Gold Rises Despite Higher Dollar, Stocks Retreat

New York gold futures climbed Tuesday, although the yellow metal lost a portion of earlier gains following a lifted US dollar which also pulled down oil prices for the first time in nine days. Silver, platinum and US stocks edged slightly lower.

New York precious metals figures follow:

• Silver for December delivery fell 6.7 cents, or 0.4 percent, to $17.558 an ounce. It ranged from $17.420 to $17.955.

• Gold for December delivery rose 50 cents to $1,058.60 an ounce. The yellow metal ranged from $1,052.60 to $1,069.

• January platinum declined $7.90, or 0.6 percent, to $1,356.30 an ounce.

The most notable bullion quotes of the day follow:

"The dollar is sick, and the only medicine to fix the dollar would be higher interest rates, and that’s not going to happen soon," Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois, was quoted on Bloomberg. "So the markets are going to take the dollar lower and gold higher."

"Most of Monday’s gains were initially fueled by the US dollar’s approach of 4-month lows against the European common currency, whereas today’s early gains were largely in sympathy with a near-$80 per barrel crude oil price and light follow-through buying in the metals market," 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 $1,061.75 an ounce, which was an increase of $11.25. Silver was at $17.755 an ounce for a 23 cent gain. Platinum was fixed $19.00 higher to $1,371.00 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.

In related gold news, bullion American Gold Buffalo coin sales were hot following their first few days of release. Between their launch on Thursday and to Monday, 71,500 were sold to US Mint authorized dealers. By comparison, 63,500 of the bullion American Gold Eagles were sold during the first 19 days of the month.

Oil and gasoline prices

Oil fell Tuesday for the first time in nine days "after hitting a fresh one-year high above $80 a barrel, as sentiment was dominated by worries over whether crude’s recent surge is justified given the ongoing weakness in demand," wrote Polya Lesova and Moming Zhou of MarketWatch.

"There’s been a very strong correlation with the dollar and equities," Roger Diwan, who was quoted on Bloomberg and is the head of financial advisory with PFC Energy in Washington, an energy strategist to companies and governments. "The fundamentals will at some point reassert themselves."

New York crude-oil for November delivery fell 52 cents, or 0.7 percent, to $79.08 a barrel.

The national average for unleaded gasoline surged 1.3 cents to $2.577 a gallon, according to AAA fuel data. The price is 9.9 cents higher than last week, 2.6 cents more than a month back, and 35 cents less than a year ago.

U.S. Stocks

U.S. stocks retreated from 12-month highs Tuesday "as a stronger dollar and some disappointment about DuPont and Coca-Cola’s results gave investors a reason to retreat from the recent rally," wrote Alexandra Twin of CNNMoney.com.

"The real story now is the extent to which we’re going to see a top-line-led justification for the values in the market," Paul Atkinson, senior investment manager of the Aberdeen U.S. Equity Fund, was quoted on MarketWatch. “The U.S. is worrying more about whether it will go back into recession, so there’s a real lack of confidence around and the slightly negative news is seized on."

The Dow Jones industrial average fell 50.71 points, or 0.50 percent, to 10,041.48. The S&P 500 Index lost 6.85 points, or 0.62 percent, to 1,091.06. The Nasdaq Composite Index declined 12.85 points, or 0.59 percent, to 2,163.47.

In other economic news of the day, US wholesale inflation declined 0.6 percent in September, according to the government. The fall makes inflation even less of an immediate concern. The Labor Department’s Producer Price Index, which measures prices at the factory door and inflation pressures before they reach the consumer, has now declined for a second straight month following a 1.7% increase in August.

Gold, Silver, and Metals: Prices and Commentary – Oct. 20
by Jon Nadler, Kitco Metals Inc.

