Gold Stocks – All Perspective Has Been Lost

  |  Jul 20, 2013

Many recent published commentaries appear to have lost perspective on the now much-hated Gold stock sector. The fact of the matter is that, technically, the secular bull market in Gold stocks has not even been confirmed. I do believe that in retrospect, the late 2000 bottom in Gold stock indices will be “the” bottom, much like the 1974 bottom in the Dow Jones Industrial Average (DJIA) was the true nominal bottom in this common stock index at that time. Here is a long term chart of the DJIA from 1940 thru 1985 (stolen from chartsrus.com) to show you what I mean:

 

And yet, we already have people pronouncing the secular bull market in Gold over despite the fact that we haven’t even had a confirmed secular bull market in Gold stocks yet! Now I realize that mining stocks and physical Gold are not the same thing. Indeed, I have no long-term investments in mining companies and prefer the safety of physical Gold (and silver) held outside the banking system for long-term investment purposes.

However, to say that Gold is (or was, to be respectful to bears with whom I disagree) in a long-term bull market and Gold stocks are (or were) not seems a little bit far fetched to me. As a speculator in the paper markets, I am not even thinking about the end of a secular bull market that hasn’t even truly begun yet! Here is a very long-term chart of Gold stocks compiled by Frank Barbera (stolen from a great and classic article) that only extends thru 2005, but gives a true “big picture” perspective:

And here is a chart of Barron’s BGMI Index thru the recent nasty downdraft in Gold stocks (stolen from sharelynx.com):

Now, once the secular breakout is confirmed with sustained action (i.e. measured in years, not days or weeks) above around the 1300 level in the BGMI index, then we can start to talk about where the secular bull market in Gold stocks may end. Until then, this is just a major cyclical buying opportunity (a la late 2008) in an early secular trend, nothing more.

In fact the past few years worth of price action in senior Gold stock indices remind me of this:

Even if Barrick goes out of business (who in the Gold community would miss them?), Gold stock indices are headed much, much higher. I think the problem with most commentaries on the Gold sector I have seen lately is that they are too short-term oriented and fail to consider the bigger picture (a sign of the times as money gets “printed” faster and faster by our central banksta wizards). The Gold stock secular bull cycle likely has at least another 10 years to go. And if history is a guide, some of the largest gains in the Gold stocks will occur after the Dow to Goldratio bottoms. Until the Dow to Gold ratio hits 2 (and a ratio less than 1 seems quite possible this cycle as power shifts from West to East), you can forget the long-term bearish thesis in my opinion.

If you would like some help trading the paper markets with an emphasis on the PM sector, I offer a low cost subscription service for only $15/month.

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The Zombie-Like Stench Of Precious Metal Funds

AAll

On Wednesday, I was handed an investment report entitled “Zombies.” T

he report by Harris Associates L.P. focused on interest rates, but it could well have focused on precious metal funds instead. Investors holding those funds will feel like their portfolios were afflicted by the same plight causing havoc in AMC’s hit show “The Walking Dead.”

As I discuss in the July issue of our Quarterly Low-Load Mutual Fund Update, the second quarter was a disastrous one for precious metals funds. The average quarterly loss for the funds tracked was 34.6%. Since the start of 2013, these funds have lost, on average 45.9%. Precious metals ETFs haven’t fared any better, down 47.7% for the six-month period ended June 30, 2013.

The natural reaction to seeing these numbers is to run, or the financial equivalent of running. (Just don’t scream; zombies are attracted by noise. And thanks to advances in entertainment technology, zombies move a lot faster in the decades since “Night of the Living Dead” was released in 1968.) Yet, unlike a fictional apocalypse, running is not always the best option when a fund incurs a significant drop in value.

The majority of a fund’s performance is determined by its objective. As such, your decision to invest in a fund specializing in a certain sector, industry, style or geographic area should also be determined in large part on how the fund’s objective fits within your overall portfolio strategy.

A manager required by his fund’s objective to invest in a particular asset class, a geographic area or a sector or industry has no control over the factors that directly influence a significant portion of the returns he realizes. When gold prices fall, there is little a precious metals fund manager can do to protect the portfolio from losing value. The same fund manager also does not deserve credit for delivering good returns simply because precious metals prices have risen.

This is why it is important to compare a fund’s performance against its peers. Asset classes, geographic markets, investing styles, sectors or industries all move in cycles. What was leading the market a few years ago may lag now or lag in the future. This diversity in returns is what makes portfolio diversification work; over the long term, the shifting market preferences can lead to less volatility for one’s portfolio.

There, of course, is another component to keep in mind when deciding what to do with a precious metals fund: the reason an investment was purchased. Commodity-related investments, such as precious metals funds, should only be purchased for two specific reasons: the expectation of short-term price appreciation or long-term portfolio diversification. These are separate reasons and should never overlap. It is very difficult to consistently realize positive returns through short-term trades; it is impossible to avoid losing money when a trade starts getting treated as an investment after the price drops. Speculation and investing are two different things. Never treat a fund (or a stock) bought for the purpose of realizing a short-term profit as a long-term investment because the price didn’t move the way you thought it would.

Most importantly, be sure you understand the historical volatility before making a long-term investment. Precious metals funds, for example, are subject to big price swings. Their ability to add long-term diversification comes at the emotional cost of dealing with some quarterly statements that reek of a zombie-like stench. It’s not a characteristic every investor has the risk tolerance to put up with, but commodity-related investments can have a role for those willing to put up with roller-coaster returns.

Additional disclosure: The author of this commentary owns shares of SPDR Gold (GLD)
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Update On GOFO – Factors That Will Spark A Big Move In Gold

Dave Kranzler

With gold sentiment quite negative and shorts at extreme levels, upside price risks cannot be ignored especially amid evidence of consistent physical demand. Historical seasonal patterns suggest that this is likely to strengthen later in the quarter, which in turn could prompt a short-term squeeze. – UBS, London Metals Group

I believe a bottom was established in gold on June 28 — (see Why Last Friday (June 28) Was Likely A Bottom) — and now I’m going to review some key factors that I believe will spark the beginning of the next big move higher. As you can see from the chart below, this big, painful 2-year correction in the price of gold is very similar to the corrections in 2006 and 2008:

(click to enlarge)

I’ve marked on the chart where “false bottoms” occurred (black circles) and true bottoms occurred in 2006/2008 and likely 2013 (green circles). The first two big corrections both had a “false” bottom and a “true” bottom. I believe this set-up is now in place for the current correction.

I remember vividly back in 2008 wondering in late October of that year, after gold had given me hope in September that turned out to be a false bottom, “what is going to stop the entities shorting paper gold on the Comex from driving the price back down to $250?” As it turned out, the Great Financial Collapse followed by massive QE sparked a 3 1/2-year run in gold up to $1900.

Just like in 2008, it is likely that we won’t know what the ultimate event that will occur, which will trigger the next move to a new record in gold until after it has occurred, but I’ll review some factors that I believe will play a big role in fueling the next leg higher.

First, and what may in fact be the “unforeseen event” that will trigger the initial push higher, is yesterday’s bankruptcy filing by the City of Detroit. Not only will this event serve as a catalyst to trigger more, and even bigger, municipal bankruptcy filings, but it will force large U.S. Treasury/dollar investors to take an even closer look at their investments in the U.S. dollar and their role in funding U.S. Government deficit spending and debt accumulation. In other words, yesterday’s event in Detroit could spark a large-scale loss of confidence in the dollar, which will light a serious fire under the price of gold.

The second factor is the condition of the physical market. The market for delivery of large quantities of physical gold bars over in Europe and Asia has become extraordinarily tight. I wrote an article last week that explained in detail what the LBMA Gold Forward (GOFO) rate is and the significance of a negative GOFO. When I wrote that piece, GOFO had gone negative three days in a row — a rare occurrence. As of today, GOFO has been negative for a historically unprecedented 10 days in a row — LBMA GOFO.

This is indicating that there’s likely a severe delivery “short squeeze” of gold going in London. We know that in the first half of the year, China imported 1000 tonnes of gold. This has been documented ad nauseum. It is highly likely that this enormous amount of gold importation, combined with the record amount of gold imported into India and other big gold buying countries for the first six months of 2013 has created a massive shortage of bars available for delivery. The negative GOFO rate for 10 days in a row is evidence of this situation. If this situation is not resolved soon, it is very possible that we’ll see the shortages of gold in the physical market trigger a massive short-squeeze covering in the Comex paper market.

Which brings me to my third factor, the record gross short position in Comex gold futures. As has been widely reported, for several weeks the gross short position in Comex gold has been hitting new record levels almost on a weekly basis. In fact, last week it hit a new record. The short interest in gold has been fueled largely by the hedge fund category of trader. Even more interesting, as I’ve documented in previous articles, the three largest bank traders on the Comex have positioned themselves net long Comex gold for the first time since the bottom of the previous bear market in 2001. The combination of a severe shortage of physical gold available for delivery in Europe and Asia and the massive short position in Comex futures could well fuel a short squeeze in gold that would quickly send gold up and over the previous record price level of $1900.

Finally, another factor that could be the “unforeseen” trigger that fuels gold a lot higher from is the possibility that China announces the backing of its currency (the yuan) with gold. A Russian newspaper yesterday reported that Chinese officials have been considering making this move —China/yuan/gold — which would likely create a serious gold rush as most of China’s trading partners would need to bolster their foreign currency reserves with a lot more gold in order to make their respective currencies “fungible” with the yuan. This move could also trigger many Central Banks to reduce their dollar holdings and reallocate their reserves to yuan, which would further fuel the price of gold in dollars.

Based on all these factors, not only am I more confident that Friday, June 28 marked the bottom of this brutal 2-year correction in the precious metals, but I am also confident that the next secular bull market move higher will take gold to a new record high. If you agree with my outlook, the best way to play a trading move is to get long GLD or long-dated calls on GLD. I also recommend that everyone who wants to preserve their wealth and use gold as an investment should accumulate physical gold and silver. You can express a leveraged view on gold by getting long Royal Gold (RGLD), which is a large gold mining royalty company that benefits on a “leveraged” basis as the price of gold moves higher.

Disclosure: The fund I manage and am invested in is long physical gold and silver and mining stocks. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Gold/GWP: Why Gold May Still Have Further To Fall

Michael Long

Gold (GLD) produces no income and, unlike other commodities, little of the gold that is produced each year is consumed by industry. Some gold is used in jewelry and the rest is accumulated as an investment. Since the gold used in jewelry and even industry can be viably salvaged, it can be assumed that close to all of the gold that has ever been produced continues to exist.

Without a future stream of earnings to estimate, pricing gold is typically an exercise in comparison. One looks to the past prices of gold under past conditions and considers a variety of factors such as real interest rates, equity risk premium, the real price of gold, the cost of production, and the Dow-gold ratio. In this article, I will explore the ratio between the market capitalization of gold and the gross world product (GWP).

I calculated the market capitalization of gold for each year from 1950 to 2012 by subtracting annual gold production from a starting point of 165,000 tons at the end of 2011 and multiplying the resulting figure in ounces by the 2010 adjusted year-end price gold for each year. I then divided the market capitalization of gold for each year by the base 2010 GWP of each year.

click to enlarge images

Over the entire 63-year period displayed above, the average gold market capitalization/GWP ratio was 6.61%. The average ratio remains fairly stable when it is measured over different time periods. For example, the average ratio since 1970 was 6.9% and the average ratio since 1990 was 5.48%.

If the gold market capitalization/GWP ratio is mean reverting then there are a number of interesting implications. For one, this would mean that investors could earn a positive long-run real return by investing in gold. If gold were merely a long-term inflation hedge, as some have suggested, then one would expect to see a clear downward trend in the ratio, as gold became a smaller and smaller part of a growing world economy.

Another implication is that the ratio can be used as a useful tool in pricing gold. Below I have plotted the gold prices that would have occurred at a number of market capitalization ratios against actual gold prices in 2010 dollars.

In terms of inflation-adjusted gold prices, it is well known that gold prices reached extreme highs in 1980 and 2011. However, interestingly, the gold market capitalization/GWP ratio at the end of 1980 was much more of an extreme than the ratio at the end of 2011. At the end of 1980, the market capitalization of gold was over 18% of the world’s annual economic output. While still well above average, the market capitalization of gold at then end of 2011 was between 10 and 11%.

