Sunday, April 14, 2013

Arrogant Gold Bears Press in the Market and in Print

An example of extremely bearish commentary out there, in this case from Dubai, with a few comments from GGR inserted for a different take. (GGR comments in red.)

Bullion bloodbath: 125-ton sell-order sets gold price for plunge

Bear Big Snarling Face onIt may no longer be ‘safe’ to hold on to the ‘safe haven’ precious metal

Gold price suffered a massive decline of 5.6 per cent, or $87 per ounce, on Friday, crash-landing at a 22-month low of $1,477 per ounce.

Reports suggest that a 4 million ounce (124.4 tonnes) sell-order, worth $6 billion (Dh22 billion) at current prices, by a large investment bank spooked the markets and led to this decline.

“It appears that the significant selling pressure last Friday was amplified by a four million ounces (124.4 tons of gold) selling order, to be executed on Comex opening. This was clearly too much for a relatively empty market to handle, and the initial pressure resulted into waves of selling, which in turn attracted further selling all the way down,” Gerhard Schubert, Head of Precious Metals at Dubai-based Emirates NBD, wrote in his weekly report.

“The price for gold is now at par with the price for platinum. This is a very difficult report to write,” he penned at the beginning of his gold report.

Well, if rumours are to be believed, it’s going to be tougher still for him to write next week’s report.

(Ed. Tone setting remark. Reveals bias.) 

For, Euro Zone’s troubled economy Cyprus is all set to add to that chaos by reportedly putting its €400 million (Dh1.93 billion) worth of gold on the block, in a bid to shore up its financial health.

(Ed. About 10 tonnes of gold by itself.  GLD offloaded about 47 tonnes this week alone in fear.)

In what analysts are terming as a make-or-break moment for the precious metal, gold has failed all safe haven tests and, for the first time in about two years, plunged below the $1,500 mark.

(Ed. Gold bears celebrating gold moving below $1,500, but it took gold 19 months to give back what it put on in 10 weeks in 2011.)

Indeed, it doesn’t seem too good for the gold bull. Gold last saw these levels in July 2011, after which it began its very fast and very steep incline to breach the $1,920/oz mark in September 2011.

Since then, however, the metal is now down by a quarter (23 per cent) – officially in a bear market. It was already, technically speaking, in a recession as the price of gold had shown negative growth for two consecutive quarters (Q4 2012 and Q1 2013).

With this most recent plunge, gold has wiped off almost two years of gains for its loyal investors, with those who pledged their hard-earned money in the safe haven precious metal now in negative equity.   

(Ed. Translation: "Gold itself betrayed you, you stupid idiot."  The selldown last week has nothing to do with the paper metal markets or very large hedge funds who also happen to be big supporters of the current U.S. president and somehow managed to escape the 2008 crisis unharmed and unprosecuted.  Nothing at all.)

To be fair, just last week we suggested that with the global economy getting back on track, and in the absence of a global shock like the Korean war, gold is set to fall back closer to levels that it saw before the 2008 recession took hold (read: Gold recovers to $1,581, but here’s why it may crash to $1,000).  

(Ed. Global ecomomy getting back on track?  Only a shock of the magnitude of the Korean War will save gold's plunge to pre 2008 levels.  Really?  Believe the illusory improvement in equity markets  if you wish, but when the stimulus is withdrawn or no longer works,  it won't be long before the world is focused once again on competitive fiat currency debasement (currency wars), impossible to repay enormous soveriegn debt and public loss of confidence in irredeemable, under backed fiat currency, which is a primary driver of the gold price.)

“The gold market has, more or less, officially slid into a bear market. The popular definition of a bear market is when the commodity in question not only trades but closes at a level of at least 20 per cent under its all-time highs. The reverse psychology indicates that only a close above $1,776 would re-establish the bull market,” wrote Schubert.

(Ed. Schubert's price symbolism does not go unnoticed here.)

That level, for one, looks more elusive than ever. “It appears that any price rally in the near future can and will only be described as short covering rallies,” says Schubert.

(Ed. Therefore do not believe gold rallies going forward. They would only be short covering, not real demand.)

“I do expect the market to see some short covering next week, as the market closed on the multi-year low. The former support area of $1,526 will become now a formidable resistance area. However, technical selling can be expected on Comex opening on Monday, based on models, which have received sell signals based on last Friday’s close,” he says.

Goldman Sachs LogoSo what happened last week?

While there are many reasons, a couple of factors were the most overbearing on gold price.

One, Cyprus seems set to offload €400 million (Dh1.93 billion) of its gold reserved in a last-ditch attempt to save face – and its economy. And if Cyprus does so, there is no reason why other Euro Zone economies in the same dire straits – Italy, Portugal, Spain, Hungary, Slovenia… there are plenty in line – won’t do it.

