Everyone seems to be all atwitter over Gold breaking a $1,000 (again). This is the third time in 18 months that Gold has breached that level, failing the prior two times.

There seems to be an obsession with base 10 numerals, an evolutionary coincidence of the fact we Humans have 10 fingers and 10 toes. Dow 10,000, S&P 1,000, Gold 1,000, Top 10, Hot One Hundred.

Its rather meaningless.

The $1,000 mark is much ado about nothing — or very little. The more significant number is $1033.90 — the recent high set in March 2008. A solid breakthrough of that price level to a new high on a closing basis will be significant from a technical perspective.

As to the macro view relating to Gold, consider these various theories:

Buying Gold is an implicit Bet against the USD (LA Times)

Historically, September has been the best month for Gold (Kitco)

Weakening Dollar is Spurring Demand (Bloomberg)

Diversification from major US Treasury holders, especially China (Telegraph)

Middle Eastern Oil Producers are Diversifying (Dubai City)

Then there is this Ambrose Evans-Pritchard theory: China has issued what amounts to the “Beijing Put” on gold. You can make a lot of money, but you really can’t lose.

Excerpt:

“I happened to see quite a bit of Cheng Siwei at the Ambrosetti Workshop, a gathering of politicians and global strategists at Lake Como, including a dinner at Villa d’Este last night at which he listened very attentively as a number of American guests tore President Obama’s economic and health policy to shreds.

Mr Cheng was until recently Vice-Chairman of the Communist Party’s Standing Committee, and is now a sort of economic ambassador for China around the world — a charming man, by the way, who left Hong Kong for mainland China in 1950 at the age of 16, as young idealist eager to serve the revolution. Sixty years later, he calls himself simply “a survivior”.

What he said about US monetary policy and gold – this bit on the record – would appear to validate the long-held belief of gold bugs that China has fundamentally lost confidence in the US dollar and is going to shift to a partial gold standard through reserve accumulation.”

I would be more inclined to buy a close over 1040, as proof that Gold has broken out for real . . . .

>

Gold 9.8.09

Category: Commodities, Technical Analysis

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

69 Responses to “Gold Passes $1,000”

  1. Key Dates in gold history:

    * August 1971 – United States President Richard Nixon takes the dollar off the ‘gold standard’, which fixed paper notes value to a pre-set quantity of gold. It had been in place, with minor modifications, since the Bretton Woods Agreement of 1944 fixed the conversion rate for one Troy ounce of gold at $35.

    * August 1972 – U.S. devalues dollar to $38 per ounce of gold.

    * March 1973 – Most major countries adopt floating exchange rate system.

    * May – U.S. devalues dollar to $42.22 per ounce.

    * January 1980 – Gold hits record high at $850 per ounce. High inflation because of strong oil prices, Soviet intervention in Afghanistan and the impact of the Iranian revolution, prompts investors to move into the metal.

    * August 1999 – Gold falls to a low at $251.70 on worries about central banks reducing reserves of gold bullion and mining companies selling gold in forward markets to protect against falling prices.

    * October 1999 – Gold reaches a two-year high at $338 after agreement to limit gold sales by 15 European central banks. Market sentiment toward gold begins to turn more positive.

    * February 2003 – Gold reaches a 4- year high on safe-haven buying in run-up to conflict with Iraq.

    * December-January 2004 – Gold breaks above $400, reaching levels last traded in 1988. Investors increasingly buy gold as risk insurance for portfolios.

    * November 2005 – Spot gold breaches $500 for the first time since December 1987, when spot hit $502.97.

    * April 11, 2006 – Gold prices surpass $600, the highest point since December 1980, with funds and investors pouring money into commodities on a weak dollar, firm oil prices and geopolitical worries.

    * May 12 – Gold prices peak at $730 an ounce with funds and investors pouring money into commodities on a weak dollar, firm oil prices and political tensions over Iran’s nuclear ambitions.