The chart above suggests that extreme gains in gold, such as prices over $2000, are unlikely to occur and unlikely to last. A gold price above $2000 (in 2010 dollars) would require a gold market capitalization/GWP ratio of over 14%. This has only occurred twice at year-end over the last 63 years. If gold prices were to reach such levels in the near term, it would likely be the product of inflation and would not result in real gains.

Below I have displayed the distribution of gold market capitalization/GWP ratios over the last 63 years.

Another implication of the foregoing is that a simple model for long-run real gold price growth can be derived: [X%GWP] * [(1+G)/(1+S)], where X%GWP is a percentage of the world’s economic output, 1+G is the rate of growth of GWP, and 1+S is the rate of growth in the supply of gold. As long as GWP continues to grow faster than the supply of gold, then an investor should expect to see a positive long-run inflation-adjusted return to owning gold. Over the last 63 years the growth rate in the supply of gold has been surprisingly consistent, ranging from a low of about 1.25% to a high of 1.95% and averaging 1.63%. Below I have compared model gold price growth to actual gold price growth since 1955 using a base of 100. Note that in 1955 the gold market capitalization/GWP ratio was 6.76%.

So what about gold prices today? From a year-end 2012 standpoint, assuming a gold market capitalization/GWP ratio of 6%-7%, gold should be priced between $880 and $1026 in 2010 dollars. Adjusting for 3 years of inflation, gold should be priced between approximately $940 and $1096. As of July 10, 2013, GLD closed at $120.95. This suggests that current gold prices still have further to fall and that it would not be wise to begin buying gold until prices have fallen below at least $1100 or $950.

Source: Gold/GWP: Why Gold May Still Have Further To Fall

 
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Weekly Outlook of Financial Markets for July 15-19

The commodities markets are heating up again: Last week leading commodities such as oil, gold and silver prices sharply increased. Moreover, leading currencies including Euro, Japanese yen and Canadian dollar also appreciated against the US dollar during last week. Will the USD continue to pull back? Will commodities markets heat up again? This week several reports, testimonies, decisions and events may affect the financial markets. These include: Bernanke’s testimonies, , U.S core CPI, Philly fed survey, China’s GDP for the second quarter, U.S housing starts, minutes of RBA’s meeting, Canada’s retail sales, GB CPI, U.S retail sales, German ZEW economic sentiment, G20 Summit, and U.S. jobless claims.  Here is an economic outlook for the week of July 15th to July 19th regarding the U.S, Euro Area, Canada, China, Australia, and Great Britain.   

(All times GMT):

Monday, July 15th

03:00 –China First Quarter GDP 2013: during the first quarter of 2013, China grew by only 7.7% in annual terms; China’s economy grew by 7.6% in the second quarter of 2012. The current expectations are that the second quarter of 2013 grew in annul terms by a slower pace than in the last quarter; if the growth rate will continue to dwindle, this may adversely affect commodities prices;

13:30 –U.S. Retail Sales Report: this report will present the monthly changes in the retail sales and food services for June; in the recent report regarding May, the retail sales slightly rose by 0.3% from the last month; gasoline stations sales slipped by 0.2% in May compared to April 2013; this report could signal the developments in U.S’s gasoline demand and thus may affect oil prices in the U.S;

00:30 – Minutes of Reserve Bank of Australia’s Monetary Policy Meeting: The Reserve Bank of Australia left its interest rate unchanged at 2.75%; the minutes of the latest monetary policy meeting may offer some information regarding behind the decision; this news may affect the Australian dollar and consequently commodities prices;

Tuesday, July 16th

09:30 – GB CPI (June 2013): This report may affect the British Pound currency. In the last report regarding May 2013, the CPI rose to an annual rate of 2.7%;

Tentative – Bank of England Inflation Letter: this report will come out only if the annual inflation falls below 1% or above 3%;

10:00 – German ZEW economic sentiment: The upcoming report will pertain to the ZEW indicator of economic sentiment for Germany for June. In May the ZEW indicator for Germany slightly increased to 38.5 points; if Germany’s economic sentiment will keep rising, the Euro will plausibly strengthen the Euro against other currencies such as the US dollar;

10:00 – Euro Area CPI: according to the latest update the annual CPI rose to 1.4%, which is still well below ECB’s target inflation; if the inflation will change direction and decline, it could raise the odds of ECB cutting again its cash rate;

13:30 – Canada Manufacturing Sales (May 2013): This report will refer to the manufacturing sales in Canada as of May. It may affect the USD/CAD currencies pair, which is strongly linked with commodities prices. In the previous report regarding April 2013, manufacturing sales fell by 2.4%;

13:30 – U.S Core Consumer Price Index: This monthly report will refer to the main developments in the core consumer price index for June 2013. According to the U.S Bureau of Labor statistics, during April, the CPI inched up by 0.1% (month-over-month); the core CPI slightly rose by 0.2%; the core index increased over the past twelve months by 1.7%.

14:00 – U.S. TIC Long Term Purchases: The Treasury International Capital monthly report will present the changes the purchases and sales of US long term treasuries for May 2013. In the recent report regarding April 2013, the net foreign sales of U.S Treasuries longer-term notes reached a deficit of $37.3 billion;

Wednesday, July 17th

09:30 – Great Britain Claimant Count Change: This report will show the changes in the number of unemployed in GB; as of last month’s report this figure had declined by 8.6k; the rate of unemployment remained unchanged at 7.8%;

09:30 –MPC Asset Purchase and Rate Votes: in the latest MPC meeting, the Bank kept the rate unchanged at 0.5% and the asset purchase program at £375 billion; this vote will shows how many MPC members voted on any changes to the asset purchase program or interest rate;

Tentative – German 10 Year Bond Auction: the German government will have its monthly bond auction; in the previous bond auction, which was held at the middle of June, the average rate reached 1.55% – its highest level since January 2013;

13:30 – U.S. Housing Starts: the U.S Census Bureau will publish its U.S housing starts monthly update for June 2013; this report was historically correlated with gold price – as housing starts rise, gold prices tended to fall the next day (even when controlling to the U.S dollar effect); in the previous monthly report, the adjusted annual rate reached 914,000 in May 2013, which was 6.8% below April’s rate;

13:30 – U.S. Building Permits: in the previous update, building permits fell during May by 3.1% (M-o-M) as the adjusted annual rate of building permits reached 974,000. If building permits will continue to fall, it may indicate that the U.S housing market’s recovery (from this aspect) is slowing down (the recent U.S building permits update);

15:00 – Bank of Canada’s Overnight Rate: The Bank of Canada will decide the Canadian overnight rate, which remained unchanged at 1%. The BOC may keep its policy and maintain its interest rate at 1%; the economic developments in Canada might prompt BOC to change its cash rate;

15:00 – Bernanke’s Testimony: Bernanke will testify in the U.S. House of Representatives before the Committee on Financial Services. The title of the speech is “Semiannual Monetary Policy Report to the Congress “. Following Bernanke’s remarks from last week and the minutes of the FOMC meeting, this testimony could offer some additional information regarding the future steps of the Fed. If this testimony will change the current market expectations regarding the timing as to when will the FOMC start tapering QE3, this could affect commodities prices and the direction of the US dollar;

15:30 – U.S Crude Oil Stockpiles Weekly Update: the EIA (Energy Information Administration) will publish its weekly report on the U.S oil and petroleum stockpiles for the week ending on July 12th; in the recent report for July 12th, stockpiles fell again by 7.2 ml bl to reach 1,818.0 ml bl.

15:30 – Bank of Canada’s Monetary Policy and Press Conference: The Bank of Canada will publish its quarterly monetary policy update and will also have a press conference; if there will be big headlines in this press conference it could affect the Canadian dollar;

Thursday, July 18th

09:30 – GB Retails Sales (June 2013): This report will show the changes in the retails sales in Great Britain for June 2013. It may affect the path of the British Pound currency. In the previous report regarding May 2013, retails sales changed direction and rose by 2.1%;

Tentative – Spanish 10 Year Bond Auction: Spain will issue its monthly with bond auction; in the last bond auction, which was held at the middle of June, the average rate rose to 4.77% – the highest rate since March 2013;

13:30 – U.S. Jobless Claims Weekly Report:  this weekly update will refer to the changes in the initial jobless claims for the week ending on July 13th; in the last report the jobless claims bounced back by 16k to reach 344k; the next weekly report may affect the U.S dollar and consequently commodities and equities markets;

15:00 – Bernanke’s Testimony: Bernanke will also testify this time before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate. The title of the speech is the same as in the testimony given in Congress. The big issue will be the answers Bernanke will give to the Committee and how his answers may affect the market’s perspective on the Fed’s next steps;

15:00 – Philly Fed Manufacturing Index: This monthly survey projects the growth of the US manufacturing sectors. In the last survey regarding June, the growth rate bounced back from -5.2 in May to +12.5 in June. If the index will continue to rally, it may positively affect not only U.S Dollar but also U.S equity markets and commodities (the previous Philly Fed review);

15:30 – EIA U.S. Natural Gas Storage: the EIA weekly update of the U.S. natural gas market will pertain to the latest developments in natural gas production, storage, consumption and prices as of July 12th; in previous weekly report, natural gas storage increased by 82 Bcf to 2,687 Bcf;

Friday, July 19th

13:00 – Canada’s core CPI: This report will refer to the CPI and core consumer price index (controlling the volatile components such as energy, fruit and vegetables) for June 2013. Based on the recent Canadian CPI report for May, the core CPI edged up by 0.2%. This report might affect the direction of the Canadian dollar, which is also strongly correlated with crude oil prices;

All Day (two days) – G20 Summit: this is a two day Summit; if the G20 countries will come up with big headlines from this Summit it may affect financial markets. This G20 Meeting could revolve the policies of U.S, Canada, China, UK and Japan.

For further reading:

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Gold and Silver Prices Outlook for July 2013

he high volatility in precious metals markets eased down during June after the high movement they have had during May. The recent publication of the minutes of the FOMC meeting from back in June and Bernanke’s testimony in Congress rekindled the speculations around the Fed’s next move; specifically, whether the FOMC will decide in the near future to taper its $85 billion a month asset purchase program. During the month, gold and silver continued their downward trend for the second consecutive month. The recent gold report revealed a sharp rise in outflow from leading gold ETFs despite the rise in demand for gold in China and India. The fall in demand for gold as an investment especially considering the sharp rally in the equity markets contributed to the decline in precious metals prices. Will this downward trend persist in the coming weeks? Let’s breakdown the upcoming events related to the precious metals market that will unfold during July, and provide a short analysis for June.                                       

Gold and Silver Prices June 2013

Gold and silver tumbled down mainly during the second part of June. Bernanke’s press conference following the recent FOMC meeting, in which he opened the door for FOMC tapering QE3 by the end of 2013, and China’s credit squeeze dragged down the prices of gold and silver. By the end of the month, gold plummeted by 12.12% (as of June 28th); silver, by 12.49%. For gold this was the worst performing month in recent years. For silver, this was the worst performing month since April 2013.

 

Let’s divide June into two sections: the table below divides the month at June 18th; I divide the month to demonstrate the shift in pace of gold and silver prices; during the first part of June, gold slipped by 1.9%; silver, by 2.5%. During the second part of June, however, silver tumbled down by 10.3%; gold price fell by 10.5%.

Gold and Silver dollar euro percent change  July  2013

During the first part of June, the U.S dollar depreciated against the Euro, Japanese yen and Canadian dollar; the Euro/USD and AUD/USD currency pairs are usually strongly correlated with gold and silver. During the second part of the month, the EURO declined against the USD. Moreover, the Aussie dollar, Japanese yen and Canadian dollar sharply weakened.

The chart below shows the developments of gold and silver prices during June, in which the rates are normalized to 100 on May 31st 2013.

 

Gold forecast and silver outlook  July 2013

The ratio of gold to silver (gold price/silver price) slowly increase during the month only to tumble down on the last week of June. The ratio increased as silver price has slightly under-performed gold price. During the month the ratio ranged between 62 and 66.

