Gold Falls to One-Year Low as Dollar Rallies; Silver Decline

Bloomberg: ``The strengthening dollar is pressuring gold and commodity prices in general,'' said Tom Hartmann, a commodity analyst at Altavest Worldwide Trading Inc. in Mission Viejo, California. ``People aren't tossing dollars out the window or giving up on paper currencies, so gold is just acting like another commodity at this point.''

The selling of gold has been relentless,'' Dennis Gartman, an economist and editor of the Gartman Letter, said in his daily report. ``Commodity prices are very weak as the dollar and the yen are very strong and liquidation is the order of the day.''


The euro fell below $1.28 for the first time since November 2006 on speculation the European Central Bank will cut borrowing costs at a faster pace than the Federal Reserve(US). The federal-funds rate is at 1.5 percent, down 3.75 percentage points from September 2007. The ECB's main refinancing rate is at 3.75 percent after an Oct. 8 cut from a seven-year high of 4.25 percent.

``There's just a perception that the U.S. has better tools to deal with the financial crisis than Europe,'' Hartmann said. ``There are too many competing interests in the euro region to come to a decision quickly.''

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Good Afternoon,

September 17, 2007. Ten days after the beginning of the Fed rate cuts (and financial market turmoil) that would eventually bring gold to $1033.90 on March 17 of 2008. That's how long ago it was that gold traded at $720 per ounce. We have now come full circle. The metal is currently showing a 20% loss over one month, and 3.5% on the one year timetable. Our long-stated (and much derided) $732 objective has been achieved, of that there is no doubt. The remaining question now emerging is: has gold seen its lows, or are we at the start of a phase in the mid-to-high $600's? There is plenty of uncertainty on that front, for the moment. Maybe the next Hulbert metric will tell us more. So far, Merv Burak gets the prize for the week's call for new lows.

Fear not, for there will once again be plenty of: " No worries!" and " Back up the truck, honey! "calls coming from the usual suspects' quarters. Don't know, but it seems that most of these trucks must have broken gears, having been in reverse for so long. Along with the alleged 'disconnect' between paper and physical prices. A broken story as well. Anyhow, copper lost 8.72 and lead lost 9.69 percent on the day. Oil? Off a "mere" $5.65 per barrel to $66.53 per barrel. Overnight markets experienced more of the same: the same surging US dollar, declining crude, pessimistic equities, and declining commodities.

The list of slumping currencies still headlines the ruble, the real, and the won (soon to be renamed the rubble, the unreal, and the lost). Moreover, the "Iceland Syndrome" appears to be spreading - this time, apparently starting to affect my parents' old stomping ground, Hungary. In a desperate attempt to stem a flight from the forint, the Magyar central bank raised rates to 11.5% today. Contrasting that move, reasonable expectations that the European central banks will soon cut rates to avoid the (likely) unavoidable.

The Dow caved in again, this time by 500-600 points - margin calls will soon follow. If anyone had doubts about the commodity sector somehow miraculously escaping the current mania for cash, they are searching for new careers right about now. Commodity-trading newsletter writing is so...90's. Gold took out the $732 level and sank as low as $718.90 intra-day ( a $50 loss, at one point). Another sizeable gain in the dollar brought it to 85.60 on the index. Something has to give? Not in this boxing match, not thus far.

New York spot dealings continued to find lower and lower bids, and were off by $45 at $725.00 at last check. While the decline is a perfectly wonderful and timely Diwali present to India, it still raises the possibility that the metal is becoming a "reverse hedge" in a world of crumbling values. Yes, bullion may fall further (targets include $675, and $640 - at this time), but it might lose less than that overpriced fixer-upper, or the sickly-looking basket of stocks the brokers are trying to keep one from tossing away.

Silver fell 60 cents to $9.43. Silver pundits have fallen silent or are trying to distract with stories of parallel universes. Quietly, India is turning this Diwali into a festival of...silver, but not much gold. As for bargain-basement prices, look over to platinum and palladium, as they wear freshly altered price tags of $829 (down $64) and $175 (off $6) on the dire news that US auto sales have not looked this grim in over a of a quarter century.

Gold may even rise, following whatever target the current slump takes it to, perhaps trying for $1K once again over the next 6 to 18 months - this, according to our friend Paul Walker over at GFMS in London. Paul bases his expectations of the four-digit achievement on a decoupling from the commodity complex based on its monetary attributes - some of which have come under serious testing of late. Thus far, that divorce appears to be in question, as gold continues to hold some very tight hands with oil and base metals. But, as always, caveat emptor - or speculator, as the case may be. Personal finance guru Jane Bryant Quinn delves into the chances and the ifs, hows, and whys of gold paying off, in a commentary on Bloomberg's homepage today:

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Oct. 22 (Bloomberg) -- Gold is for rich guys -- buying physical gold, that is. The metal's highest and best investment use is as insurance policy against a currency collapse. For that purpose, you need a lot of it, stored around the world. Owning 20 or 30 coins is nice but won't protect your standard of living in a world where dollars are dust.

Gold isn't even a reliable hedge against inflation. It reached $850 an ounce in January 1980, a price not seen again until January 2008. During those intervening 28 years, gold plunged and reared but lost more than half of its purchasing power. For a 1980 investor to break even after inflation, gold would have to reach $2,200.

It might, but how long did you plan to wait?

For the average investor, gold boils down to a speculation on higher prices. The latest run-up started in August 2007, when the housing market visibly started falling apart. From $652, it raced up to $1,003 an ounce last March, zig-zagged back to $747 in September, jumped to $905, then slid to $772 as of yesterday.

Hedge funds drove the market but individuals jumped in, too. So far this year, investors have purchased 611,000 newly minted, one-ounce U.S. gold coins, compared with 315,000 in all of 2007.

"We've seen a switch in appetite, with investors moving from futures to physical gold, either owning it directly or going through exchange-traded funds," says Suki Cooper, an analyst at London-based Barclays Capital.

Coins purchased strictly for their gold value, not their numismatic value, are known as bullion coins. Many countries mint them -- South Africa (Krugerrand), Canada (Maple Leaf), China (Panda), Austria (Philharmonic) and Australia (Kangaroo), among others. The U.S. Mint makes Buffalos and American Eagles. For investment purposes, you want the one-ounce size.