    * June 14 – Gold falls 26 percent to $543 from its 26-year peak after investors and speculators sell out of commodity positions.

    * November 7, 2007 – Spot gold hits a 28-year high of $845.40 an ounce.

    * January 2, 2008 – Spot gold breaks above $850.

    * March 13 – Benchmark gold contract trades over $1,000 for the first time in U.S. futures market.

    * March 17 – Spot gold hits an all-time high of $1,030.80 an ounce. U.S. gold futures touch record peak of $1,033.90.

    * Sept 17 – Spot gold rises by nearly $90 an ounce, a record one-day gain, as investors seek safety amid turmoil on the equity markets.

    * Feb 20, 2009 – U.S. gold futures rise back above $1,000 an ounce to a peak of $1,005.40 as investors turn to gold as major economies face recession and equity markets tumble.

    * Sept 8 – U.S. gold futures hit $1,000 an ounce for the first time since February as the dollar’s weakness, concerns about the sustainability of global economic recovery and worries about future inflation underpinned sentiment.

    Sources: Reuters, GFMS Ltd, World Gold Council, Commodity Research Bureau
    http://www.reuters.com/article/ousivMolt/idUSTRE58708520090908

  2. call me ahab says:

    good analysis BR- you quote-

    “would appear to validate the long-held belief of gold bugs that China has fundamentally lost confidence in the US dollar and is going to shift to a partial gold standard through reserve accumulation.”

    many stories this weekend about China abandoning the dollar- i wonder if it is all just bluster or if its the real thing-

    care to comment?

  3. VennData says:

    When the Central banks of the world begin raising rates in early ’10, this bubble bursts.

  4. Dunno

    I have no special insight or expertise into China politics

  5. spoonman says:

    Interesting bit from Hulbert on gold
    http://www.marketwatch.com/story/contrarians-see-hope-for-gold-breakthrough-2009-09-04

    I know Andy and LB have both mentioned the bullish sentiment as reasons for doubting this move in gold, I wonder what you guys make of this?

  6. investorinpa says:

    Poor silver…to always get the second billing to gold, even though it can be more rare and more used in everyday applications. I’m guessing the gold rally ends when you start to see silver take an even bigger jump on a percentage basis.

    To Barry’s point about an obsession with 10′s…to me, the most important number for Gold is how it is versus all the other indexes…if it is higher than the S&P, its next index to topple would be the Nasdaq. Then comes shrinking the Gold to Dow ratio down below 7.5, which I think was the lowest it has been in the last 20 some years.

  7. spoonman says:

    I note the dollar is getting slapped around too, while gold and futures move up…At some point this will change, unless reflation really is working – seems doubtful to me. Ambrose has a piece out on gold too – is there a “Beijing put”?
    http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100000821/china-bernanke-and-the-price-of-gold/

  8. spoonman says:

    that link is in the post, duh – that’s what you get for having multiple tabs open, you forget how to you got to where you are…sorry Barry

  9. VennData says:

    The price of commodities approach the marginal cost to produce them.

    The only reason gold may be above that – temporarily – is the extra cost for all those “buy gold now” ads.

    Gold is a bubble.

  10. Wes Schott says:

    …lighten up into strength, y’all

  11. tamasdb says:

    Parallel to the rise of the price of gold, emerging markets stopped their stellar performance of the summer, their basic index has even turned back a bit. This may be just a pure coincidence, and thus will come with a separate set of theories. However, in the past price hike in gold coupled with weakening of emerging market currencies also sometimes proved to be early signs of trouble coming. Given the weakness and the unexpectedness of the recovery, we would need to come up with an explanation why this may not be so.

  12. Wes Schott says:

    @tmasdb –

    big boys headin’ for the exit?

  13. emmanuel117 says:

    September is supposed to be the final month of the Chinese lending binge. After that…?

    Also, I’d like to again thank the Chinese for juicing the euro.