Gold and Silver prices ratio July  2013

Here are several factors that may have dragged down of gold and silver prices during the month:

  1. The press conference  following the recent FOMC meeting;
  2. China’s leading banks’ credit squeeze;
  3. According to the latest U.S non-farm payroll report, 175k jobs were added; the unemployment rate edged up to 7.6%; this report tends to be negatively correlated with gold and silver prices;
  4. Several U.S reports showed growth: new home sales rose in May; housing starts rose by 6.8% in May; consumer confidence was up; retail sales rose by 0.6% during May; new orders of durable goods also increased during last month. These reports suggest the U.S economy is progressing and thus pulled down precious metals;
  5. The decline in the growth rate of the manufacturing sectors in China and Europe may have pulled down commodities prices;
  6. The recent decline in the U.S jobless claims during most of June;
  7. The depreciation of the Indian Rupee June has dragged down the demand for gold in India, among the leading importers of gold. Moreover, the rise in India’s import tax on gold;
  8. The slight depreciation of the Chinese Yuan may have pulled down the demand for gold in China, the leading importer of gold;
  9. The depreciation of several currencies including Euro, Aussie dollar and Canadian dollar during the second part of June; 

Here are several factors that may have curbed the fall of gold and silver during the month:

  1. The decision of BOE, BOC, ECB and RBA to keep their respective cash rate unchanged in June;
  2. The slowdown in the recovery of the U.S equity markets that serve as an alternative investment for bullion;
  3. The revised down U.S growth in GDP for the first quarter of 2013;
  4. The appreciation of several currencies such as Euro and Canadian dollar at the beginning of the month against the USD;
  5. The pledge of the FOMC to keep its low rates until mid 2015;
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Telegraphing the Turnaround in Gold

As of last Friday, gold has now fallen as much 35.4% (based on London PM fix prices) over 96 weeks. But if you’re like us, you still recognize that the core reasons for investing in gold haven’t changed. People who sold their gold recently made a shortsighted decision. Before too long precious metals will rebound—and probably in a big way.

But when? Does history have any clues about how long we’ll have to wait for that rebound?

Perhaps the most constructive way to forecast a turnaround in gold is to look at how its price behaved in prior big corrections.

Here’s an updated view of gold’s three largest corrections since 2001, along with the time it took the price to return to the old high and stay above that level.

It has taken a significant amount time for gold to return to old highs after each big selloff this cycle. And the bigger the correction, the longer it has taken—with each correction lasting longer than the last.

However, I think our current correction more closely resembles what occurred in 1974-1976 than any of the dips so far this cycle. Here’s an updated overlay of the gold price then and now.

As you can see, during the big correction of the 1970s, gold declined 47% and took 187 weeks to recapture old highs. This fits in with the pattern discussed above: the bigger the correction, the lengthier the recovery. Another interesting pattern: the time to reach new highs always equals or exceeds the duration of the decline.

While the current correction hasn’t been as deep as that of the mid-’70s, the decline is already longer, and it’s the most prolonged of the current cycle. It is thus reasonable to expect gold to take two years or more to regain the $1,900 level and continue beyond. Barring a black swan event, gold will likely log its first annual loss since 2000 this year. These are not predictions, just possibilities, and a reminder that if gold is slow to recover, it’s simply adhering to past patterns.

However, it’s not all bad news, as the chart shows: gold nearly doubled in the two years from its ’76 low to its ’78 return to former highs. The message here is obvious: add to your inventory at depressed levels. And don’t worry about missing the bottom; investors who waited to buy until gold had retraced 30% of its decline still netted about a 70% gain once it returned to prior highs.

The same patterns hold true with stocks. You can see the high-to-low-to-prior-high time frame was longer, but the gains were bigger once the dust settled.

Investors who bucked the conventional wisdom of the day and bought a basket of gold and silver producers in the autumn of 1976—after they had dropped by almost 70%—more than tripled their investment. We’re now approaching the degree of selloff that was seen then, setting up a similar opportunity to profit.

Don’t let the long recovery times shown in the charts deter you. Stay focused on the pattern; once the declines reversed, the general trend was up. Contrarians and forward-thinking investors need to prepare for that reality, rather than take umbrage with how long it might take to beat old highs. By the time mainstream analysts—who know little about gold in the first place—declare it has entered a “new” bull market, the lows will be long behind us, along with the best buying opportunities.

Selloffs Can Be Profitable Setups

Once gold bottomed at $103.50 on August 25, 1976, the trend reversed and the metal rose a whopping 721% to peak at $850 on January 21, 1980.

Silver’s climb was even more dramatic. From its 1976 low of $4.08, it soared 1,101%. This is the 10-bagger grail of investing, where investors had the chance to add a zero to their initial investments.

But remember: the process was multiyear and began after a dismal two-year decline that was punctuated with sharp selloffs, similar to gold’s behavior since its 2011 high. While that’s a stupendous return within a short time frame, the biggest gains were seen in the final five months. The patience of some investors would certainly have been tested in those first three years.

Here’s a look at the gains for the metals from their respective lows.

Both gold and silver logged double-digit returns every year after the bottom (except silver the first year). Once the momentum had shifted, buying and holding while the fundamental forces played out led to huge profits. No “trading” was necessary; just buy after a big correction and hold on for the ride.

No need to attempt to time the bottom, either; those who bought a year after the lows still reaped gains of 490% for gold and 996% for silver. The largest chunk of profits came in the second year and beyond.

Also of note is that the second leg up in precious metals was bigger than the first. There’s no reason to think we won’t experience the same thing this time around.

The messages from history are self-evident:

  • Be patient. Odds favor gold emerging from a period of price consolidation and volatility. This process will take time.
  • Be prepared. Big gains follow big selloffs. We can’t be certain if the final bottom is in yet, but buying at these levels will ultimately net big profits if you’re buying the most solid of the major producers and potentially life-changing gains if you’re buying the best juniors.

Rock & Stock Stats

Last
One Month Ago
One Year Ago

Gold1,223.801,398.501,609.40Silver18.9022.4727.67Copper3.063.373.49Oil101.5193.7487.22Gold Producers (GDX)23.4229.9345.77Gold Junior Stocks (GDXJ)34.2648.8879.60Silver Stocks (SIL)11.4614.4219.16TSX (Toronto Stock Exchange)12,134.9112,443.6611,817.03TSX Venture884.27947.441,226.45

 

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Gold-Oil Ratio Declines to Lowest Since 2008

The four precious metals didn’t do a lot price wise yesterday…and the rallies associated with the release of the FOMC minutes at 2:00 p.m. EDT got dealt with in the usual manner within the space of an hour.

Then Bernanke spoke…and shortly after 4:30 p.m. EDT, all four precious metals rallied into the 5:15 p.m. New York electronic close, with gold and silver leading the pack.  All four precious metals basically closed at, or very close to, their respective highs of the day.  In gold and silver, Kitco recorded those prices as $1,268.40 spot…and $19.69 spot.

Gold closed at $1,262.90 spot…up $12.20 on the day.  Net volume was pretty impressive…around 164,000 contracts.

Silver finished the Wednesday session at $19.47 spot…up 20 cents from Tuesday’s close.

Here are the platinum and palladium charts for yesterday…

For Wednesday, gold closed up 0.98%…silver was up 1.06%…platinum up 0.44%…and palladium was the winner, up 2.29%.

The dollar index closed late on Tuesday afternoon in New York at 84.64…and stayed around that level until exactly 10:00 a.m. Hong Kong time on their Wednesday morning.  From that point, the index developed a negative bias…and by 4:40 p.m. EDT, it had declined down to just barely above the 84.00 mark.  Then the bottom fell out for real…and the index dropped all the way down to the 83.09 mark by the N.Y. close…and kept right on going down after that.  The index finished down a chunky 155 basis points.

You should carefully note that all four precious metals began to rally significantly before the 5:15 p.m. EDT electronic close…and at that point in time, the dollar index wasn’t doing much of anything.  But once the gold market reopened forty-five minutes later at 6:00 p.m. in New York yesterday evening, the four precious metals blasted higher immediately…and the dollar fell off the proverbial cliff forty minutes later.  I’d sure like to know who knew what…and when…regarding the dollar/precious metals equation around that point in time, as something stinks.

Despite the fact that the dollar index declined for almost the entire New York trading session, the precious metals prices barely reacted and, obviously, neither did the shares.  The HUI chopped around either side of unchanged…and then popped a bit with the release of the FOMC minutes at 2:00 p.m. in New York…but that rally fizzled as the not-for-profit sellers showed up in the metals during the following hour of trading.  The shares rallied a bit going into the 4:00 p.m. EDT close as the precious metals rallied anew…but still finished in the red by a hair, as the HUI closed down 0.12%.

The silver stocks finished mixed…and Nick Laird’s Intraday Silver Sentiment Indexclosed down 0.55%.

(Click to enlarge)

The CME’s Daily Delivery Report showed that 1 gold and 116 silver contracts were posted for delivery on Friday within the Comex-approved depositories.  The two largest short/issuers were Jefferies…and JPMorgan Chase out if its client account…with 72 and 40 contracts respectively.  The only long/stopper of note was JPMorgan Chase with 103 contracts in its in-house [proprietary] trading account…and another 6 contracts for its client account.  Once again it appears that JPMorgan is trading against its own clients…something that the Volker Rule was written to prevent…and we all know what happened to that.  The link to yesterday’s Issuers and Stoppers Report is here.

Well, it obviously doesn’t matter whether the price of gold is rising or falling, as GLDhad another withdrawal again yesterday…albeit a small one.  This time it was ‘only’ 21,598 troy ounces.  But the surprise of the day/week was what happened in SLV…as an authorized participant[s] added a knee-wobbling 2,894,490 troy ounces.  Since the beginning of July, SLV has had 7.05 million troy ounces of silver deposited…and over at GLD the withdrawals for the month total 980,000 troy ounces as of the close of business on Tuesday.

After big withdrawals from the gold and silver ETFs over at Switzerland’s Zürcher Kantonalbank for the week ending June 28…their report for the week ending July 5 was far more positive.  They added a chunky 164,626 troy ounces of gold…along with 871,537 troy ounces of silver.

I see that the new short positions for the end of June for both GLD and SLV were posted on the shortsqueeze.com Internet site last night.  The numbers show that the short position in SLV increased by another 13.33 percent…and now sits at 20,946,300 shares/troy ounces held short…an increase of 2.5 million shares/ounces from the mid-June report.  This short position represents 6.21 percent of the outstanding shares of SLV.  Over at GLD, the short position only increased by a smallish 0.73 percent…about 21,000 troy ounces…hardly worth mentioning.

Once again there was no sales report from the U.S. Mint.

Over at the Comex-approved depositories on Tuesday, they reported receiving 49,922 troy ounces of gold…all into HSBC USA…but a very chunky 156,457 troy ounces was shipped out of Brink’s, Inc. The link to that activity is here.

In silver, these same depositories didn’t receive any, but did ship 446,507 troy ounces out the door.  The link to that action is here.

Once again I thank Nick Laird for these numbers…and for the 11-year chart below which shows total Comex gold stockpiles during the period.  The recent draw-downs are obvious…and I’m sure we would love to know where that gold has ended up.  China and Germany are the two obvious suspects considering the facts we have at hand, but the truth of the matter is that nobody knows for sure, as the gold market is totally opaque.  All any of us can do is speculate…and I try to avoid that.  I’ll leave that to others.

(Click to enlarge)

Maybe it’s just me, but it’s obvious from the above, that there are massive amounts of gold and silver being moved around at an ever-faster pace…and that’s just what’s being reported in the public domain.  You have to wonder what the reasons are…and who is behind it all.  The only thing that I do know for sure is that those that are doing it, have the deepest pockets on Planet Earth.

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Gold Price Correction: What Next?

AS OF LAST FRIDAYwrites Jeff Clark at Casey Research, the Dollar gold price had fallen as much 35.4% from its peak London PM Fix prices of 96 weeks earlier.
 
But if you’re like us, you still recognize that the core reasons for investing in gold haven’t changed. People who sold their gold recently made a shortsighted decision. Before too long precious metals will rebound – and probably in a big way.
 
But when? Does history have any clues about how long we’ll have to wait for that rebound? Perhaps the most constructive way to forecast a turnaround in gold is to look at how its price behaved in prior big corrections.
 
Here’s an updated view of the three largest corrections in the gold price since 2001, along with the time it took the price to return to the old high and stay above that level.
 
 
It has taken a significant amount time for the gold price to return to old highs after each big selloff this cycle. And the bigger the correction, the longer it has taken – with each correction lasting longer than the last.
 
However, I think our current gold price correction more closely resembles what occurred in 1974-1976 than any of the dips so far this cycle. Here’s an updated overlay of the gold price then and now.
 
