Gold Hits New High for Second Day, US stocks End Mixed

Gold climbed to a new record high for the second straight day as the US dollar continued to show weakness and in spite of a more than $1 a barrel drop in crude oil prices. Silver and platinum advanced as well. US stocks ended mixed.

New York precious metals figures follow:

• Silver for December delivery rose 20 cents, or 1.2 percent, to $17.500 an ounce.

• Gold for December delivery climbed $4.70, or 0.5 percent, to $1,044.40 an ounce. The yellow metal hit a high of $1,049.70 earlier in the day.

• October platinum gained $2.40, or 0.2 percent, to $1,320.50 an ounce.

The most notable bullion quotes of the day follow:

"The steady upward surge is led by funds whose clients request gold participation and continued momentum buying" as the dollar stays weak, George Gero, a precious-metals trader for RBC Capital Markets, was quoted on MarketWatch.

"Don’t expect gold to make new highs every day," Frank Lesh, a trader at FuturePath Trading LLC in Chicago, was quoted on Bloomberg. "There will be periods where the dollar will rebound off oversold conditions. There’s going to be people who are reluctant to buy at new highs, and they’ll wait for a pullback."

"Today’s gains were somewhat tempered in the latter part of the session, but the yellow metal remained above (or very near) the $1040.00 level despite a mild dollar recovery and a larger than $1 decline in crude oil prices," wrote Jon Nadler, senior analyst at Kitco Metals, Inc. "There would appear to be little standing in the way of a further push to $1080 at this juncture- should $1050 fall without putting up a fight, but light profit-taking is now apparently emerging on a sporadic basis as the trading atmosphere is more rarefied than what one might encounter in the Himalayas." [Click to read Nadler’s full commentary.]

In London bullion, the benchmark gold price was fixed earlier in the day to $1,040.25 an ounce, which was a $1.50 increase. Silver was at $17.40 an ounce for a 45 cent gain. Platinum was set higher by $13.00 to $1,323.00 an ounce.

In gold and silver coin news from the US Mint on Tuesday, Gold Buffalo and Platinum Eagle are scheduled for release while collector 2009 Eagle Silver Coins are cancelled.

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 plunged "after government data showed a bigger-than-expected buildup in U.S. gasoline inventories," wrote Moming Zhou and Polya Lesova of MarketWatch. The inventories rose by 2.94 million barrels to 214.4 million last week, according to the weekly report by the Energy Information Administration (EIA).

"Fundamentals are still weak," BNP Paribas SA senior oil analyst Harry Tchilinguirian said in an interview with Bloomberg radio. "This year is going to end with a contraction in global demand. There have been positive supply surprises in places outside OPEC like Russia, and OPEC’s own compliance has slipped."

New York crude-oil for November delivery declined $1.31, or 1.8 percent, to $69.57 a barrel.

The national average for unleaded gasoline climbed four-tenths of a cent to $2.465 a gallon, according to AAA fuel data. The price is 1.4 cents lower than last week, 11.8 cents down from a month back, and $1.02 less than a year ago.

U.S. Stocks

U.S. stocks ended mixed and "seesawed Wednesday, with blue chips weaker and techs a bit higher as a two-day advance petered out amid a mixed dollar, lower oil prices and some jitters at the start of the quarterly financial reporting period," wrote Alexandra Twin of CNNMoney.com.

The Dow Jones industrial average fell 5.67 points, or 0.06 percent, to 9,725.58. The S&P 500 Index gained 2.86 points, or 0.27 percent, to 1,057.58. The Nasdaq Composite Index rose 6.76 points, or 0.32 percent, to 2,110.33.

Gold, Silver, and Metals: Prices and Commentary – Oct. 7
by Jon Nadler, Kitco Metals Inc.

Where is Waldo? Hint: Not in Asia.

Greetings from (still) rainy London,

A fresh high was recorded in gold spot prices early this morning, and it came in at $1049.50 – practically a match for the interim targets envisioned by some of the technical analysis that pegged such an achievement on the success of taking out the 2008 high in previous weeks. Today’s gains were somewhat tempered in the latter part of the session, but the yellow metal remained above (or very near) the $1040.00 level despite a mild dollar recovery and a larger than $1 decline in crude oil prices. There would appear to be little standing in the way of a further push to $1080 at this juncture- should $1050 fall without putting up a fight, but light profit-taking is now apparently emerging on a sporadic basis as the trading atmosphere is more rarefied than what one might encounter in the Himalayas.

Speaking of market talk, and of technicals, here is what GoldEssential’s analysis had to report as of this morning:

"Gold futures were seen off earlier highs on Wednesday, shortly after COMEX pit opening, as caution kicked in about where to guide the yellow metal next and as the U.S. dollar strengthened slightly, Carl Johansson at Goldessential said. A COMEX trader confirmed, saying that "we were hitting fresh record highs this morning on the back of stop-loss hunting, although NY doesn’t seem to be showing much appetite for gold at the moment."

