By Jon Nadler
Two out of three hoped-for gold price 'ignition' events failed to bring such action to the precious metal thus far this week. Ben Bernanke talked about unconventional toolkits and about "closely monitoring" the US economic and labor conditions but stopped short of doling out a fresh batch of free money.
Mario Draghi talked about unorthodox intervention instruments and about how the euro is "irreversible" but stopped short of either rate cuts or bond purchases. Thus, once again, on Wednesday and Thursday, the operative word among the commodity and equity market bulls that have become dangerously habituated to the hitherto reliable "fix" of ultra-cheap play money, was: "disappointment."
The morning analysis from bullion firm Sharps Pixley remarked that "Gold traders, who were looking for a quick fix, were clearly disappointed when the ECB President did not follow up with any concrete steps after pronouncing last week that he would do everything to save the Euro, suggesting the ECB would purchase government bonds along with the European rescue fund. In the next few weeks and months, gold prices will be affected by how well the ECB will carry out these measures, and whether a closer fiscal integration and a banking union can be fostered."
With disenchantment, in this case, came bearishness and less enthusiasm for speculating. Ultimately, selling also arose out of such sentiments. One glance at the closing boards on Thursday told the story: gold –down $12 to $1,588 per ounce, silver - down 31 cents to $27.13 per ounce, platinum- down $12 to $1,381 per ounce, palladium down $14 to $566 per ounce, crude oil –down $1.78 to $87.23 per barrel, the DJIA – down 92.18 to 12,878 and the euro down from above $1.24 early on, to just $1.217 by day's end.
Standard Bank (SA) analysis issued this morning pegs the following support/resistance markers for precious metals at this juncture: "Gold support is at $1,581 and $1,568. Resistance is $1,612 and $1,628. Silver support is at $26.90 and $26.54, resistance is at $27.73 and $28.19. Platinum support is at $1,381 and $1,367, resistance is at $1,408 and $1,421. Palladium support is at $563 and resistance at $590.
On the Kitco iPad price app the lone green-colored ticker belonged to the US dollar; it gained 0.32% to finish at 83.32 on the trade-weighted index. In the Kitco News section one could find eight stories containing some variant of the word "disappoint" posted from July 30th through last night. A quick Google News Business search for the keywords "Fed/ECB/disappoint" over the past week, yielded...8,370 results. We think you get the general picture. The above notwithstanding, the concentration of gold oriented commentaries leading up to the Fed and ECB non-events - all alluding to an "imminent breakout" - was as heavy as ever. They will shortly be replaced by similarly optimistic titles, now however containing keywords such as "September" and "keep the faith."
Long-time market observer and mining firm expert Lawrence Roulston writes in his latest posting on Kitco titled "What Happened to Gold?" that sadly, "For many people, the only reason to own gold is to benefit when the price finally takes off. After a decade or so of projections that are consistently out of line with reality, a certain degree of skepticism has come into the gold market. Many investors know gold on the basis of its failure to reach the lofty targets set by gold bug commentators."
Speaking of profound disappointment, the other day, we surveyed the landscape in the badly decimated gold mining shares' space. Well, it turns out that investors, stock analysts, and most of all, corporate boards, may have had enough of CEOs who have made a career out of publicly forecasting much, much higher gold prices like clockwork, but have had a knack for driving their own firms' share prices into single-digits, or fractions of a dollar. Abrupt dismissals of such gents have now taken place at Kinross and Barrick and the market analysts who focus on this industry believe that the trend is becoming as fashionable as fall sportswear on the runways in Paris.
"We interpret that lack of capital discipline and stock underperformance has reached a breaking point in the mining sector and we expect further management changes to come," noted Jorge Beristain, an analyst at Deutsche Bank. Yes, management changes will come but we cannot be sure that the new hires will not end up as "more of the same" and pursue projects that do not capitalize on a once in a lifetime gold bull market and/or continue to spend money like drunken...miners.
This is a topic to be surely continued. Investors are sitting on shares that have lost up to 80% or more during what has been labeled as the "Mother of All Gold Bull Markets." Up to 66% of the dismal performance of certain shares can be attributed to individual factors that were within the control sphere of management, according to experts. There could be the equivalent of an "Arab Spring" in the making among millions of investors if this situation continues for much longer...and that's just as far as the shares of some very well-known names goes. Head-hunting for CEO replacements could kick into high gear, as could the hunting for heads to roll among current corner office occupants.
Kitco commentator Lawrence Roulston also chimes in on the issue by warning that "For the overall market for junior exploration and development companies, there is still a lot more downside. Many of the companies in this sector, perhaps the majority, are still trading for share prices well beyond their fundamental values. A company whose only asset is the hope that someday they will make a discovery will have a difficult time raising money in this market, at least at prices that make sense to existing shareholders".
Ahead of this morning's jobs report, gold prices finally managed their first gain in five days, rising to near $1,595 per ounce on the assumption that bargain hunters might provide some support to the metal under the $1,600 level. It could turn out to be the case by day's end that gold will have turned in its worst weekly performance in six with a decline of roughly 1.5%.
The euro recovered a tad from overnight lows but currency traders remain guarded about its prospects for major gains in the absence of the ECB "bazooka" being trotted out. Draghi seemed to offer something more along the lines of a Nerf water pistol instead and that keeps the currency specs at arm's length from the common currency. So, it was back to "Live, from New York, it's: Jobs Friday!" as per the Wall Street Journal.
Well, the US Labor Department reported that in the month of July US employers created a very robust 163,000 positions. The figure was 63,000 above consensus expectations. However, the overall jobless rate ticked up a notch to 8.3%. The initial impact of the news was to send gold back into the red (down $2) and to trim the gains in the remainder of the complex. Silver was ahead by 7 cents at $27.20, platinum advanced $4 to $1,385 and palladium rose $3 to $569 the ounce. Book-squaring and gazing into next week by traders will now take over and finish the session probably inconclusively.
The Labor Department report likely dismissed the last vestiges of the sentiment among some that the US economy has completely stalled out. It could be a game-changer for Fedspectations. While the report contains several complexities that make it a head-scratcher for the Fed (as well as the obvious disconnect between job creation and total unemployment), the numbers do not appear to be sufficient of a motivator for the FOMC to give a "fix" to certain asset junkies come September 13th.
(The author is the senior metals analyst - Kitco metals)
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