Gold prices are solidly lower and hit a three-week low in early trading Thursday, on follow-through selling pressure from strong losses suffered Wednesday. A rebound in the U.S. dollar index the past 24 hours and the latest FOMC news are helping to pressure the precious metals markets. Gold market bulls are quickly losing the near-term technical advantage they had enjoyed for several weeks. April gold was last down $17.80 at $1,323.60 an ounce. Spot gold was last quoted down $6.70 at $1,324.40. May Comex silver last traded down $0.621 at $20.215 an ounce.

The market place is still digesting the statement of the latest U.S. Federal Reserve Open Market Committee (FOMC) meeting that ended Wednesday afternoon, and Fed Chair Janet Yellen’s press conference afterward. As expected, the FOMC will continue on its “tapering” program, whereby monthly bond purchases are whittled down by $10 billion a month. What rattled some markets, including gold, was an indication the Fed could begin to raise U.S. interest rates sooner than many expect—sometime in 2015. Yellen is perceived to be fully in the dovish camp on monetary policy, and several markets were caught off guard by the FOMC statement and her remarks that were deemed less-than-fully-dovish.

Ed Note: For Traders & those looking to buy for investment at a less expensive price, read Jim’s read article Where are the Stops? Thursday, March 20: Gold and Silver

The U.S. dollar index has surged following the FOMC developments, which in turn has been a bearish underlying factor for commodity markets, including gold. U.S. Treasury market prices have also slumped (yields rising).

Asian and European stock markets sold off Thursday, following the lead of U.S. stock indexes Wednesday, in the wake of the FOMC statement and Yellen press conference.

The Ukraine-Russia matter has moved from an international crisis to a regional squabble, from the perspective of the market place. Gold is no longer drawing a safe-haven bid from this situation. German President Angela Merkel on Thursday called the Group of Eight (G-8) nations defunct—basically kicking Russia out of the club of the eight most economically powerful nations in the world. Any significant escalation of tensions between Ukraine and Russia would quickly put keen risk-aversion back into the market place.

U.S. economic data due for release Thursday includes the weekly jobless claims report, existing home sales, leading economic indicators, and the Philadelphia Fed business survey.

Wyckoff’s Daily Risk Rating: 5.0 (The Ukraine situation has for the moment de-escalated and has become a non-factor.)

(Wyckoff’s Daily Risk Rating is your way to quickly gauge investor risk appetite in the world market place each day. Each day I assess the “risk-on” or “risk-off” trader mentality in the market place with a numerical reading of 1 to 10, with 1 being least risk-averse (most risk-on) and 10 being the most risk-averse (risk-off), and 5 being neutral.

The London A.M. gold fix is $1,327.00 versus the P.M. fixing of $1,338.00.

Technically, April gold futures have seen a 2.5-month-old uptrend on the daily bar chart at least temporarily negated with this week’s downside price action. The gold bulls have lost their near-term technical advantage. Bulls’ next upside near-term price breakout objective is to produce a close above technical resistance at $1,360.00. Bears’ next near-term downside breakout price objective is closing prices below technical support at $1,300.00. First resistance is seen at the overnight high of $1,335.30 and then at $1,340.00. First support is seen at the overnight low of $1,321.30 and then at $1,310.00.  

May silver futures bears have the near-term technical advantage as prices Thursday hit a fresh six-week low. A four-week-old downtrend is in place on the daily bar chart. Silver bulls’ next upside price breakout objective is closing prices above solid technical resistance at $21.50 an ounce. The next downside price breakout objective for the bears is closing prices below solid technical support at $20.00. First resistance is seen at $20.50 and then at the overnight high of $20.73. Next support is seen at $20.00 and then at $19.75.

By Jim Wyckoff, contributing to Kitco News; jwyckoff@kitco.com
Follow me on Twitter @jimwyckoff

Negative Real Interest Rates & Gold

Gold seems to be sparking more attention these days, as investors have seen the precious metal steadily rise from its December low of around $1,200, to a new high of $1,350 just three months later.

What’s Driving Gold?

The media has been focusing on the conflict in Ukraine and Russia as the main driver for gold, but I think an equally important driver relates to real interest rates.

For gold, the real fuel lies in negative-to-low real rates of return. Historically, the gold price rises when the inflationary rate (CPI) is greater than the current interest rate. Similarly, when real interest rates go positive, you can expect the gold price to drop.

Investors can watch out for two factors to see if the embers still spark for gold. Take a look at what happened over the past year with real interest rates and gold:

A Year in Review

• A year ago in March 2013, the five-year Treasury yield was offering investors 0.88 percent, while inflation was 1.5 percent. This equaled a real rate of return of -0.62 percent, so investors were losing money. That month we saw gold reach as high as $1,614.
• The five-year Treasury yield rose to 1.74 percent in December of that year, as inflation lowered to 1.20 percent, returning a positive rate of 0.54 percent. What happened to gold? The price dropped to a staggering $1,187.
• Today inflation has gone up 40 basis points to 1.60 percent while the five-year Treasury yield is at 1.53 percent. A negative real rate of return has resurfaced. Meanwhile, gold rose to $1,350.

