Gold Lower on Speculation

Gold is moving lower on speculation about the future strength of the dollar, a slow down in bullion purchases and continued fear about the global credit crisis.  This move lower will put gold back into the oversold part of the charts shortly.  I am looking at several gold stocks now that are soon to be in my preferred purchasing range, but more on that later.  The Dow is currently down 98 at 8,500, the NAS is down 25 at 1,546 and gold is dropping like a hot rock, down $31.40 at 822.20.

This from Anna Stablum,  Reuters News Agency, this morning, January 12, 2009 at 10:02 AM EST

LONDON:  Gold shed 3.6 per cent on Monday dragging the other precious metals lower as oil dropped and the euro extended losses against the dollar, while physical demand was seen softening.

Once gold breached the key support at $840 (U.S.) an ounce, it was quickly dragged to the next support at $828, said analyst Pradeep Unni at Richcomm Global Services.

By 1447 GMT gold had trimmed losses to trade at $829.55 an ounce, down 2.8 per cent from $853.60 in New York late on Friday.

Earlier it hit $823.30, the lowest level since Dec. 15.

Physical demand in the key demand centres continues to be lethargic with limited purchases, Mr. Unni said, adding that gold could drop substantially in the next couple of months.

Traders said it was the firm U.S. dollar and soft oil price that drove gold lower, dragging down the precious metals complex.

The dollar is slightly higher and oil is weak, a European trader said.

Investors awaited the European Central Bank’s policy meeting on Thursday, which could set the direction of the U.S. dollar amid expectations of more rate cuts keeping the euro on the defensive.

The euro fell to $1.3412 amid talk of an aggressive cut in euro zone interest rates later this week, with speculation rife the central bank will cut its key lending rate by 50 basis points to 2 per cent.

The euro is likely to fall as the European Central Bank cuts rates to stem the decline in the Euro zone economy, said Citi’s analyst David Thurtell.

Oil dropped below $39 a barrel on persistent worries about falling demand following Friday’s dismal U.S. payrolls report, which showed 1.1 million jobs lost since November and the highest unemployment rate since 1993.

We expect crude oil to remain weak in the first quarter,  Standard Bank said in a report.

Precious metals, especially gold, should find little support from this front, it added.

Physical demand for gold was seen softening after holding firm in the normally very strong fourth quarter.

It tends to tail out in the first quarter … the market over the next few weeks will probably focus on weaker demand, said analyst Michael Widmer at BNP Paribas.

Gold has bounced more than 20 per cent since tumbling to a 13-month low around $680 in late October. Bullion struck a record $1,030.80 last March.

Demand has been coming into the market when gold has dropped into the $800 to $820 level in the past.  We will soon see if it does it this time.  It is important that gold hold the $800 level.  If it breaches that  psychological  level it will likely rapidly move to the next support at $780.  My guess(and that is all that it really can be) is that gold will not breech $800 level as a closing price.  The next day or so will tell the tale on that opinion.

Physical gold has been in a bull market as people rush to find some certainty in their portfolios.  This current dip in price is a buying opportunity that I, for one, won’t let slip through my fingers.  This market will turn on a dime and we will look back on these dips as the great opportunities that they are!

Gold Trading Increased 20% Last Year on Haven Buying, IFSL Says

By Nicholas Larkin

Jan. 12 (Bloomberg) — Gold trading climbed 20 percent last year as the global economic slowdown increased the metal’s appeal as an investment haven, said International Financial Services London. Silver trading also rose.

Last year, 23.2 billion ounces of gold worth $20.2 trillion was traded, compared with 19.3 billion ounces in 2007, Marko Maslakovic, senior economist of the London-based IFSL, said today by phone. IFSL, an independent organization, promotes British financial services worldwide.

About $29 trillion was wiped off equities last year, while central banks around the world cut interest rates in an attempt to end the worst financial crisis since World War II. Gold reached a record $1,032.70 an ounce in March and averaged $872.10 in 2008, up 25 percent from the previous year.

The traditional safe-haven appeal of precious metals has attracted many investors to this asset class, Maslakovic said in a separate report that he wrote.

Increased investment in exchange-traded funds also helped boost trading volumes, according to Maslakovic.

Regardless of the credit crisis, trading on exchanges has increased the past two or three years, he said. ETF’s and similar products have made it easier for private investment in gold and silver.

Silver trading rose by 24 percent to 174 billion ounces in 2008, compared with 140.3 billion ounces a year earlier, Maslakovic said. About $2.6 trillion worth of the metal was traded, an increase of 39 percent.

John Nadler had these comments this morning.

Gold prices fell 2.3% ahead of the NY session’s opening this morning, touching a low of $833.70 per ounce on the back of a falling euro/rising dollar/falling oil combination brought on by the above-mentioned global background conditions. Weak physical demand in key markets also contributed to overnight selling, despite an increase in net long spec positions in New York last week. Participants reported tacit apprehensions about the source of funding after the IMF said it needs an additional $150 billion to help fast-imploding emerging economies

Monday’s gold trading opened with a $19.50 loss per ounce, with spot prices quoted at $834.00 in active dealings. Price pressure persists, and the liquidation patterns could usher in tests at lower supports around $815-$820 an ounce. Silver fell 30 cents and broke to five cents under $11 per ounce, while platinum gave some of its gains from the previous week back, in a $29 fall to $960 per ounce. Palladium dropped $5 to $187 this morning.

The US dollar was fairly steady at 82.75 on the index, however crude oil struggled between $38 and $39 per barrel with a 6% drop, as demand worries kept speculators…worried. To make matters worse (for oil and noble metals), automakers suddenly pulled several electric and a slew of hybrid rabbits out of their Detroit industry showcase hat, showing that when it comes to their own survival, they have the know-how.

Two Gold Stock Picks

I am currently watching two gold stocks for an entry point at this time.  As I have said in the past,  these are two companies that I think should be in every portfolio. I currently own them and I am looking to add more if this down leg moves them a little lower.  Goldcorp (GG) and Royal Gold (RGLD) are positioned to capitalize on the next up leg in gold. As always, these are my opinions only and you should do your own due diligence before purchasing or selling stocks.  That being said, I love these companies and I am looking to add more of them at the lowest price that I can get.

GoldCorp is a good buy anywhere in the $22 to $25 range.  If it retests the $15 low it is time to back up the truck.  That would be too good to be true, so I will be very happy in the $22 to $25 range.

Royal Gold is a great buy in the upper$30s.  Whether this drops to the mid $30s  will be determined by when physical gold buying kicks in.  If physical demand is slow and gold goes below $800 per ounce we may get RGLD at bargain basement prices.  Either way RGLD will out perform in the long run.

On a final note, the timing of this downturn in the price of gold coincides with the Obama administration coming to power.  The Obama “honeymoon effect” may be a factor in keeping gold down for a while.  If everything turns up roses for a couple of months we may be presented with a golden opportunity to pick up great gold stocks at fire sale prices.  I want to take a wait and see approach and see how low this goes before pulling the trigger. Either way things go, we are in for interesting times ahead!

Till next time, good luck and good trading!

More Gold Market Analysis:

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• New Record Gold Price!
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