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Gold
Gold
and silver have fallen by less than 1% in all major currencies today. Asian
equities were mixed with strong selling seen in India and European equities
and US index futures are tentatively higher. Eurozone periphery bonds yields
have fallen as have those in Germany (10 year) after rising above 3% in
recent days.
Gold
is currently trading at $1,385.30/oz, €1,046.24/oz and
£875.67/oz.
Gold
in USD – 3 Month (Daily)
The
primary driver of gold is very robust physical demand - especially from
Europe and Asia. With inflation surging internationally especially in the essentials
of life (food and energy), this demand is not going to abate any time soon.
The demand is leading to consolidation close to record nominal highs in all
fiat currencies. Prices today are close to the levels seen 3 months ago and
the chart above clearly shows consolidation.
The 50
day moving average is at $1,383/oz and below that there is strong support at
the 100 day moving average at the $1,300/oz mark (see first chart above).
Given the extent of physical demand from Asia, Europe and internationally, we
would be surprised if gold fell to this level of support.
ETF
Gold Holdings – 1 Year
However,
as ever in the short term anything is possible and momentum-driven traders in
the gold pits could push gold lower. Cornered institutional shorts could
attempt to again squeeze the longs and engineer a selloff in the futures
market.
1000
Days of Average Gold Intraday Price Movement
The
above chart from Nick Laird of ShareLynx and shown on Casey Research is
remarkable. It shows how gold is sold consistently close to the London PM
Fix. The majority of physical gold is bought on the London AM Fix. For more
than 10 years the Gold Anti-Trust Action Committee (GATA) and a growing
number of analysts have alleged manipulation and claim that sharp sell offs
in the gold and silver futures markets are engineered.
They
allege that this may be a way for the Plunge Protection Team or President's
Working Group on Financial Markets to affect the “mood music” at
the start of each day on Wall Street. The opening on Wall Street is eagerly
watched by the global financial markets. GATA has some evidence (including
admissions by officials and sworn testimony) and their allegations have yet
to be examined or rebuffed by those who they accuse, by the media or many
analysts.
Besides
the mood music and maintaining confidence in US markets and the US dollar
– another motivation may be the number one motivation of many Wall
Street players – to make money or the profit motive. Large institutions
with close ties to the US government, Treasury and Federal Reserve may have
access to information not available to other market players which they can
press to their financial advantage.
Given
some of Wall Street’s far from ethical behavior in recent years it is
incumbent on us all to keep an open mind on such matters rather than
resorting to name calling or dismissing without investigation as
“conspiracy theory”. Indeed, after many years of investigating
this matter, the CFTC itself has not come to a conclusion.
A
paper-driven sell off in the futures market (whether natural or manipulated)
will likely be greeted lustily by physical buyers who continue to buy on all
dips.
Concerns
about wholesale liquidation of the gold ETF (see chart above) is overdone
despite it being the latest “reason” the bears are putting
forward for a fall in gold prices. Indeed George Soros himself seemed to have
hinted at this – in the usual cryptic way he speaks about the gold
market.
This
latest bear’s argument is again very weak as much of the buyers of the
gold ETF are passive in nature and not the leveraged short term players on
futures markets. Many, including hedge funds such as David Einhorn’s
Greenlight Capital, are value-oriented funds and have bought to hedge the
“fiscal pathology” in the US today. This was warned by Federal
Reserve Bank of Dallas President Fisher overnight.
Many
pension funds today are beginning to allocate capital to gold, have small
allocations to gold and they are buying passively to hedge inflation and for
diversification purposes.
Federal
Reserve Bank of Dallas President Fisher might want to examine the
“monetary pathology” that he, Ben Bernanke and his colleagues are
creating which is leading to currency debasement and inflation soaring
internationally (affecting the poorest people in the world – see News
below).
Allied
to these hedge funds and pension funds - central bank and investment demand
internationally will more than compensate for any possible ETF gold
liquidation
Mark O’Byrne
Goldcore
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