As you can see, during the big correction of the 1970s, gold declined 47% and took 187 weeks to recapture old highs. This fits in with the pattern discussed above: the bigger the correction, the lengthier the recovery. Another interesting pattern: the time to reach new highs always equals or exceeds the duration of the decline.
 
While the current correction hasn’t been as deep as that of the mid-’70s, the decline is already longer, and it’s the most prolonged of the current cycle. It is thus reasonable to expect gold to take two years or more to regain the $1,900 level and continue beyond. Barring a black swan event, gold will likely log its first annual loss since 2000 this year. These are not predictions, just possibilities, and a reminder that if gold is slow to recover, it’s simply adhering to past patterns.
 
However, it’s not all bad news, as the chart shows: gold nearly doubled in the two years from its ’76 low to its ’78 return to former highs. The message here is obvious: add to your inventory at depressed levels. And don’t worry about missing the bottom; investors who waited to buy until gold had retraced 30% of its decline still netted about a 70% gain once it returned to prior highs.
 
The same patterns hold true with stocks. You can see the high-to-low-to-prior-high time frame was longer, but the gains were bigger once the dust settled.
 
Investors who bucked the conventional wisdom of the day and bought a basket of gold and silver producers in the autumn of 1976 – after they had dropped by almost 70% – more than tripled their investment. We’re now approaching the degree of selloff that was seen then, setting up a similar opportunity to profit.
 
Don’t let the long recovery times shown in the charts deter you. Stay focused on the pattern; once the declines reversed, the general trend was up. Contrarians and forward-thinking investors need to prepare for that reality, rather than take umbrage with how long it might take to beat old highs. By the time mainstream analysts – who know little about gold in the first place – declare it has entered a “new” bull market, the lows will be long behind us, along with the best buying opportunities.
 
Once gold bottomed at $103.50 on August 25, 1976, the trend reversed and the metal rose a whopping 721% to peak at $850 on January 21, 1980.
 
Silver’s climb was even more dramatic. From its 1976 low of $4.08, it soared 1,101%. This is the 10-bagger grail of investing, where investors had the chance to add a zero to their initial investments.
 
But remember: the process was multiyear and began after a dismal two-year decline that was punctuated with sharp selloffs, similar to gold’s behavior since its 2011 high. While that’s a stupendous return within a short time frame, the biggest gains were seen in the final five months. The patience of some investors would certainly have been tested in those first three years.
 
Here’s a look at the gains for the metals from their respective lows.
 
 
Both gold and silver logged double-digit returns every year after the bottom of these price corrections (except silver the first year). Once the momentum had shifted, buying and holding while the fundamental forces played out led to huge profits. No “trading” was necessary; just buy after a big correction and hold on for the ride.
 
No need to attempt to time the bottom, either; those who bought a year after the lows still reaped gains of 490% for gold and 996% for silver. The largest chunk of profits came in the second year and beyond.
 
Also of note is that the second leg up in precious metals was bigger than the first. There’s no reason to think we won’t experience the same thing this time around.
 
The messages from history are self-evident:
  • Be patient: Odds favor the gold price emerging from a period of consolidation and volatility. This process will take time.
  • Be prepared: Big gains follow big selloffs. We can’t be certain if the final bottom is in yet, but buying at these levels could ultimately net big profits if you’re buying the most solid of the major producers and potentially life-changing gains if you’re buying the best juniors.

 

Buy gold at the lowest prices in the safest vaults today…

 

JEFF CLARK is editor and lead writer of BIG GOLD, the monthly gold-investment newsletter from Doug Casey’s Casey Research. Having worked on his family’s gold claims in California and Arizona, and analyzing the big trends in gold’s bull market, Jeff and his team aim to highlight safe and profitable ways for the prudent investor to capitalize on today’s long-term rise.

See full archive of Jeff Clark.

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(Kitco News) – Gold traders next week will look ahead to Chinese data for evidence of a further slowdown in economic activity and traders are hoping for more clarity on the Federal Reserve’s plan for ending its bond-buying program. Gold prices ended the week on a strong note, although they were down Friday. August gold futures fell Friday, settling at $1,277.60 an ounce on the Comex division of the New York Mercantile Exchange, up 5.4% on the week. September silver fell Friday, settling at $19.792 an ounce, but rose 5.6% on the week. In the Kitco News Gold Survey, out of 36 participants, 25 responded this week. Of those 25 participants, 12 see prices up, while seven see prices down and six see prices moving sideways or are neutral. Market participants include bullion dealers, investment banks, futures traders, money managers and technical-chart analysts. Profit taking after strong gains this week for gold weighed on prices Friday as the U.S. dollar rebounded from Thursday’s weakness. Strength in the dollar has pressured gold as the traditional relationship between the two resumes. Because gold is dollar-denominated, a stronger greenback usually means weaker gold, and vice versa. Market watchers said they are looking ahead to two events: the release of Chinese economic data this weekend and testimony from Federal Reserve Chairman Ben Bernanke in front of Congress next week. The Chinese economic data set for release include second-quarter gross domestic product, June retail sales and industrial production. A few market watchers said that they expect China’s GDP growth to slow further in the second quarter based on tighter monetary policy, citing comments overnight from Chinese Finance Minister Lou Jiwei. He suggested that 2013 growth may be as low as 6.5%, falling short of the official government target set in March of 7.5%. Bernanke will address members of the U.S. House of Representatives and Senate on Wednesday and Thursday, as part of the Fed’ semi-annual report regarding policy. Analysts said his comments will be closely watched, particularly after this week’s release of the June Federal Open Market Committee meeting minutes and Bernanke’s comments suggesting “highly accommodative monetary policy for the foreseeable future” during a separate speech. Gold and other markets rallied on Bernanke’s words and the U.S. dollar fell, changing some traders’ views that the tapering of the bond-buying by the Fed could come as soon as the September FOMC meeting. Some market watchers said Bernanke’s comments, in contrast to what he said after the June FOMC meeting, and the meeting minutes may have injected a little more confusion into the markets about what the Fed plans to do. Analysts at BNP Paribas said to keep in mind when Bernanke testifies in front of Congress he will represent the FOMC, rather than giving his own views. That might mean he will sound less dovish than he did earlier this week and his comments may err on the side of tapering, they said. If that’s the case, the U.S. dollar might rebound, which would reassert pressure on gold. Barclays analysts said Bernanke’s comments were dovish, but that “we see them as consistent with our view that the Fed will reduce the pace of purchases at its September meeting from $85 billion per month to $70 billion… We interpret many of the chairman’s dovish statements as an attempt to prevent markets from pricing in an earlier onset of policy rate tightening, not about whether the committee expects tapering later this year.” Adrian Day, president and chief executive officer, said gold traders are reassessing the knee-jerk reaction to the Fed’s plans. He said he expects gold to rise next week, albeit cautiously. The selloff that took gold under $1,300 “is overdone based on (the notion that the) Fed cutting back stimulus. All the Fed is discussing at present is reducing the additional stimulus… This is not reducing anything, far less a grand exit. As the market realizes this, gold will recover, unevenly perhaps, but the trend is up,” he said. While Day forecast higher prices, a number of market watchers said after such a strong rally this week, gold prices could pull back and consolidate in a range. Several said they expect gold could find support around the $1,265 to $1,270 area, with resistance at the $1,305 area. “Much will depend on the nature of the Chi­nese macro numbers out this weekend. If the numbers turn out to be particularly poor, there is talk that the government may announce a lowering of reserve requirements or a targeted stimulus program, in which case gold prices could con­tinue pushing higher. However, if the numbers are weak and are not accompanied by any kind of government relief, prices could start to work lower over the early part of next week. For now, we would rather be on the sidelines and watch where things settle in light of these key macro announcements,” said Edward Meir, commodities consultant at INTL FCStone. Follow me on Twitter! If you want to keep up with metals news and features, then follow me on Twitter. It’s free, too. My account is @dcarlsonkitco By Debbie Carlson dcarlson@kitco.com

WHOLESALE prices for gold rose 1.1% in Asian and London trade Wednesday morning, nearing yesterday’s 1-week highs at $1260 per ounce as the rate for leasing and borrowing gold rose further.

 

Silver prices rose 1.8% from an overnight low at $19.05 per ounce.

 

Equity markets slipped while commodities rose with major government bond prices, nudging 10-year US Treasury yields further back from Monday’s 2.73% – their highest level since August 2011.

 

Interest rates on weaker Eurozone debt rose, however, after ratings agency S&P cut Italy’s long-term credit to BBB, just two notches above “junk” status.

 

“There has been some [gold] borrowing interest recently,” the FT quotes Swiss bank UBS’s precious metals strategist Joni Teves.

 

“It’s related to the demand for physical,” with premiums in Shanghai continuing to hold $40 per ounce above London’s benchmark.

 

“As wholesalers, refiners and retailers of investment products are scouring for the metal to make physical products,” agrees consultancy CPM Group’s head Jeffrey Christian, speaking to Reuters, “some of them are actually borrowing the gold in advance.”

 

After falling into negative territory for the first time in 5 years on Monday, the forward rate offered by London bullion banks fell further to -0.12% on 1-month swaps today.

 

The offered rate is paid to borrowers who are willing to swap cash for gold bullion, and so bear the cost of storage and lost interest payments for the period of the swap.

 

Data from trade association the London Bullion Market Association show gold offered rates were last negative – meaning that gold owners are demanding payment, rather than offering it – in November 2008, after the collapse of Lehman Brothers.

 

One-month rates have only been negative on 12 trading days in the LBMA’s twenty-four year records.

 

The most negative rate – meaning the highest rate demanded by large gold owners – came at -4.53% in September 1999, when European central banks agreed to cap their annual gold sales. A sharp jump in gold prices forced a scramble amongst gold mining companies who, after a near two-decade bear market, had borrowed and sold gold for fear of further price drops.

 

The rising price and cost of borrowing gold led to the near-bankruptcy of Ghana miner Ashanti.

 

“[The negative rate] is important news,” says refining and finance group MKS’s daily note.

 

“It has piqued people’s interest” in buying gold to profit from a squeeze on bearish traders, the FT quotes a senior bullion banker, with the turnaround in the gold borrowing rate helping support prices after the worst quarterly drop in three decades.

 

Barring a spike in May this year, the overall return to large gold owners for offering metal for a 1-month swap and earning the interbank interest rate on the cash received hit its best level since February 2009 at 0.30% annualized.

 

Meantime in Asia on Wednesday, gold retailers in India – the world’s No.1 consumer market – agreed Wednesday to suspend further sales of gold coins and investment bars, meeting a government plea for help in reducing gold bullion imports.

 

The All India Gems & Jewellery Trade Federation, which this week proposed a gold-deposit banking scheme to “mobilize” existing households stockpiles and so reduce gold imports, said more than two-in-three of its 40,000 members have agreed to the ban.

 

Physical gold demand from wholesalers in China, the world’s No.2 consumer, was strong overnight according to dealers.

 

Looking at recent weak economic data from China, “A hard landing could shake faith in the government,” says a note on gold investing from Barclays Research, and lead to a big fall in Yuan-denominated assets.

 

“[That] could mean gold becomes important for domestic investors to hedge what they may view as a greater set of risks than previously,” reckons Barclays commodities analyst Sudakshina Unnikrishnan.

Adrian Ash

BullionVault

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Chinese Data, Bernanke Speech To Guide Metals Direction

(Kitco News) – Gold traders next week will look ahead to Chinese data for evidence of a further slowdown in economic activity and traders are hoping for more clarity on the Federal Reserve’s plan for ending its bond-buying program.

Gold prices ended the week on a strong note, although they were down Friday. August gold futures fell Friday, settling at $1,277.60 an ounce on the Comex division of the New York Mercantile Exchange, up 5.4% on the week. September silver fell Friday, settling at $19.792 an ounce, but rose 5.6% on the week. 

In the Kitco News Gold Survey, out of 36 participants, 25 responded this week. Of those 25 participants, 12 see prices up, while seven see prices down and six see prices moving sideways or are neutral. Market participants include bullion dealers, investment banks, futures traders, money managers and technical-chart analysts.

Profit taking after strong gains this week for gold weighed on prices Friday as the U.S. dollar rebounded from Thursday’s weakness. Strength in the dollar has pressured gold as the traditional relationship between the two resumes. Because gold is dollar-denominated, a stronger greenback usually means weaker gold, and vice versa.

