Gold Futures Fall 20 Cents, Silver and Platinum Decline

Precious metals retreated Wednesday with gold falling the least after a stronger U.S. dollar and a second straight day of lower oil prices entered into the mix. U.S. stocks limped along and registered only minute gains.

New York precious metals trading figures follow:

• Silver for September delivery fell 5.5 cents, or 0.4 percent, to $14.255.

• Gold for December delivery declined 20 cents to $945.80 an ounce.

• October platinum lost $9.40, or 0.8 percent, to $1,238.40 an ounce.

Notable bullion quotes of the day follow:

The range-bound conditions which have hitherto characterized the summer’s action in gold (but not so much in silver) continue to persist and the market still needs fresh drivers, the earliest of which are not expected until after the final holiday of the season, when the majority of participants will return and start playing once again," wrote Jon Nadler, senior analyst at Kitco Metals Inc. "Thus, we will go with the $925-$965 channel as the path within which the metal meanders back and forth." [Click to read Nadler’s full commentary].

In London bullion, the benchmark gold price was fixed $10.00 lower earlier in the day to $940.50 an ounce. Silver was at $14.32 an ounce, for a 21 cent gain. Platinum was fixed $3.00 lower to $1,240.00 an ounce.

Gold, considered a hedge during times of high inflation and economic uncertainty, tends to follow oil and move opposite to the U.S. dollar. A rising greenback makes dollar-denominated commodities, like bullion, more expensive for holders of other world currencies.

Oil and gasoline prices

Oil futures fell for the second straight day on Wednesday as prices were "weighed down by government data showing that U.S. inventories rose in the past week as imports jumped and petroleum demand remained weak," wrote Moming Zhou and Polya Lesova, MarketWatch.

"The inventory level is still very high," Lawrence Eagles, global head of commodities research at JPMorgan Chase & Co., said on Bloomberg Television. "We’re actually not that optimistic about prices over the fourth quarter because of the inventory buildup."

The Energy Information Administration (EIA) in its weekly Wednesday report said U.S. crude inventories rose 200,000 barrels last week.

New York crude-oil for October delivery fell 62 cents, or 0.9 percent, to close at $71.43 a barrel.

Prices at the pump declined one-tenth of a cent, according to AAA data. The national average for unleaded gasoline on Wednesday was $2.622 a gallon. The price is six-tenths of a cent lower than last week, 12.2 cents more than a month back, and $1.05 lower than a year ago.

U.S. Stocks

U.S. stocks rose modestly Wednesday "as investors welcomed positive reports on housing and durables goods, but remained on the sidelines after pushing the market to 2009 highs in the previous session," wrote Alexandra Twin of CNNMoney.

The Dow Jones industrial rose 4.23 points, or 0.04 percent, to 9,543.52. The S&P 500 Index advanced 0.12 of a point, or 0.01 percent, to 1,028.12. The Nasdaq Composite Index gained 0.20 points, or 0.01 percent, to 2,024.43.

Gold, Silver and Metals: Prices and Commentary – Aug 26
by Jon Nadler, Kitco Metals Inc.

I See…A Lot More Gold

Volatility continued to buffet markets overnight and was most visible in the oil pits, where the commodity fell another 3% after having broken its apparently unstoppable momentum. A rise to $75 per barrel was quickly reversed once apprehensions about on-going demand surfaced yesterday. US inventory data came due today, and it showed a rise – at least as tracked by the API. The more widely followed EIA report also showed a gain in stockpiles – to the tune of 200,000 barrels in the week that ended August 21.  

Also due today were durable goods orders figures and new home sales data. The groundwork for better numbers had already been laid by recent improvements in US consumer confidence and home price statistics. The now spreading positive turn of the US economic battleship received another validation overnight; this one from JP Morgan’s chief economist, who pegged the end of the US recession as having terminated in June.

The US dollar was having a pretty good early Wednesday, rising to 78.51 on the trade-weighted index, while black gold dripped lower on the price scale, losing 55 cents to $71.50 per barrel. As expected, and then some, US durable goods orders showed a most pleasing change, rising 4.9% – the most in two years’ time. Aircraft orders led he positive parade party. New US home sales took a 9.6% leap to higher ground last month. Against this background, precious metals opened on the mildly weak side, and were showing mixed results out of the starting gate once again.

The range-bound conditions which have hitherto characterized the summer’s action in gold (but not so much in silver) continue to persist and the market still needs fresh drivers, the earliest of which are not expected until after the final holiday of the season, when the majority of participants will return and start playing once again. Thus, we will go with the $925-$965 channel as the path within which the metal meanders back and forth. Gold is showing a 15% gain for the year-on-year period.

Gold spot dealings opened with a $1.10 gain at $946.00 per ounce, silver rose 2 pennies to $14.27, and platinum and palladium fell $5 and $3 respectively, despite a second day of symbolic ‘punishment’ labor action at S. Africa’s Impala. Workers have been offered a 10% wage sweetener (albeit they were seeking more like 13%) but were unhappy with the ‘speediness’ of management response to their requests.

