Gold Declines on Stronger Dollar, Stocks Tumble

Gold ended lower Thursday, staying just above $1,000 an ounce, as the US dollar gained strength. It was the yellow metal’s first decline this week. Platinum and silver fell as well. Crude oil rose slightly following Wednesday’s 5.8 percent rally. US stocks tumbled, registered their worst one-day loss in three months.

New York precious metals figures follow:

• Silver for December delivery slipped 21.8 cents, or 1.3 percent, to $16.440 an ounce.

• Gold for December delivery declined $8.60, or 0.9 percent, to $1,000.70 an ounce.

• October platinum fell $13.60, or 1.0 percent, to $1,282.00 an ounce.

The most notable bullion quotes of the day follow:

"It’s all dollar-related," said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois. "If we do see a significant rally in the dollar, that’s a problem for gold."

"At prices above $1,000, the air should get thinner for gold, especially as the U.S. dollar has gained ground this morning," said analysts at Commerzbank in a note.

"Clearance of levels above $1013 and $1024 could open a path to the matching of 2008’s high, while downside pegs to watch out for are lined up at about every $5 increment from $1005 to $985," wrote Jon Nadler, senior analyst at Kitco Metals, Inc. " [Click to read Nadler’s full commentary.]

In London bullion, the benchmark gold price was fixed earlier in the day to $1004.75 an ounce, which was a $9.00 increase. Silver was at $16.55 an ounce for a 10 cent gain. Platinum was set higher by $5.00 to $1,292.00 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 gained slightly "as investors digested mixed economic data. Natural gas slumped as a report showed U.S. inventories hit a new record high last week," wrote Moming Zhou and Polya Lesova of MarketWatch.

New York crude-oil for November delivery rose 21 cents, or 0.3 percent, to $70.82 a barrel.

The national average for unleaded gasoline fell a penny to $2.469 a gallon, according to AAA fuel data. The price is 6.5 cents lower than last week, 13.8 cents down from a month back, and $1.15 less than a year ago.

U.S. Stocks

U.S. stocks plunged with the "Dow and S&P 500 suffered their worst one-day fall in three months on Thursday after economic reports fueled fears about the recovery’s strength," writes Caroline Valetkevitch of Reuters.

"We’re getting a sense that while things have bottomed, we are not getting a significant snap back," Haag Sherman, managing director at Salient Partners, was quoted on CNNMoney. "We’re going through a process where corporate profits will be robust, but the economic recovery will be spotty."

The Dow Jones industrial average plummeted 203.00 points, or 2.09 percent, to 9,509.28. The S&P 500 Index fell 27.23 points, or 2.58 percent, to 1,029.85. The Nasdaq Composite Index declined t 64.94 points, or 3.06 percent, to 2,057.48.

Gold, Silver, and Metals: Prices and Commentary – Oct. 1
by Jon Nadler, Kitco Metals Inc.

Russian Harvest

Good Day,

Following yesterday’s recapture of four-digit price territory, precious metals took a slight breather during the overnight hours. The trading period in Asia and Europe maintained values within the 1002-1010 channel however, and players expected a bit more of the same later on in NY. The dollar advanced 0.44 on the index and itself retook a milepost at the 77 mark and added 0.10 to it as well, while crude oil was lingering about one penny under the $70 level per barrel after yesterday’s dollar-fueled sprint. Chart-watchers now opine that the commodity is all but set to test resistance in the mid-$70 area after having broken to the upside in its biggest move in six months’ time yesterday.

New York spot metals dealings opened with a $4.00 drop in gold, which was quoted at $1003.80 per ounce against the aforementioned dollar/oil background. Clearance of levels above $1013 and $1024 could open a path to the matching of 2008’s high, while downside pegs to watch out for are lined up at about every $5 increment from $1005 to $985. The risk remains in place that a potential triple-top formation is being etched into the charts, but the yellow metal has also been moving in a very orderly fashion recently, heeding technical points with regularity. Overnight Indian demand slumped as locals became alarmed at the $1000+ tag attached to an ounce of the yellow metal. Festival season is but one month ahead and buyers remain indecisive as there is little appetite for getting stuck with costly inventory among them.

Today is  a heavy-duty data release day, thus the dollar will have ample opportunity to head in various directions – it just depends on the prevailing mood among those who will parse the numbers. Thus far, the news that consumers spent heavily in August -by the most in eight years, in fact- did not appear to move either the dollar or gold by very much. The day is young, however. We’ve entered Q4 and it promises to be an interesting one for all markets, to say the least.

