Dr. Kudlow’s Prescription? Gold Diagnosis Unclear

The Analogy

You’re a sports writer covering a baseball team.  Your team loses 15-0.  All fifteen runs were scored in the top of the first inning, but for some reason, that detail escapes your column.  Instead, you report the score, complain about the price of hot dogs, comment on tomorrow’s weather forecast, and sprinkle in some comments from a psychic.  The contour of the game is not even worth a few keystrokes? 

Here’s an intra-day gold chart for Monday’s (6/23/08)

Any thoughts? 

Apparently not, at least if you're Kitco’s Senior Metals Market Analyst Jon Nadler, who wrote in his daily column entitled “Dr. Kudlow’s Prescription”:

….gold prices stumbled and fell sharply on Monday as long liquidation dominated the session. After failing to take out overhead resistance at $910 the metal turned south as last week's advance failed to attract follow-through buyers… 

Today's tumble in gold has undone a week of carefully constructed advances (aiming the metal back towards the $850 support zone) and has, of course, already elicited cries of foul play and howls about suppression among gold and silver conspiracy-based apologists. 

Good one, Jon.  All the price action of the day took place in about twenty minutes  and you're making tin foil hat jokes.  Maybe it was Gold Traders day at Scores, but you could at least let us know that you glanced at the chart and saw some kind of pattern. 

Diligence isn’t necessary when you have clairvoyant commentary, I always say.  Enter born-again hawk Larry Kudlow.  Apparently, when the “shock and awe” scales fell off his eyes, he became able to mind-meld with traders: 

The gold market has sold off $20 Monday, and my hunch is it has something to do with the Federal Reserve policy meeting that begins tomorrow and will conclude with a public announcement at 2:15pm ET Wednesday. A big gold drop strongly hints at market expectations for a tough-minded Fed that will defend the dollar and move to contain rising inflation. 

Nobody expects the U.S. central bank to raise its target rate this week -- although, frankly, I wish it would. In effect, it would be taking back some of the excessive rate cuts made last winter. And I think those rate cuts have a lot to do with high oil prices and the cheap dollar. But the gold plunge today might be suggesting some tougher language from the FOMC policy statement on Wednesday. If, for example, the Fed language is biased against inflation, and perhaps even mentions the dollar, it would be a clear signal that rate hikes are coming sooner rather than later………….. 

Which totally explains why everybody sold at exactly the same moment.

Resource: Kitco.com

Disclosures: Author has long gold positions, and tingling sensations in left arm.

Comments

[GMiki1:]

My two favorite analysts (not) Jon Nadler and the ever-present (why?) Larry Kudlow. Jon is always talking down gold and the people who write the columns his employer (Kitco) posts. Odd to say the least. Larry Kudlow is perpetually clueless.He still insists it's 1959.

2008 Jun 24 11:01 AM

[Dean Plassaras:]

Jon is a good guy and a UCLA GSM alum. Apparently his conservatism on gold stems from real life experiences. I find it refreshing and it does stop me a bit from buying from KITCO.

2008 Jun 25 12:08 AM

[Mark McHugh:]

I've got no problem with an analyst being conservative, or KITCO. I consider this price action highly irregular and would like see some better commentary on exactly what happened.

2008 Jun 25 12:59 AM

[Prudent Inv...:]

I agree, Monday's whacking of gold (and silver) in a matter of minutes and ahead of the FOMC meeting smells fishy.
I conclude the Fed will stand pat and gold may take off as Bernanke will prove again that he does not care about rising prices - and I don't mean the official statistics - at all. His future middle name shall be Ben Inflation Bernanke.
As the Eurozone has escalating inflation figures as well, being long gold will be the best defence against the meltdown of fiat currencies.

2008 Jun 25 03:24 AM