Gold In The Midst Of Price Reversal

gold AAABill Downey:¬†Given the sharp compacted slide in gold yesterday and rumors that a large liquidation might have exaggerated the washout, it isn’t surprising to see some bounce on the gold charts. In fact, the fundamental news flow overnight was bearish, but the political environment was mostly unchanged. While the gold market hasn’t paid that much attention to classic supply side developments lately, news that Russian January through July gold production rose by over 12% probably dampened some long interest.

However, part of the gain in Russian gold production came from an increase in recycled gold and for some that dampens the impact of increased supply. On the other hand, the market saw no change in gold derivative holdings yesterday afternoon, even in the wake of the significant slide in gold prices and for some that suggests investors aren’t even interested in gold at significantly cheaper price levels. The bull camp is still hopeful that a sustained US government shutdown will eventually revive flight to quality interest but before that theme lifts prices, gold looks to pass through a period of weakness off ideas that a slower economy will dampen global demand for gold and push back realistic inflation prospects even further into the future.

More negative gold news was seen overnight from reports that a smaller South African miner came to new 2 year agreement with the NUM. Issues that might lend some minor support to gold prices going forward, is news that Anglo gold intends to go ahead with layoffs of 450 workers in Ghana, as that might rekindle some labor concerns in the sector. Another minor positive that probably won’t get much press covering is news that the State of Texas as of October 1st, exempted gold and silver coins from State sales tax!

Global equity markets traded lower during the overnight and early morning hours, with little prospects for a US resolution to the government shutdown. Shares in the Japanese Nikkei turned sharply lower and toward a new four week low on disappointment after the government failed to follow-through with a corporate tax cut. The weakness continued in early European trading hours, with disappointing retail sector earnings and uncertainty ahead of this morning’s ECB policy meeting.

Expectations are for the Central Bank to keep interest rates steady and maintain their current asset purchase program. Some in the market will be looking for more detail on a possible LTRO program to bolster liquidity. US equity markets were under pressure ahead of the Wall Street opening as the partial government shutdown enters its second day with diminished prospects for a speedy solution. An added measure of volatility and downside action comes after the US Treasury Secretary urged lawmakers to extend the debt ceiling.

This morning’s flow of US economic data presents a look at private-sector hiring in September, as well as a look at September New York business activity.

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