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pencilvanian
1000+ Penny Miser Member
USA
2209 Posts |
 Posted - 06/15/2007 : 18:44:47
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Gold's $700 'time window' shifts
SAN FRANCISCO (MarketWatch) -- Gold's moves have been tormenting traders even more than usual lately.
For the optimists, $700 is just a stone's throw away.
To the pessimists, however, it would require quite a powerful throwing arm.
The August contract for gold futures climbed past $700 nearly nine weeks ago, and, while that prompted renewed calls among some observers for $800 and beyond, gold has failed at every attempt since to return to that level. And a week ago the price touched a three-month low under $649 an ounce.
"Right now, the time window has shifted for the price to move past the $700 barrier," said Peter Spina, an analyst at GoldSeek.com. "I would not feel comfortable betting against gold at these levels, although it does appear the rally will take a summer vacation."
Gold sales from central banks, a seasonal decline in demand, strengthening in the U.S. dollar and a rise in Treasury yields are some of the factors that have come into play, putting pressure on gold prices, analysts said.
"The seasonal influences alongside a bout of heavy gold selling from the Spanish central bank capped gold at a high point in the annual pattern of demand for physical gold," said Julian Phillips, an analyst at GoldForecaster.com, a sister site to GoldSeek.com. "Investment demand retreated in the face of this situation -- so stunting the attack on $700," Phillips said. And the metal's market has suffered amid "dramatic upside moves in U.S. Treasury yields," said Zachary Oxman, a senior trader at Wisdom Financial. "With bond rates pushing through resistance on the long end of the yield curve, gold has seen strong liquidation across the board from futures traders, funds and investors in GLD shares," he said, referring to the StreetTracks Gold Trust exchange-traded fund
Add that to the fact that Fed officials have been suggesting of late that there will not be a rate cut later in the summer, "and you have a fairly negative tone to gold and the metals overall," Oxman said. Saturation There has been a liquidation recently of more than 180 metric tons of gold sales by central banks -- likely in the past three months, said Oxman. Gold's momentum about eight weeks ago was "crushed by a huge wave of central bank gold sales," said Spina.
"Had this event not occurred, we may well be trading over $700,
but the event has caused a delay in the next run higher."
Besides, "the volume of central-bank selling cannot be maintained and will soon subside, leading to the next stage of this secular gold bull market," said Mark O'Byrne, a director at Gold & Silver Investment Ltd. in Dublin. Meanwhile, slower growth of ETFs in the first quarter of 2007 as compared with a year ago resulted in a decline of 26% in gold-investment demand, in tonnage terms, though jewelry demand was up 17%, according to a World Gold Council report released last month. The StreetTracks Gold Trust ETF "dumped" 31 metric tons of privately owned gold into the market in May, according Jon Nadler, an analyst at Kitco Bullion Dealers. "May was a critical month. It showed that the ETF is not a one-way street," he said. Before that, it had been a "one-way accomeulation load." "Investment demand has to be up. It's been the single most important driver [for gold] since 2001," he said. But, overall, "demand has been lackluster thus far this year." And, he said, supply is growing, with the $22 billion that has been "plowed into exploration" over the past five years now starting to pay off. More than 50 operations will come into being between 2007 and 2012, with a combined annual output of about 450 metric tons, he said. "That, in a 3,300 metric-ton total market supply, is 13% incremental supply."
When you look at the bigger picture, "the man in the street has not witnessed Armageddon over the past year, stock markets did not implode, the dollar did not collapse unto itself, the invasion of Iran did not materialize, ... $100 per barrel oil did not come about ... [and] the U.S. economy shows conflicting signs for investors not to flock into one corner (cash) or another (equities, gold etc.)," according to Nadler. Given gold's moves lately, some would also make an argument accusing blaming market manipulation. And, of course, there's what can be dubbed as investment competition.
"Global rates are going up around the world, and gold now has to compete with a higher-interest-bearing instrument," said Amaury Conti, an equity trader at San Antonio-based Austin, Calvert & Flavin Inc.
"Gold has had to compete with other assets -- including real estate, luxury items, art -- from the new wealth created around the world," and there's what Conti refers to as the "old story" of
"in vogue" investments such as ethanol, grains and alternative energy. "The bull market is still intact," but "we look at 2007 as a year of pause -- of regrouping," said Nadler. So, "you do not hear too many brave pundits venturing forecasts of prices higher than $730 at this time. Hidden meanings Brien Lundin, editor of Gold Newsletter, raised the specter that "gold's recent troubles are rooted in a peculiar form of market myopia."
Investors view the rising global interest rates as a negative for gold, he said. And that seems logical -- at first.
"But it is characteristic of a short-term, narrow focus that typifies today's markets and ignores long-term trends," Lundin said.
In Europe, China and other nations, central banks are raising rates to combat inflationary pressure which accompany robust economic growth, he said. But "rate hikes will not kill off economic growth overseas ... and, therefore, one of the major drivers of the bull market will remain intact," he said.
Also, rising yields in the U.S. are not a sign of dollar strength, Lundin said.
Instead, "Treasury yields are rising precisely because investors, institutions and even nations are increasingly diversifying out of the dollar."
So "two primary factors are at work: rising economic growth internationally, particularly in China, along with dwindling demand for the U.S. dollar," he said.
"Sounds like a perfect recipe for higher gold prices." The dollar, too, cannot rise in the long term, and gold can only go up in the long term, said Ned Schmidt, editor of the Value View Gold Report.
"Nowhere around the world are investors buying dollars as part of a buy-and-hold strategy," he said. "No bearish scenario exists for gold." All told, "no single factor has a more winning percentage than the inverse relationship of gold to the U.S. dollar," said Peter Grandich, editor of the Grandich Letter, in a recent newsletter. "About 85% of the time, and certainly over a period of years, they move in opposite directions." And "a currency is only as good as the country behind it," he said. "Socially, economically, politically ... America has never been in worse shape."
Timeline Still, experts don't seem as enthusiastic about mentioning the $700-and-above price range for gold as they were earlier this year. Kitco cut its average gold price forecast for the year down to $655 an ounce, from an earlier estimate of $690. Nadler emphasized that the Kitco forecast doesn't rule out a visit by gold to the $700 mark for a brief time, even before the year's end, but he also said "we do not see any $800 high any time soon."
Gold & Silver Investments' O'Byrne had a more bold prediction. "We believe gold will surpass its noninflation-adjusted high of over $800 per ounce by the end of 2007, and its inflation-adjusted high of some $2,400 per ounce in the next 10 years." On a technical level, support for August gold has to hold at the March low of $647.50 and it needs to noncommercial buying re-emerge before it can head back toward the high end of its trading range, said Darin Newsom, a senior analyst at Omaha-based DTN. The contract tested resistance at $706 back in April. But if support doesn't hold, and long-liquidation selling increases, the market could fall back to the next level of support near $625.60, he warned. Keeping all those price predictions in mind, GoldForecaster.com's Phillips may have summed it up best: "There is scope for upward jolts to demand for gold which must be factored in, in these summer months, so be prepared for volatility and surprises."
I should have chosen "Cut-n-Paste" as a forum name, since that is what I do, mostly.
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The loooong road to $700 per oz gold
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