  14. cvienne says:

    It must make BB really proud that his currency is in the toilet…

  15. Marcus Aurelius says:

    “There seems to be an obsession with base 10 numerals, an evolutionary coincidence of the fact we Humans have 10 fingers and 10 toes. Dow 10,000, S&P 1,000, Gold 1,000, Top 10, Hot One Hundred.

    Its rather meaningless.

    The $1,000 mark is much ado about nothing — or very little.”
    _____________

    It’s all about teh psychology, ’til it comes to gold, then it ain’t.

  16. ellidc says:

    “The price of commodities approach the marginal cost to produce them.”

    So what does that tell you about where the value of a federal reserve note is approaching?

    The case for gold does not depend on the uses or values of gold as a commodity, except for setting a floor below any “Beijing put.”

  17. tamasdb says:

    @Wes Shlott: profit taking is certainly one of the reasons. However, many houses just have announced their bullish EM outlook for the Autumn. And should the recovery be here for good, that’s the posn they’d be in.

  18. also, lest we forget yon’ Paperback, the protagonist in this skit –

    http://quotes.ino.com/chart/?s=NYBOT_DX&v=dmax

    and, its close relative, Long T. Bonds –

    http://quotes.ino.com/chart/?s=CBOT_ZB.Z09.E&v=dmax

  19. Marcus Aurelius says:

    VennData Says:

    “When the Central banks of the world begin raising rates in early ‘10, this bubble bursts.”
    __________

    If by “this bubble” you mean the recent rise in SMs from their ’08 to early ’09 drubbing, then, yes, it does.
    _________________________

    VennData Says:

    Gold is a bubble.
    __________

    Unlike housing, paper money, or tulips, the quantity of gold in the world cannot be increased by fiat (the hot air one needs to create a “bubble”) or by an increase in production. Kind of difficult to blow a bubble with a physically fixed quantity. Bubbles can only be blown when one controls or can influence both supply and demand.

  20. tamasdb says:

    I just have put up a (rather simplistic) illustration of the relationship between emerging markets and the gold market. This kinda underlines the earlier point: the relationship between gold and emerging market currencies is negative except for crisis times.

    http://compositionvii.org/em_curr_and_gold.html

  21. There will be a lot of news orgs. talking about it so from that perspective gold becomes a bit of a momentum play. If it is enough to move people to buy in order to catch the rising price, then $1,000 could be more significant than the recent highs. $1000 could be the catapult that triggers the new highs

  22. wnsrfr says:

    Was in Bretton Woods over the weekend, got drunk in the very room where the accord was signed, attending a really fantastic wedding. Beautiful weather and I would highly recommend the Canopy Tour at the ski area!

    At the reception I asked an old waiter where the price of gold was headed and he suggested hiking to the top of Mount Washington with a T-shirt and shorts on in about a month. “When you are about to die,” he said, “you will receive total consciousness and at that time will know the exact value of gold.”

  23. At the reception I asked an old waiter where the price of gold was headed and he suggested hiking to the top of Mount Washington with a T-shirt and shorts on in about a month. “When you are about to die,” he said, “you will receive total consciousness and at that time will know the exact value of gold.”

    did you tip him?

  24. wnsrfr makes a good point with vignette.

    there are, many, other things that are far more useful than Gold..

    Clean drinking water being first on the Top 10 List..

  25. Marcus Aurelius says:

    MEH:

    That’s debatable/situational. I can think of scenarios where a hair pin would be more valuable than clean drinking water or gold.

  26. leftback says:

    Gold traders love to pump it up and then drop it like a stone. Longs should be careful here.

  27. cvienne says:

    …aaah the art of ‘illusion’

    The magician gets you to focus on what one hand is doing, while the OTHER hand does the trickery…

    So far, this move over $1,000 seems to have gained a lot of attention…

    I wonder what the other hand of the magician is doing?

  28. cvienne says:

    Personally, I have my left eye on some bank stocks & what they’re doing… Or NOT doing as the case may be…

  29. leftback says:

    “I wonder what the other hand of the magician is doing?”

