-- Posted Friday, 3 October 2003 | Digg This Article
For the second time in eight days, a gold market that stubbornly refused to follow a certain script was suddenly undermined today by sudden, heavy and organized selling pressure. At the close of trading in New York, the cash contract settled out at a level of $368.70 per ounce, down by nearly $14.00 per ounce for the day.
The explanation given for the yellow metal’s sudden swoon by most of the Establishment financial press was an allegedly bullish report released this morning by the Labor Department. It showed that—while the official unemployment rate remained flat at 6.1 per cent—the U.S. economy added jobs for the first time in eight months. The addition of 57,000 non-farm positions came as a surprise to Wall Street, which had expected a further reduction of 30,000 non-farm jobs and a small up tick in the unemployment rate. Naturally, this was seized on by stock market bulls as proof that the economy would gain further steam; never mind that, along with this statistic, the government’s figures showed declining wages, and a downward revision of some 150,000 jobs believed to have existed earlier this year. Never mind as well that virtually all of the other economic news released this week—lousy consumer sentiment numbers, sharp declines in durable goods orders and more—flies in the face of this single jobs report.
Though Wall Street stock prices spiked higher with the opening bell this morning, gold was actually higher itself for a spell, hitting an intra-day peak of $386.70 per ounce and holding most of its modest gains for better than two hours after trading started. Clearly, gold traders were keeping their eyes on the “big picture” of a U.S. dollar in a secular decline and an economy inherently weaker than the shills on financial television claim. Or, maybe, most of them simply showed up to work at the COMEX a few hours late. I’ll let you decide.
Whatever the case, late morning trading saw a sudden drop in gold that quickly began to feed on itself. According to some floor traders, a break below the $380.00 per ounce level triggered both stop loss selling by hedge funds and similar sorts, as well as some new attempts by short sellers to shake out some bulls. The metal in scarcely an hour’s time dropped almost uninterrupted, making a weak stand in the closing moments as gold tried to hold near its 50 day moving average around the $370.00 per ounce level.
As I wrote in a September 25 commentary (“From Hand-to-Hand Combat, to Financial Thermonuclear War,”) such volatility by itself is neither unusual nor unwelcome. While I’m sure gold bulls would like to see their favorite asset rise every day, a healthy and (long term) sustainable market won’t behave in this fashion. Days like today shake gold and gold stock positions out of the weakest hands, and can set the stage for eventual attempts to make new highs.
Just as last Thursday, though, the timing and nature of today’s selling strongly suggests that gold had received a “push” of sorts. Had gold dropped at the outset today, such a possibility could probably be dismissed; after all, that would have been expected. Since the metal held onto gains for fully half of its trading day, though, we must consider the alternative.
As I mentioned last week, an epic battle is at hand now as gold has pounded on the door of new bull market highs. Recent days have also seen a pivotal juncture for the value of the U.S. dollar, which in the last two days in particular has seen its level drop back to its 2003 lows plumbed in June. Both trends have been both desired and encouraged by monetary authorities. Both, however, have recently threatened to get out of hand, something which could quickly prove destabilizing to stock and bond markets.
To slow down the dollar’s decline against the yen, Japanese authorities have been intervening massively in the currency markets. After all, were the dollar to decisively break below its 2003 lows here (a level of a bit over 92 on the U.S. Dollar Index) a cascade of technical selling—if not a full-fledged panic—would likely ensue. Such was the concern of this very thing happening this week that the Federal Reserve Bank of New York felt the need to assist Japanese officials in their intervention.
Similarly, a breakout to new highs for gold could easily undermine everything else as well, signaling that all really is not well with the world, the U.S. economy and the greenback. It too, therefore, must be at least postponed, if not prevented. The timing of today’s lobbing of a “tactical nuclear warhead” at intransigent gold bulls argues that something more is at work than normal market activity, as the Fed—with all of its fingers and toes in the cracking monetary dike—tries to maintain appearances. In my view, though, this war is just getting started; and the long-term case for gold and for carefully-chosen gold equities remains as compelling as it’s been in years.
For more information and to subscribe, visit www.nationalinvestor.com.
-- Posted Friday, 3 October 2003 | Digg This Article
