There are two things working against gold this evening. The first is the election results showing a wave election in favor of the Republicans which can be interpreted as a repudiation of Obama and his policies. Equities seem to like the results and are moving higher. In the current environment, rising stock markets work against gold.
The second item is the set of comments coming from Bank of Japan governor Kuroda. He is essentially confirming the view that deflation is the major concern of his Central Bank. Along that line, he has noted that "falling commodity prices are positive for the Japanese economy in the long run". Such comments undercut any reason to own gold in the mind of most investors.
Gold has responded accordingly by plunging below last week's low.
In trying to find support levels for the metal, I am forced to move to the long term monthly chart. Please note that gold has fallen to the first Fibonacci retracement level noted by the shaded ellipse. That comes in near $1155. Failure there and gold is set for a test, first of psychological round number support at $1100 but more critically, technical chart support near $1088.
Gold continues to rapidly lose friends over here in the West as the steady fall in holdings indicates the growing disillusionment of those who bought the metal thinking it would respond upward during this period of Central Bank actions to provide low interest rates and more liquidity.
One gets the distinct sense from watching the price action that even some of the more resolute bulls are now reading the handwriting on the wall and getting out as the bear market in gold becomes more deeply entrenched.
Look at the updated chart of the holdings of GLD, the big gold ETF. They fell another 2.39 tons since Friday of last week to sink to 738.82 tons. That is the lowest level of reported holdings since the last week of September in 2008. In other words, a fresh 6+ year low!
To further add insult to injury, both the HUI and the GDXJ, the latter which is especially pulling a disappearing act, surrendered their feeble gains from yesterday closing down near session lows.
As a matter of fact, one must go all the way back to October 27, 2008 to find a LOWER CLOSING PRICE in the HUI. Just for the record, the closing price of the HUI on that date was 151.57. We are talking about 6 years here as well. Prior to that, we are talking about going as far back as July 2003 to find a lower closing price. In other words, we are a mere 3 points away from seeing an ELEVEN YEAR LOW.
Of course we have the gold perma bulls talking the usual "capitulation" but such a "strategy" is the last resort of those who have lost so much money in an asset class that they have nothing else to lose at that point. Capitulation does one no good whatsoever if the stock they are invested in disappears from sight and the company ceases to exist as a viable entity. I expect we shall be seeing this occur.
There is no lesson that bites as harshly and stings so fiercely as a financial one. Listening to others without listening to the voice of the market itself is courting financial ruin. No man alive knows the future and those who speak with a feigned authority as if they do, prey on the unsuspecting and the naïve.
The vast majority of people who have set aside some money with which to invest have worked very hard to secure that. It represents their life, their dreams, their hopes for their children or grandchildren or their security in their old age. To lose it, to watch it go up in smoke is a bitter, bitter thing but to realize that they have blindly followed someone else to their own ruin makes it an even more bitter pill to swallow.
It would be well to keep in mind an admonition from the Scriptures against those who mislead or deceive others.
"Hear this, you who trample the needy, to do away with the humble of the land, saying, "When will the new moon be over, so that we may sell grain, and the Sabbath, that we may open the wheat markets, to make the bushel smaller and the shekel bigger, and to cheat with dishonest scales, so as to buy the helpless for money and the needy for a pair of sandals, and that we may sell the refuse of the wheat."
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The Lord has sworn by the PRIDE of Jacob, "Indeed, I will never forget any of their deeds... Then I shall turn your festivals into mourning and all your songs into lamentation; and I will bring sackcloth on everyone's loins and baldness upon every head, and I will make it like a time of mourning for an only son, and the end of it will be like a bitter day". Amos 8: (4-10)
Gold is down slightly as I type these midday comments but trading in the upper part of its daily range at this point. With the equities lower this morning, bonds are getting a bid once more as the safe haven trades are in evidence. We know this because along the higher bonds, the Yen is also a bit higher. The risk aversion is bringing some mild buying into the yellow metal.
Unfortunately for the bulls, two things are working against it at the moment. The first is the mining shares. They are doing what they seem to be doing best these days and that is sinking lower. A research note from RBC notes concern about excessively high levels of debt in both Tier I and Tier 2 producers. It cites headwinds these companies are having to deal with at gold $1200 and expresses concerns over the necessity for dividend cuts and other cost cutting measures at $1100.
The second drag on the metal today is a plunge in the various commodity indices. The Goldman Sachs Commodity Index is being dragged lower once more by sharply lower crude and energy prices along with weakness in the grains.
Here is a chart:
As you can see, we are now talking about a 50 month low in overall commodity prices. That is hardly the stuff out of which inflationary concerns, much less hyperinflationary events, are born.
Switching briefly, for the sake of time, to the grains, especially the beans. The meal spreads have been very erratic reflecting the nature of the concerns over soymeal logistical jams. Informa came out with their crop estimates for this year during the morning trade confirming that both the corn and the bean crops will be the largest in history. They did however slightly lower their final yield estimates from 176.4 bushels to 174.4 in the corn and from 48.5 in the beans to 47.9. There was some movement in the beans in particular as the estimates become more widely disseminated but it seems any impact was rather fleeting at this time. Most traders are trying to get their hands around information dealing with the much-toted ( and highly overrated in my view) logistical concerns due to transportation problems.
The meal bear spreads were reversed near mid-morning with the result that the December meal is once again pulling the beans off of their worst levels of the session. As volatile as this market has been however, especially at the close, anything is possible at this point.
Silver has managed to pop its head back above the $16.00 level once more. It looks like it, along with gold, are consolidating its recent losses with some sideways trade.
What more can I say about crude oil that I did not say already yesterday. It remains under strong selling pressure from continuing fallout over the Saudi price cut to the US. Unleaded gasoline is down yet another 4 cents at the NYMEX (CME).
Crude oil is sitting just atop chart support near the $75/bbl level. If it cannot hold there, and that is a pretty significant support zone, it appears headed for a test of the $72 - $71 region. To repeat from yesterday.... are we going to see a "1" handle in front of unleaded gasoline? WOW...
I will try to get some more up later on today as time permits...
For my fellow American readers - don't forget to get out and vote. Act as if your country's future depended upon it, because it does!