    I wish he would move it, at the moment it is applying COLD STEEL to LB’s nether regions.

  30. HCF says:

    I’m long gold, but I don’t think this is a breakout unless the price closes above $1040 or so… Everything other than that is noise and I believe it could go back down to $870-880. Above $1040, however, and that momentum might carry gold a lot farther in a typical bubblicious fashion.

    HCF

  31. Pat G. says:

    To borrow a quote from John Mauldin’s piece: “Gold is going up not only in dollar terms, but in euros, pounds, yen, and more.”

    It is about nations devaluating their currency on a global scale through QE. Then there’s the “reflation” trade which is back in vogue.

    Above $1k “on a closing basis will be significant from a technical perspective.” Could happen today.

  32. I-Man says:

    Might be sneaking out the back door on the short USO trade today… its been a good one. All about how this gap holds up this morning.

    I and I will be checking back into the “risk on” trades it looks like for a spell.

    Maybe pick up some SLV or some SPY if the “risk on” action continues in the currency markets.

    Poor dollah… get no respect.

    Since it looks like the euro is going to try to build some support, looks like “risk off” is taking a breather.

    Which following the path of least resistance would lead one to assume that gold and silver are going to keep running. Strange, that gold appears to be leading a “risk on” trade… but I’m not ruling out “sleight of hand”… just dont want to be on the wrong side of the heavy hand, if you know what I mean breddahs.

  33. MA:

    but, of course~

    though, in some semblance, that observation + 16 would give you 20 (in base 8)..
    http://www4.ncsu.edu/unity/lockers/users/f/felder/public/kenny/papers/bases.html

  34. leftback says:

    Smells like a Pump ‘n’ Dump. The question, as always, is: how high can they pump?

    Macro Man today on how ALL ASSETS are rising, except for the Greenback:
    http://macro-man.blogspot.com/2009/09/theme-dannee-ou-du-jour.html

    The tell is probably the 10-year note yield. If we were really experiencing a true inflationary breakout that thing would be over 4% and streaking in the direction of 5%. So you’d have to say this is just Market Mischief.

  35. hopeImwrong says:

    Lefty,

    There is a possibility the manipulation is in the treasury yield. Fed can backstop USG paper by purchases.

  36. I-Man says:

    Its official. I and I out of SCO, into SLV. Ride the herd. Take no prisoners.

  37. leftback says:

    @hope: That may be true, but if so, that’s a backstop that will not be removed here.

    LB uses crude oil as the yardstick, and it’s clear that crude is trading well above the price dictated purely by supply and demand. A trip to $80 would immediately lift the price of gasoline to a level that would drive us back into recession. There is a form of liquidity trap in place here, despite all the pumping and printing. The commodity speculation has its own intrinsic limits, just like last year, but at a lower ceiling due to slower economic activity.

  38. VennData says:

    ellidc,

    Same analogy could be extended to gold miners share.

    Also, note how the Fed (and other Cent. Bank) balances sheets are shrinking.

    Marcus Aurelius,

    See “Fed balance sheet shrinking” fact above, and this.

    http://taxesandbudget-blog.ncpa.org/

    Go ahead guys, lace those tin foil hats with gold.

  39. hopeImwrong says:

    @leftback – What I worried about is the risk asset price rises indicating “inflation.” We have had the inflation/deflation debate on here before, but I’m only think about asset prices here, both hard assets, and paper assets. The pricing of these assets can become decoupled from the economy when governments can just print money (for their own account), or supply cheap money to “banks” who buy for their own account, or pump up cheap credit (to speculators, e.g. “banks”), and allow leverage while backstopping the institutions doing the leveraged speculations. All this is possible is a terrible economic situation. Money can be made available to buy assets, and the assets of choice can decouple from the economy. Gold is a prime example due to its limited economic value to the average Joe or industry. Oil is an interesting counterpoint due to the negative feedback loop to the economy. This either causes a worse economy due to higher oil prices, and high probability of prices falling, OR general inflation starts to filter into the general economy at the lower economic level due to sustained higher oil prices. I don’t know where we are on the current path, but I’m vary worried about the price action of risk assets, and hard assets. If they don’t at least stabilize soon, bonds will not continue to hold up. In the end, the bond market is to big for the USG to control. And general price increases will be accelerating throughout the economy.

