Gold, Silver, Metal Prices Commentary – August 26, 2010

Good Morning,

Investors were seen awaiting the arrival of fresh economic news and data while remaining largely on hold overnight.

Mild recovery rallies took place in crude oil (up for a second day, and trading just above $73 per barrel) and the euro (last seen trading at $1.267) as the former ignored record US inventory levels and the latter benefited from a gain in global equities following a small rise in risk appetite.

The overriding tenor of the markets is still firmly of the anxious variety. Such vibes engender holding back and/or selecting mainly those assets that appear safe for the conditions.

As mentioned yesterday, until market players directly (via hard numbers) or indirectly (via soothing words from officialdom) sense that they can begin wading into market waters as they did following the ebbing of the euro crisis in July, the current pattern of ultra-cautiousness will dominate.

Only bargain hunting will prevent oversold assets (traders say that such was apparently the case with oil over the past 24 hours) from becoming more so. Now, with the imminent release of more US statistical data and the Jackson Hole gathering of the Fed, plenty of participants will be likely to take a wait-and-see attitude before making any large commitments to markets.

This morning’s New York precious metals trading sessions showed an extension of the three-day rally in the complex. At opening time, gold recorded small gains, but the rest of the group moved significantly higher as momentum funds continued to pile in. Spot gold was $1.90 per ounce higher, with a quote of $1,241.90 on the bid side, as against the US dollar showing a quote at 83.00 on the index.

Gold prices slipped into negative territory (closer to $1,235.00) rather fast, as a larger than anticipated drop in initial jobless claims brought back a modicum of confidence about labour market conditions in the US. The sharp decline in jobless claims filings underscored the current high degree of correlation between the precious metal and the ebb and flow of jitteriness related to the economic recovery.

The jobless claims news also served to pull a small safe-haven rug out from underneath the US dollar (it retreated to 82.76 later in the morning) as market players ‘suddenly’ discovered that they still had a bit of a lingering appetite for more risky assets. The first reported drop in weekly filings (31,000 fewer filed applications) in 30 days clearly elicited some relief amid an all-too-gloomy-of-late investor crowd.

Some profit-taking ahead of the weekend was also noted in New York gold following the recent rally and the yellow metal’s inability to take out resistance at the $1247.00 area (one oft-cited by EW analysts). The US dollar picked up 0.15 on the trade-weighted index following the data.

The collective gaze now shifts over to tomorrow’s GDP revision figure and, of course, all ears are already aimed in the direction of Wyoming’s scenic Jackson Hole. Parsing Bernanke-speak following the man’s address at the gathering will be significantly more intense an activity than has been the case in recent months.

Silver added 17 cents on the open, trading at $19.11 and further narrowing the gold/silver ratio in the process. Platinum showed a sharp, $21 per ounce gain at the start of the session, quoted at $1,534.00 the ounce, while palladium was no slouch either, posting an $8 advance to $502.00 per troy ounce. Still no change to report in rhodium; the noble metal remains stalled at $2,070.00 bid per ounce. The white and noble metals narrowed their gains following the US jobless claims figures, but remained in positive territory for the moment. Spec fund money has clearly been the lubricant for recent upswings in the niche.

Something that may not remain at quite such positive levels however, are Chinese bank earnings. Two of the country’s largest lenders (ICBC and Bank of China) posted some very impressive numbers for the past quarter but such stellar reports my become an endangered species if analysts prove correct (a staggering 9.5 trillion yuan’s worth of loans were made by Chinese lenders last year). You know what those loans fueled. Drive around any major Chinese city and count the cranes (not the winged variety).

That figure was twice as large as 2008’s loan volume. The question on most experts’ minds is not when the downward ‘knee-jerk, official policy-induced adjustment’ in loan volume and corresponding revenues begins (it may already have started) but how severe it might become. For the moment, the lenders are seen as strong enough to weather such upcoming challenges, even though domestic bank stress-test results have not been made public.

Meanwhile, over in the US, the tiniest bit of positive news appeared to make no impact this morning, as the consensus still seems to be a uniform vision of a total impending collapse in the American real estate market. Nevertheless: the percentage of homes somewhere in the foreclosure process fell in the second quarter, the first drop since 2006 and the largest quarter-to-quarter drop since 2005, the Mortgage Bankers Association reported on Thursday.

Something that has been made public is a partial list of assets most recently being accumulated by billionaire investors such as Warren Buffett, George Soros, and Carl Icahn. Yes, Virginia, there is optimism among these folks with regard to,…surprise, US equities. $400 million worth of such optimism being exhibited by Mr. Buffett for Johnson & Johnson shares (baby boomers to soon use up the visible supplies of adult diapers and baby powder?).

Huge optimism for Well Fargo shown by Stanley Druckenmiller (Mr. Soros’ former British pound-breaking collaborator). Total confidence in Akamai shares shown by Mr. Soros’ purchases of same. "Me worry about the economy?" is not in these gents’ vocab at the moment, or else they are astute bargain hunters at a time when the average Joe is sobbing on the sidelines, paralyzed with fear.

To be fair, there is one investor’s buying pattern that has some folks up at night. It is Mr. Icahn and his large-ish bet on…gun maker Smith & Wesson. Perhaps he’s been watching Ms. Murkowski’s cliffhanger in Alaska and pondering what the Tea Party might bring about in America. Or, perhaps it was too many doses of Rush Limbaugh dissertations on "Imam Obama" that did the trick.

More than likely, Mr. Icahn, noting the rise of certain patterns of madness out there, simply paid homage to the time-tested observations of one Charles Mackay — a Scottish historian who once opined that:

"Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one."

Keep movin’, movin’, movin’
Though they’re disapprovin’
Keep them doggies movin’
Rawhide!
Don’t try to understand ’em
Just rope, throw, and brand ’em…

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America 

Original article link: Herd It Through The [Market] Grapevine

Editor’s Note: Meet the Kitco Team at the upcoming Kitco Metals eConference September 12-13, 2010. A not-to-be missed event featuring Ron Paul, Marc Faber and other industry heavyweights. The eConference is free with Pre- Registration www.kitcoeconf.com.