Precious Metals | timiacono.com

Precious metals started the week strong on heightened tensions in Ukraine, but the combination of misleading reports on China gold demand from the mainstream financial media and renewed interest in U.S. stocks by Western investors were enough to send prices sharply lower. Early in the week, the gold price rose to a one-month high at $1,330 an ounce and silver held the $20 mark, but both metals ended substantially lower.

Gold BarsThe trade-weighted dollar rose and the Labor Department’s March inflation report showed only a modest rise in consumer prices when some analysts were expecting more, these factors also weighing on gold and silver prices.

Big investment banks remain bearish on this sector and U.S. investors now seem to agree as gold ETF inflows earlier in the year have changed to outflows, a development that could signal even lower metal prices ahead.

Many factors combined to thwart what was a promising rebound in the gold price last Monday as the Ukraine crisis had entered a more dangerous phase over the weekend, prompting a renewed safe haven bid. Better-than-expected U.S. economic reports had investors piling back into stocks after big share price declines the week prior, and this likely drew some support away from precious metals. Also, the U.S. dollar strengthened steadily in recent days and, since precious metals and the trade-weighted dollar are inversely correlated, this too pressured gold and silver.

But, the key factor behind the recent dismal performance of precious metals was…

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Me Again

The subject of yesterday’s World Gold Council report on gold demand in China and the misleading take on that subject at Reuters was the primary topic of discussion yesterday when I chatted with Cory Fleck and Al Korelin over at the Korelin Economics Report.

The World Gold Council report can be found here, the Reuters story here, and my take on the wide gap between the two at Seeking Alpha here in a report that provided all the detail behind some of the things that were covered during the interview.

The .mp3 file is again available here at the blog – just click on the image to the right – or you can go directly to this page over at KER.

It wasn’t much fun for gold investors yesterday as, on the one-year anniversary of last year’s tax day smack down (as detailed in this item over at Mining.com), the gold market was hit a gain with the familiar combination of bearish calls by U.S. investment banks and heavy selling that seemed designed to trigger stop loss orders and exacerbate the decline that the heavy selling prompted.

It looks like precious metals have been able to hold firm at their lower levels in overnight trading, however, what we see today is anyone’s guess.

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More evidence that the mainstream financial media often gets it wrong when reporting on precious metals in general and gold in particular when it comes to reporting on anything other than its price comes via this story at Reuters on Tuesday.

It seized on a few comments at the tail end of a World Gold Council report to craft the sensationally bearish China may have 1,000 tonnes of gold tied in financing – WGC which was not only misleading, but violated some very important rules about context.

Author A. Ananthalakshmi, who according to her page at Reuters has recently dealt exclusively with the mundane, day-to-day reporting on the gold market until this offering, exorcises all of the grey area out of the following paragraph found on page 56 of the World Gold Council’s 57 page report:

The use of gold for purely financial operations is a form of demand that represents a small part of the much wider growth in shadow banking, which while entirely legal, is considered a grey area. Not surprisingly, there is little hard data on the shadow banking sector but J.P. Morgan recently estimated it at RMB46tn (US$1.7tn), equal to about 84% of China’s GDP. No statistics are available on the outstanding amount of gold tied up in financial operations linked to shadow banking but Precious Metals Insights believes it is feasible that by the end of 2013 this could have reached a cumulative 1,000t, equal to a nominal value of nearly $40bn.

It is then offered up as simply this at Reuters:

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This World Gold Council report about demand for the precious metal in China was blamed for much of today’s sell-off, a move lower that brought back memories of  what happened exactly one year ago, on April 15th, 2013, when the gold price plunged more than $150 an ounce, this following a free-fall of almost $100 the Friday before.

Of course, the Reuters report China may have 1,000 tonnes of gold tied in financing – WGC and the Wall Street Journal’s China Is Losing Its Taste for Gold didn’t help matters.

Also, like a year ago, it didn’t help that Goldman Sachs analysts were out with what seems to be a weekly reiteration of their very bearish forecast for metal prices.

Recall that, a year ago, Goldman loudly expressed their negative view on where prices were headed – taking the unusual step of recommending that clients short the metal – and it didn’t take long for twitchy futures traders to act upon that advice.

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