Market Update: Whales, Fails, and Deals

Gold closed down on Friday at $1612.25, indicating a full correction may be in effect. President Obama’s State of the Union Address did very little to change the market realities, resulting in sideways motion for silver, down to $30.18, now walking independent of gold. With the dollar strengthening and Europe indicating that it may have a fix in the works for Greece and Spain, risk-seeking investors who have traditionally favored gold ETFs are looking elsewhere, trying to find big returns in more volatile markets. Ironically, because these folks were so stocked up on paper gold, the net effect on the price was stunning, with the yellow metal recording as much as a 5% decline at one point during the week. The source of all hoopla was two whales dumping their positions in search of action in Europe. George Soros sold 55% of his positions while Louie Moore Bacon relinquished every single gold share in his portfolio. Meanwhile, physical gold holders and those long on the yellow metal will swoop in early this week to score some real deals. With the week in the U.S. potentially off to a slow start due to the President’s Day holiday, this may be just the time to get in; the bulls look poised to take off again.

Precious metals on the move

London Fix PM price at week’s end, and change over previous Friday:

• Gold: $1612.25, down 3.4%
• Silver: $30.18, down 4.3%
• Platinum: $1676.00, down 2.2%
• Palladium: $754.00, up 1.1%

In the news

Gold’s decline this week mostly due to paper sell-offs, but investors in the physical market are tightly grasping for the yellow metal
“[The physical gold market is] tight… Despite the Indian government’s best efforts to dissuade the Indians from importing gold… those numbers are very strong (for importing gold). Imports into China through Hong Kong are running at a very strong pace. So the physical market is tight, and as usual the selling is all paper gold on the COMEX.” — John Hathaway, Tocqueville Gold Fund (link)

World powers may ease gold trade restrictions on Iranians; some countries cannot resolve gold-for-gas accounts
“I believe yielding on this sanction or any other sanction depends wholly on what the Iranians are willing to do… If they are willing to perform concrete steps towards stopping and dismantling their nuclear weapons program, that’s when we can consider easing some of our sanctions.” — Senator Robert Menendez, chairman of the U.S. Senate Foreign Relations Committee (link)

Increase in technical selling follows Soros and Bacon divesting of paper gold positions
“The reduction in holdings by George Soros may unnerve the market a little bit. The market may also be watching Paulson, and those are steady.” — Nick Trevethan, Senior Commodities Strategist, Australia & New Zealand Banking Group Ltd. (link)

Chart of the week

“Today I’m actually looking at a very at a very interesting technical picture. I also know many gold and silver investors are concerned today. We should look at the long-term chart because if I look at a 13-year chart of gold, the correction we’ve seen in the last 18 months, you can’t see it. It’s just wiggles on a massive price move up.” — Egon von Greyerz, founder of Matterhorn Asset Management (link)

Spotlight on Silver

Declines in surplus will lead to a surge in price for silver
“We have updated our supply and demand model and conclude that the global silver surplus will likely narrow to 188 million ounces this year from 210 million ounces in 2012.” — James Steel, HSBC analyst (link)

The week ahead

• Chinese New Year holiday ends while the U.S. is out for President’s Day, expect Asia to snap up precious metal deals
• Brazil decides whether or not it will join the currency wars, now that $1 dollar only buys 1.9 reais
• Europe cannot possibly hope for job improvement, but it looks like the U.S. can
• Turkey’s National Bank waits to exhale as Iranian gas contracts hang in the balance
• National banks jump on deals in gold to offset currency devaluations