Gold - Just an Innocent Bystander

Gold - Just an Innocent Bystander

GoldMikeMaloney 


SEPTEMBER 26, 2011 

 



 

 

Gold Plummets as ’Operation Twist’ Lifts Dollar- Rebound on Tap

Gold plummeted nearly 9% this week as sharp declines in equity markets fueled haven flows into the dollar. The  FOMC rate decision  on Wednesday saw the Fed announce the purchase $400 billion in long-term debt in an operation dubbed by market participants as ‘operation twist.’ The move aims to combat “significant downside risks” to the economy while keeping the size of the central bank’s balance sheet unchanged. To offset the cost the bank will sell the same amount in short-term treasuries and looks to flatten the yield curve by lowering interest rates on longer-term maturities. However the announcement was not well received and investors jettisoned risk across asset classes with gold falling on rapid appreciation in the greenback.

The US economic docket is highlighted by consumer confidence, durable goods orders, 2Q GDP, and personal consumption / income/ spending data. As concerns about a slide back into recession take root, investors will be closely eying the data after the recent string of disappointing prints seen in September. Although consumer confidence data is expected to improve with a print of 46.2 from 44.5, income and spending are expected to show continued weakness and could further fuel recession fears. August personal income is expected to print at 0.1%, down from a previous read of 0.3%, while spending is expected print at 0.2% from a previous read of 0.8%. If wage growth continues to show signs of exhaustion with inflation expectations well rooted the Fed may see scope to expand monetary stimulus after markets seemingly rejected the central bank’s decision to implement ‘operation twist.’

The correction seen in gold this week comes on the back of broad based losses in the commodity sector with silver, copper and nickel plummeting on concerns that policy makers lack the tools necessary to avert another global recession. In comparison with silver’s 24% decline and platinum’s 11% decline, gold has actually faired rather well. And if data out of the US continues to show signs of a weakening economy, investors may favor gold over the greenback back as a store of value. Traders will be looking to comments from central bankers and finance ministers after the annual meetings of the IMF and World Bank in Washington today for an economic outlook on global growth. Despite gold’s recent decline the precious metal may see a rebound should recessionary fears persist with the longer term outlook still weighted to the topside.

From a technical standpoint, gold has broken several significant levels during its descent this week after dipping below the 50% Fibonacci retracement taken from the July 1st  advance to the September 6th  crest at $1700. Interim support for the precious metal now stands at $1630 with subsequent floors eyed at $1600 and the 76.4% Fibonacci retracement at $1585. A break back above interim resistance at $1680 eyes topside targets at $1700 backed by $1720 and the 38.2% retracement at $1750. -MB

Written by Michael Boutros, Currency Analyst

 

 

Gold pares some losses but hurt by dash for cash

* Gold set for largest three-day fall in 28 years

* Flight to cash prompts widespread selling

* Coming up: U.S. Aug new home sales 1400 GMT

By  Amanda Cooper

LONDON, Sept 26 (Reuters) - Gold pared some of Monday's losses by midday in Europe but was still on course for its largest monthly slide in three years, as investors scrambled for cash in the face of mounting fear over the impact of a potential Greek debt default.

European policymakers began working on new ways to stop fallout from Greece's near-bankruptcy from inflicting more damage on the worldeconomy  after stinging criticism for failing to stem the debt crisis.

Industrial  commodities  such as silver and base metals bore the brunt of investor desire for liquidity in the face of mounting uncertainty.

In the last three days alone, gold has fallen by nearly 9 percent in its largest three-day slide since October 2008 and implied volatility has risen to a 2-1/2 year high.

Spot gold was last down 1.7 percent on the day at $1,628.29 an ounce by 1144 GMT, having fallen earlier by as much as 7.4 percent, putting the difference between the intraday high and low at $128.40, the largest daily price swing on record.

" It shows you that at times of extreme stress, there is not a suitable substitute to liquidity and although gold is liquid by metal standards, in comparison to treasuries, when you get this kind of flight to cash, then it really is cash that counts and that means U.S. dollars," said Credit Suisse analyst Tom Kendall.

" The  markets  are going to continue to react this week to the political situation within Europe and I don't see any quick resolution or stimulus coming to the markets."

After a weekend of being told by the United States,  China  and other countries that they must get more aggressive in their crisis response, European officials focused on ways to beef up their existing 440 billion-euro rescue fund.

Deep differences remained over whether the European Central Bank should commit more of its massive resources to shoring up Europe's banks and help struggling  euro zone  member countries.

INVESTORS RUN

The lack of consensus on a lasting solution to the euro zone debt crisis has been a major driver in this year's rise in the gold price to record highs above $1,900 an ounce.

" The rise in volatility taking place in the gold price was clearly an indication that gold was no longer a low-risk asset. So there are a few signs there that would have given you pause for thought, but inevitably when the move happens, everyone is taken a little bit by surprise," said Natixis commodities strategist Nic Brown.

" I would suggest that part of what is happening is a collective move away from commodities by investors. The fact that there is carnage going on across the commodities spectrum indicates there are a fair few investors who are getting cold feet at this stage and that has hit some precious metals disproportionately," he said.

Last week's data on investment in U.S. gold  futures  shows specualtors cut their holdings to their lowest level in over two years, as reflected by the fall in net non-commercial open interest on COMEX. < 0#CFTC>

Short-term interest rates on dollars and other major  currencies, have shot up this month, as banks have become increasingly unwilling to extend funding to each other because of fears over their individual exposure to the debt of the peripheral euro zone nations.

Gold is often sold off as a means of raising dollars when funding conditions deteriorate, much as they did in late 2008 with the onset of the credit crunch that ensued from banks witholding lending because of their concern over counterparty exposure to toxic U.S. mortgage-backed assets.

