Gold Rises with Oil as Dollar Falls, Silver Declines

Gold prices picked up slightly Thursday in hum drum day of narrow trading. The yellow metal eventually became more appealing to investors after oil prices climbed and the U.S. dollar weakened. Platinum advanced as well, but silver fell a few pennies. In other markets, U.S. stocks rose with the Dow extending its winning streak to an impressive eight days.

New York precious metals trading figures follow:

• Silver for September delivery fell 3.5 cents, or 0.2 percent, to $14.220.

• Gold for December delivery rose $1.50, or 0.2 percent, to $947.30 an ounce.

• October platinum advanced $2.10, or 0.2 percent, to $1,240.50 an ounce.

Notable bullion quotes of the day follow:

"Given the holidays coming up over the next two weeks, we expect the metal to remain range-bound, holding in the current $930 to $965 range," James Moore, an analyst at TheBullionDesk.com, was quoted on MarketWatch.

"Gold had spent virtually the entire day near $945 per ounce as there was very little give in the dollar or take in crude oil," wrote Jon Nadler, senior analyst at Kitco Metals Inc. "The activity picked up after 2:00 PM NY time, as oil finally rose after falling for three days in a row. Black gold was seen rising on the coattails of the Dow — itself coming out of a morning of hibernation to log a 45-point rise." [Click to read Nadler’s full commentary].

In London bullion, the benchmark gold price was fixed $2.50 higher earlier in the day to $943.00 an ounce. Silver was at $14.20 an ounce, for a 12 cent decline. Platinum was set lower by $6.00 to $1,234.00 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 rebounded Thursday, "erasing losses after dollar weakness, a successful bond auction and gains on Wall Street boosted sentiment," wrote Polya Lesova, MarketWatch.

New York crude-oil for October delivery climbed $1.06, or 1.5 percent, to close at $72.49 a barrel. The contract hit a low in the day of $69.83 a barrel.

The national average for unleaded gasoline on Thursday declined two-tenths of a cent to $2.620 a gallon, according to AAA data. The price is four-tenths of a cent lower than last week, 11.5 cents higher than a month back, and $1.05 lower than a year ago.

U.S. Stocks

U.S. stocks rose Thursday "with the Dow extending its winning streak to eight straight sessions, in a thinly-traded advance fueled by bank shares and Boeing," wrote Alexandra Twin of CNNMoney.

The Dow Jones industrial average gained 37.11 points, or 0.39 percent, to 9,580.63. The S&P 500 Index advanced 2.86 points, or 0.28 percent, to 1,030.98. The Nasdaq Composite Index rose 3.30 points, or 0.16 percent, to 2,027.73.

Gold, Silver and Metals: Prices and Commentary – Aug 27
by Jon Nadler, Kitco Metals Inc.

I Need More Dilithium Crystals, Captain!

Good Afternoon,

Markets were seen gearing up for data day this Thursday, although the recent string of good news may suffer a setback if pre-release punditry surrounding US GDP numbers proves to be correct. A survey of 75 economists reveals that they reckon that the US economy probably shrank at a 1.5% rate in Q2 as opposed to what was reported last month, which was 1%. On the other hand, fairly good news was expected on the labour front this morning, as figures may show the first drop in unemployment benefits in nearly a month.

Well, the 75 surveyed economists’ expectations were proven incorrect this morning. The US GDP did in fact only shrink by 1%. Jobless claims were down across the board (weekly, 4-week average, as well as continuing claims). Dollar reaction was expected to be positive, but as of this writing, the call was a bit early. Oil certainly extended its price slippage in the wake of the numbers.

Overnight market action was still fixated on China and its ‘guidance’ of steel and cement production amid sizeable overcapacity. Copper fell for a third day and local shares slumped once again, but only by three-quarters of a percent. In the wake of these conditions, the yen rose nearly half a percent against the euro, and continued its longest positive streak against the common currency since July. The yen also gained against the dollar

European statistics offered a mixed bag once again this morning, with the region’s retail sales falling for the 15th (!) month in a row, while German consumer confidence rose to a…15-month high. Spain’s GDP shrank by 1.1% in Q2 as both consumption and investment plummeted again. While the figures are bad, they are also ‘less worser’ than the 1.6% contraction the country experienced in Q1.

Minor drops in the dollar and oil were the standout feature ahead of the start of NY trading this morning. Precious metals were largely marking time prior to the open, and they might do the same for the first stages of the day, until the US data is released and (at least partially) digested. The trade continues to bid bullion fairly well near $945 but few see any major break to the upside against the current thin trading background and absence of significant news-related price drivers.

