Gold reclaims $1,400 as dollar falls after ISM

Gold futures closed above $1,400 an ounce on Monday, lifted by a weaker dollar in the wake of data showing a contraction in U.S. manufacturing in May.

Gold prices recouped nearly everything they lost on Friday with the weak manufacturing data easing concerns about a pullback in the Federal Reserve’s bond-purchase program, which has been supportive for gold.

Gold for August delivery GCQ3 0.00%  rose $18.90, or 1.4%, to settle at $1,411.90 an ounce on the Comex division of the New York Mercantile Exchange.

On Friday, gold prices fell $19 an ounce after better-than-expected data about manufacturing activity in the Chicago area, and after a gauge on U.S. consumer sentiment in May reached the highest level since 2007.

Data Monday showed that the Institute for Supply Management’s index fell to 49.0% last month from 50.7% in April. That marked the first contraction since November.

Fire rips through China slaughterhouse

A deadly fire at a Chinese poultry factory underscores growing concerns about China’s food-production regulations.

The weaker-than-expected ISM is “another example of mixed data which is leading the lack of clear direction and timing” from the Federal Reserve to curtail or cease quantitative easing, said Jeffrey Wright, managing director at Global Hunter Securities.

Other examples of mixed data included reports from China and Europe.

China experts weighed conflicting data on the nation’s manufacturing sector, with HSBC reporting Monday that the sector contracted in May, while government numbers released earlier pointed to a pickup in activity.

Meanwhile, manufacturing PMI for the euro zone climbed to 48.3 from 46.7 in April, marking the highest level in 15 months. But the reading still indicated contraction.

Gold likes quantitative easing, “so as long as there isn’t any big news out hinting towards a down-scaling in QE3, one ingredient for gold bulls is in the mixing bowl,” said Adam Koos, president of Libertas Wealth Management Group.

The Fed’s QE program has helped support gold as QE tends to pressure the dollar and can lead to inflation. Gold is often seen as a hedge against inflation.

On Monday, the dollar DXY +0.02%  also fell sharply after the ISM figures, providing support for gold and other commodities.

A weaker dollar tends to provide a lift for prices of dollar-denominated commodities by making them cheaper for holders of other currencies to buy.

Bigger news this week will be the U.S. employment report on Friday, and any further QE signals from the Fed, said Wright.


Gold shorts are exiting

After rebounding for three consecutive days, the U.S. Comex gold futures fell 0.87% on Tuesday and ended at $1,408.08. As of Wednesday Asian morning, the gold futures surged close to 1%. The Dollar Index traded above 83 on Tuesday and was up 0.40% in the past two days. The S&P 500 index and the Euro Stoxx 50 Index shot up 1.51% and 3.41% this week after falling 2.11% and 2.21% respectively last week. The CRB Commodity Index continued to fall in the past two days by 0.77% after dropping 1.40% last week.

Grimmer Global Growth Outlook

China kicked off with a weaker-than-expected April flash manufacturing PMI at 50.5 compared to 51.6 in March. According to Deutsche Bank, the slower growth is related to the anti-corruption campaign, the policy tightening in the real estate sector and the onset of the bird flu crisis. However, investment should reaccelerate in 2H of 2013. The April Eurozone composite PMI contracted for the fifteenth month at 46.5, likely pressuring the ECB to boost stimulus. The Bundesbank also projects that Germany‘s recovery will be delayed past Q1 due to the weaker industrial production growth and the extreme weather. The April U.S. Markit Preliminary PMI also was weaker than expected at 52 compared to the projected 53.9.

Commodities’ Actions

Weaker growth data from the U.S., China and Europe have caused the commodities to sell off. Industrial commodities were particularly hard hit. The market also fears a further slowdown in China, which does not bode well for the demand for gold. Year-to-date, the CRB Commodity Index dropped 4.75%. Goldman Sachs lowered its expectation on commodities in the next three and twelve months although it closed its well-timed recommendation to short-sell gold. Barclays pointed out that the net gold-backed ETP redemptions have reached 117 tonnes in April, the weakest month on record. Barclays calculated that about 270 tonnes of gold holdings were bought above the current prices, posing further downside risks on gold prices. However, the net short positions in gold have decreased, indicating that short-covering has taken place. India and China‘s physical demand has also responded very well to the cheaper gold prices. Gold volumes in the Shanghai Gold Exchange broke record for three consecutive days. High inflation, growing wealth and the gold culture in these emerging countries mean that gold will continue to be bought for the longer-term. In the words of Grant Williams, a fund manager, you have to distinguish between “the gold price,” which reflects the paper gold futures prices and has collapsed, and “the price of gold,” which represents the physical price of gold and has remained well-supported.


