Friday, July 02, 2010

India buys. City Hall (?) sells

Indian ex-duty premiums: AM $6.70. PM $2.81 with world gold at $1,206.70 and $1,211.30. Lavish, and adequate for legal imports. The rupee actually softened despite the overnight weakness of the dollar, which Reuters very unusually but probably correctly attributes to

"gold-related demand for dollars"

Last $1= R46.77 (Thursday R46.58). The stock market lost 0.28%.

Writing early today UBS remarked

…"physical demand is starting to perk up in regions that have been quiet for some time. Yesterday, our sales to India were noticeably higher but this comes from a very low base in May and June. Indian demand is around today."

Standard and Mitsubishi also comment on a revival of physical off take.

With India, by far the world’s largest gold importer, apparently reactivated and open on Monday – as is Europe – a sophisticated US short will need considerable fortitude to face the long weekend (if commercially motivated)

As noted earlier, local Vietnam gold leapt to a $21.78 premium to world gold of $1,206.50 this morning (Thursday 44c/$1,240).

In a revealing response, Shanghai gold slipped to a 90c discount to world gold of $1,211.60 today (Thursday 6c premium/$1,241.10). This was on heavy volume equivalent to 18,896 NY lots, and the Yuan firming to the strongest since the abandonment of the peg. The Shanghai warehouse data indicates that the Exchange’s gold stock fell 24 kgs to 27kgs (868 ozs) this week, a preposterous amount. There is something very odd about the Shanghai Gold Exchange.

A strong yen and weak $US gold was not what the TOCOM specs were looking for and they reacted. On day session volume equivalent to 18,194 NY lots (heavy, but – unusually - less than Shanghai) open interest fell 5.123 tonnes (1,647 NY) and the public cut 2.339 tonnes (3.4%) from their long. World gold actually gained $7.50 during the session to go out $12.10 below the very depressed NY stock market close level; the active contract closed down 106 yen.

Today a $15+ rally from the NY low has been seriously opposed in NY: such that the PM fix at $1,201.50 was $9 below the AM. Those of us who believe that gold is subject to malign Official sector interference have to conclude City Hall is serious. Wonderful news for the Indians. Estimated volume at 10AM was an unenormous 76,458 lots. Possibly physical activity is relatively heavier.

Mark Hulbert has published an analysis of his HGNSI gold reading on MarketWatch:

"Gold's huge drop on Thursday is not the beginning of a new major leg down for the yellow metal.

That at least is the conclusion reached by a contrarian analysis of gold market sentiment. There does not currently exist the kind of stubborn optimism among gold timers that is the hallmark of major market tops...

The bottom line? The sentiment winds will be blowing strongly in the gold market's sails in coming sessions"

See

http://www.marketwatch.com/story/contrarian-reaction-to-golds-big-plunge-2010-07-02