Gold Hits 18-Month High; Silver, Stocks Climb

A falling U.S. dollar drove commodities higher as gold reached an 18-month high and closed just shy of $1,000 an ounce. Silver topped $16.50 an ounce, platinum cruised toward $1,300 and oil traded above $71 a barrel. U.S. stocks ticked higher as well.

New York precious metals figures follow:

• Silver for December delivery gained another 22.5 cents, or 1.4 percent, to $16.51 an ounce.

• Gold for December delivery rose $3.10, or 0.3 percent, to $999.80 an ounce. The yellow metal earlier hit $1,009.70, the highest price since Feb. 20.

• October platinum jumped $30.50, or 2.4 percent, to $1,289.60 an ounce.

Notable bullion quotes of the day follow:

"The higher the price, the higher the volatility, but this market is so concerned with inflation possibilities and dollar weakness that momentum is bringing more investors to the buy side," George Gero, a precious-metals trader for RBC Capital Markets, was quoted on MarketWatch.

"The obvious questions arising this morning and after today’s volatile session, are related to what might come next, and most importantly, the crowd wants to know, when," wrote Jon Nadler, senior analyst at Kitco Metals Inc. "There are just as many thumbs-up on the continuation of the rally to the 2008 peak of $1033.90 as there are thumbs-down, whose owners see an overbought -and then some- market skating on very thin structural ice." [Click to read Nadler’s full commentary.]

In London bullion, the benchmark gold price was fixed earlier in the day to $1,000.75 an ounce, which was an increase of $7.75. Silver was at $16.75 an ounce for a 54 cent gain. Platinum was set higher by $25.00 to $1,280.00 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 rallied Tuesday "as sharp weakness in the U.S. dollar boosted commodities, and as energy traders looked ahead to the upcoming meeting of the OPEC oil cartel," wrote Moming Zhou and Polya Lesova at MarketWatch.

New York crude-oil for October jumped $3.08, or 4.5 percent, to $71.10 a barrel.

The national average for unleaded gasoline declined a half penny to $2.578 a gallon, according to AAA fuel data. The price is 2.9 cents lower than last week, 6.5 cents down from a month back, and $1.08 lower than a year ago.

U.S. Stocks

U.S. stocks climbed as the "Nasdaq hit its highest point in almost a year Tuesday and the Dow and S&P 500 also climbed as commodity shares rallied, and General Electric was upgraded," wrote Alexandra Twin of CNNMoney.

The Dow Jones industrial average gained 56.07 points, or 0.59 percent, to 9,497.34. The S&P 500 Index .SPX climbed 8.98 points, or 0.88 percent, to 1,025.38. The Nasdaq Composite Index rose 18.99 points, or 0.94 percent, to 2,037.77.

Gold, Silver, and Metals: Prices and Commentary – Sept. 8
by Jon Nadler, Kitco Metals Inc.

The $1,000 Inkblot

As has become typical with each and every previous approach and/or breach of the psychological $1K level, emotions (and nerves) were running as high as ever in various gold-related camps this morning. Wild declarations of all sorts were being made during the course of the day -once gain- and the media did not need to call upon various pundits for a smart quote; they offered them up in missives long and short, preemptively.

For the fifth time ever, gold managed to etch the $1000 level into the record books as momentum-fund speculators pushed it aggressively higher in their search for signs of any overhead resistance. A net long position nearing 600 tones now has plenty of market-watchers nervous; especially those who have seen such a tilt develop in the market without a corresponding rise in open interest. We will see what the COT reports offer to the analytical crowd when they are tallied up next. Nerves however, are beginning to show a bit more each day, following the recent price action.

The millennium mark in gold prices was achieved without much drama in overnight metals trading, as the US dollar decisively broke through the 78 mark on the trade-weighted index. The one percent drop in the US currency gave rise to an equal-sized percentage climb in gold ahead of the NY open. Players continue to exhibit Rorschach-test behavior when it comes to what they see in the $1,000 inkblot (as you will read below).