NY spot gold started off with a $2.90 gain for gold, quoted at $948.40 per ounce against a 0.16 fall in the greenback, to the 78.52 level. Crude oil lost 24 cents to come near $71.19 per barrel. Silver was showing a 2-cent drop at the start of the session, quoted at $14.31 per ounce. There was no change reported in platinum as it traded at $1233.00 and ditto in palladium, which opened near $285.00 per ounce. Impala Platinum announced today that its annual revenues fell by 52% as lower metal prices in the wake of poor demand impacted the bottom line.

The bottom line for India -as regards current year gold imports- is also not shaping up to be something to remember. Bloomberg reports that the skies may be partially to blame. The rest of the blame goes to sky-high gold prices as seen through the eyes of Indian fathers and mothers-in-law-to-be:

"Gold imports by India, the world’s biggest buyer, will  probably slump 37 percent this year as high prices and the worst drought in seven years pares rural incomes, cooling jewelry demand, a traders’ group said. Purchases may drop to 250 metric tons from 396 tons in 2008, Harmesh Arora, vice president of the Bombay Bullion Association Ltd., said in a telephone interview.

Imports this month may have slumped to 14 tons from 98 tons in the year-ago month, he said. “Fears of drought and fall in agricultural incomes are making people cautious and avoid jewelry spending,” Arora said. “Unless the price falls substantially, retail buyers are likely to continue with very essential purchases.” Imports slumped 56 percent to 71.6 tons in the seven months ended July 31, according to the association."

Afternoon conditions finally changed a bit following an utterly boring Thursday session. Gold had spent virtually the entire day near $945 per ounce as there was very little give in the dollar or take in crude oil. The activity picked up after 2:00 PM NY time, as oil finally rose after falling for three days in a row. Black gold was seen rising on the coattails of the Dow – itself coming out of a morning of hibernation to log a 45-point rise. The dollar yielded to a bit of selling pressure and gave up 0.20 on the index, reaching 78.44 against oil trading at $72.29 per barrel.

The above prompted a mild bout of buying on bullion, which rose $3.50 to reach $949 per ounce at last check. Silver narrowed earlier losses and was off by only 6 cents –the roughly the same as its opening level of $14.27. Platinum and palladium showed small gains on the day, rising $8 and $1 respectively, at $1241 and $286 per ounce. In other respects, a very good day to observe the desiccation process of freshly applied paint.

And now, the bottom line on mine hedging/de-hedging, as offered up by SocGen in yesterday’s polished presentation, fresh off the screens. Highlights follow:

• 2009 has, thus far, seen a much more limited amount of net de-hedging than that observed in prior years.
• Coupled with our assumptions for continued accelerated cuts to the hedge book, we anticipate levels of net de-hedging in the second half of the year to be broadly comparable to the first half.
• The majority of the global hedge book still under the control of two main players, namely Barrick Gold and AngloGold Ashanti, there remains significant scope for the two companies’ actions to act as a swing factor.
• Mine supply is currently estimated to have grown in the second quarter year-on-year, by similar volumes to that seen in the first. Strong gains were again seen in Indonesia, China and Russia, while another reduction was observed in South Africa.

(The latter was validated by yesterday’s Russian and Chinese mine production stats featured in our afternoon commentary). Recall that mine de-hedging activities have lent a significant helping hand to bullion price in recent years.

And now, for something completely different, since the market offered no cannon fodder material for financial news writers.

Star Trek fan or not, you ought to take note of the single atom version of dilithium. The up-and-coming and possibly soon-to-be-precious metal is starting to make a few headlines of its own, now that hybrid automobile technology is firmly established and set to spread globally.

Mineweb reports:

"The main uses for lithium have been batteries, ceramics and lubricating greases. Demand is expected to grow significantly as auto makers begin to produce hybrid electric vehicles (HEV) and electric vehicles. Lithium-Ion Batteries are the preferred method for electrifying these vehicles. World production has come from 13,000 t to about 22,800 t lithium in 2008." Japan, Korea and China already have national Lithium Ion Battery technology development programs.

The majority of known resources are in the Bolivian Altiplano which is thought to host around 50% of global lithium resources; yet the country is unwilling to give up this land without ensuring that it profits from it. President Evo Morales has already nationalised the country’s oil and natural gas sectors and is being very protective over this valuable lithium resource.