    So. I hope you are right about the liquidity trap, but the market action has not confirmed this yet.

  40. Actually, the time to be in gold and, even better, gold stocks was back in mid July like it is almost every year. This is a classic seasonal run that should end going into October with the gold contract expiration. The gold stocks have already given about a 30% return. The question is have we seen 50%, 70% or 85% of this rally so far. If gold fever catches it could go farther. I think we still have a couple weeks left on this rally

    http://stockcharts.com/h-sc/ui?s=$HUI

    I don’t think this era of bubbles ends without a gold bubble. It may take a couple more years before we get it.

  41. Andy T says:

    “China has issued what amounts to the “Beijing Put” on gold. You can make a lot of money, but you really can’t lose.”

    Ha. “you really can’t lose.”

    Yeah, what could possible go wrong?

    When I see words written like that in the press, I can’t help but think it’s contra-signal of some kind. I’m in the camp that says 1033 gets broken, but that it will become a “bull trap” for the ages…

    In the very short run, it’s getting a bit stretched here….

  42. One thing that has always fascinated me about gold:

    Almost to a person, either love it or hate it, you can almost always get a opinion out of someone regarding gold. Many times the opinion is more exotic than the metal itself :)

  43. Onlooker from Troy says:

    Another quote from Mr. Cheng in that Telegraph article:

    “Credit in China is too loose. We have a bubble in the housing market and in stocks so we have to be very careful, because this could fall down.”

    So, it’s as clear as the nose on our faces (with much other evidence as well), the question is when does it implode? Because they always do. Every time somebody says that it can be let down gently, over time, without large damage; but it doesn’t work that way.

  44. manhattanguy says:

    Dollar nearing a new 52 week low. Good for Oil, Gold and Commodities. This market is tough to figure out right now.

  45. VennData says:

    “Gold is the Walter Mitty asset of retail”

    — Rick Santelli, 9/08/09 on CNBC (former gold trader)

    PS. Gold Bugs! Tomorrow is 09-09-09! $1,000 and ounces and the S&P bottom was 666. Invert the market of the beast and you get the date! The date Obama tried to take over our Children! Buy gold now to save your future. Use one of those sophisticated Television-based outlets.

    P.S. Say the word “Fiat” and we’ll double your allotment! This is a limited time offer.

  46. montyhigh says:

    Nice Takedown After London physical market closes.

    The gold cartel is not dead, yet.

    MontyHigh

  47. hopeImwrong says:

    With the dollar trend lower, gold can’t stay down for long.

  48. Andy T says:

    The gold was showing a lot of bearish RSI divergence this morning…the new gold bugs have to pay their dues…it’s not “THAT” easy…….

    the “gold cartel”??? funny stuff…who is the gold cartel?

  49. I-Man says:

    This dip will be bought too… just look at the 50 period MA’s on the 15 min charts.

    Interesting that GLD gave up all of today’s spike, but SLV only 50%.

    I placed a stop for the SLV long that I opened this morning at just below the 50 period EMA on the 15 min charts. If the bull trend is to continue, that dip will get bought and price will stay above that

  50. gordo365 says:

    Who thinks natural gas will double long before gold? Other than me:)

    Gordo

  51. drey says:

    Seems like a lot of handwringing here over the precise timing of a gold trade – I suspect anyone that buys in the next couple of months (on a breakout, pullback, whatever) will be happy a year from now.

    Too much debasement of too many currencies and too many economic shoes still to drop…

    P.S. Also got to Bretton Woods recently and enjoyed it immensely. Awesome grand hotel, views, and grounds with a rather casual atmosphere.