Market watchers said they are looking ahead to two events: the release of Chinese economic data this weekend and testimony from Federal Reserve Chairman Ben Bernanke in front of Congress next week.

The Chinese economic data set for release include second-quarter gross domestic product, June retail sales and industrial production. A few market watchers said that they expect China’s GDP growth to slow further in the second quarter based on tighter monetary policy, citing comments overnight from Chinese Finance Minister Lou Jiwei. He suggested that 2013 growth may be as low as 6.5%, falling short of the official government target set in March of 7.5%.

Bernanke will address members of the U.S. House of Representatives and Senate on Wednesday and Thursday, as part of the Fed’ semi-annual report regarding policy. Analysts said his comments will be closely watched, particularly after this week’s release of the June Federal Open Market Committee meeting minutes and Bernanke’s comments suggesting “highly accommodative monetary policy for the foreseeable future” during a separate speech.

Gold and other markets rallied on Bernanke’s words and the U.S. dollar fell,  changing some traders’ views that the tapering of the bond-buying by the Fed could come as soon as the September FOMC meeting. Some market watchers said Bernanke’s comments, in contrast to what he said after the June FOMC meeting, and the meeting minutes may have injected a little more confusion into the markets about what the Fed plans to do.

Analysts at BNP Paribas said to keep in mind when Bernanke testifies in front of Congress he will represent the FOMC, rather than giving his own views. That might mean he will sound less dovish than he did earlier this week and his comments may err on the side of tapering, they said. If that’s the case, the U.S. dollar might rebound, which would reassert pressure on gold.

Barclays analysts said Bernanke’s comments were dovish, but that “we see them as consistent with our view that the Fed will reduce the pace of purchases at its September meeting from $85 billion per month to $70 billion… We interpret many of the chairman’s dovish statements as an attempt to prevent markets from pricing in an earlier onset of policy rate tightening, not about whether the committee expects tapering later this year.”

Adrian Day, president and chief executive officer, said gold traders are reassessing the knee-jerk reaction to the Fed’s plans. He said he expects gold to rise next week, albeit cautiously.

The selloff that took gold under $1,300 “is overdone based on (the notion that the) Fed cutting back stimulus. All the Fed is discussing at present is reducing the additional stimulus… This is not reducing anything, far less a grand exit. As the market realizes this, gold will recover, unevenly perhaps, but the trend is up,” he said.

While Day forecast higher prices, a number of market watchers said after such a strong rally this week, gold prices could pull back and consolidate in a range. Several said they expect gold could find support around the $1,265 to $1,270 area, with resistance at the $1,305 area.

“Much will depend on the nature of the Chi­nese macro numbers out this weekend. If the numbers turn out to be particularly poor, there is talk that the government may announce a lowering of reserve requirements or a targeted stimulus program, in which case gold prices could con­tinue pushing higher. However, if the numbers are weak and are not accompanied by any kind of government relief, prices could start to work lower over the early part of next week. For now, we would rather be on the sidelines and watch where things settle in light of these key macro announcements,” said Edward Meir, commodities consultant at INTL FCStone.

Follow me on Twitter! If you want to keep up with metals news and features, then follow me on Twitter. It’s free, too. My account is @dcarlsonkitco

By Debbie Carlson dcarlson@kitco.com

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Gold Survey: Survey Participants Split Over Gold Direction Next Week

(Kitco News) – There is no outright majority of opinion on the outlook for gold price direction for next week, with participants in the Kitco News gold survey split, although there are a few more participants who forecast higher prices than those who see weaker prices or are neutral.

In the Kitco News Gold Survey, out of 36 participants, 25 responded this week. Of those 25 participants, 12 see prices up, while seven see prices down and six see prices moving sideways or are neutral. Market participants include bullion dealers, investment banks, futures traders, money managers and technical-chart analysts.

Last week survey participants were split in half equally, a rare occurrence. As of noon EDT Friday, prices on the week were up about $66 on the week. Since May 13, 2011 when the survey started, participants have been right 44% of the time, as of June 28. Until Nov. 23, survey participants had more than a 50% accuracy rate, suggesting that since then there has been a change in the trend for gold.

Participants who see higher prices said they expect the current bounce in gold to continue. Some suggested short covering, where traders who previously sold positions buy them back to exit the trade. It’s well known that speculative traders hold hefty short positions in the Comex gold futures market and some participants said if the bounce in gold prices continues, these speculators will likely be forced out of the market.

Darin Newsom, senior analyst at DTN, said technical chart factors suggest some strength for gold.

“Weekly stochastics for the August contract have seen a bullish crossover below the oversold level of 20%, indicating a turn in the secondary (intermediate-term) trend,” he said.

Those who see weaker prices said gold struggles when it comes close to the $1,300 area.

Kevin Grady, owner of Phoenix Futures and Options, said he’s looking for prices to go lower ultimately. “We could trade to $1,300, but I think we’re going to start to see these mines starting to hedge. There are a lot of uncomfortable conversations going on now. If we get to $1,321, which was the support when we had the first big break, I think we’ll start to see some hedging coming in. So far we haven’t,” he said.

The participants who see prices going sideways or are neutral said after this week’s strong rally, it’s possible that gold could tread water in a range.

“Put me down for ‘unchanged’ which really means — in the absence of some powerful news — anything between $1,250 and $1,300,” said Jeff Nichols, managing director, American Precious Metals Advisors, and adviser to Rosland Capital.

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Buy Silver, Not Gold

Richard Cox

After the latest meeting minutes from the U.S. Federal Reserve were released, commodities rallied and some of the most surprising moves were seen in the precious metals space. The bear declines in gold, silver, and copper have been some of the most well-documented stories in the market this year, but these latest moves have been strong on a short term basis, and have led some sections of the market to surmise that a turning point might be in place. But is it time to start buying gold or silver? Is one option better than the other? Or should we avoid metals markets altogether?

The bear declines in metals are shown clearly in the sector’s funds. These span across the board, but key examples can be found in the iPath Dow Jones UBS Copper Total Return Sub-Index (JJC), the iShares Silver Trust (SLV), and the SPDR Gold Shares Fund (GLD). year-to-date, the larger declines have declines have been seen in gold and silver, but the latter is down by a massive 33% for the period. Those looking for contrarian reasons to buy silver or gold might cite the broader economic environment, as central bank stimulus will lead some to point to these metals as an inflationary hedge against what could be a declining U.S. dollar, or as a safe-haven asset for instances where market turbulence is seen. A similar case could even be made in a positive economic environment, as global strength would generate increased demand in these metals.

Bullish Choices

But, for contrarians bullish on the sector, which metal is the best choice? Most investors are looking to choose between gold and silver, but sincegold has no true end market (given its position as a vehicle for investment), it makes much more sense to move toward silver, given its similar position as a safe-haven asset and its extensive usage in industrial manufacturing. silver plays a key role as a component in many common products. Examples include batteries, automobiles, solar panels, and general electronics items. gold investors cannot make a similar claim, and given the relative valuation weakness seen in silver (which is having one its worst yearly performances in almost 30 years), much better opportunities can be found.

Chart Perspective


(Click to enlarge)

Year-to-date declines in GLD are now seen at more than 22%, and this includes the short term rallies seen this week. But, at this stage, there is little in the way of near term resistance until prices hit the 61.8% Fib retracement of the rally from $66, which suggest further declines are in store.


(Click to enlarge)

Year-to-date declines in SLV are much larger, with prices now lower by over 33% during the period. These moves have sent prices to their current levels, at 78.6% Fib support of its rally over the same period. This suggests that the latest rally can form a bottom, as long as these support levels hold.


(Click to enlarge)

As a comparative example, copper prices have sent the iPath Dow Jones UBS Copper Total Return Sub-Index has seen declines of only 13% over the same period. Prices have yet to test key Fib support, so there is little to suggest prices will bounce near-term.

Overall, the picture painted of a silver market that can find bullish traction in multiple market environments (both positive and negative), and is highly oversold relative to its peers. This week’s moves suggest changes in market sentiment and this will lead to arguments that silver is starting to find a supportive bottoming in prices. For those looking for alternatives to direct buys in silver, instruments like Silver Wheaton Corp. (SLW) can also be used. This company has important advantages over many of the silver miners, with comparatively strong margins and the ability to purchase products from miners at reduced prices. This insulation provides protection for the company when dealing with industry risks, and presents some interesting alternatives for those looking to take contrarian positions in silver.

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Myfxbook Weekly Economic Calendar For Jul 14, 2013-Jul 20, 2013‏

Below you will find a list of economic events for the week ahead – economic events can have a direct effect on volatility which may affect your trading.