In the interim, here is a primer on rhodium, as supplied by GoldCore’s Mark O’Byrne. No warp drives, just some nice Prius drives. And others.

"A metal that is far, far rarer and has fundamentals that merit investment consideration. Some consider it the ultimate symbol of wealth—above and beyond gold, silver or platinum—because of its price and very significant rarity. The metal in question is rhodium, which belongs to the platinum group metals (PGM) along with platinum and palladium. Besides being a key component in the car industry, some of rhodium’s other principal uses are in glass making; as a finish for mirrors and jewelry; in electrical connections; and in aircraft turbine engines.

Rhodium’s price performance has been very volatile in recent years. Its average price in 2003 was some $530/oz. Lack of supply led to a massive move up in price until 2008 when it briefly reached just over $10,000/oz.

Annual world production of rhodium is extremely small. Johnson Matthey estimated that rhodium supply was 696,000 troy ounces in 2007, falling to 574,000 troy ounces in 2008. And this year, precious metals consulting firm CPM expects the supply to be down 3.1%. The annual production of rhodium is a mere 1% of gold’s, yet its price is only about 50% more than gold (some $1,600/oz versus some $940/oz for gold).

With 82% of world rhodium supply coming from South Africa and 14% from Russia, resource nationalism could become an issue. Resource nationalism, protectionism and the threat of nationalization could lead to export duties and export controls being introduced, thus the supply of rhodium could be greatly hampered.

Rhodium is a non-exchange-traded commodity; therefore, it cannot be bought on margin like other commodities. Rather, investors must opt for the far more conservative and safer route of owning the actual physical metal itself rather than paper derivatives. Unknown to most, investors can buy rhodium in metal form from specialist bullion dealers and store it in depositories internationally.

Neither Wall Street nor the investment public is particularly aware of rhodium and only a tiny handful of investors and institutions internationally have it on their radar. Rhodium merits an allocation within the precious metals allocation of a properly diversified portfolio."

Are there risks? Sure there are. Take, for example, the situation in palladium – which albeit makes for a great substitute at times when gold and/or platinum are deemed too costly by jewelers and automakers, is now facing a bit of a challenge. Thanks to nearly 700,000 clunkers and the replacements they were given up for. Marketwatch’s Stacey Delo reports that:

"A steep run-up in the price of palladium, an integral component of auto manufacturing, is likely to reverse if car sales falter now that the popular "cash for clunkers" rebate program has ended.

Speculation that more car sales would lead to higher auto output, and thus more appetite for metals used in auto production, has made palladium the best-performing precious metal this year. Higher investment demand has also helped. But analysts anticipate prices are likely to fall from recent 12-month highs near $290 an ounce if U.S. car sales resume a slower pace after a short-lived boost from the "clunkers" program – formerly known as the Car Allowance Rebate System, or CARS – ended on Monday.

"The pickup in auto sector provided support to prices," said Suki Cooper, a precious metals analyst at Barclays Capital. As the "clunkers" program ended, "we are forecasting a bit of drop in auto sales, and in the near term, we could see a little bit of dip [in palladium prices]."

Since July 1, when the car-rebate program officially started, palladium futures have rallied 13% on the New York Mercantile Exchange. The auto industry accounts for more than half of the world’s annual consumption of palladium, which is used in catalytic converters to reduce emissions.

Rising demand for exchanged-traded funds backed by palladium have also helped palladium futures surge more than 50% this year. Platinum, which is more than four times as expensive as palladium, has also got a lift from speculation on higher demand. But those gains have fallen short of palladium’s because gasoline-fueled vehicles, which are more popular in the U.S., use more palladium.

Platinum futures have risen more than 4% since the start of the CARS program. They have gained more than 30% this year, more than gold and silver but less than palladium. Rohit Savant, an analyst at New York-based precious metals consultancy CPM Group, said palladium prices could fall to $250, down from about $286 an ounce currently. He predicts platinum prices could drop to $1,200 an ounce this year, from about $1,240 currently.

Barclays’s Cooper also sees palladium futures slipping this year. She predicts palladium’s average price at $245 an ounce this quarter and $250 in the fourth quarter. In the long term, however, the outlook for palladium and its sister metal platinum "looks quite positive." A drop in prices could also clip a steep rally in the shares of the world’s biggest platinum and palladium producers."

Check out additional market resources at Live Bullion Spots, the Silver Calculator, U.S. Mint Collector Bullion Price Guide, and the Inflation Calculator.