In related news, Japan will slash domestic auto production amid severely slumping sales. Too bad they have not too many clunkers around the country. There are also some apprehensions about US car sales, now that a possible bad hangover could set in following the just-concluded CFC sales orgy.

Overseas, German business confidence rose more than expected on positive economic signals. Amid all of these positives, a not-so-happy finding that Japan’s export slump continues, and a bit of ice cold water that was thrown at the markets, by China. The country is studying the application of curbs (aka "guidance" in euphemistic parlance) on overcapacity in industries such as steel, cement, and others.

Anything that can be done, in other words, to try and either slowly deflate the omnipresent bubbles and/or to try to avoid the advent of new ones. The overall result of this recent spate of tightening-flavoured official posturing has been a 15% drop in the country’s market index. Not to mention a lot of nervous commodity speculators who have thrown their wallets at the markets in anticipation of China’s putative insatiability for ‘stuff’ resuming any day now…Then again, commodity players could also add another worry item to their growing list: the fact that the Baltic Dry Index has been falling for the past five weeks now…

The afternoon hours brought us more of…the same, price action-wise in precious metals. Namely, a steady gold spot – quoted at $944.50 and orbiting around either side of the ‘unchanged’ marker as it had for most of the session. Options expiry was about the only relevant feature in today’s dealings.

Silver was in a slo-mo replay for the day as well. A 2-cent gain brought the white metal to $14.27 – total déjà vu. Platinum lost $9 and fell to $1231.00 while palladium dropped $4 to $283.00 per ounce. Rhodium showed no change at $1500.00 per ounce. The greenback climbed to 78.64 on the index, while crude oil lost 71 cents to ease back to $71.34 per barrel.

Currency analysts point out that the US data helped the dollar, as did selling in the oil pits on Wednesday. However, some technicians feel that the euro’s failure to hold a key technical support area also helped boost the dollar. Other still, believe that there is more than meets the casual eye going on here. Namely, that the previously observed pattern of inverse correlation by the dollar vis-a-vis equities has been slowly giving way to a positive one. Good US economic news is now seen supporting the US currency as it points to higher interest rates down the road.

Down that future road lies something else, as well: a bigger pile of physical gold as produced by mines in at least two key countries. Flying squarely in the face of gold gurus who try to tell their audiences that gold production is inexorably headed into the basement, are just two of today’s industry news items. Read and ponder:

1. "China has recently tied up with several international miners to extract its huge Gold reserves. This is a part of a plan to boost output by 30 percent each year through 2012. China’s strategy is to continue to grow its portfolio of quality assets and capitalize on its leading position in China’s growing gold industry. India’s demand has drastically fallen, thanks to the high prices. The sensitive Indian consumer has absolutely refused to buy in these high prices and imports have fallen to an all time low not seen since decades."- Commodity Online.
2. "Russian gold output jumped 21% in the first seven months of the year due to the launch of several large projects in the country’s far east, including Kinross Gold’s Kupol mine in the remote Chukotka region. Russia, the world’s fifth-largest gold miner, produced 101.77 tonnes of the precious metal between January and July, the Russian Gold Industrialists’ Union said on Wednesday. In the same period of 2008, it produced 84.13 tonnes." – Mineweb

Something else you are not likely to read in the average after-hours upbeat e-mail you might receive from your friendly metals advisor is the fact that –according to Bloomberg- "Holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by the metal, fell 4.58 metric tons to 1,061.83 tons yesterday, data on the company’s Web site showed. That’s the lowest level since March 13."

Okay, you can now consider your daily metals-related news "fair and balanced." Remember, however, that following any single source of advice can do damage to your pocketbook and keep you up at night.

Consider the case of Nouriel Roubini’s followers. While much credit goes to the man for having had the courage to call that which we’ve all seen unfold over recent months, there is another side to the story. The one that finds him sticking to the same point of view in the face of changing realities, and one that some disciples have found to have lightened their wallets considerably. Bloomberg’s Whitney Kisling reports that:

"Making money on the thinking of Nouriel Roubini isn’t what it used to be.

The New York University professor, who in 2006 foretold the worst financial unraveling since the Great Depression, has yet to say the economy is worth investing in again. "There is a big risk of a double-dip recession," wrote Roubini, also known as Dr. Doom, in his column in the Financial Times this week.

Anyone attempting to apply Roubini’s wisdom to stocks may be forgiven for missing the biggest rally since the 1930s as the Standard & Poor’s 500 Index climbed 52 percent in six months. While Roubini said in March the advance was a "dead-cat bounce," that it may "fizzle" in May and warned in July that the economy is "not out of the woods," the MSCI World Index was posting a 58 percent gain, the largest since it began in 1970.