Rusty In The Melee

Good Day,

Monday’s early dip in gold prices to the $1050 area was followed by a close near $1065 and by additional overnight gains that brought the metal back to the $1070 value zone. Most of Monday’s gains were initially fueled by the US dollar’s approach of 4-month lows against the European common currency, whereas today’s early gains were largely in sympathy with a near-$80 per barrel crude oil price and light follow-through buying in the metals market. Curiously, gold ETF holdings (SPDR) remained static for an eighth day and were still some 25 tonnes under their June 1st peak in balances.

Morning comments from two trading firms diverge just a bit, but give a nod to the unfolding underlying picture. That snapshot reveals a market lacking buoyant physical demand and totally dollar movement-dependent, whilst the number of shorts (as noted in yesterday’s GoldEssential.com review) is starting to rise following the post Sept. 1 non-stop price marathon:

"Physical demand will remain relatively weak, with post- Diwali demand from India subdued at these prices," Andrey Kryuchenkov, an analyst at VTB Capital in London, said in a report. "The downside is limited as long as the greenback remains vulnerable."

The recent rally to a record may prompt some investors to make sales, according to Commerzbank AG. "While many speculators had rushed to jump onto the bandwagon, an expanding minority of short-term-oriented investors is betting on falling gold prices," senior analyst Eugen Weinberg wrote in a note."

Tuesday’s NY session started off with small gains the yellow metal, with spot bid prices showing a $1.50 positive tick at $1065.00 per ounce. The slightly less enthusiastic (than overnight) gains shown on the open were mirroring a tiny 0.03 rise in the US dollar index (@ 75.28 at last check) and a very slight pullback (17 cents) in oil (last seen at $79.44 per barrel).

Silver players took small profits and the metal declined 6 cents to $17.76, but platinum continued higher, gaining $12 to $1369 per ounce. Palladium showed a $2 gain, starting the day off at $335 per ounce.

Indian gold dealers said today that festival-related bullion sales were (as expected, and noted here) lower compared to last year" "Demand was in no way in comparison to the previous year, on month they were lower by 45 percent," said a senior executive with a large foreign bank, which supplies gold to India." reports the Economic Times. By this morning, wholesale gold demand abated somewhat more, with local premia hardly moving, and consignments drying up.

Central bank and other official-flavoured talk regarding the dollar and its current woes is, meanwhile, taking some familiar steps in evolving from total silence, to scattered mentions, to noticing ‘unhealthy volatility’ to overt ‘concern’ and could be leading up to equally overt currency market intervention. Not that such steps occur too frequently, but they are nevertheless available – if required. Note comments relayed by Bloomberg overnight, from the ECB, and France:

"European finance chiefs expressed "worries" about foreign-exchange movements and backed the U.S. administration’s stated preference for a strong dollar after the euro climbed to a 14-month high against the American currency. "Excessive volatility" in currency rates is "bad for economic development," European Central Bank President Jean- Claude Trichet said in an unscheduled appearance at a press conference late yesterday after a meeting of euro-area finance ministers in Luxembourg. "It’s a problem which worries us," said Luxembourg’s Jean-Claude Juncker, who led the talks.

The euro has gained almost 20 percent against the dollar since February, making the region’s exports more expensive to overseas buyers and threatening the recovery from the worst recession since World War II. U.S. Treasury Secretary Timothy Geithner said on Oct. 3 that it is "very important" for the U.S. to have a strong dollar.

French President Nicolas Sarkozy’s counselor, Henri Guaino, said today in Paris that the U.S. is "flooding the world" with dollars and that the currency’s weakness may become "unbearable." Eric Woerth, France’s budget minister, said the euro’s gains are hurting the region’s competitiveness.

"We all note with considerable attention the statements made by American authorities as regards their support in favor of a strong dollar," Trichet said in Luxembourg yesterday. "We want a strong dollar; we need a strong dollar," French Finance Minister Christine Lagarde said in Luxembourg. "We must remain disciplined" on the message, she said.

"The euro is at a strong level and they don’t want to see it rise any further," said Grant Lewis, an economist at Daiwa Securities SMBC Europe Ltd. and a former U.K. Treasury official. "This is a shot across the bow, but I’m not sure it will be effective. It’s very difficult to turn the tide."