A larger than $1.70 gain in crude oil, supported by the same weakness in the US currency, bolstered the fund-driven advance in gold and other precious metals as well in early market action. OPEC meets this week, in order to decide…nothing. The cartel feels that everyone ought to be happy with near $70 oil. Clearly, some (recovering economies) are not. The almost on-cue melt-up that commenced on the 1st of the month has added nearly $60 to the price of the metal.

New York spot bullion dealings started the post-holiday session off with more of the same: further gains. Gold opened at $1003.80 per ounce, up by $9.30 against a fast-shrinking US dollar that was quoted at 77.24 on the index, and at $1.446 against the euro. Silver rose 44 cents to start at $16.66 this morning, while platinum and palladium were shining as well on the coattail effect precipitated by the gains in gold.

Platinum was ahead by $27 at $1280 and palladium gained $2 to open at $293 an ounce. Labour action at Impala Platinum came to an end after having cost the world’s number two producer some 20,000 ounces in lost production, since August 24.

The afternoon hours changed the landscape somewhat, but the overall direction was (still) positive. Gold retreated from the February high of above $1007, then broke back under the round figure as well. For a brief period, the metal also dipped into red on the net price-change ticker for the day.

Our last price check showed gold trading at $996.60 basis spot bid, but it was still ahead by $2.10 per ounce. Finally, at 1:30 NY time, the December contract in gold ended up at $999.80 per ounce. If one is the hair-splitting type (or, merely of the fact-reporting type), then it can be argued that gold did not in fact manage an above-$1,000 per ounce close in the active contract in futures on this day.

Mind you, at the same time, the US dollar was still on a collision course towards the 77-mark on the index, and crude oil had a wild party, rising $3.28 to $71.30 per barrel. Thus, the retreat in gold makes sense only if profit-takers are lined up among the suspects on the stand.

Silver more than halved its morning gains, and was quoted at $16.41 per ounce (ahead by 19 cents at last check). Platinum maintained and built upon early gains, advancing $30to $1283 an ounce. Palladium rose one more dollar from this morning’s levels, to reach $294 per ounce.

The obvious questions arising this morning and after today’s volatile session, are related to what might come next, and most importantly, the crowd wants to know, when. None of the key market players we have consulted appear to have a clear-cut answer to either query. There are just as many thumbs-up on the continuation of the rally to the 2008 peak of $1033.90 as there are thumbs-down, whose owners see an overbought -and then some- market skating on very thin structural ice. Like the ice that s forming in India as regards 2009 gold imports, or the one that could re-ignite scrap flows back to the flood levels experienced in Q1 on the back of such gold values.

For the moment, India is on a gold-buying hiatus anyway, until the 19th of the month, due to what the local calendar defines as an ‘undesirable’ time to purchase the metal. Should pre-festival buyers return to current values later this month, they might just continue to avoid the local bazaar, as they now have, for most of the year.

To all of that, you can add an equal number of thumbs-sideways – belonging to those who see a new range possibly in the making: one that extends from $880 to $1080 per ounce. The reading of the chart tea leaves offers no further clarity either; some see the emergence of a triple-top in the metal, whilst others draw lines that extend to $1300 from here on out.

For example, Marketwatch’s Mark Hulbert’s take on the current level of skepticism among gold timers leads him to believe that it presages a bullish tilt for the gold market. But, even his surveyed sources offer little in terms of clarity (except perhaps when alluding to the downside risks in price):

"Unfortunately, however, very few clues have emerged in recent sessions. In fact, some of the gold timers who are either in cash or outright short have offered no commentary whatsoever about gold — except to reiterate their bearish stance.

One of the few gold timers who did provide a comment was Stephen Todd, editor of Todd’s Market Timer. Late last Friday, he wrote that, in retrospect, he perhaps should have turned bullish earlier in the week, gold is "now overbought and lurking just under resistance at $1,000. This level has turned back recent rallies. Let’s stay bearish for the present."

Another of these few bearish gold timers who have commented in the last couple of sessions is Sy Harding, editor of Sy Harding’s Street Smart Report.