More Inflation Coming?

Inflation has been off the radar for most people in the U.S., but Macquarie Research made an interesting observation as wage growth experienced the largest monthly increase in more than three years. Going back more than 15 years, you can see the six-month annualized change of 3.3 percent is “the highest pace of wage growth in over five years,” says Macquarie.

Usually, wage growth leads to an increase in the cost of goods, which translates to higher inflation.

And, with the Federal Reserve expected to keep rates low for a period of time to allow the economy to continue growing, it looks like real interest rates will remain low-to-negative, which should keep investors hot for gold.

Frank

Check out our latest Special Gold Report to read more on how the gold price is driven by Fed policy, unemployment and inflation.

The Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals.  The weights of components are based on consumer spending patterns.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

Strengths 

Every week, our investment team reviews a variety of sources to formulate a summary of the top events in the gold, resources, and emerging markets. The results are categorized in terms of strengths, weaknesses, opportunities and threats. We believe this SWOT model helps investors make informed decisions about their gold and gold stock investments.

For the week beginning March 10, here is the SWOT for the gold market.

Strengths Weaknesses Opportunities & Threats

Every week, our investment team reviews a variety of sources to formulate a summary of the top events in the gold, resources, and emerging markets. The results are categorized in terms of strengths, weaknesses, opportunities and threats. We believe this SWOT model helps investors make informed decisions about their gold and gold stock investments.

For the week beginning March 10, here is the SWOT for the gold market.

• Gold posted a very strong week, rising $43.07 per ounce as Chinese macroeconomic data revived fears of a global slowdown, and geopolitical tensions brewed ahead of the scheduled Crimea referendum this weekend. Furthermore, as shown on the chart above, the 50-day moving average closed less than $10 below the 200-day moving average, which implies that barring a gold collapse below $1,300 next week, we should see gold making a golden cross before the end of the week. Our analysis shows that, going back to 2000, a golden cross in gold is followed on average by a 50 percent rally lasting on average 15 months.

• Gold ETFs appear to be back in fashion, as total known gold ETF holdings are now 870 thousand ounces higher since bottoming at 55.8 million ounces in mid-February. The ETF data comes as the situation in Ukraine reinforces gold’s safe haven status and the weak macroeconomic data coming from China highlight gold’s hedging properties amid a risk-off investing environment.

• Pretium Resources announced the addition of James Currie to its executive team as chief operating officer. Currie has notable mine-building experience, and was recently chief operating officer for New Gold where he led the construction of the New Afton gold mine. On a different note, Aldridge Minerals received environmental approval for its Yenipazar Project in central Turkey. With the completion of this milestone, Aldridge is positioned to advance the project towards financing and construction.

Weaknesses

• The China Gold Association (CGA) said China’s gold demand may decline by 17 percent to 250 tonnes in the first quarter of 2014, from 300 tonnes in the first quarter of 2013. Despite this fact, CGA vice chairman Zhang Yongtao expects annual demand to remain strong at 1,176 tonnes, very close to the actual annual demand for 2013. According to HSBC Research, Mr. Zhang’s forecast indicates that China’s gold demand should be stronger for the rest of 2014 after the first quarter, when compared to the same period in 2013. This may indicate that China’s strong appetite for gold is likely to be sustained well into 2014.

• As part of its fourth-quarter results release, Detour Gold stated it is permitted to enter into transactions to hedge up to 50 percent of its forecasted gold sales. As a result, Detour sold forward 40 thousand ounces at $1,241 and 45 thousand ounces at $1,327, for a total of 85 thousand ounces at $1,287. With gold closing above $1,380 per ounce today, it could be said that the hedging exercise will cost Detour shareholders nearly $80 million in forgone revenue this year.

• Hochschild Mining suspended its full-year dividend despite beating its production guidance. According to the company’s top management, 2013 proved to be a very challenging year, and despite the cost saving and cash flow optimization measures implemented, the company posted a net loss of $128.7 million after impairments, and decided to suspend its payout.

Opportunities

Threats

• A recent report by several non-governmental organizations including the Sierra Club asserts NAFTA “provided the ingredients for an explosion of dangerous foreign mining activity in Mexico.” Dorothy Kosich, Americas’ Editor for Mineweb, reports contents of the original report stating Mexico has become the largest importer of multiple toxic chemicals which are major sources of water contamination. The report concludes that NAFTA has protected foreign mining corporations and allowed harmful environmental impacts to Mexico.