"We’re looking at a bull cycle in phase one," Laszlo Birinyi said in a telephone interview yesterday. Birinyi was the top-ranked Dow Jones Industrial Average forecaster for most of the 1990s on PBS’s "Wall Street Week with Louis Rukeyser." "No one wants to come out and say, ‘This is a bull market.’ Everyone’s just dancing around the term," he said.

The S&P 500 added 14 percent since Westport, Connecticut- based Birinyi Associates Inc., which manages $350 million, said on May 20 that a bull market had begun, according to data compiled by Bloomberg. Roubini, who forecast in October 2008 that the U.S. was in a recession that would last 24 months, said on March 9 that the index might fall back to 600. It has risen to 1,028 since then. The S&P 500 added 0.3 percent as of 10:18 a.m. in New York today, rising for the sixth time in seven days. The MSCI World Index slipped 0.2 percent.

About $4 trillion has been restored to U.S. equity markets since March following better-than-forecast corporate profits and signs of an improving economy. More than 72 percent of the S&P 500’s companies beat analysts’ average estimates for second- quarter earnings, matching the highest proportion since Bloomberg began tracking the data in 1993. The Conference Board’s index of leading economic indicators has risen four consecutive months.

Roubini’s July 2006 warning about the financial crisis protected investors from losses in the S&P 500’s worst annual tumble in seven decades. He also correctly warned investors to avoid stocks following the steepest advances in 2008. On Dec. 12, he said U.S. stocks might fall 20 percent after the S&P 500 gained 17 percent in three weeks. The index lost 23 percent through March 9, 2009. During an 18 percent jump in the index between Oct. 27 and Nov. 4, Roubini warned the S&P 500 might reverse course and lose 30 percent. It dropped 28 percent through March.

He may have missed this year’s bull market because Roubini isn’t focused on stocks, according to Birinyi. Roubini has "done a very good job on the economy," Birinyi said in an interview Aug. 24. "Our approach is to try to understand the market and not try to do much more than that." Jonathan D. Goldberg, a New York-based spokesman for Roubini, said he wasn’t available to comment because he’s on vacation.

Roubini, 51, wrote this week in the Financial Times that the economy may worsen again even after it stops shrinking this year. The global contraction will bottom in the second half of 2009, and the recession in the U.S. won’t be "formally over" before the end of the year, he said.
 The forecast was a reiteration of Roubini’s call for an 18- to 24-month contraction that he made in October 2008. The recession began in December 2007, according to the National Bureau of Economic Research’s Business Cycle Dating Committee.

Roubini told Bloomberg Television on May 13 that the stock market’s rally "might fizzle out," citing expectations for weak growth in earnings. On March 9, he said it was "highly likely" the S&P 500 would fall to 600 or below because of plunging profits, an accelerating contraction in the global economy and a deteriorating outlook for banks.

The index reached a 12-year low of 676.53 that day and has since climbed for almost six months. Reports on industrial production, housing starts and car sales, along with comments from the Federal Reserve that the economy is "leveling out," helped boost equities in the world’s largest economy.

In July 2006, Roubini predicted the financial crisis that led to $1.6 trillion in credit-related losses and writedowns. He forecast a "catastrophic" meltdown in February 2008, leading to the bankruptcy of large banks with mortgage holdings and a "sharp drop" in equities.

Birinyi, 65, who spent a decade on the trading desk at Salomon Brothers Inc. before founding Birinyi Associates in 1989, said on May 20 that the S&P 500 may reach 1,700 by 2011, shifting from his April 13 call that the market had risen too much "by almost every measure." In October 2007, he told investors to avoid bank stocks, saying bad loans and lower revenue from underwriting would damp earnings. The S&P 500 Financials Index then plunged 82 percent through March 6, 2009.

"Both of them just have a pretty deep understanding of the history of economic and business cycles," said Eric Teal, who oversees $5 billion as chief investment officer at First Citizens Bank in Raleigh, North Carolina. "Roubini has just had more of an academic background, whereas Birinyi has been much more in the spotlight managing money and working in capital markets."

The U.S. economy has contracted four straight quarters. It will expand 2.2 percent during the third quarter and 2 percent in the fourth, before growing 2.3 percent in 2010, according to the median estimate of economists surveyed by Bloomberg News.

Roubini, who received a Ph.D. in economics from Harvard University in 1988, was a member of Yale University’s faculty until joining NYU in 1995. He started his consulting firm, Roubini Global Economics LLC, in 2004, providing subscribers access to written and broadcast commentary and archived data. The firm’s 1,300 institutional clients include asset managers and hedge funds, as well as investment banks and universities. Roubini doesn’t invest any money on behalf of customers.

"There’s a lot more weight behind pundits who put their money where their mouth is," said Jack Ablin, who oversees $60 billion as chief investment officer of Harris Private Bank in Chicago. "Where I get up and pay attention is when I see someone who’s been bearish go bullish."

We’ve said it before, we’ll say it again: future-telling is risky business, about 50% of the time. Broken glass tastes awful.

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