  52. Onlooker from Troy says:

    gordo

    You’d think, now wouldn’t you? Still too much of a falling knife at this point. If things get ugly again in the markets (i.e. deflationary forces kick in and/or reality sets in; same thing probably) there’s danger of it going down another 50% or so, I’d think. Still dangerous, but intriguing.

  53. Whammer says:

    What is the play for upside in natural gas? Andy T mentioned the other day that UNG was “set up to fail”, or words to that effect…..

    No sense buying it now, though, agree w/ Onlooker…..

  54. Andy T says:

    gordo, the problem is NG has already factored in a “double” this winter….Q1 2010 is trading near 5 bucks and next winter is closer to 6.50….so yeah, you’re correct….NG will double before gold, but it’s a difficult to double to take advantage of if you don’t have empty NG storage and cash.

  55. leftback says:

    How odd is this market: ShittyBank, oil and gold all trade in the same direction fueled by a leveraged $ carry trade?
    That’s what this market has become. Wake up every day and guess the direction of the dollar.

  56. Onlooker from Troy says:

    Excellent points Andy. “Buying” commodities isn’t as straightforward as other “investing” (or speculation; but let’s not go there again).

  57. Mannwich says:

    It it still August? ZZZZZZZZZZZZZZZZZZZZZZZZZZ. Wake me up when the fall hits.

  58. I-Man says:

    @ Leftback:

    Know its a bum day for Schadenfreude… but does an old chap have time to brainstorm on just who is buying all the govies today?

    Is this a part of sleight of hand perhaps? And does it smell of “debt monetization”?

    I know it doesnt matter, the why… but the who, is a good question.

  59. leftback says:

    “just who is buying all the govies today?”

    The Smart Money, that’s who. They are leaving stocks, high yield and commodities for Johnny the Bagholder.
    It’s just a boring day. Who are you calling old chap, anyway, you young whippersnapper? :-)
    Big game tomorrow v T & T in Port of Spain. Got a forecast?

  60. Thor says:

    @Ahab – re your china/dollar question from earlier.

    http://www.bloomberg.com/apps/news?pid=20601109&sid=a6KZAWjfwUsE

    I’ve read several articles and statistics that China is nowhere near scaling back on their purchasing of dollars. Their purchased this year to date are higher than they were last year at this time.

  61. alfred e says:

    @I-Man: posted on Think Tank. The Fed.

  62. Mannwich says:

    @lb: 3-1 good guys tomorrow. I watched the U.S. struggle against El Salvador at Brit’s Pub here in Minneapolis on Saturday, but they started to play pretty well after E.S. went ahead 1-0. Woke them up a bit. I see the U.S. putting the hammer down big-time tomorrow. May go down to Brit’s again and watch it.

  63. I-Man says:

    @ LB:

    Worried about our D man… if they dont get their shit together then the dreads of T/T could pull a shocker.

    Not so worried about attack. Altidore. Altidore. Altidore.

  64. leftback says:

    Gold not exactly off to the races here, despite a fall in USD and a surge in EUR. Hmm….

    Good call, Manny, even 1-0 does the job. They should have enough, if they just take this one game at a time here.
    As someone said on TV this week: “The Italians don’t care about playing well, they just want to win and move on.”
    England has a big one at home to Croatia. Payback time.

  65. Mannwich says:

    @lb: I might head down to the pub early tomorrow to check out your countrymen vs. Croatia. That will be on here at 3 p.m.

  66. leftback says:

    According to ZH, consumer credit down $21.6 Billion. That’s a lot of flat screens not moving out of Best Buy.

  67. Andy T says:

    Those were some very nasty looking candlesticks today on Silver and Gold….

  68. Remonster in Mosul says:

    How do you “people” look at yourselves in the mirror and not puke?

    Parasites all.

    I hope you all know how to wield a shovel or do something useful, because this BS here is about finished.

    Cheers.