Gold, Silver and Metals: Prices and Commentary – Aug 21

Good Morning,

This week’s dual theme – China and oil- continued to exert the primary influence on the precious metals complex during the overnight hours. As crude values approached $74 per barrel the dollar lost more on the trade-weighted index, sinking to $77.95 ahead of the NY open.

Warning-type noises from Beijing indicate that officials plan to require bolstered capital positions for banks – in so many other words, still an effort to curb the wild lending sprees that have engendered a 60% moonshot in the local equity markets this year. Trouble is, pricking a balloon rarely results in slow and/or orderly leakage of hot air.

In any case, the two conflicting themes du semaine combined with the upcoming end of the C4C auto programme gave metals players sufficient reason to go into different directions prior to the start of Friday’s New York session. Gold gained on the oil up/dollar down combination, carving a path towards $950 an ounce ahead of options expiry next week.

Silver managed to claw back to above $14 an ounce, but the noble metals slipped as perceptions of ‘what next’ came into the picture with the aforementioned ‘clunkers’ programme ending on Monday. In any event, car wheeler-dealers will have all staff on-call for what promises to be a very, very long (but perhaps their best in years) weekend.

The final session of the week started off on a positive note for at least part of the metals we track in the complex. Gold opened with a $6.40 gain, quoted at $947.20 per ounce as participants were emboldened by the near-$1 rise in black gold and the dollar’s difficulties versus the euro this morning. The common currency got a boost from better-than-expected readings in the German service and French manufacturing sectors.

Bullion remains essentially range-bound ($925-$975) and continues to be somewhat hampered by the on-going slippage in Indian imports as well as the state of hibernation that the largest gold-oriented ETF continues to exhibit for the better part of two weeks now. Book-squaring and pre-options expiry trades could make for a much more exciting day than we witnessed yesterday, and the bias this morning was to the upside. Weekly statistics from our friends at GoldEssential.com show that the gold-ETF niche added some bullion to the grand total -again, except for the SPDR fund, which remained unchanged:

"The largest movement in absolute numbers and percentages was seen ETFS Physical Gold trust, where 278,628 ounces or 8.67 tonnes were added to its holdings. The Swiss based Julius Baer Physical Gold ETF saw holdings increase 39,200 ounces or 1.22 tonnes over the reported period. Holdings in the South-African listed NewGold Debentures ETF rose 27,340 ounces or 0.85 tonnes. The London-listed Gold Bullion Securities was the only monitored gold-backed exchange-traded fund to announce an outflow, with 24,590 ounces or 0.76 tonnes being removed from investor’s holdings. All other monitored ETF’s reported no changes over the monitored interval."

Silver showed a 17-cent addition to values, starting the morning off at $14.09 per ounce. Platinum dropped $3 to $1237 while palladium fell $2 to $271 per ounce. Analysts feel that it is the metals which could be most impacted by the curtain falling on the auto stimulus programme. Rhodium was seen unchanged at $1500 per ounce.

Looking ahead, market players will be keeping it tuned to the keynote Jackson Hole Bernanke speech due at 10 am this morning. No question that most speech-watchers will be expecting some kind of laying out of the blueprint to be used when the giant sucking sound of liquidity vacuuming up begins. Emphasis on ‘when’ as well as ‘how.’ Stay tuned.

Until later,

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America

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