He added that volumes had been thin during the first hour of trading, but added that "there’s no material profit taking yet either". Johansson added that "when going with what some fund managers have said, there seems to be growing a bit of an uncomfortable feeling about whether gold can go up much further on the short-term, given the distance covered so-far without any sizeable correction." Support was expected to start at $1,038.50 and then to come in between $1,030-$1,028 an ounce, followed by $1,022 an ounce. Channel resistance was projected at $1,050 an ounce."

Spot prices weighed in at the following levels as of about 90 minutes prior to Wednesday afternoon’s final tick: Gold, up $1.70 ( a $3.50 gain due to predominant buying as shown by the new Kitco Gold Index http://www.kitco.com/kitco-gold-index.html as against a 1.80 drop in same due to dollar strengthening, for a net of $1.70 up) at $1043.50 per ounce. Silver, up 14 cents at $17.48 per ounce, platinum ahead by $10 at $1323, and palladium rising by $6 to $312.00 per troy ounce.

Virtual saturation with gold-related stories was seen in the financial (and non-financial) media during the past 24 hours. As well, brave new calls from (surprise!) mining firms, never-before-heard-from trading firms, and newly-minted gold analysts were also made as this new pinnacle for gold was being etched into the record books. The new ‘black’ is now $1500 or $2200 per ounce gold. Not to mention the ‘open’ possibility of reaching for $5,000 or $8,000 or $10,000, or "the sky is the limit" per ounce gold. In the old days, this was normally taken as a harbinger of a blow-off top being put into place.

All of this talk started flowing as if the dissertations were pre-written, because the metal managed to rise above last year’s high of $1033.90 an ounce – certainly a notable achievement, but a rather suspect one when one takes into account the timeframe and ownership structure (those pesky hedgies, again!) of the unfolding. No one is going to tell us that the "Istanbul Dollar Coup" was leaked five weeks in advance to the hedge funds that loaded up on nearly 800 tonnes’ worth of long positions. Let alone the fact that there was no such ‘coup’ attempted. Nor, will it be. So, in the absence of any concrete misstep by the Fed or anyone else on the 1st of September, this remains a momentum fund-driven spectacle.

The bold assertions being made at this very hour carry precisely the same flavour that they had back in January of 1980. But, is it supposedly "different this time around, you know." Well, that depends on where in the world Waldo, the gold buyer, finds himself, apparently. Okay, time to now castigate good old Jim Rogers for being a value investor (never mind the other voices from Tanaka and the Perth Mint who dare give us reports on the conditions ‘on the ground’ in other parts of the world) as reported in the overnight press:

"Gold received a lukewarm reception a day after racing to a record high, with consumers in Asia more likely to be cashing in than panic buying. Profit taking — read selling — replaced gold purchases that in New York and across Europe on Tuesday had swept spot bullion through the March 2008 record to hit $1,043.45 an ounce.

"It is simple, buy low and sell high — I am making a 10 percent profit already so I am selling," said Nguyen Duc Hung while waiting to sell five taels of gold at a shop on Hanoi’s Ha Trung street. Hung said he bought the gold in early July. To date, there have been no reports of gold hoarders burying stashes in secret spots as was the case in 1980, when gold zoomed above $800 an ounce for the first time, or about double today’s level when adjusted for inflation.

Gold was last quoted at $1,042.20 an ounce, just shy of Tuesday’s peak. "Today’s been like any other day," said David Carr, of KJC Coins Australia in Sydney. "No one’s coming in to sell gold because the price jumped overnight, it’s more wait and see, business as usual." The Australian outback gold mining town of Kalgoorlie, home to a nearly Times Square-sized electronic ticker tape broadcasting up-to-the-minute bullion prices, also was quiet.

"There’s nothing going on that’s out of the ordinary," said John Horner, editor of the Kalgoorlie Miner newspaper. In Tokyo, gold’s ascent barely caused a flutter. "Both buyers and sellers are coming to the shop today, they are more or less evenly balanced," said Osamu Ikeda, general manager at Tanaka Kikinzoku Kogyo, Japan’s biggest bullion retailer. With Chinese markets closed for a week-long holiday, Japanese investment sentiment was center stage in Asia.

"Importantly, gold does not appear to be finding support from Tokyo, the key region in our time zone," said Nigel Moffatt, head of treasury for Australia’s Perth Mint. In India, where consumer demand typically peaks next week for the Dhanteras and Diwali festivals, the strong rupee kept the local price of gold under the psychological level of 16,000 rupees ($342) per 10 grams. "Buying was very strong in the last couple of weeks, but it has been affected now even though the rupee has given a good cap to local prices," said Pinakin Vyas, assistant vice president treasury at IndusInd Bank, a private bank in Mumbai that imports gold to sell to local traders and jewelers.

