Gold "Consolidates Further" as G20 Vows a Flood of Government Debt; 'Smart Money' Gold Traders More Bullish Than Since Dec. 2001
The Spot Gold price erased an early 0.7% rally vs. the US Dollar on Monday morning, as world stock markets fell for the 7th time in eleven Nov. sessions to date.
Both the Euro and Pound Sterling slipped back from an early 1.5% jump vs. the US currency, leaving Gold lower for British and European investors.
Crude oil slid from $56 to $51 per barrel, and government bond prices rose yet again – pushing the yield paid to new buyers of 10-year US Treasury debt down to 3.71%, even after the G20 meeting of political leaders in Washington vowed at the weekend to "use fiscal measures to stimulate domestic demand" (read a flood of new government debt) while taking "whatever further actions are necessary to stabilize the financial system" (read unlimited bail-outs for failed institutions).
A joint committee on cross-border regulation of the financial markets was scheduled to report on March 31st next year.
"The precious metals are continuing their consolidation," says today's note from Mitsui in London.
"Gold is doing better that the more industrial metals, with the pressure on the auto industry capping the [platinum group metals]."
Latest data, released overnight, show Japan sliding into recession between July and Oct. as gross domestic product contracted for the second quarter in succession – the sixth such technical recession since Tokyo's equity and real estate bubble burst at the end of 1989.
Across the Pacific, $22 billion of the $25bn rescue bill for auto-makers now before Congress could be eaten up by General Motors alone, according to a report from Goldman Sachs.
The investment bank has also suspended its rating of GM's stock, suggesting that – after falling 91% over the last 12 months – the equity is now worthless.
The 15-nation Eurozone saw its net trade balance improve only slightly to minus €5.7 billion during September. And here in the United Kingdom today, the Rightmove index of residential-property asking prices showed a 2.9% drop for Oct. after sellers hiked their expectations by 1.0% in Sept.
"Maybe investors are a bit more cautious about gold as a safe haven asset given that the price, obviously, compared with a couple of months ago, has fallen," says David Moore, a commodities analyst with Commonwealth Bank in Sydney, Australia.
"The Gold Price has also been very volatile at times as well. I think there's a preference for cash at the moment."
For Australian investors, gold has retreated by one-fifth since early Oct., when it shot to new all-time highs above A$1,400 an ounce.
Trading above A$1,130 today, Gold Bullion remains nearly twice the price of this time three years ago.
"Liquidity will probably deteriorate even more as we move into December," reckons Steven Barrow, writing today for Standard Bank in London.
"As the liquidity provided by short-term speculation declines, currencies could be left at the mercy of whatever trades have to get done at this time of year...And as December tends to be a seasonally weak month for the Dollar, the greenback could suffer as we near Christmas."
New data released after the New York close on Friday showed hedge funds and other institutional traders are now less bullish on the price of Gold Investment than at any time since July 2005 – just before gold kicked higher and rose more than 70% over the next seven months.
At 66.9%, the bull-bear ratio of Gold Futures and options held by so-called "large speculators" also pointed to the continued loss of leverage and credit for hedge fund traders, with the total volume of US gold derivatives shrinking by one-third since mid-July. (Has Hedge-Fund History Just Repeated Itself? Read on here...)
Commercial traders, in contrast – meaning those gold traders working for refiners, fabricators and wholesale jewelers commonly known as the "smart money" – cut their bearish bets on the gold price to a 16-month low.
These participants in Comex gold trading are naturally 'short' of gold at any one time, since they are in the business of selling gold by defintion. They look to protect their profits by hedging on the futures market, but last week's move raised their bull ratio to 42.7%, a seven-year record.
"Eleven of 23 traders, investors and analysts surveyed from Mumbai to Chicago on Nov. 13 and Nov. 14 advised Buying Gold," reports Bloomberg News today.
"Six said to sell, and six were neutral."