Gold, Silver, Metal Prices Commentary – June 25, 2010

You Want Ketchup With That?

Good Morning,

Fresh gains brought gold values to above the $1250 price point as the market opened for trading on Friday. Once again, little more in the way of an explanation for the metal’s early climb was being offered in the financial media than that ‘financial market turbulence’ and skepticism about the outcome of the upcoming G-20 summit were ‘unnerving investors.’

Such news has, of course, already been baked into the gold price cake for some time now and there have been no new developments during the week. Save for, of course, the Fed meeting, which has given carry-traders a reprieve for doing what they do so well.

US GDP data was revised downward this morning. Real gross domestic product for Q1 gained 2.7% as against estimates for a 3% rate of growth. The culprits blamed for the revision were weak consumer spending and a rise in the trade deficit. Meanwhile, core prices rose 0.7% during the same period. The US dollar remained a tad higher following the release of the statistics from the Commerce Department in Washington DC. Ditto, for Treasurys and gold.

The Chinese yuan gained additional ground this morning as the PBoC set the daily parity rate at 6.7896 vis a vis the greenback — a record. Albeit the week’s upward moves were deliberate to the point of being almost invisible, the trend towards a substantive appreciation still appears to be intact despite critics’ assertions that this is all ‘window-dressing’ ahead of the Toronto G-20 roundtable. SocGen for example, expects a roughly 10% appreciation in the yuan versus the dollar, within one year. This battleship turn however, will need to be executed with utmost finesse in the relatively small harbour that the global economy really is.

New York spot bullion dealings opened firmer, with gold quoted at $1250.70 and showing a $7.30 gain at the start. Bullion was higher on short-covering and technicals despite a stable euro (at 1.23) but participants were likely eyeing the GDP data with an expectation that risk appetite would suffer in its wake and that safe-haven plays were shaping up as the play of the day. Stock index futures certainly did not appear to greet the news with any enthusiasm in the hour preceding the market’s opening. Silver gained 14 cents at the open, rising to $18.78 the ounce.

Platinum climbed $8 to the $1567.00 level while palladium rose $2 to start at the $474.00 per ounce mark. The latter is expected to trend towards a balanced supply/demand equation or even a possible deficit in the current year, as Russian state stockpiles appear to be exhausted and as ETFs keep scooping available metal from the market. The palladium market has shown surpluses ranging from half a million to two million ounces per annum over the past nine years.

The two big questions remaining in the palladium market at the moment are focusing on how much — if any — palladium Russia might release from state inventories (a secret number known only inside Kremlin walls) and what level of investor buying interest versus potential redemptions the noble metals-oriented ETFs will reflect as the year rolls on. Platinum and palladium ETFs have been major contributors to the hefty gains observed since the start of 2010 in the two metals. A case of visible stockpiles, if ever there was any.

Something else that is in plain sight in the wake of certain recent spectacular debacles is the new attitude of lawmakers vis a vis US banks. The US House and Senate this morning approved the most remarkable set of regulations on the nation’s banks since the Great Depression. The legislation will place restrictions on US lenders, it will rein in the Fed, and will offer new consumer protections.

The “Volcker rule’ is part of the package and it aims to limit proprietary trading activities among insured banks, while at the same time forcing them to unwind their interests in hedge funds to a large extent. The happy beneficiaries of all this new impending legislation? Small banks. For example, a bank with less than $10 billion in assets would be exempt from on-site scrutiny by consumer regulators.

The new penchant for the regulation of all things financial is not likely to stop at the doors of just US banks however. In recent conversations with sources in the know at the IPMI conference in Tucson, we surmised that regulatory oversight of the Sarbanes-Oxley variety, could be coming the way of the precious metals industry, specifically bullion dealers who are part of an effectively unregulated environment. Such conditions have resulted in consumer-unfriendly outcomes the types of which you may best learn about by reading this special report on the Mother Jones website.

This is not to say that there are no alternative means or products–many of them safe and cost-effective — to buying one’s gold than piling into semi-numismatics or worse. Marketwatch reporter Myra P. Saefong covers some of them in her Commodities Corner roundup from Tokyo this morning. Finance 24’s Mark Ashton begs to differ somewhat in his take on gold versus…tomato sauce. Not a typo. The piece contains a quick and dirty on gold equities, bullion and, yes, pasta topping. Hey, it’s Friday. All comparisons fair game today.

You, the consumer, can do your own homework and come up with the investment product solutions that best suit your profile. Happy hunting. Just make sure your 10% gold claim has been staked. Tomato sauce aside (or, on the side).

Happy Weekend.

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America 

In addition to bullion American Silver Eagles that are already available, the United States Mint this year will also issue 5 oz. bullion America the Beautiful Silver Coins that are duplicates of the America the Beautiful Quarters. The first of five coins will be released this summer, with the remaining four to follow in short intervals. Check the above link to visit a sister site to CoinNews for more information on the new series.