In The Lead – Noble Prize

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New York precious metals trading opened the week with mixed price trends. Gold, silver, and platinum fell while palladium and rhodium held steady. Spot dealings showed gold down $12.30 at the opening bell, with a bid-side quoted at $1,734 per ounce.

Silver lost 5 cents to start off the session at $32.59 per ounce. Platinum dropped $10 to open at $1,533 and palladium was unchanged at $642 per troy ounce. More on palladium and its recent performance will follow below. In the interim, we expect more of the same; more volatility, more counter-intuitive moves, more confusion among investors. That’s the ‘new’ normal…

Once again it was ‘confuse-a-cat’ time this morning for small retail metals investors. Gold prices started off last night with a $10 pop and appeared to be on course for additional gains ahead of the pivotal EU meeting that will take place this week. Then, news that Italy is moving towards cutting its debt eased concerns that the European crisis might devolve into a chaotic end to the union and to its currency. Gold prices relinquished their early evening gains and turned lower, showing losses of $17 at one point, trading under $1,730 the ounce.

Investors once again had to try to make sense of headlines that used the same set of words about the European situation and the only substitutions being made in the titles were the words "fell" versus the previously used "rose" when it came to mentioning what gold did in relation to the very same events. The formula keeps changing and the public remains disoriented as to just what gold is supposed to or not supposed to do amid current conditions. Certainly, last week’s concerted central bank action and its impact that had a half-life of a fruit fly have all but dissipated from the market.

Last week the equation entailed gold rising if the crisis did not go from bad to worse or was actually fixed, while this week (at least at the moment) the formula appears to be that gold should track lower if in fact some solutions are indeed found to the crisis. Okay, then; hold on to that gold or let some of it go? No one to turn to for that $64.000 question’s answer.

While commodities’ guru Jim Rogers is not one to let go of his gold stash, he does see some wisdom in currently owning… the US dollar alongside it. Noting that we have had a virtually non-stop 11 year rally in prices, Mr. Rogers said on CNBC the yellow metal is "due for a correction" and that if gold were to get down into the neighborhood of $1,200, then he, Mr. Rogers, would see that neighborhood as one to ‘get extremely excited about.’ Mr. Rogers said he is not adding gold or silver to his positions at current prices.

Apparently, at those gold current prices, neither are Indian consumers and brides-to-be.

The Wall Street Journal reports that "India’s wedding-season gold demand has nearly disappeared as the yellow metal’s local prices have climbed to near-record levels because of a fall in the rupee’s value, sparking a rush to sell scrap during the usually peak buying period. “There is virtually no demand for gold,” said Prithviraj Kothari, president of the Bombay Bullion Association. November and December, the peak wedding season, usually see brisk purchases in the world’s largest gold consumer [nation]."

Well, it is ‘back to the drawing board’ time for Europe’s leaders this week. On Thursday and on Friday, the EU’s who’s who will once again sit and talk and try to figure out how to steer away from the mess the region finds itself in at the present time. Chancellor Merkel keeps stressing that while the general compass points towards an eventual fiscal union, the process by which the meshing will be achieved will "take years" even though the markets and certain vigilantes that populate them are demanding action of the instant variety. This will be the year’s final such gathering and frankly, we’ve lost track of just how many meetings have taken place to address the same thing by now…

Underscoring once again that fundamentals are… fundamentally important to sustainable price gains, palladium notched a 12 percent advance last week. You might say that the noble metal took the… noble prize in the market last week (groan).Palladium’s weekly increase easily bested the 9.1 percent advance seen in copper, the 5.8 percent rise in silver, and the 3.7 percent gain in gold with climbs to higher levels in each trading session last week.

The noble metal turned in its best performance since December of 2010, in large part due to fears that supplies of it will be adversely impacted by dwindling state-owned inventories in Russia. The country has been the biggest supplier of palladium up to now. Sales from state stockpiles in Russia, (the levels of which are a government secret), will probably total 750,000 ounces this year, according to refiner Johnson Matthey’s report issued last month.

Russia now plans to export only about 144,000 ounces in 2012 and perhaps the same amount in 2013. Meanwhile, "Norilsk Nickel, which is the largest palladium producer, will trim sales from its inventory in the next two years before ending them altogether in 2014," noted the International Business Times, citing Anton Berlin, a company executive, at a conference in New York last week.

Mr. Berlin also stated that roughly and only 14 percent of palladium production and 8 percent of platinum output is accumulated as investment, compared with 35 percent for gold. This, while the existing platinum stockpiles are enough to meet demand for only seven months, and palladium supplies are sufficient for 16 months. Compare those figures with the estimate that we are blessed with 22 years’ worth of supplies for gold based on current demand levels. "Gold shortage" yeah, right. Ditto with ‘shortages’ in silver. Not there.

For real shortages, look no further than palladium. Norilsk Nickel expects the metal to be in a deficit in 2012 once again, due to those sharply curtailed Russian supplies. Moreover, global mine output of palladium has slowed significantly due to rising production costs and insufficient mining capacity. Analysts at Standard Bank (SA) have pegged prices near $500 to present difficulties for producers of the metal and prices under $600 to offer support to the market. GFMS Thomson-Reuters anticipates palladium to average $750 to $800 per ounce in the coming year.

At the same time, the U.S. auto industry is now witnessing consumer demand recovering much faster than had been projected. US carmakers are presently headed towards their best annual sales performance in three years. The current annualized sales rate is running at 12.8 million vehicles moving off of dealer lots and into America’s garages. In fact, November’s sales pace was the fastest monthly one since the government’s "cash for clunkers" trade-in program that took place in August 2009. We may well see an annualized US auto sales rate near 13.6 million units in 2103 if things remain on this course.

Bloomberg reports that "the recovery is showing a little bit more resiliency than what people feared," Paul Ballew, chief economist for Nationwide Mutual Insurance Co., said in a Dec. 1 phone interview. "Vehicle sales are inching their way back up to 14-, and then eventually 15- and 16-million units."

Contributing to the rising appetite for automobiles among Americans is the fact that the average age of the US fleet of cars and light trucks has risen to 10.6 years. As well, recently declining gasoline prices have been providing some relief to consumers and they have begun snapping up SUVs once again.

Until tomorrow, keep on truckin’ up and down the markets’ hills…

Jon Nadler
Senior Metals Analyst — Kitco Metals

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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