• A wave of weak economic data released by the Chinese government agencies this week helped propel gold higher as U.S. and Europe markets weighed the risk of a deceleration in Chinese economic growth. The weak data points released show the risk of Chinese physical gold and jewelry buyers to defer consumption to a later date. As a matter of fact, Chinese retail sales data showed growth of 11.8 percent, missing analysts’ estimates for a 13.5 percent increase. As a result, gold demand from China may be lower in the short term, or until the festive and marriage season starts later in the year.

• The instability in Ukraine, together with the China hard-landing fears, has not changed Goldman Sachs’ bearish view on gold. According to Jeffrey Currie, the bank’s head of commodities research, the weakness in the U.S. and the turmoil in Ukraine are not driving gold. Instead, the lower mining costs mean it is more probable that gold drops below $1,000. Marc Faber on the other hand believes the near tripling of the S&P 500 since the end of the bear market in 2009, together with heavy insider selling, high valuations, and extremely high corporate profits should make any investor consider the possibility that we may be at a top of the U.S. equity cycle.

See the strengths, weaknesses, opportunities and threats of the gold, resources and emerging markets every week by subscribing to the Investor Alert. It arrives in your email inbox every Friday evening and best yet, it’s free.

###

Frank Holmes
website: www.usfunds.com

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. Past performance does not guarantee future results. The following securities mentioned were held by one or more of U.S. Global Investors Funds as of 12/31/13: Alacer Gold Corp, Aldridge Minerals Inc., New Gold Inc., Pretium Resources Inc.

For those with Short Term speculative money, Przemyslaw Radomski lays out the case for making money on a decline and protecting your capital with stops he lists below – Editor Money Talks

PMs Decline on Huge Volume

Briefly: In our opinion short speculative positions (half) in silver and mining stocks are justified from the risk/reward perspective.

The precious metals sector declined yesterday, which was likely to happen regardless of many factors pointing to a different conclusion, or simply because the precious metals sector was overvalued. The question is if we (charts courtesy of http://stockcharts.com) think that lower precious metals values are likely:

Click on image for larger view

They are. The Euro Index is still below the declining long-term resistance line and it’s still likely to decline. What we wrote previously is also up-to-date:

Consequently, the index is likely to decline sooner rather than later and this could trigger a decline in the precious metals sector. Of course, if the situation in Ukraine gets worse, PMs might rally or the decline could be postponed, but at this time the tendency for this market seems to be to move lower.

Click on image for larger view

Gold was likely to move lower based on numerous technical factors and it has. The decline is not significant yet, but the volume on which the decline has materialized suggests that it will soon be. The small breakout above the 38.2% Fibonacci retracement level was just invalidated, which is a bearish sign.

Click on image for larger view

As far as silver is concerned, we didn’t see a major plunge, but we see a move below the 2008 high once again. Overall, silver’s recent moves are not bullish (it almost hasn’t reacted to the situation in Ukraine) and the outlook remains bearish.

Gold wasn’t the only part of the precious metals sector that invalidated a move above a previously broken retracement – miners also declined below one, an important one. The GDX ETF moved below the 61.8% Fibonacci retracement level and invalidated the breakout above it. Moreover, just like it was the case with GLD, the move took place on huge volume.

Now, the miners haven’t moved below the rising support line (at least not yet), so the short-term outlook isn’t extremely bearish, but it seems that we will see lower mining stock values relatively soon.

It seems that the precious metals sector will move lower in the coming weeks, but just in case the situation in Ukraine deteriorates, we are keeping half of the long-term investment position in gold. In fact, gold has been outperforming both silver and mining stocks since Russian troops entered Crimea.

If the precious metals market declines, it seems that short positions in silver and mining stocks will gain more than the long-term investment in gold will lose, and if the sector rallies, then gold’s appreciation – due to its outperformance – can more than make up for the loss on the short positions in miners and silver. Naturally, the above depends on the size of the positions, but still, it seems that utilizing this spread (long gold and short silver and miners) has been a good idea.

It seems to us that if it weren’t for the events in Ukraine, the precious metals sector would be already declining and perhaps testing the 2013 lows or moving below them. This could still take place and it’s quite likely to happen once the situation in Ukraine stabilizes.

To summarize:

Trading capital (our opinion): Short position (half): silver and mining stocks.

Stop-loss details:

– Silver: $22.60

– GDX ETF: $28.9

Long-term capital (our opinion): Half position in gold, no positions in silver, platinum and mining stocks.

Insurance capital (our opinion): Full position

Thank you.

Przemyslaw Radomski, CFA

Founder, Editor-in-chief

Tools for Effective Gold & Silver Investments – SunshineProfits.com

Tools für Effektives Gold- und Silber-Investment – SunshineProfits.DE

* * * * *

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.