" Gold is one of the few assets that remains in positive territory this year, in a sense it is one of the last assets standing, and because of this as investors head for cash they sell the assets that have performed. Essentially gold is a victim of its own success as liquidity trumps," wrote UBS analyts Edel Tully in a note.

Silver came under fire, falling by as much as 16 percent at one point in the day and set for its worst three-day fall on record, having lost more than 25 percent in this period.

The spot price was last down 6.7 percent at $29.00 an ounce, its lowest since last November.Platinum fell by 3 percent to $1,559.25 an ounce, its lowest since May last year, while palladium recovered from an earlier 5.0-percent fall to trade up 0.4 percent on the day at $637.22 an ounce, around its lowest since last October. (Editing by William Hardy)

 

Gold steady on euro-zone debt crisis concern

High-flying gold crashes in record $100 freefall

 * Biggest intraday move on record for gold

 * Silver at seven-month lows

 * Recent market volatility even deters " buying on dips" 

 By Barani Krishnan and Jonathan Leff

 NEW YORK, Sept 23 (Reuters) - Gold crashed more than $100
on Friday, as a slide turned into a free fall, with weeks of
volatility, renewed strength in the dollar and talk of hedge
fund liquidation wrecking its safe-haven status.

 The sell-off came even after relative calm was restored to
the stock and oil markets following Thursday's losses. Bonds
also dived with gold and silver as investors took profit on a
near week-long rally in U.S. Treasuries.

 Widespread talk of possible selling by big hedge funds
covering losses in other markets set off one of the biggest
routs on record in the precious metals group.

 The CME Group, which oversees trading in U.S. gold and
silver futures, responded by raising margins, or deposits,
required on trades of the two precious metals as well as
copper. The move would further squeeze the most optimistic
investors in gold, who are trying to hold onto long positions
or bets on higher prices.

 " We're making new lows and the bull case for gold is on
pause for the near term,"  said Adam Klopfenstein, senior market
strategist for precious metals at MF Global in Chicago.

 " In the near term, the flight-to-quality interest in owning
gold is also out of the window as people are not interested in
buying it even in the face of fears in the economy. Until it
stabilizes, I'm staying out of this market." 

 < ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

 Graphic - Sharp gold correction:

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 Mounting fears this week of a global recession and a
deepening Greek debt crisis made investors treat precious
metals like any commodity, ignoring the safe-haven appeal that
had made them a must-have in times of trouble.

 The spot price of gold, which tracks trades in bullion, saw
its biggest plunge since the financial crisis in 2008. The    
plunge took out several key technical supports, including the
100-day moving average for the first time since February.

 By late Friday afternoon in New York, spot gold was down
about 5 percent, after falling more than 6 percent earlier to
touch lows from early August.

 U.S. silver futures closed 18 percent down, the biggest
daily loss since 1987.

 Spot gold is down nearly 8 percent over the last two days,
while silver futures have lost nearly 25 percent.

 Since hitting record highs above $1,900 in August, gold has
seen extraordinary price swings as some investors, who piled
into bullion, began to have second thoughts about it staying as
a haven from the euro zone turmoil and potential recession.

 The risk-off trade that had benefited gold abruptly
disappeared over the past two weeks. The precious metal has
begun trading inversely to a newly resilient dollar, as some
investors bet the bullion had become overly inflated.

 In Friday's session, gold ignored even a dip in the U.S.
dollar index as the selling accelerated.

 " Gold's fall is a bit surprising. The fact that it has been
so volatile lately is perhaps discouraging people from even
buying the dips,"  said Peter Buchanan, senior economist at CIBC
World Markets.

 PANIC SELLING

 By 5:00 p.m. EDT (2100 GMT), bullion's spot price was down
5 percent at around $1,643 an ounce, after trading between a
session peak of $1,754.71 and low of  $1,628.69. At $126 an
ounce, the intraday move was the biggest on record in dollar
terms. It was also more than 5 standard deviations beyond the
normal one-day change. On a weekly basis, spot gold fell 9
percent, its biggest weekly drop since the 1980s.

 U.S. gold futures' benchmark December contract on COMEX
settled down 6 percent, or more than $101, at under $1,640 an
ounce.

 Spot silver was down 14 percent at a seven-month low below
$31 an ounce. Benchmark silver futures closed down nearly $6.50
at around $30.10 an ounce.

 Despite those steep losses, spot gold remained up 16
percent year-to-date due in part to big gains in August. Silver
futures, however, turned negative, posting a slight loss.

 A New York Times story about hedge funds likely liquidating
some of their gold holdings after a year-long rally appeared to
spur speculation that one specific manager had been selling,
although there was no evidence to bear that out. The story did
not name or cite any specific funds as behind the selling.

 " I'm sure talk of hedge fund liquidation is helping to
pressure things, though there's no confirmation of any single
fund selling,"  said Jonathan Jossen, an independent COMEX
trader.

 While gold has fallen sharply this week, trading volumes
have been strong but not yet near the record levels of August.
By late in the session on Friday, COMEX futures volume of
323,000 lots was 25 percent above the one-month average, but
about a quarter less than recent peaks.

 " There are a lot of people saying it's margin calls on
other assets, but I think more so it's that there's panic
around and people getting out of positions they think are over
leveraged and risky,"  said Matthew Turner, precious metals
strategist at Mitsubishi Corp in London.


  

  

  

rt.com 
SEPTEMBER 23, 2011

 

 

goldmoney.com 
SEPTEMBER 23, 2011

 

 

zerohedge.com 
SEPTEMBER 23, 2011

 

 

goldmoney.com 
SEPTEMBER 23, 2011

 

 


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