Last Thursday, he wrote: "We remain on the sell signal for gold, watching … to see if this time it can break out above the overhead resistance around $1,000 an ounce where its last four rally attempts failed. Gold has been wildly volatile for the last few weeks, rally as much as $15 an ounce some days, giving it back the next, and as of yesterday’s close just about where it was two months ago."

In other words, these gold timers could turn bullish at any time. And that, in turn, means that contrarians can make no forecast about how far gold’s rally can go. Stay tuned."

More divided opinion, this time from seasoned traders at various firms. Also as relayed to us by Marketwatch:

"The higher the price the higher the volatility, but this market is so concerned with inflation possibilities and dollar weakness that momentum is bringing more investors to the buy side," said George Gero, a precious-metals trader for RBC Capital Markets.

In other metals, December silver futures rose 52 cents, or 3.1%, to $16.81 an ounce, after rising as high as $16.86. Silver has gained nearly 50% this year. The U.S. dollar fell to a new yearly low versus the euro and tumbled versus other major rivals, undercut as investors continued to show rising appetite for risk.

"Gold broke out from a pretty tight summer trading range mainly due to further concerns over the U.S. dollar’s status as a global reserve currency," said Brian Hicks, co-manager of the $570 million U.S. Global Investors Global Resources Fund .

"Additionally, gold appears to be catching up to other commodity bellwethers, such as crude oil and copper." Gold has risen 13% this year, while crude has jumped nearly 60%.

Holdings in SPDR Gold Trust stood at 1,077.63 metric tons Friday, slightly lower from a day ago.

"It’s unclear how sustainable the rise above $1,000 an ounce will turn out to be," wrote analysts at Commerzbank in a note to clients. "The last two times when it occurred — in February this year and in March last year — the price increase was only temporary and ended in a massive correction below the $900-an-ounce level," they said. "Seasonal trends seem to make this less likely though, as physical gold demand typically picks up around autumn and winter time."

Ah, the beauty of multiform plurality. Or, the silliness of it, for that matter.

The "guns-and-gold" crowd is (once again) declaring TEOTWAWKI! and is urging fellow unprepared militants to buy oodles of the metal even at this price, while others see nothing but the set-up for a huge disappointment in this spike, due to what they allege is a vast conspiracy to sucker in the little people with empty vessels such as the GLD ETF which is -in their minds-bereft of any real gold. Like we said, emotions flare up at such moments in time. Just remember that we were also supposed to have returned to work today, only to find a banking system that had been shut down for an ‘indefinite’ holiday by US authorities.

Clearly, the central item of focus shaping the drama in the gold market remains the US dollar and how it is being perceived by various institutional and individual bettors. A raging battle is unfolding between those who see and/or demand a de-throning of the hitherto global reserve currency, versus those who see a new paradigm emerging for the US economy and US consumer and, thus, a "new dawn" for the American currency as well.

The greenback bears continue to point to recent noises made by China, Russia, and now the UN about the desirability of replacing the greenback with something else more ‘adequate’ for the global economic system. Suggestions have ranged from increasing SDR usage to all kinds of ‘soft pegs’ but nothing concrete has been blueprinted as yet. The bears also fret about the US current-account deficit and are putting the onus on President Obama to address the issue aggressively. Dollar collapse? Any day, now.

Dollar bulls on the other hand, correctly question what that ‘something else’ might be and/or what country it originates in. They also add that the dollar will benefit from the inevitable (and already underway) rise in the US savings rate and the shift in the American economy to more of an export-based model. US savings rates had collapsed to zero in April of last year but have now risen to 6% and they still might have some way to go. The yield on US 10-year bonds is running nearly 4% higher than overnight inter-bank lending rates- a differential that some analysts say makes US debt highly desirable. Dollar collapse? Nah. Dollar resurrection. Any day, now.

And that, folks, is what we mean by wide-ranging emotions and opinions. All the ingredients necessary to make for a market. A volatile, unpredictable one. Any day, now.

So, then, what do YOU see in the following image?

Dr. Rorschach will be with you shortly.

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