices moving sideways or are neutral. Market participants include bullion dealers, investment banks, futures traders, money managers and technical-chart analysts..

Participants in the survey are decidedly bearish. Several who see prices falling cited the short-term technical-chart based trend with the yellow metal possibly returning to the mid-April lows in the low $1,320s. Others, though, said sentiment in gold became too bearish and they see the market finding support not far from current lows.

The dollar saw some modest weakness on Thursday, but shook that off Friday. “The main reason for the gains in the U.S. dollar over the past week is the growing belief that the Federal Reserve will scale back their asset purchase program earlier than expected. (On Thursday) Federal Reserve Bank of San Francisco President John Williams said the central bank may reduce its $85 billion in monthly bond buying as early as this summer,” said Alan Bush, senior financial futures analyst at Archer Financial.
A key part of tapering off the Fed purchases is continued improvement in employment, Williams said at the time.

Given Williams’ comment, market watchers said they are going to look closely at other Fed speakers next week to see if they also echo Williams’ statement. Of critical importance will be two speeches by Bernanke, who will speak first on Saturday about the long-term economic prospects and then in front of Congress on Wednesday, where he will also address the economy.

“Any indication that (a) tapering remains far off and (b) growth is still below where the Fed would like would hurt” the U.S. dollar, said BNP Paribas, which has been skeptical of the dollar gains.
Yet there are many others who see the dollar in a long-term uptrend and that is bearish for commodities in general since they are dollar-denominated. They said any losses in the dollar are slim and noted Friday’s move was higher again.  

“We still think the other side of that equation (relative weakness in the rest of the world) remains in play. In May, we've seen rate cuts and dovish surprises from the ECB (European Central Bank), RBA (Reserve Bank of Australia), and the central banks of Israel, Poland, Korea, India, and Turkey. The economic outlook for the rest of the world is getting worse and the U.S., while disappointing a bit recently, remains on track for a modest recovery,” said Brown Brothers Harriman.

Bob Haberkorn, senior commodities broker, RJO Futures, said the short-term trend in gold is down, although longer term he still likes gold. He said because of the dollar strength, “the path of least resistance in gold is down. I wouldn’t be surprised to see it test the April lows” of $1,321.50 basis June Comex contract.

The comments from Bernanke will be the most important event for the week, especially if he talks about the current bond-buying program, known as quantitative easing, Haberkorn said. His comments will impact not only gold, but also other financial markets such as U.S. Treasury bonds and equity markets.

As many market watchers said in recent weeks, the record highs in equities have siphoned demand away from gold and other commodities. The rise in stocks has come without a significant correction, and that’s something that worries Haberkorn and others, who said the longer equities rise without a breaking, the greater the fall will be.

BEARISH SENTIMENT OVERDONE

Not everyone is so negative on gold. In fact, some say because sentiment in gold is so beat up, that it might be time to step back in, at least for a short time. Gold has closed lower for seven consecutive sessions. Open interest on the Comex rose about 4,300 contract since May 10 through Thursday, meaning that new short positions likely were established with the price decline.

Ken Morrison, founder and editor of online newsletter, Morrison on the Markets, said since 2009, gold prices have never closed down seven days in a row. He said it’s possible that gold might see some further weakness initially next week, but he sees the market regaining strength by the end of next week.

After being bearish on gold, this is “the first time we've been bullish gold for quite some time, of the opinion the large-volume decline has about run its course,” Morrison added.

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News Source: www.wsj.com

Gold futures jump with physical demand on the rise...

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Gold futures rose more than 1% on Wednesday as bargain hunters waded into the beaten-down market, lifting physical demand for the metal on the back of fresh data pointing to difficulties for the U.S. economy.

 Gold for June delivery GCM3 +0.89%  climbed $15.10, or 1.1%, to $1,423.90 an ounce on the Comex division of the New York Mercantile Exchange. Prices were poised to recover the loss of $12.40, or 0.9%, they saw a day earlier.

The fall on Tuesday was gold’s first in four sessions, with prices for the precious metal hurt after disappointing data on manufacturing data in China,a rally in equities and a stronger U.S. dollar.

Orders for U.S. durable goods fell by a seasonally adjusted 5.7% in March, more than the 3.2% decline expected by economists polled by Market Watch.

If the economic data releases covering April are similar to the month prior, then the Federal Reserve isn’t likely to give any signs of an early withdrawal of quantitative easing, said Chintan Karnani, independent bullion analyst based in New Delhi. QE has been a supportive factor for gold, as it can lead to inflation and gold is often seen as a hedge against inflation.

Bargain buys

Traders and investors are stepping in to buy the recent big dip in prices, said Jim Wyckoff, senior analyst at wsj.com in a daily market note. “Demand for physical gold world-wide remains strong after last week’s price plunge.” Read about why investors should be bullish on gold price as long as chaos reigns.

Gold prices are on track for a roughly 11% drop this month, and analysts have been pointing to declines in the metal’s holdings among exchange-traded funds and lower gold-price forecasts as factors behind the recent selloff.          

Goldman Sachs on Tuesday closed its recommendation for clients to “short” gold, telling them to exit out of those bets on lower gold prices. The investment bank on April 10 cut its short- and long-term gold forecasts as prices approached bear-market territory.“Strong demand for physical gold world-wide, and especially from Asia, continues to underpin the gold market,” said Wyckoff.

The U.S. Mint this week stopped sales of its smallest-denomination gold bullion coins as demand reduced government inventories.

Year to date, demand for the one-tenth ounce coins are up more than 118% compared with the same time a year ago, the U.S. Mint said in a memo to authorized purchasers, according to The Wall Street Journal.

Other reports this week have said there are shortages of gold bars and coins in some countries, with gold retailers jacking up their charged premiums over the spot price of gold, Wyckoff said.      

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News Source: www.wsj.com

                      

Gold Is Undervalued in Fiat Money Terms...

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The question on everyone's mind is whether or not the gold bull market is over? Such an utterance seems glib in the face of 8,000 years of history that suggests otherwise. Of course, there is a time and moment to own gold. That time is still now. So you will not be surprised to hear us say, no it's not over; it's just getting interesting.

Another question that is on everyone's minds -- or if it isn't, should be -- is, was the gold market sell-off a product of continued and escalating manipulation?

I will explore the answers to both these questions, and by understanding reality we can begin to understand whether gold can reassert itself in its justifiable role as an antidote to the current fiat currency system.

Is Gold Currently Undervalued?
First off to state publicly, gold is still undervalued in 'fiat money' terms, that's the easy question to answer.People have said to me gold has gone up a lot, and so now it's too high. I always reply that gold has a price and a value. These two constructs are not interchangeable. Price is a level at which you make an exchange, and value is whether it is worth it. Right now gold remains undervalued when examined in the context of other assets, primarily against paper money.

To illustrate this point we can now see how gold is as undervalued, incredibly, as it was in 2000, just before this gold market began to rise in nominal terms.

One phrase that sums up my thinking – price has changed, but nothing has changed.
To develop this statement a little further, I want to quote a friend, Detlev Schlichter, on the recent brutal bloodletting in the gold market. Detlev wrote a really eloquent book Paper Money Collapse, about the inevitable failure of paper money economies. He states:

"After 40 years of relentless paper money expansion and in particular 25 years of Fed-led global bubble finance, the dislocations in the global financial system are so massive that nobody in power dares to turn off the monetary spigot and allow market forces to do their work, that is to price credit and to price risk according to the available pool of real savings and the potential for real income generation rather than according to the wishes of our master monetary planners."
This fact remains, so nothing has changed.

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www.wsj.com