Date Country Event Impact Previous Consensus
Sunday Jul 14, 00:00 France  Bastille Day      
Sunday Jul 14, 23:01 United Kingdom  Rightmove House Price Index (MoM) Low 1.2%  
Sunday Jul 14, 23:01 United Kingdom  Rightmove House Price Index (YoY) Medium 2.7%  
Monday Jul 15, 00:00 Japan  Marine Day      
Monday Jul 15, 01:30 Australia  New Motor Vehicle Sales (MoM) Low 0.0%  
Monday Jul 15, 01:30 Australia  New Motor Vehicle Sales (YoY) Low 0.2%  
Monday Jul 15, 02:00 China  Gross Domestic Product (QoQ) Medium 1.6% 1.8%
Monday Jul 15, 02:00 China  Gross Domestic Product (YoY) Medium 7.7% 7.5%
Monday Jul 15, 02:00 China  Industrial Production (YoY) Medium 9.2% 9.1%
Monday Jul 15, 02:00 China  Retail Sales (YoY) Medium 12.9% 12.9%
Monday Jul 15, 02:00 China  Urban investment (YTD) (YoY) Medium 20.4% 20.2%
Monday Jul 15, 02:00 China  NBS Press Conference Medium    
Monday Jul 15, 05:00 Singapore  Retail Sales (MoM) Low 5.3  
Monday Jul 15, 05:00 Singapore  Retail Sales (YoY) Low -0.5  
Monday Jul 15, 05:30 India  Cumulative Industrial Output Low 1.0%  
Monday Jul 15, 06:00 Finland  Consumer Price Index (YoY) Low 1.6%  
Monday Jul 15, 07:00 Finland  Current Account Low €-1.4  
Monday Jul 15, 07:00 Turkey  3mth quarterly jobless average Low 10.1%  
Monday Jul 15, 07:00 Slovakia  Headline Inflation (MoM) Low 0.1%  
Monday Jul 15, 07:00 Turkey  Budget Balance Low 4.56  
Monday Jul 15, 07:00 Slovakia  Core Inflation (YoY) Low 1.7%  
Monday Jul 15, 07:00 Czech Republic  Producer Price Index (MoM) Low -0.5%  
Monday Jul 15, 07:00 Czech Republic  Producer Price Index (YoY) Low 0.5%  
Monday Jul 15, 07:15 Switzerland  Producer and Import Prices (MoM) Medium -0.3% 0.1%
Monday Jul 15, 07:15 Switzerland  Producer and Import Prices (YoY) Medium -0.2% 0.2%
Monday Jul 15, 07:30 Netherlands, The  Retail Sales (YoY) Low -0.6%  
Monday Jul 15, 08:00 Norway  Trade Balance Low 30.1  
Monday Jul 15, 12:00 Poland  Consumer Price Index (YoY) Low 0.5%  
Monday Jul 15, 12:00 Poland  Consumer Price Index (MoM) Low -0.1%  
Monday Jul 15, 12:00 United States  Fed’s Tarullo speech Low    
Monday Jul 15, 12:30 United States  Retail Sales (MoM) High 0.6% 0.8%
Monday Jul 15, 12:30 United States  Retail Sales ex Autos (MoM) High 0.3% 0.4%
Monday Jul 15, 12:30 United States  NY Empire State Manufacturing Index Low 7.84 5.0
Monday Jul 15, 14:00 United States  Business Inventories Medium 0.3% 0.4%
Monday Jul 15, 22:45 New Zealand  Consumer Price Index (QoQ) Medium 0.4% 0.3%
Monday Jul 15, 22:45 New Zealand  Consumer Price Index (YoY) High 0.9% 0.8%
Tuesday Jul 16, 00:00 Chile  Our Lady of Mount Carmel      
Tuesday Jul 16, 01:30 Australia  RBA Meeting’s Minutes High    
Tuesday Jul 16, 07:00 Slovakia  EU Norm Inflation (MoM) Low 0.1%  
Tuesday Jul 16, 07:00 Slovakia  EU Norm Inflation (YoY) Low 1.8%  
Tuesday Jul 16, 08:00 Italy  Global Trade Balance Low €1.907 €2.14
Tuesday Jul 16, 08:00 Italy  Trade Balance EU Low €0.441  
Tuesday Jul 16, 08:00 Austria  HICP (MoM) Low 0.1  
Tuesday Jul 16, 08:00 Austria  HICP (YoY) Low 2.4  
Tuesday Jul 16, 08:30 United Kingdom  Consumer Price Index (MoM) Medium 0.2%  
Tuesday Jul 16, 08:30 United Kingdom  Consumer Price Index (YoY) High 2.7% 3.0%
Tuesday Jul 16, 08:30 United Kingdom  Core Consumer Price Index (YoY) High 2.2% 2.3%
Tuesday Jul 16, 08:30 United Kingdom  PPI Core Output (MoM) n.s.a Low 0.1%  
Tuesday Jul 16, 08:30 United Kingdom  PPI Core Output (YoY) n.s.a Medium 0.8%  
Tuesday Jul 16, 08:30 United Kingdom  Producer Price Index – Input (MoM) n.s.a Low -0.3% -0.1%
Tuesday Jul 16, 08:30 United Kingdom  Producer Price Index – Input (YoY) n.s.a Low 2.2%  
Tuesday Jul 16, 08:30 United Kingdom  Producer Price Index – Output (MoM) n.s.a Low 0.0% 0.1%
Tuesday Jul 16, 08:30 United Kingdom  Producer Price Index – Output (YoY) n.s.a Medium 1.2%  
Tuesday Jul 16, 08:30 United Kingdom  Retail Price Index (MoM) Low 0.2%  
Tuesday Jul 16, 08:30 United Kingdom  Retail Price Index (YoY) Low 3.1% 3.4%
Tuesday Jul 16, 08:40 Spain  12-Month Letras Auction Low 1.395%  
Tuesday Jul 16, 08:50 Spain  6-Month Letras Auction Low 0.821%  
Tuesday Jul 16, 09:00 European Monetary Union  Consumer Price Index – Core (YoY) High 1.2% 1.2%
Tuesday Jul 16, 09:00 European Monetary Union  Consumer Price Index (MoM) Medium 0.1% 0.1%
Tuesday Jul 16, 09:00 European Monetary Union  Consumer Price Index (YoY) High 1.4% 1.6%
Tuesday Jul 16, 09:00 European Monetary Union  Trade Balance n.s.a. Low €14.9 €10.0
Tuesday Jul 16, 09:00 European Monetary Union  Trade Balance s.a. Low €16.1  
Tuesday Jul 16, 09:00 Germany  ZEW Survey – Current Situation Medium 8.6 9.0
Tuesday Jul 16, 09:00 Germany  ZEW Survey – Economic Sentiment Medium 38.5 39.0
Tuesday Jul 16, 09:00 European Monetary Union  ZEW Survey – Economic Sentiment Medium 30.6 31.8
Tuesday Jul 16, 10:00 Spain  House Price Index (QoQ) Low -0.8%  
Tuesday Jul 16, 10:00 United Kingdom  BOE Inflation Letter High    
Tuesday Jul 16, 10:30 United Kingdom  MPC Member Paul Fisher Speech Low    
Tuesday Jul 16, 12:00 Poland  Corporate Sector Wages Low 2.3%  
Tuesday Jul 16, 12:00 Poland  Net Inflation Low 1.0%  
Tuesday Jul 16, 12:30 United States  Consumer Price Index (MoM) Medium 0.1% 0.3%
Tuesday Jul 16, 12:30 United States  Consumer Price Index (YoY) High 1.4% 1.5%
Tuesday Jul 16, 12:30 United States  Consumer Price Index Core s.a Low 233.27  
Tuesday Jul 16, 12:30 United States  Consumer Price Index Ex Food & Energy (MoM) Medium 0.2% 0.2%
Tuesday Jul 16, 12:30 United States  Consumer Price Index Ex Food & Energy (YoY) High 1.7% 1.6%
Tuesday Jul 16, 12:30 United States  Consumer Price Index n.s.a (MoM) Low 232.95  
Tuesday Jul 16, 12:30 Canada  Manufacturing Shipments (MoM) Medium -2.4%  
Tuesday Jul 16, 13:00 United States  Net Long-Term TIC Flows Medium $-37.3 $14.3
Tuesday Jul 16, 13:00 United States  Total Net TIC Flows Low $12.7  
Tuesday Jul 16, 13:15 United States  Capacity Utilization Low 77.6% 77.7%
Tuesday Jul 16, 13:15 United States  Industrial Production (MoM) Medium 0.0% 0.3%
Tuesday Jul 16, 14:00 United States  NAHB Housing Market Index Low 52.0 51.0
Tuesday Jul 16, 23:50 Japan  BoJ Monetary Policy Meeting Minutes High    
Wednesday Jul 17, 00:30 Australia  Westpac Leading Index (MoM) Low 0.6%  
Wednesday Jul 17, 08:30 United Kingdom  Average Earnings excluding Bonus (3Mo/Yr) Low 0.9%  
Wednesday Jul 17, 08:30 United Kingdom  Average Earnings including Bonus (3Mo/Yr) Medium 1.3% 1.4%
Wednesday Jul 17, 08:30 United Kingdom  Bank of England Minutes High    
Wednesday Jul 17, 08:30 United Kingdom  Claimant Count Change High -8.6 -7.9
Wednesday Jul 17, 08:30 United Kingdom  Claimant Count Rate Medium 4.5%  
Wednesday Jul 17, 08:30 United Kingdom  ILO Unemployment Rate (3M) Medium 7.8% 7.8%
Wednesday Jul 17, 09:00 Switzerland  ZEW Survey – Expectations Medium 2.2 6.0
Wednesday Jul 17, 11:00 South Africa  Retail Sales (YoY) Low 1.9%  
Wednesday Jul 17, 11:00 United States  MBA Mortgage Applications Low -4.0%  
Wednesday Jul 17, 12:00 Poland  Industrial Output (YoY) Low -1.8%  
Wednesday Jul 17, 12:00 Poland  Producer Price Index (YoY) Low -2.5%  
Wednesday Jul 17, 12:30 United States  Building Permits (MoM) High 0.974 0.99
Wednesday Jul 17, 12:30 Canada  Canadian portfolio investment in foreign securities Low $2.81  
Wednesday Jul 17, 12:30 Canada  Foreign portfolio investment in Canadian securities Low $14.91 $10.23
Wednesday Jul 17, 12:30 United States  Housing Starts (MoM) Medium 0.914 0.95
Wednesday Jul 17, 13:00 Canada  BoC Interest Rate Decision High 1.0% 1.0%
Wednesday Jul 17, 14:00 Canada  BOC Rate Statement High    
Wednesday Jul 17, 14:30 United States  EIA Crude Oil Stocks change Medium -9.874  
Wednesday Jul 17, 15:15 Canada  BoC Press Conference High    
Wednesday Jul 17, 18:00 United States  Fed’s Beige Book Medium    
Wednesday Jul 17, 23:50 Japan  Adjusted Merchandise Trade Balance Low ¥-821.045  
Wednesday Jul 17, 23:50 Japan  Exports (YoY) Low 10.1%  
Wednesday Jul 17, 23:50 Japan  Imports (YoY) Low 10.0%  
Thursday Jul 18, 01:30 China  House Price Index Low 6.0%  
Thursday Jul 18, 01:30 Australia  National Australia Bank’s Business Confidence (QoQ) Medium 2.0  
Thursday Jul 18, 06:00 Switzerland  Trade Balance Medium 2224.0 2410.0
Thursday Jul 18, 07:30 Netherlands, The  Consumer Confidence Adj Low -36.0  
Thursday Jul 18, 07:30 Netherlands, The  Unemployment Rate s.a (3M) Low 8.3%  
Thursday Jul 18, 08:00 European Monetary Union  Current Account n.s.a Low €15.3 €13.0
Thursday Jul 18, 08:00 European Monetary Union  Current Account s.a Low €19.5 €20.0
Thursday Jul 18, 08:30 United Kingdom  Retail Sales (MoM) Low 2.1% 0.4%
Thursday Jul 18, 08:30 United Kingdom  Retail Sales (YoY) Medium 1.9%  
Thursday Jul 18, 08:30 United Kingdom  Retail Sales ex-Fuel (MoM) Low 2.1%  
Thursday Jul 18, 08:30 United Kingdom  Retail Sales ex-Fuel (YoY) Medium 2.1%  
Thursday Jul 18, 09:30 Germany  10-y Bond Auction Medium 1.55%  
Thursday Jul 18, 12:30 United States  Continuing Jobless Claims Medium 2.977  
Thursday Jul 18, 12:30 United States  Initial Jobless Claims High 360.0 349.0
Thursday Jul 18, 13:00 Mexico  Jobless Rate Low 4.93%  
Thursday Jul 18, 13:00 Mexico  Jobless Rate s.a Low 5.07%  
Thursday Jul 18, 14:00 United States  American Petroleum Institute Monthly Report Low    
Thursday Jul 18, 14:00 United States  Philadelphia Fed Manufacturing Survey Medium 12.5 8.0
Thursday Jul 18, 14:00 United States  CB Leading Indicator (MoM) Medium 0.1% 0.2%
Thursday Jul 18, 14:30 United States  EIA Natural Gas Storage change Low 82.0  
Thursday Jul 18, 22:45 New Zealand  Visitor Arrivals (YoY) Low 8.7%  
Friday Jul 19, 02:00 China  CB Leading Economic Index Low 0.3  
Friday Jul 19, 04:30 Japan  All Industry Activity Index (MoM) Medium 0.4% 1.3%
Friday Jul 19, 06:00 Germany  Import Price Index (MoM) Low -0.4%  
Friday Jul 19, 06:00 Germany  Import Price Index (YoY) Low -2.9%  
Friday Jul 19, 06:00 Germany  Producer Price Index (MoM) Low -0.3% -0.1%
Friday Jul 19, 06:00 Germany  Producer Price Index (YoY) Low 0.2% 0.5%
Friday Jul 19, 07:00 Hungary  Gross Wages (YoY) Low 4.5%  
Friday Jul 19, 08:30 United Kingdom  Public Sector Net Borrowing Low £10.535 £9.4
Friday Jul 19, 10:00 United Kingdom  CBI Industrial Trends Survey – Orders (MoM) Low -18.0  
Friday Jul 19, 12:00 Brazil  Mid-month Inflation Low 0.38%  
Friday Jul 19, 12:30 Canada  Bank of Canada Consumer Price Index Core (MoM) Medium 0.2% -0.3%
Friday Jul 19, 12:30 Canada  Consumer Price Index – Core (MoM) Medium 0.1%  
Friday Jul 19, 12:30 Canada  Consumer Price Index (MoM) Medium 0.2% 0.2%
Friday Jul 19, 12:30 Canada  Consumer Price Index (YoY) High 0.7%  
Friday Jul 19, 12:30 Canada  Bank of Canada Consumer Price Index Core (YoY) High 1.1%  
Friday Jul 19, 13:00 Belgium  Consumer Confidence Index Low -18.0  
Friday Jul 19, 13:00 Argentina  Monthly Econ Activity (MoM) Low 2.6%  
Friday Jul 19, 21:00 Argentina  Primary Budget Balance (MoM) Low 1445.7  
Saturday Jul 20, 00:00 Colombia  Independence Day      
Posted in Uncategorized | Leave a comment

Gold logs biggest weekly percent gain since 2011

Metal falls on day, but gains 5.4% on week

By Myra P. Saefong and Barbara Kollmeyer, MarketWatch

SAN FRANCISCO (MarketWatch) — Gold futures finished with a modest loss on Friday to break a four session string of gains, but the metal still scored its best weekly percentage gain in nearly two years.

“Gold, like many other assets, is ebbing and flowing in reaction to stimulus assumptions,” said Jonathan Citrin, founder and executive chairman at investment firm CitrinGroup. And this week, Federal Reserve Chairman Ben Bernanke and crew “leaned once again toward loose policy.”

Gold for August delivery GCQ3 +0.25%  shed $2.30, or 0.2%, to settle at $1,277.60 an ounce on the Comex division of the New York Mercantile Exchange.