(Ed. Hyperbolic fear mongering.  If anyone believes the Italians would sell their gold at the behest of the E.U. think again.  They would more likely tell the E.U. to take a flying, uh, ... leap at the moon.)

In addition, if they really ‘have’ to sell their family silver, it will make sense for other beleaguered European economies to sell it now rather than after the Cyprus sell-off has pushed gold further down. That is going to see a scramble among European nations as to who sells earlier, and that can’t be good news for the price of gold. In fact, it will be very bad for it.

(Ed. Don't you love the reference to Cyprus selling a measly 10 tonnes of metal as being able to drive the market down, when the story begins with a 124.4 tonne sell-at-open order or  after one ETF (GLD) has sold more than 200 tonnes since this gold pullback began in December and 46.75 tonnes this week alone?  Right, like it is going to start a panic sale among E.U. countries, each trying to hit the bid before the others.  ... That our collective inteligence is under assault here does not go unnoticed.) 

“It [The Cyprus sell-off] is a make-or-break moment for gold… if the market can’t handle the reallocation and Cyprus, then there is really a need for a bear market,” Milko Markov, an investment analyst at SK Hart Management, has been quoted as saying.

And it isn’t just Cyprus and other euro Zone nations’ potential dumping of the yellow metal that is putting negative pressure on gold prices.

On Wednesday, leaked minutes of the latest US Federal Open Market Committee (FOMC) meeting showed that several members of the committee now believe that the benefits of quantitative easing programme are diminishing, and that costs of the $85 billion per month bond purchases outweigh the benefits.

(Ed.  That really was an 'odd coincidence.'  When was the last time the Fed minutes were released early to way short gold hedge funds?  As Don Corleone might have said, "I don't believe in coincidences."  With so many former Goldman execs now in government, with one important Goldman expat heading up the Commodity Futures Trading Commission, we need not fear any inquiry into that, um, ... cluster-blunder.) 

This means that this flow of surplus dollars into the market – quite a few of which found their way into gold investments – will stop, leading to demand drying up for the yellow metal.

Bernanke Ben fingersThe US Federal Reserve has, so far, poured more than $3 trillion of easy money into the US since December 2008, when the first round of quantitative easing program was unleashed.

Now that the US Fed is making noises about cutting off that lifeline, gold price will get a nasty shock when – not if – the QE programme comes to a logical end.

(Ed.  Q.E. is what is creating the illusion of improvement.  If it is removed, even briefly, the improvement will quickly recede, leading to more Q.E.  That's why some are calling it "Q.E. Infinity.")

Additionally, a number of analysts including investment banks Goldman Sachs and UBS have recently further slashed their average gold price forecast for 2013. Goldman Sachs has cut its 2013 average gold price forecast for a second time within just six weeks, this time from $1,610/oz to $1,545/oz. UBS seems to be a gold price optimist, but it too has slashed its forecast from $1,900/oz to $1,740/oz. Blankfein Lloyd scowl

(Ed.  Vicky, you left off the modifiers "heavily short" and "book-talking" in front of Goldman Sachs.  An oversight?) 

These downgrades are linked to the possibility of an early end of the US Federal Reserve-funded QE programme, which comes with gold-negative factors such as investment flowing into equities, low inflation, improving economic growth, and a stronger US dollar.

(Ed. As J. Kyle Bass might say, "It's all unicorns and rainbows and all is well in the world."  Never mind the $13t explosion to the four largest central bank balance sheets and Japan's one-quadrillion yen debt bomb about to detonate, and so on. Right now the future looks as bright as the flash over Hiroshima on 6 August, 1945 as "Little Boy" literally atomized.)

With loads of investors dumping paper gold (ETFs) in record numbers during the first three months of 2013, the writing is on the wall for the future of gold.

(Ed. Nice job, Vicky.  In a tomahawk sort of way.  Ursa Major greetings from a skeptical Texan, should you happen to read this time wasting response. No one would welcome a return of the gold price to "pre-2008 levels" more than I, but I just do not share your "optimism" the price of gold will get there. But do keep the pressure on, please.  For those of us now on the sidelines (with short term trading), you are working for us! ... Longer term:  Got gold?)

(Images added, including the wheelbarrow full of Marks.)

Source for the Emirates story:

Original story at this link


The Original
Vulture Speculator

Trading gold, silver and mining shares since 1980 with a focus on taking advantage of volatility extremes, Gene Arensberg analyses the markets through a basket of technical and fundamental indicators and shares his findings from time to time here at Got Gold Report. Mr. Arensberg has been quoted in the Wall Street Journal, Dow Jones MarketWatch, USA Today and dozens of other news organizations.

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