NEWS ALERT - Comex gold breaks convincingly below $1,700/oz

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Tom Jennemanntom.jennemann@fastmarkets.comSenior North American Correspondent973-204-3383

Orlando, Florida 04/12/2012 - Gold futures fell sharply Tuesday, dropping below $1,700 an ounce, which has taken the bulls by surprise especially considering that the euro is trading near a six-week high against the dollar.

Gold for February delivery on the Comex division of the New York Mercantile Exchange was last down $26.50, or 1.5 percent, at $1,694.60 an ounce, which was near the session low.

“The selling is likely developing from concerns that some of the gold still held by European banks may be sold into the market to raise capital to offset losses sustained in Greek debt that may either be written down or bought back by the Greek government,” Dennis Gartman, editor of the Gartman Letter, said.

“This is a reasonable concern and in the shortest of runs might be very serious; however, action to write down Greek debt shall in the end be inflationary and thus in the end supportive of gold. But for now, obviously, gold is on the defensive,” Gartman added.

Ross Norman, Sharps Pixley CEO, questioned the widely held belief that divine providence dictates gold will move higher in perpetuity.

“So what the heck is going on here - isn't the dollar weak - aren't we nearing the edge of the fabled fiscal cliff - doesn't the US reach its debt ceiling in eight weeks time - isn't this traditionally the season for high physical demand ?” Norman quipped.

“The newswires are awash with forecasts suggesting record prices next year but, like the gold price today, it lacks a certain conviction. Witness today's move - a classic dead cat bounce. The underlying sentiment in gold - at the moment - totally lacks confidence,” Norman said.

“If you sense a certain frustration from our side, gold doesn't have a god-given right to a 17 percent-plus year-on-year gain in prices. It has been 'earned' by external economic events and by the prescience of a few in creating the gold ETF - eight years ago. Since then, the market has ceased to innovate,” he added.

“In short, I would question how effective the market itself has been in terms of making it universally available and understood by ordinary investors. It is a very small lifeboat in a big crisis, serving a very narrow demographic,” Norman concluded.

In the wider-markets, the euro earlier breached $1.31 against the dollar for the first time in six weeks, while Germany's DAX and France's CAC-40 were up 0.35 percent and 0.80 percent respectively.

As for the more industrial commodities, light sweet crude (WTI) oil futures for January delivery on the Nymex were down $88.29 per barrel and the most-actively traded Comex copper contract was at $3.6640 per pound, up 0.55 cents.

“Gold prices overnight saw a series of support points violated and a retest of the even number $1,700 level in the February gold contract,” the CME Group said in a market commentary.

“A lack of forward progress in US fiscal cliff talks overnight, lacklustre equity market action in China and news that Australia saw the need to cut interest rates down to the lowest levels since the sub-prime crisis began seemed to undermine traders,” CME added.

In the US, Republicans and Democrats still hope to develop a new budgetary framework to replace the fiscal cliff, which would trigger huge spending cuts and new taxes that could slow growth and tip the US economy back into recession. But the talks have grown increasingly rancorous and a positive outcome is in doubt.

Gartman said that he is growing weary of the whole notion of the fiscal cliff as most people don't understand that it's not really a cliff at all.

“The effect will not be nearly so stark nor as nearly so severe as the word 'cliff' would seem to suggest. People will not go suddenly hungry; the sky shall not fall; cats will not suddenly lie down with dogs; the rivers will not flow with blood and nor shall frogs or locusts fall from the sky. So let’s all take a very deep breath; have drink of fine bourbon and relax just a bit,” Gartman said.

“Yes, we do indeed understand that Congress has not thus far made a stellar showing of itself, and nor has the Administration. But what we are seeing thus far is that [both parties] are dancing a very choreographed fiscal dance. Both are bowing to the constituents at the moment, showing off the tax-cutting or spending bona fides to their bases before deals are cut,” he added.

As for the other precious metals, Comex silver for March delivery was down 70.9 cents at $33.050 an ounce. Trade ranged from $32.865 to $33.750.

Platinum futures for January delivery on the Nymex were down $26.10 an ounce at $1,587.70 an ounce, while the March palladium contract was at $681.15 an ounce, down $10.10.
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