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Holiday Potpourri
By Jon Nadler

Today, being a holiday up here in wonderful Quebec, we bring you a broader roundup of outside-sourced news and comment for your leisurely edification. We will resume our in-depth /daily-focus commentary tomorrow.***

The midweek trading session brought some overdue relief to bullion holders, as gold staged a better than 1.25% order of magnitude rally in the first hour after it opened. Gold was last seen trading at $935.30 per ounce following the early morning buying spree (mainly fund-flavoured we might add). Background news were focused mainly on rumours that the Swiss National Bank had intervened in the currency markets and sold its own franc in an effort to curb its unwelcome rise.

US durable goods orders unexpectedly jumped last month. The numbers helped put a bit of a floor under the dollar following yesterday's decline in same. Today, on the other hand, will bring plenty of Fed-watching (and listening) opportunities as well as economic data to the speculators' table. The US dollar continued under the 80-mark on the index this morning, while crude oil was also off and traded under $69 per barrel. Analysts see a slow slide in oil towards the $50s following their recent, mainly fund-driven spike.

Similar declines are now seen as upcoming in metals as well. Bloomberg reports that "metals prices may decline in the next three months as China, the world’s biggest user, begins to run down inventories that were built up earlier this year, according to Francisco Blanch at Merrill Lynch & Co. “China has been accumulating inventories of commodities for the last six months or so,” Blanch, head of global commodity research at Merrill, said today in an interview. “This accumulation of inventories now needs to be cleared off. End-user demand in China has not really picked up.” Metals prices surged as much as 48 percent this year to a June 11 peak on restocking by Chinese companies and speculation that the nation’s State Reserve Bureau was also buying metals to build up stockpiles."

On the Indian gold buying (make that, non-buying) front, more of the same (as before) to report. Bloomberg informs this morning that "gold imports by India, the world’s biggest buyer, probably halved in June as higher prices and weak currency deterred jewelry buyers, a traders group said. Purchases were 8 to 10 metric tons in the first three weeks of this month, compared with 17 to 18 tons in a year-ago period, said Suresh Hundia, president of the Bombay Bullion Association Ltd., citing preliminary data. Gold traded in Indian rupees has gained 18 percent in the past year as the currency fell on concerns of foreign investors withdrawing funds from emerging markets. India’s bullion imports have fallen for nine straight months because of high prices and increased supply of scrap jewelry. “There has been no demand in the last four months and the main reason for that are the high prices,” Hundia said in a phone interview. Imports will remain subdued until the price drops to at least 14,000 rupees ($289) per 10 grams, he added.

As for the technical picture in gold, for those interested in quick trading plays, detailed information supplied by GoldEssential.com in its periodic review released just yesterday, indicates that "as of Monday, technical charts show a clear break below a longer-term uptrend line that finds its base back in October 2008, and started off the $680.80 an ounce low. This break is perceived as significant, and opens for a test of the $864 an ounce April Low, if a sustained break below the $912.05 an ounce area (61.8 pct retracement of the entire $864-$989.80 move) can materialize. Interim support levels are suggested at $906-$905 (minor), followed by $900-$899, $885 (minor), $880 (key), $875-$874 (current 200 SMA) , $870 and $864 (key). A failure to hold to the April lows can lead prices lower towards $850, $843 (50 pct retracement of the earlier $680.8-1,005.40 move) and ultimately $830 (which has served as a pivot point several times since August 2008), where we expect very strong support.


On the upside, a break back above the $930-$933 area is necessary in order to negate the trend-break. Nevertheless, strong resistance comes ahead of $925 and $926.50(50&100 SMA)-$926.9-$927.00 (50 pct retracement of the $864-$989.80 up move). Should further upside prevail (the less likely situation), look for strong resistance in the $940-$941.75 (38.2 pct retra cement of the $864-$989.80 up move)-$942.70 (June 18 high) area. Above here could open for further strength towards $960.1 (23.6 pct retracement of the $864-$989.80 up move).