Jim Sinclair’s Blockbuster/Gold and silver raid today

Gold closed down $12.40 to $1408.60 (comex closing time).  Silver fell by 51 cents  to $22.81 (comex closing time).
As I promised you, the chances for a raid were very high due to the falling gold and silver equities and the lower silver price.

In the access market at 5 pm gold and silver reversed course and rose northbound:
gold: $1414.10
silver: $22.98

At the comex, the open interest in silver rose sharply to 157,264 contracts as it is still  holding firm at elevated levels . The open interest on the gold contract fell by 252 contracts to 416,581. Generally, I would say that 390,000 OI would be rock bottom for gold but in this environment anything goes.  The total amount of gold ounces standing for April rose slightly to 34.26 tonnes as silver also  had a slight increase to 3.770 million oz standing.

The big news in the physical markets was reported by Jim Sinclair.  His close friend could not retrieve his allocated gold stored in Switzerland due to “concerns of money laundering and terrorism”. First we had the Amro story where customers were paid cash instead of receiving gold on delivered contracts. Then Andrew Maguire reported yesterday that customers who had leased gold for a “return” on their stored gold could not get their gold back.  And today, the Jim Sinclair story  (see below…Jim Sinclair/Dave from Denver)

The USA mint announced late tonight that the  lowest denominated gold bar the 1/10 oz has been halted due to lack of supplies.

Goldman Sachs closed out their gold short this morning.

In paper news, the Chinese PMI report was terrible causing the Shanghai composite to tumble 2.57%.

European PMI‘s on both manufacturing and service were equally bad but do not worry,  We had the Fed and Japan printing massive QE and they are buying up  everything in sight.

Then the uSA flash PMI was also reported and it was weak as well.

We will go over these and other stories but first…………………….

Let us now head over to the comex and assess trading over there today:

The total gold comex open interest fell by 252 contracts today  from  416,833 down to 416,581,  with gold rising by $25.70 on Monday.  The front April OI fell by 26 contracts from 585  down to 559. We had 42 notices filed on Monday so we gained 16 contracts or 1600  gold oz will not be standing for the April gold contract month. The next non active contract month is May and here the OI fell by 103 contracts to 1402. The next big contract month is June and here the OI rose by  402 contracts from 254,602  up to 255,004.  The estimated volume today was huge at 211,950 or 21.195 million oz.  The world produces around 70 million oz ex China ex Russia.  Thus Tuesday’s volume equates to around 30% of global annual production. The confirmed volume on Monday was also huge at 200,998 contracts (approx 625 tonnes of gold).

The total silver comex OI  rose by 1442  contracts from 155,815 up to 157,264. It still looks like we still have some  stoic longs who seem impervious to pain as the OI in silver continues to remain elevated. The front non active delivery month of April saw its OI fall by 2 contracts from 28 down to 26 . We had 10 delivery notices filed on Monday, so in essence we gained 8 contracts or 40,000 oz of additional silver will stand for delivery in April.  The next big delivery month for silver is May and here the OI fell by 5154 contracts to stand at 38,960. We are less than 2  weeks away from first day notice for the May silver delivery month.   The estimated volume today was huge, coming in at  102,602 contracts which equates close to 513 million oz of silver. The world produces 700 million oz per year ex China ex Russia so in essence today’s volume equates to 73.3% of annual silver production. We had confirmed volume on Monday at 72,072 contracts which is a huge volume day . (.360 billion oz or 51.4% of annual silver production)

Comex gold/April contract month:

April 23.2013      April gold.

Withdrawals from Dealers Inventory in oz
Withdrawals from Customer Inventory in oz
 198,536.285 (HSBC,JPM, Scotia)
Deposits to the Dealer Inventory in oz
Deposits to the Customer Inventory, in oz
No of oz served (contracts) today
 42  (4,200  oz)
No of oz to be served (notices)
517  (51,700)  oz
Total monthly oz gold served (contracts) so far this month
10,499  (1,049,900 oz)
Total accumulative withdrawal of gold from the Dealers inventory this month
26,484.136  oz
Total accumulative withdrawal of gold from the Customer inventory this month
605,604.27  oz
We had good activity at the gold vaults.
The dealer had 0 deposits and 0 dealer withdrawal.