"Investors will not buy at these levels though need-based buying from jewelers will continue. People will wait for some time and then come back to the market." Even Jim Rogers, one of the biggest bulls during this decade’s commodities rally, said he would stay clear of buying gold for now, although he predicted prices will continue to go up over the long term. "Gold has hit a new high and I don’t like to buy something at record prices unless there are extremely strong fundamental reasons," he said. Gold’s gains comes in step with a fall in the U.S. dollar, which has been battered by low interest rates and worries about the state of the world’s largest economy. The dollar index was at 76.384 on Wednesday, near a 13-month low hit in September.

"The driving force for gold’s rally is the declining confidence in the dollar, which helped elevate gold’s stature, along with the explosive growth in gold-backed exchange-traded funds which broadened the investor base for bullion," said Shuji Sugata, a manager at Mitsubishi Corp Futures & Securities."

It is, indeed, a simple, two-sided story. The dollar and the Fed. When, and how, will the greenback reverse course, and, when, and how, will the Fed address the nagging questions that are driving speculators to gold (at least in N. America and parts of Europe) and making them allergic to the US currency? A good question. In terms of selected jawboning from some who actually work at the Fed, it is rather clear however, as Bloomberg informs:

"Federal Reserve Bank of Kansas City President Thomas Hoenig said the central bank should start raising interest rates "sooner rather than later," and such tightening wouldn’t derail the U.S. economic recovery. "Even if we were to start immediately, much time would pass before incremental increases could be considered tight or even neutral policy," Hoenig said yesterday in a speech in Denver. "I would not support a tight monetary policy in the current environment, but my experience tells me that we will need to remove our very accommodative policy sooner rather than later."

Hoenig’s comments parallel those by Fed Governor Kevin Warsh, who said on Sept. 25 the Fed may need to tighten "with greater force than is customary," and Richmond Fed President Jeffrey Lacker, who said on Oct. 1 that rates may need to be raised even with unemployment near 10 percent. "We all know that the neutral rate is not zero," said Hoenig, who doesn’t vote on monetary policy this year. "Equally obvious is that a rate of 1 or 2 percent is not tight monetary policy. It is still very accommodative."

In contrast, New York Fed President William Dudley said this week the central bank needs to focus in the near term on keeping rates low, citing concern inflation could slow too much. The Federal Open Market Committee said last month the U.S. economy has "picked up" following the deepest recession since the 1930s. Officials slowed the purchase of $1.45 trillion in mortgage-backed securities and housing debt, while pledging to keep the benchmark interest rate near zero for an "extended period."

The outlook among gold buyers conflicts with government and economist forecasts as the U.S. emerges from the worst slowdown since the Great Depression. Federal Reserve Bank of New York President William Dudley said on Oct. 5 that slowing inflation is "problematic" for the economy and that interest rates should stay low. His remarks bolstered comments made in the minutes of the Fed’s September meeting that "inflation will remain subdued for some time."

A clear disconnect in outlook. Same as existed in the turbulent winter of 1980. With one MAJOR difference: no hedge funds in sight then, but plenty of ACTUAL inflation already in the system them. This, before Paul Volcker rolled up his sleeves and gave the world US real interest rates of nearly 6%. Did it cause pain? Of course it did. No adjustment made from the bottom of the top of a particular curve is ever absent of some suffering. Did it work? For quite some time. And then, it was back to the old ways. And now, the roller-coaster is at yet another dollar-trough. Yet the incessant chants are for sawing the bottom of the rail off and letting it go…where?

One small problem: the sheer amount vested and invested into these trillions of little green pieces of paper by…well, everyone, including Waldo, is so large that this is no longer a question of some give-up in US’ over-extended, hedonistic, shopping-addicted lifestyles. The stakes now involve that promising-looking gold buyer in China, and the one in India, and it is not only on account of the current price tag of that piece of gold. It is on account of what happens to other economies and other central bank holdings when/if the dollar is to be "allowed" to succumb by inaction. And, this is why, one can almost fast-forward six or nine months and see a bit of a different world than what appears to be depicted today, from wall to TV wall.

And thus, the world turns, and sentiment churns. Until the next bets will made tomorrow morning, and until the next utterances are made (or not made, as the case may be) by people whose words or silence matter much more than this scribe’s. Now, those, they are tradable words and silences. As has been the case for 72 hours now.

Please note there will be no commentary tomorrow, unless we get lucky and sit on a plane with Internet access.

Until Friday,

Check out additional market resources at Live Spots, the Silver Coin Melt Calculator, and the US Inflation Calculator.