For the week, prices were 5.4% higher. That was their first weekly gain in four weeks, and the biggest weekly percentage climb since the week ended Oct. 28, 2011, according to FactSet data, tracking the most-active contracts.

“Volatility in gold has been epic in recent weeks and months,” said Vedant Mimani, lead portfolio manager of the Atyant Capital Global Opportunities Fund.

The pullback Friday was “just a little settling down from yesterday’s big jump and before the weekend as traders get ready to tackle next week,” he said.

Prices briefly turned a bit higher Friday following an unexpected decline in consumer sentiment. The preliminary July reading of the University of Michigan and Thomson Reuters consumer-sentiment index reportedly declined to 83.9 from a final June reading of 84.1. Economists polled by MarketWatch expected the reading to be unchanged.

Gold prices on Thursday jumped $32.50, or 2.6%, marking their fourth-straight win, the longest winning streak since mid-March.

“Gold has turned here for a good recovery bounce, as the technicals are extremely oversold, leading to a run into the mid/upper $1,300 in coming weeks,” wrote Felix Zulauf, president of Zulauf Asset Management, in a report for Itaú BBA.

But not everyone was as upbeat as gold turned lower on Friday.

”I think gold is currently stuck between $1,150 and $1,327, the low following the first selloff in April,” said Ole Hansen, head of commodity strategy at Saxo Bank. “Speculative investors remain short and are probably happy to be that as long as $1,327 does not get breached.”

Weekly gain

The week’s gain for gold came as the U.S. dollar DXY +0.23%  dropped sharply Thursday following indications by Bernanke that the Fed isn’t in a hurry to raise interest rates, even after unemployment reaches the Fed’s target of 6.5%. A weaker dollar helps dollar-denominated commodities by making them less expensive to buy for holders of other currencies.

At the same time, quantitative easing by the Fed and other central banks had underpinned a long-running rally in gold prices, analysts have said.

Gold futures have tumbled around 24% this year on worries the Fed will start winding down its bond-buying program and on continued gold sales from exchange-traded funds.

Total gold in trust for the SPDR Gold Trust GLD -0.09%  remained unchanged Thursday, compared with Wednesday. Shares of the ETF fell 0.5% in Friday afternoon trading.

Metals mining firms also declined, with the Philadelphia Gold and Silver Index XAU -2.34% 3.3% lower.

This week, Bloomberg reported that hedge-fund manager John Paulson’s PFR Gold Fund had lost 65% year-to-date. But the correction for gold may be close to ending, Deutsche Bank said this week.

On Comex Friday, September silverSIU3 -0.48%  gave up 16 cents, or 0.8%, to end at $19.79 an ounce after a 4.1% jump on Thursday. The contract saw a gain of 5.6% for the week.

September copper HGU3 -0.76% slipped 2 cents, or 0.7%, to $3.155 a pound, up 2.9% for the week.

Platinum for October delivery PLV3 +0.10%  closed down 70 cents at $1,406.90 an ounce, while September palladium PAU3 +0.45%  gained $4.70, or 0.7%, to $722.90 an ounce. Both contracts ended over 6% higher for the week following a recent strike by mine workers in South Africa. 

Posted in Uncategorized | Leave a comment

Gold skids to $1,277 as dollar rebounds

Gold futures settled lower at $1,277 per ounce as the dollar rebounded and investors booked profits after four days of gains.

The metal pared some losses that were sharper earlier. Bullion had taken a beating after Fed Chairman Ben Bernanke said in May and June that the U.S. economy was recovering strongly enough to slow the pace of the $85 billion of monthly bond purchases.

Signs of some physical supply tightness in gold, as reflected by high premiums and record volume in the Shanghai Futures Exchange and a surge in gold lease rates, helped to limit gold’s losses on Friday. 

Analysts said, however, rallying U.S. equities amid some positives signs for the economy and no indication of abatementin gold-backed exchange-traded funds outflows could pressure the metal.

“The fact that the leading U.S. equity indices closed at record highs yesterday—which could prompt investors to switch once again from gold ETFs to equities—is problematic for gold,” said Eugen Weinberg, head of commodity research at Commerzbank.

“Any prolonged recovery of the gold price is almost inconceivable unless the ETF outflows abate,” Weinberg said.

Spot gold was down 0.4 percent at $1,280 an ounce and on track to snap a four-day winning streak.

(Read MoreWhy Gold Bugs May Wish for a China Hard Landing)

U.S. gold futures for August delivery settled $2.30 lower at $1,277.60 an ounce. Gold pared losses after government data showed that U.S. producer prices rose more than expected in June, pointing to increased inflation.

Gold is usually seen as an hedge against inflationary pressures, but stronger inflation could also make the Fed more comfortable about reducing its stimulus.

Holdings of the world’s largest gold-backed exchange-traded fund SPDR Gold Trust remained unchanged at 30.2 million ounces, or 4 1/2-year lows, on Thursday. The fund posted the biggest weekly loss of 2.6 percent since the end of April.

  Name Price   Change %Change Volume
GOLD Gold 1277.60
 
-2.30 -0.18% 129523
GOLD/USD Gold / US Dollar Spot 1284.29
 
-0.40 -0.03%
SILV/USD Silver / US Dollar Spot 19.86
UNCH 0%
SILVER Silver 19.792
 
-0.164 -0.82% 25667
PALL/USD Palladium / US Dollar Spot 718.00
 
1.50 0.21%
PLAT/USD Platinum / US Dollar Spot 1401.50
 
-3.00 -0.21%

Supply Tightens

The cost of borrowing gold stayed near its highest level since January 2009, reflecting dwindling supplies from bullion banks after heavy liquidation and resilient demand for physical gold products. Trading volumes for gold and silver on the Shanghai Futures Exchange (ShFE) have jumped to record highs a week after the bourse launched after-hours trading, driven by a surge in investment and hedging demand. Also, premiums on Chinese gold and silver products stay sharply higher than in the United States.

(Read More: Have Beleaguered Gold Prices Hit a Bottom?)

Meanwhile, total U.S. COMEX registered gold stocks fell to a 12-year low of less than 1 million ounces, underlying the tightness of the physical bullion market, said James Steel, HSBC’s chief metals analyst.

Spot silver fell 1.4 percent to $20 an ounce, having reached a three-week high of $20.26 on Thursday. Platinum was down 0.1 percent at $1,403 an ounce, after hitting a three-week high of $1,414.75 earlier, while palladium notched up 0.8 percent to $717 an ounce.

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Gold Nears $1,300, but Analysts Say It’s Not a ‘Buy’

Gold soared almost 3 percent to a two-and-a-half week high on Thursday after dovish comments from Federal Reserve Chairman Ben Bernanke, but analysts are still not convinced the metal is a good long-term buy.

Bernanke stressed on Wednesday that U.S. monetary policy would remain “highly accommodative for the foreseeable future”, in order to combat stubbornly high unemployment. His comments sparked a rally in bullion, which has now clocked its longest winning streak since April.

(Read MoreGlobal Markets Sigh in Relief on Bernanke Comments)

However, analysts said the rally, which saw gold prices reach $1,298 per troy ounce on Thursday, is unsustainable, and more downside should be expected.

Gary Clark, analyst at Roubini Global Economics, said the rally offered a good selling opportunity, and said gold prices were too unstable for investors to consider a buy-and-hold strategy.

“I see these rallies in the gold price still as selling opportunities. The current rally is really being driven by tightness in the physical market and that has been reflected by a rise of gold lease rates, and also the more accommodative language coming from Ben Bernanke,” Clark told CNBC.

(Read MoreFed Speak Has Some Expecting QE End in December)

Clark said that while gold lease rates were at their highest level since the financial crisis, this will not drive prices higher in the long-term.

“On this occasion, its more idiosyncratic factors to do with supply which are driving up those lease rates, driving up the gold price at the moment. But we haven’t seen a rise in tail risk, so that rally should not be sustained,” he said.

Chris Watling, CEO of Longview Economics, agreed that there was no strong case to be a long-term buyer of the precious metal, even though it has fallen considerably from its 2011 highs, when it peaked at $1,900. He warned that gold could prove to be a bubble that “will fully deflate”, sending prices back to $300-$400 per ounce.

(Read MoreWhy Gold Bugs May Wish for a China Hard Landing)

“One has to be a long-term buyer surely, but what makes you a long term buyer of gold and at what price? Not at these levels,” said Watling.

Clark added that gold prices, which remain 25 percent lower on the year, would not stabilize before the end of 2014, as real interest rates are nowhere near normalizing.

“The gold price is very much driven by the real rate. There is a lot of volatility in the real rate at the moment, as a result of the QE3 [the third round of quantitative easing] tapering talk, and we are not going to see normalization until the end of next year,” he said.

(Read MoreWeak China Data Flags More Bad News for Copper)

The minutes from the Federal Open Market Committee (FOMC) revealed a split between members over when to start easing off the $85 billion a month asset-buying program. Around half of the 19 members wanted tapering to start soon, while “many” others were in favor of the Fed continuing asset purchases into 2014.

“I think gold investors really should be positioning for a U.S. recovery, and the end of QE and a renormalization of rates,” said Clark. “At that point, the gold price will have fallen to a level which is more sustainable. It still has an important role to play as a hedge against inflation and tail risk, but I think there is further to go on the downside.”

By CNBC’s Jenny Cosgrave

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Gold Holds Near One-Week High, Fed Eyed

Reuters

Gold rebounded from light falls to trade near a one-week high on Wednesday, as the dollar fell and investors awaited Federal Reserve Chairman Ben Bernanke’s speech later today for clues on whether it will taper stimulus measures soon.

Earlier in the session, gold had slipped after weak Chinese trade data raised fears of an economic slowdown in the world’s second-biggest consumer of the metal.

Bullion has fallen nearly 10 percent since Bernanke said last month the U.S. economy was recovering strongly enough to slow the pace of the Fed’s $85 billion monthly bond purchases.

(Read More: Gold No Longer a Safe Haven, Strategist Says)

“Some are hoping to see the Fed making an effort to calm the markets,” said a Hong Kong-based trader. The trader said prices may see some support if the Fed decides to taper in December or later, instead of current expectations of a September wind down.

Spot gold gained 0.35 percent to $1,253.16 an ounce by 0737 GMT on Wednesday, after falling as low as $1,243.54 earlier. Comex gold rose $6 to $1,252.

Gold for immediate delivery hit a one-week high of $1,260.01 on Tuesday, helped by higher-than-expected Chinese inflation data and physical demand.

The Fed releases minutes from its June policy meeting at 1800 GMT and Bernanke is due to speak at a conference later on.

(Read More: Mark My Words: Gold Will Bounce)

Several Fed officials have tried to reassure global markets after Bernanke’s comments in June caused panic. Gold fell to a near three-year low of $1,180.71.

The Fed’s bond purchases have raised worries about inflation, boosting demand for gold, which is seen as a hedge against rising prices. The stimulus measures have also boosted liquidity overall and driven funds into commodities.

China Data

Weak Chinese trade data stoked fears of a slowdown in demand for commodities in the world’s second-biggest economy.

China has been a big support for gold prices, which have lost a quarter of their value this year due to a possible scale back of U.S. monetary stimulus, outflows from exchange-traded funds (ETFs) and import restrictions in top buyer India.

(Read More: Investing Pros Look East for Signs of Gold Rebound)

Wednesday’s data showed that China’s exports fell 3.1 percent in June, the first decline since January 2012, while imports dropped 0.7 percent, severely missing market expectations and reinforcing signs of a economic slowdown in the second quarter.

Holdings in SPDR Gold Trust, the largest gold-backed ETF, are at four-year lows as investors shunned bullion this year and chose higher-yielding stocks instead.

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Gold – Here’s What You Need To Know

The Financial Lexicon

Gold, the one asset so many investors love to hate, never suffers from a shortage of people trying to talk it down. As someone who owns gold, I take great interest in reading as much as I can about why I shouldn’t own it. Every once in a while, I come across intriguing ideas, although none that has yet to convince me that owning zero gold is the route I should go. Despite occasionally finding what I think are respectable counterarguments to owning gold, much of what I come across is, in my opinion, complete nonsense that is all-too-often filled with attempts to ridicule or mock those who own the precious metal. One of many examples is Charlie Munger’s “Civilized people don’t buy gold.” Another example is Barry Ritholtz’s “The Rules of Goldbuggery,” which I discusshere.