For now, only above the $986-$989.80 area would mean a longer-term bullish break and re-open for a test of the previous high of 1,005.40 and then the all-time high of $1,030.80 an ounce. Ideally, further recovery in an attempt to unwind the current lingering short-term oversold condition should be capped by the $925-$927 area, after which fresh downside eventually pressurizes prices back below the $920-$918 area. Confirmation of a fresh downleg would subsequently come below $912.05 an ounce."


So, how have some investors fared with their allocation to metals recently? At least for one notable (and much-touted by REGBs) investor, the picture is not what one would have hoped for back at the time when the buying took place. Marketwatch's intrepid NY-based reporteroming Zhou, delves into the Paulson gold investment and comes up with the following insights:

"Hedge-fund manager John Paulson gained notoriety with his well-timed bets against the housing market, but his big first-quarter push into gold has yet to pan out as inflation fears appear to have been held at bay. The billionaire manager became the No. 1 holder of SPDR Gold Trust in the first quarter, buying 31.5 million shares, or 8.6%, of that popular exchange-traded fund, according to filings that his firm, Paulson & Co., made with the Securities and Exchange Commission.

As of Friday, that $2.84 billion investment would have gained 2% since the end of March, in line with gold prices. In contrast, the U.S.-listed shares of Petro-Canada, of which Paulson bought 10.3 million in the first quarter, have jumped 45% during the second quarter. Shares of J.P. Morgan Chase Co., of which Paulson held 5.8 million, have soared 32% this quarter

At the end of March, SPDR Gold, the biggest gold-related exchange-traded fund, was the biggest U.S. holding that Paulson has publicly disclosed, according to FactSet Research Systems Inc. The calculation of Paulson's gold investments is only based on his first-quarter holdings in U.S. stocks, and his funds could have reduced or expanded those positions during the second quarter. A spokesman for Paulson declined to comment on the firm's positions.

Paulson's first-quarter move into gold came as the metal climbed to $1,000 an ounce and investors sought a safe-haven against cratering equity markets and what looked to be a severe global recession. About two weeks after gold hit its high for the year, the S&P 500 dropped to a 12-year low.

Gold holds allure as a hedge against inflation and a weaker dollar, two outcomes that many investors expect as governments around the world raced earlier this year to jumpstart the economy with trillions of dollars in cheap loans to consumers and businesses. Gold is widely seen as a more durable store of wealth than paper currency, especially in the face of inflation. Buying shares in SPDR Gold Trust and other gold ETFs directly exposes investors to bullion prices because these funds buy up physical gold bars.

Since late February, however, gold prices have tumbled as the outlook for the global economy has turned rosier even as inflation still appears a long way off. The London afternoon gold fixing, the benchmark gold price, has risen 2% in the second quarter as of Friday. It fell 1.7% to $919.25 on Monday, the lowest level since May 12, with a drop in oil prices providing another sign of gold's faltering appeal as a bulwark against inflation.

On the Comex division of the New York Mercantile Exchange, gold futures fell nearly 2% to as low as $919 an ounce. That's more than 8% lower than February's high above $1,000. By some measures, stocks have enjoyed their best runs since the 1930s as investors buy into the notion that the global economy could rebound later this year. The S&P 500 rallied about 40% from its March 6 lows to the second week of June.

A better outlook for growth has yet to translate to higher inflation. Instead, the global economy is on the verge of deflation. U.S. data released last week showed that the consumer price index, a major gauge of inflation, fell 1.3% in the past year, the sharpest decline since April 1950.

"Inflation is still not around the corner," said George Gero, a precious-metals trader for RBC Capital Markets. "We are not going to see a sharp rally in gold prices in the short term," he said. The dollar has fallen against some of its major rivals this quarter, though it remains higher than it was a year ago.

Overall, his first-quarter investment in two gold-related ETFs and three gold mining stocks currently would total $4.45 billion, gaining 2.3% this quarter as of Friday, if he held onto those shares. The S&P 500 rose 15% in the same period. A person familiar with the matter said some Paulson funds lost a little ground in April, but the firm's hedge funds are up 4% to 14% during the first five months of 2009, net of fees.