Silver lost 8 cents at the start of the session, dropping to $16.54 per ounce, while platinum fell $6 to $1290 and palladium sank $6 to $288 per ounce. You can now add Saturn to the list of former planets as well – at least as regards the auto industry’s nameplates. GM will just have to make do with a couple of core brands at this point. Still, some of this fallout could eventually yield fewer North American cars rolling off the assembly lines. The white metals are also exhibiting bumping up behaviour against their own resistance areas, and speculative players are questioning their ability to achieve and/or sustain the $17, $1300, and $300 price tags respectively.

In global news, the IMF now projects next year’s growth levels around the world to average 3.1% and is raising those estimates from the 2.5% figure issued when green shoots were still just buds. The Asian economies are seen leading the way to such an achievement, although the US one is also seen as marching ahead at a 3 to 4 percent pace, by former Fed chief Alan Greenspan. For now, market await the ISM’s factory gauge numbers (though to have risen from 52.9 to 54 last month) and personal income figures from the Commerce Department. Rounding out the US statistical day will be existing home sales figures.

However, Mr. AG envisions such growth as slowing in the second half of 2010 and being helped by a rising stock market in the next six or so months. Mr. Greenspan also called for the US to raise taxes, mop up excess liquidity, and tighten credit, as the exit from the credit crunch cave rolls on. Hello US VAT. For starters.

Envoys from six world powers sat down with Iran in Geneva this morning and began talks aimed at making Senator McCain’s famous Beach Boys song alteration from becoming a reality. The decision to take out clandestine nuke facilities may still ultimately rest with Israel – the nation most at risk from the consequences of someone losing their mind in Tehran.

There are however, plenty of small and not so small Arab nations (of the oil-producing variety) who also want to see curbs on Iranian ambitions of this worrisome ilk. China is also very much in this dangerous loop. What growth can the country hope to maintain if its second largest supplier of black gold is suddenly under trade sanctions or if its oil fields are burning? Not the kind it was boasting about, as massive celebrations of the country’s 60th anniversary of what Mr. Mao once created got underway.

Someone else celebrating these days, is Russia’s gold-producing industry. Mineweb reports that:

"Russian gold production rose 18.5% year-on-year in the first eight months of 2009, mainly due to the launch of some large projects in the far east, the Russian Gold Industrialists’ Union, said on Thursday. The Union, the industry lobby, said in a statement gold output by the world’s No.5 miner of the yellow metal totalled 126.42 tonnes in January-August compared to 106.69 tonnes in the same period a year ago.

It said gold output from mines accounted for most of the 1.39 tonne rise in August from August 2008, while output from gravel deposits, termed placers, was practically the same as a year ago. Production of gold from mines and placers in the first eight months of 2009 rose 18.4% year-on-year to 111.28 tonnes, the Union said.

Output achieved by refining gold from scrap rose 1.9% to 4.74 tonnes and gold produced as a by-product of other metals rose 29.3% to 10.40 tonnes. Russia produced about 8% of the world’s gold last year and plans to significantly increase this share by developing its reserves that are second only to South Africa’s."

Mineweb also relays the findings of Aussie research house RCR (Resource Capital Research) which says that:

"Gold is to trade in the range of US$950/oz to US$1,000/oz in the next six months, supported by ongoing concerns over the US dollar, with the odd dash of inflation fear thrown in.  However the consultancy feels that the fundamentals, particularly reduced crisis-driven investment demand, do not suggest the price will sustain the push through US$1,000 an ounce.

Thus it sees more risk on the downside towards US$900/oz if equity markets continue to rally. RCR reckons that inflation is not yet real enough to be a sustained driver of gold but this may well change by the second half of 2010 when it may well have a positive impact on price. RCR says that the almost 10% rally in the gold price from its early July low of US$909 an ounce has been driven primarily by a weakening US dollar, but also helped by sporadic headlines regarding future inflationary risks.

In the last three months the US dollar, RCR points out, as measured by the Trade Weighted Index of major trading partners, has fallen by 6%. Equity markets have been rallying strongly (The Morgan Stanley World Index is up 18.9% in the last three months) which suggests that ‘crisis-driven’ safe haven buying, which was prevalent early in 2009, is not a key driver of the gold price.  Gold prices for producers in Australia and Canada are seen as having gone nowhere in the last three months due to commodity-linked currency appreciation."

The good news in the above report, would clearly be the firm’s view that bullion could encounter support near the $900 level and that the downside -at least for the period in question-is fairly limited from today’s perspective. The questions RCR raises about sustainable above-$1K values, are, on the other hand, nothing new at this point. Unless you have been reading only a…certain strain of newsletters.

In any case, RCR’s outlook is at odds with one expressed by Deutsche Bank, which feels that 2010 might see a gold price near $1100 (duration is not mentioned) on the back of dollar weakness. The numbers projection game rolls on. We only really care about one number: the percentage of gold allocation in one’s portfolio. Too little, and it offers no protection from bad surprises. Too much, offers the probability of surprises of another kind.

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