Meanwhile, the Aussie are doing something about their own currency and the so-called ‘exit policy’ from accommodation. Good on them, mate. Members of the Reserve Bank of Australia said earlier this month that downside risks have "diminished significantly," making loose policy no longer necessary. The RBA has unexpectedly raised its policy rate by a quarter-point to 3.25% at this month’s meeting. That move marked its first rate increase since March 2008 and the first such hike in a major developed economy since the start of the financial crisis last year.

The recent speculative spike in gold has engendered a proliferation of aggressive marketing by US-based vendors of the stuff, as mentioned in yesterday’s excerpt from the Asia Times. We had already noted the absolute explosion in cash-for-gold type of businesses during the spring and summer months. In many ways, the gold run of 2009 is indeed different than that of 1980. Confusion and conflicted views define the behaviour of the crowds. Smaller dealers, out on the front lines of the business see, hear and feel the pulse of the man/woman in the street.

So, how is business, and what is heard and seen at your local, friendly coin shop these days? What do you do when you don’t have slick ads running on Fox News, or fast-talking telemarketers crowding the back room of the bucket shop? Well, you do your best to meet the demand in the local community. Which, we might add, is neither easy, or necessarily profitable, and most certainly not, a one-way, selling-only, proposition:

Last Friday, a reporter from the Reno Gazette-Journal interviewed Reno, NV-based Southgate Coins’ owner Rusty Goe about the recent rise in the price of gold bullion. Following, is a portion of the Reno Gazette-Journal’s article about the effects of the spike in gold prices in Nevada, titled "Nevadans caught up in gold rush, gold risk":

"With gold prices at a historic high, Nevadans are buying, selling, avoiding or mining more of the precious metal than ever before. It’s a complicated, and risky, business. The price of gold has settled at above $1,000 an ounce, causing some investors to buy coins or bullion in the belief that coming inflation, a sagging economy and the weakening dollar will force the metal’s price to even greater heights. Others are selling their gold, betting that the price has peaked and the shining bubble will burst.

At Southgate Coins on South Virginia Street [in Reno, Nevada], both the folks who think gold is an umbrella against a falling sky and those who want to sell their hard metal at a peak price are daily visitors, according to shop owners Rusty and Marie Goe. "It’s a wash," Rusty Goe said. "It’s like we have two doors, one for the people cashing out and the other for people wanting to buy" Goe noted that the recent rapid upswing in the price of gold followed (false) rumors that oil would be taken off the dollar standard. "The price shot up in the last two weeks on a rumor that had no basis in fact," he said. "Gold is at an all-time high, but not really"

He noted that gold’s previous all-time high, in January of 1980, was $875, an amount that shrank to $850 at the market’s closing. Although the metal has tripled in price since 2003 and doubled since 2005, gold took 28 years to recapture that 1980 record price. "And if you look at the nominal rate of inflation since the $875 price, gold would have to be at least $2,500 an ounce to match its value in 1980," he said. "If you factor in inflation it hasn’t actually reached an all-time high, but the recent run-up has gotten everybody excited" Goe sells gold coins and bullion for a 3 percent commission over market price, plus 7.7 percent sales tax. He said much of the gold-buying today is fueled by fear of economic collapse and predictions of the ruin of the dollar.

The commissions on gold sales "aren’t enough to pay the rent," he said. His main business is dealing in collectable coins—many from the Carson City Mint—which sell for thousands of dollars above their intrinsic values. His advice on gold: "Don’t follow the herd and buy at peak levels; hold off until the euphoria subsides"

Keep an eye on longs-fueled battering ram attempts at the $1070+ (objective $1080?) level, while keeping an ear on the decibel level and tenor of the jawboning from the "official sector" for the remainder of this week. The market melee continues. In French, the term generally refers to "disorganized close combat involving a group of fighters. A melee ensues when groups become locked together in combat with no regard to group tactics or fighting as an organized unit; each participant fights as an individual.

Until later,

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