By Jon Nadler
After an period of early indecision and another dip to the $877 area,
gold prices aimed for higher ground overnight and early on Thursday, amid
a fresh slip in the US dollar and a mild gain in crude oil values. The
possibility of a stimulus-oriented pre-emptive ECB rate cut emerged
yesterday as apprehensions about a slowdown and low levels of business
confidence gave rise to speculation that the heretofore staunch
anti-inflation stance may be on the wane.
Although the trade lifted the dollar on such expectations, the gains have
now given way to more of what we have witnessed previously; a parade of
bad news from financial firms, followed by expectations of heftier and
heftier rate cuts two weeks from now, and a skidding greenback. Until the
extent of the credit maelstrom is fully quantified, markets will continue
to be buffeted by uncertainty and bouts of flight to quality. The latest
piece of news tells of US housing starts for December being at a 16 year
low and the 2007 homebuilding decline being the worst in 30 years. Not
exactly dollar-supportive news.
New York spot gold prices spent most of the day on a firmer footing,
eventually rising to near $891.00 per ounce as the dollar was poised to
retest the 76 mark (or lower) on the index amid news that Merrill Lynch
has taken a more than $14 billion charge on subprime trash, swinging the
firm to its largest ever loss. At the end of the day, however, selling
pressure re-emerged kept gold suppressed (hmmm...maybe a bad choice of
words) and the market closed down $1 at $879.90. The correction -whatever
its eventual magnitude - appears to remain in 'unfolding' mode. Credit
crisis jitters reignited as firm after firm goes through the pain of
write-offs and shrinking profits. Bank of NY Mellon reported a 68% decline
in profits. These headlines, on a day when the Fed chief is supposed to
appear before Congress and try to keep its members from breaking out in a
cold sweat when they hear the news he has for them. Silver added 12 cents
to finish at $15.90 per ounce while platinum lost $1 to $1558.00 per
And now, for something...completely different. The latest from
TheStreet.com where interpid reporter Simon Constable analyzed the latest
developments on the gold ETF front. Warning: This writer was also asked a
question, and thus gave an opinion (and owns none of the ETFs mentioned).
" The big plunge in gold prices Wednesday was likely amplified by
investors dumping holdings of the largest bullion exchange-traded fund.
StreetTracks Gold Shares (GLD) saw redemptions of 21.51 tons of gold,
worth more than $600 million, marking the biggest ever one-day decline in
metal holdings for the fund, data from the firm showed.
Gold futures dropped over 3% at one point and reportedly caused order
imbalances on the electronic exchanges, some traders say.
"How could it not impact on the downside?" asks Jon Nadler, a precious
metals analyst at Montreal-based bullion dealer Kitco.
Current holdings of streetTracks Gold Shares total about 631 tons, or
around twice the level held by Britain's Bank of England, and some
observers say that the holding represents something of an overhang on the
"We have to think about the equivalent of a new central bank having been
born and one which has no scruples about monetizing its gold," adds
Nadler. "Institutional holders are only too happy to sell to lock in
The selling came after gold ventured above $900 for the first time in New
York. Benchmark futures contracts for bullion were recently tacking on
$4.30 at $886.30 an ounce. The price of the metal has run up from around
$840 at the beginning of the year.
In 2004, the World Gold Council developed the first bullion
exchange-traded fund in conjunction with StateStreet, and it was quickly
followed by a similar product from Barclays, the iShares Comex Gold Trust
(IAU) in January 2005. The latter product, however, has never been as
popular and to date has only amassed holdings of 58 tons of gold bars. The
development of the ETFs opened the bullion market to both institutional
and retail investors in a way never possible previously by eliminating
burdensome administrative costs usually associated with holding gold. But
the popularity of the funds in terms of capital deployed is dominated by
As such, the holdings of the fund can be expected to gyrate up and down
according to sentiment on Wall Street."
Remain highly attentive to news flows and to English interpretations of
what may be said by the Fed chief later today as fourth-quarter results
keep coming and investors continue to remain jittery. The cross-currents
have barely begun to be felt after what will have been another week of
historic significance for gold.