I can certainly understand why it is so many people disrespect and downright loathe gold. After all, those who enjoy the fruits of a leveraged up financial system and credit-driven economy have an incentive to talk down an asset with no counterparty risk. But despite so many pundits telling you not to own gold, I think it is worthwhile to think through for yourself the merits of purchasing history’s ultimate store of value. To help you in that endeavor, I would like to start with the following question:

Why do you own gold?

a. Trade (technicals are favorable/contrarian play)

b. Longer-term investment (money printing/currency debasement hedge)

c. Store of value (carry over wealth from one fiat money regime to the next)

Answer (a)

If you chose a, you likely have a precise reason for believing gold is worth trading at a specific time, and you can ignore all the debate about whether gold is a good long-term investment. For those trading gold, I would like to share four thoughts.

First, don’t let a “trade” turn into a “long-term investment.” This sometimes occurs when trades go wrong and traders refuse to take losses.

Second, if you are going to trade, you should have a good understanding of options strategies that can help mitigate losses. Chapter 6 of my new book, “Options Strategies Every Investor Should Know,” presents what is one of my favorite options strategies for getting out of a losing position.

Third, when trading gold, the type of exposure you choose is extremely important. Buying physical gold and paying markups and commissions is not suitable for traders. ETFs such as GLD and IAU, however, are suitable for trading.

Fourth, if you are looking to leverage your gold trade, in addition to trading on margin or trading futures, there are two other possibilities that come to mind. One is to implement the options strategy I call “leverage without leverage.” That strategy is explained in detail (along with a real world example and a review of tax considerations) in Chapter 5 of the aforementioned book. Another way to leverage a gold trade is to purchase silver ETFs such as SLV or SIVR. As demonstrated in the chart below, the prices of gold and silver, and their corresponding ETFs, generally are correlated in terms of price direction.

GLD Chart

GLD data by YCharts

Despite being generally correlated in terms of price direction, when it comes to the magnitude of directional moves, I like to think of silver as gold on steroids. The moves are greater, and the gains or losses will be magnified if you trade silver as a means of gaining leveraged gold price exposure. Of course, you should remember that silver is not gold, and there is no guarantee that the future will bring the same type of correlations as the past.

Answer (b)

If you chose b when answering the question above, you likely have concerns about money printing, currency debasement, and the possibility of strong inflation at some point in the future. You are likely turning to gold as an investment that you think will protect your portfolio from an outcome that is likely to take place in your lifetime, and you are fairly confident that you know what the outcome will be.

I don’t like gold as a “longer-term” investment because with long-term investments come expectations about future returns. And I don’t think gold is the type of asset that can compete in terms of meeting investors’ risk-adjusted expectations for long-term returns. Moreover, in today’s financial world, “long-term” investors follow the fiat currency prices of their investments and expect certain returns in fiat currency terms. Given that I think gold should be owned as a store of value, I don’t think owners of the precious metal should spend their time worrying about its fiat currency movements. In order to choose answer b, I think you need to be so confident not only about what the future outcome from money printing and currency debasement will be, but also be nearly certain about the time frame in which that outcome will occur.

Answer (c)

Gold is history’s ultimate store of value. Its rich history of protecting wealth from one fiat money regime to the next is the reason hundreds of millions of people around the world own it or want to own it. It doesn’t matter how many people go on television or write articles to proclaim gold’s riskiness and use the fiat currency price movements to justify their remarks. It doesn’t matter how volatile gold’s fiat currency price movements are over a period of a few years. People who own gold as a store of value are worried about the very long term. Store of value investors take “long-term” investing to the next level. They are concerned about the number of ounces of gold they own. A gold price drop from $1,900 to $1,200 per ounce simply means more ounces can be accumulated for the same number of fiat currency units and that the storage costs will be less (a positive).

Store of value investors care about maintaining wealth from one fiat money regime to the next. These people want to own the physical metal (I am not talking ETFs here). In order to have even the remote chance of convincing store-of-value gold investors to part with their gold, you will have to explain why this time is different. Why are today’s fiat currencies going to resist the eventual outcome to which their ancestors succumbed? What will make today’s politicians and monetary authorities find a way to avoid the fate of prior nations’ monetary experiences? Are today’s monetary authorities exhibiting behaviors and making decisions that are all that different from historical failed behaviors and decision making? History is on the side of gold being something worth owning. The future may indeed end up different than all the episodes of the past. But is that a chance you are willing to take?

Should you own gold?

Traders who are long gold will own it for relatively short periods of time. They are not viewing it as a personal store of value or a long-term hedge against currency debasement. Instead, they likely notice favorable short-term price momentum, think they have an edge in understanding recent or expected news flows, or are reacting to changing technicals on gold’s chart. Technical analysis has been and I bet will continue to be a hugedriver of the price of gold. Don’t trade gold unless you have a good grasp of trend lines, moving averages, and support and resistance levels. One final note for traders: Be aware of the random “attacks” that frequently occur on the price of gold, during which the price will suddenly drop 1% to 5% in a matter of minutes on no news. These are extremely common and usually occur during the part of the futures trading session when U.S. institutions are actively trading. They are much less common during overnight sessions when foreign institutions dominate the money flows in gold. Only you can decide if trading gold at any particular moment is right for you. Trading gold is not for everyone, and if you decide to do it, let me reiterate that you should not allow a “trade” to turn into a “long-term investment.”

Longer-term investors interested in owning gold need to understand that successfully using gold as an inflation/currency debasement/money printing hedge is completely dependent on timing. It may seem a bit unusual to use the word timing when discussing longer-term investing, but it is not. Timing is extremely important when investing, even if you have a multi-decade time frame. This is especially true when it comes to gold, as gold has experienced long periods of falling fiat money prices even with inflation running in the mid-to-high single digits. If you want to own gold as a longer-term hedge, you should pay close attention to a few things: (1) interest rate movements, (2) the opportunity cost of owning gold versus other assets, and (3) the rate of change in money printing and government deficits.

If we enter a period in which market expectations assume a rising interest rate environment, the opportunity cost of owning the zero-yielding asset gold versus owning other income producing assets will rise. In such an environment, investors should expect the fiat currency price of gold to perform rather poorly. Regarding money printing and government deficits, remember that expectations of changing rates of change will alter market expectations for future gold prices. This means that if the Fed is expected to alter the amount of its QE purchases or if the government is expected to take actions that change the current expectations for future deficits, those actions will have an impact on gold prices. You don’t need short-term interest rates to quickly pop to 3% to see a negative effect on gold’s price. And you don’t need budgets to be balanced overnight for gold prices to react negatively. You simply need traders and investors to believe that deficits will get smaller and that interest rates will head higher for gold prices to react negatively.

If you are interested in being a store of value gold investor, you should keep a couple of things in mind. First, are you intending to/willing to leave a legacy to your heirs? If not, then you are effectively saying that you expect the current monetary system to collapse during your lifetime. If you are willing to leave your gold to your heirs, then you can simply buy gold, store it somewhere, and forget about it. You will have secured exposure to history’s ultimate store of value, and, assuming this time is not different, will have protected yourself and/or your heirs from the possibility of complete wealth destruction. Second, you should consider that people living in different parts of the world will have different levels of risk regarding fiat money destruction. You may live in a country in which you think the current fiat money system will last forever. In that case, you don’t need to own gold as a store of value. People in other parts of the world may have a different opinion. Where you live matters when it comes to quantifying the near-, medium-, or long-term risk of needing gold as a store of value.

Naturally, it may make some investors a bit uncomfortable to think about the possibility of the current monetary status quo changing in a way that could wipe out their wealth. Changing monetary regimes can bring with them tremendous amounts of pain for enormous numbers of people. It makes sense that most people would prefer to be optimistic (even if that means being hopelessly optimistic) and never think about the possibility of needing stores of value to protect their family’s wealth. But owning gold as a store of value doesn’t mean you need to go through life miserable and always worrying about whether the current monetary system will fall apart. Instead, you can simply own your store of value as a form of wealth insurance and move on with the rest of your life.

I think the only reason people should own gold is as a store of value. I won’t fault traders for wanting to trade it. Although I think the frequent random “attacks” that occur on the price of gold make gold less of an attractive trading vehicle than many of the thousands of other securities available for trading. As a longer-term investment, I think there is too much risk in the current system lasting long enough that the price of gold never realizes the returns in fiat currency that many hope and think it would as a hedge against inflation and money printing. But for store of value investors, especially those willing to pass their gold on to the next generation, it seems to me that owning history’s ultimate store of value makes sense. This is especially true given the current environment in which those in power seem intent on reducing the purchasing power of various fiat currencies over time, and future fiscal situations in many influential countries seem too challenging for politicians to address in politically palatable ways.

While there are great research pieces available in the financial press regarding all sorts of securities, much of what you are likely to find regarding gold is simply noise. When it comes to owning a store of value such as gold, the only analysis you need to conduct starts with figuring out why you want to own it, thinking through the likelihood of that scenario becoming a reality (that will require a separate set of research), and then deciding the means through which you want your exposure. Stores of value are owned because people want stores of value. If you need a store of value, worrying about the current fiat money value of that asset is pointless. Simply purchase the store of value whenever you decide you need it, ignore the noise surrounding that store of value, and move on to other assets that require more careful valuation analyses.

 

Additional disclosure: I am long gold and silver.

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Gold and Silver Prices Outlook for July 8-12

During the previous week, gold and silver prices continued their downward trend even though they have started the week on a positive note. Their fall coincided with the weakness of leading currencies such as Euro and Aussie dollar that depreciated against the USD during last week. Following the release of the U.S non-farm payroll report, in which 195k jobs were added, more people suspect the Fed may taper QE3 in September or December 2013; this will slowdown the growth of U.S money base and consequentially further lower the demand for gold and silver as safe haven investments. Thenext FOMC meeting that at the end of July might shed some light on this issue. Moreover, during last week, ECB and BOE left their respective cash rates unchanged. The ECB president and BOE governor hinted that they may keep rates low or slash them in the coming months. These headlines were enough to pull down the Euro and GB pound against the USD.

Will gold and silver keep their freefall this week?  Here is a short outlook for July 8th to July 12th; this includes a fundamental analysis of the main reports, and publications that may affect bullion markets. These include: ECB president speech, minutes of   the FOMC meeting, Bernanke’s speech, Germany’s industrial production, U.S PPI, BOJ monetary policy meeting, Australia’s employment report, China’s CPI, and U.S. jobless claims.     

During last week, gold slipped again by 0.91%; furthermore, the average price reached $1,240.93 /t. oz which was 0.19% below last week’s average. Gold ended the week at $1,212.7 /t. oz.

Silver price tumbled down during last week by 3.71%; conversely, the average weekly rate was $19.32/t oz, which was 1.06% above last week’s rate.

Herein is a short overview that outlines the main publications, events and decisions that may affect gold and silver next week between July 8th and July 12th. Moreover, the video below shows a breakdown of the events that will come into play during next week any may affect the direction of precious metals.

 

Based on upcoming events and latest developments, gold and silver prices might further fall. The sharp decline of both gold and silver prices at the end of the week might lead to a correction at the beginning of the week, but the general downward trend may persist. The upcoming publication of the FOMC meeting and Bernanke’s speech could affect precious metals markets if either of these events could shed some light on the Fed’s future plans. I suspect the upcoming minutes won’t stir up the markets since many wait for the September or end of the year FOMC meeting, in which the Fed may decide to taper QE3. Until then, the ongoing developments in the U.S economy could influence traders as to the future plans of the Fed. The upcoming U.S reports for this week include: federal budget, PPI, consumer sentiment, and jobless claims. If these reports will keep showing progress in the U.S economy, they could adversely affect precious metals prices. China’s new loans and CPI reports could positively affect commodities prices if they will show higher than expected growth. China is among the leading countries in importing gold and silver. The upcoming rate decisions of BOJ could affect the Japanese yen if the bank will update its economic projections or its monetary policy. The current expectations are that these banks will keep their rates unchanged.

 

Gold holdings of the SPDR gold trust ETF fell again last week: the ETF’s amount of gold held slipped by 0.78% during July and by 28.8% since the beginning of the year. Current gold holdings are at 961.9 tons. If the ETF’s gold holdings continue to fall, this could indicate the demand for gold as an investment further diminishes. Finally, the Indian Rupee changed direction and depreciated against the USD during last week; if the Rupee’s downward trend will persist; it may also adversely affect the demand of gold in India, among the leaders in importing gold.

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