Several other hedge fund managers have piled into gold this year as a hedge against inflation. Some funds have even set up gold-denominated share classes as an extra layer of protection for their clients. Other big gold investors include BlackRock Advisors Inc., Greenlight Capital, Eton Park Capital Management, and Hayman Advisors. Among their investments were gold futures, ETFs, shares of gold producers and even physical gold.

BlackRock, which has just snapped up Barclays Global Investors to become the world biggest fund manager, held 6.07 million shares of SPDR Gold as of the first quarter, according to filings. That ranked BlackRock as the second-biggest holder of the ETF, according to FactSet.Fund managers overseeing more than $100 million in equities must file a Form 13F within 45 days of each quarter's end to list their U.S.-traded stocks, options and convertible bonds. The form doesn't show non-U.S. securities."

At the end of the day, what is it about the US dollar that has 'prevented' the materialization of fresh al-time highs in bullion? No, it's not the sinister puppeteers alleged to be lurking behind the scenes of every market, and every bit of news about the market. The rather banal explanation is the fact that the world is lacking for better alternatives - especially when push comes to shove. We have seen as much pushing and shoving as we can ever possibly bear, during the past two years. The results? Well, look around. Then read the following story from Bloomberg:

"Moody’s Investors Service said the dollar’s unchallenged status as the world’s reserve currency is supporting U.S.’s Aaa credit rating even as the nation’s budget deficit is set to quadruple this year.

“In the absence of a credible alternative it’s hard to see abrupt changes and that’s not even in the interest of the creditors,” Pierre Cailleteau, managing director of sovereign risk at Moody’s, said in an interview in Tokyo yesterday. The credit rating “remains solid,” he said earlier at a briefing.

The fiscal health of the world’s largest economy has come under scrutiny by its creditors as bailouts and stimulus plans swell a budget deficit forecast to soar to a record $1.85 trillion this year. China and Russia, the largest and third- largest foreign holders of the debt, have said they may diversify some of their reserves. Even if the U.S.’s ratio of debt to gross domestic product were to exceed 100 percent, more than double the current level, the country’s rating would still be secure as long as borrowing costs stay low, Cailleteau said. Moody’s estimates the ratio will rise to 59.9 percent this year from 40.8 percent.

“In the U.S., interest rates are low because the debt is issued in its own currency and the currency happens to be the international reserve currency,” he said.

Yields on benchmark 10-year Treasuries have risen to 3.63 percent since touching a record low 2.04 percent in December. They rose to their highest level since October this month after Alexei Ulyukayev, first deputy chairman of Russia’s central bank, said on June 10 his country may switch some of its Treasury holdings to International Monetary Fund bonds. China, which in March called for the U.S. to guarantee the safety of China’s assets, is still buying Treasuries. Premier Wen Jiabao’s government has increased its holdings of the securities by almost a quarter to $763.5 billion since the onset of the global credit crisis in September, according to U.S. Treasury data.

“The question you have to ask is: What does it mean to be a safe haven in the end?” Cailleteau said. “The test is that when you have a big problem, either in the economy or if you have the threat of a war, where do you think people are going to put their money?”

Policy makers have indicated there is no replacement for the dollar. Russian Finance Minister Alexei Kudrin said on June 13 that “it’s too early to speak of an alternative.” Japanese Finance Minister Kaoru Yosano, whose government is the largest holder of Treasuries after China, this month said the dollar should remain the world’s reserve currency. U.S. President Barack Obama has said that it is important his nation maintains fiscal discipline to ensure investors keep buying Treasuries. He plans to cut the deficit by half before the end of his first term.

“Even if he’s wrong, even if he’s too optimistic, that doesn’t necessarily meant we’ll have to act,” Cailleteau said. “The U.S. started the crisis in pretty good shape in terms of government finances.”

Call it propaganda, call it whatever you'd like to call it, but take a look at where the world's most vocal jawboners are putting their money. Not where their mouth is...
We might also add that 'they' are also putting some of their money into the safe-haven that gold can be, when such anxiety-ridden pushing and shoving takes place in the world. Just not to the extent that you would be led to believe when reading certain articles on certain websites, written by certain people, with certain sales agenda. (as in, the plural of "agendum")

Until tomorrow, (but keep an eye on that 2:15 Fedspeak session anyway)

 



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