Gold, Silver Rise; Stocks Fall

Gold ended higher Wednesday and for the fourth straight day as a decline in the US dollar propped precious metals higher — silver and platinum advanced as well. In other markets, crude oil surged above $81 a barrel to a one-year high while US stocks retreated from their own earlier one-year highs.

New York precious metals figures follow:

• Silver for December delivery rose 26.7 cents, or 1.5 percent, to $17.825 an ounce. It ranged from $17.300 to $17.835.

• Gold for December delivery climbed $5.90, or 0.6 percent, to $1,064.50 an ounce. The yellow metal ranged from $1,048.10 to $1,065.70.

• January platinum advanced $18.10, or 1.3 percent, to $1,374.40 an ounce.

The most notable bullion quotes of the day follow:

"Gold’s move is all dollar-driven," Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago, was quoted on Bloomberg. "You’re going to see continued erosion in the dollar. I’m very bullish on gold."

"Until such time, and barring unexpected news of a different nature, players expect the greenback to remain steady-to-lower, while further light selling could still be manifest in gold," wrote Jon Nadler, senior analyst at Kitco Metals, Inc.

"It, however, still all comes down to the dollar and its ability (or lack thereof) to stop skidding. Gold longs will continue to try to hang on to the $1050-$1055 zone and help the metal avoid a sub-$1048 close. The developing range has seen bullion oscillate between $1040 and $1070 for several sessions now." [Click to read Nadler’s full commentary.]

In London bullion, the benchmark gold price was fixed earlier in the day to $1,053.75 an ounce, which was a decline of $8.00. Silver was at $17.390 an ounce for a 36 cent loss. Platinum was fixed $25.00 lower to $1,346.00 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 prices surged Wednesday thanks in part to the US dollar and "as government data showed a smaller-than-expected buildup in U.S. crude inventories last week with imports falling to the lowest level in two months," wrote Polya Lesova and Moming Zhou of MarketWatch.

"As long as there’s pressure on the U.S. dollar, there will be upward movement in oil, Rachel Ziemba, an analyst at RGE Monitor, an economic research company in New York, was quoted on Bloomberg. "We could see even greater climbs higher, which will put us even further out of whack from the fundamentals."

New York crude-oil for December delivery soared $2.25, or 2.8 percent, to $81.37 a barrel.

The national average for unleaded gasoline jumped 1.9 cents to $2.596 a gallon, according to AAA fuel data. The price is 11.5 cents higher than last week, 4.5 cents more than a month back, but 29 cents lower than a year ago.

U.S. Stocks

U.S. stocks fell Wednesday afternoon "after analyst Dick Bove downgraded Wells Fargo & Co., erasing an earlier rally spurred by better-than-estimated results at Morgan Stanley and Yahoo! Inc," wrote Rita Nazareth and Elizabeth Stanton of Bloomberg.

"It just shows you how susceptible we are to bad news right now," Stephen Massocca, managing director at Wedbush Morgan in San Francisco, was quoted on Reuters. "We’ve got such an extended stock market that a feather of news is enough to cascade it down 100 points."

The Dow Jones industrial average fell 92.12 points, or 0.92 percent, to 9,949.36. The S&P 500 Index declined 9.66 points, or 0.89 percent, to 1,081.40. The Nasdaq Composite Index retreated 12.74 points, or 0.59 percent, to 2,150.73.

Gold, Silver, and Metals: Prices and Commentary – Oct. 21
by Jon Nadler, Kitco Metals Inc.

Mystic Pizza

Good Day,

Gold prices eased to under $1050 per ounce ahead of New York’s midweek session opening, driven mainly by further light selling from speculators. The US dollar recorded only marginal gains overnight and was last seen hovering near the 75.50 mark on the trade-weighted index, while crude oil lost a somewhat more substantial chunk in value, falling more than $1.1 to very near $78 per barrel. Otherwise, conditions were muted, with very little in the way of activity being recorded in India, where potential buyers were seen clustering orders beneath the $1050 an ounce zone.

New York’s Wednesday spot dealings in metals opened in the red across the board, albeit, as mentioned above, the declines could hardly be labeled as ‘significant profit-taking’ even following Tuesday afternoon’s near $9 fall in gold. Spot bullion was quoted at $1051.20 an ounce at the open, off by $3.50, and as shown on the Kitco Gold Index below, the drop was selling-linked a whole lot more than dollar gains-related:

Still, according to Bloomberg, the species we identified as the engine behind the surge in prices that dates back to September 1st, "Hedge funds and other large speculators are holding a record long position, or bets on higher prices, in U.S. gold futures, data from the Commodity Futures Trading Commission show. The biggest bet among options traders is for gold to reach $1,200 by December."

Spot silver lost 11 cents at the start of the trading day, and was quoted at $17.37 per ounce. Platinum prices showed no change, hovering at $1048, while palladium lost $2 to ease to $332 per troy ounce. The Dow stood poised to possibly lose the 10K mark today, as earnings forecasts from Boeing disappointed and a mixed bag of Q3 profit numbers (amid continuing loan losses) hit the wires from Wells, Morgan Stanley, and US Bancorp.

For the moment, the focus has shifted toward the size and scope of the emergence of recent profit-taking sales in gold, albeit the immediate ‘to do’ list among traders is to dissect the data in the Fed’s Beige Book due for release at 2 PM NY time, as well as to parse the contents of several Fed officials’ speeches also due today.

Until such time, and barring unexpected news of a different nature, players expect the greenback to remain steady-to-lower, while further light selling could still be manifest in gold. It, however, still all comes down to the dollar and its ability (or lack thereof) to stop skidding. Gold longs will continue to try to hang on to the $1050-$1055 zone and help the metal avoid a sub-$1048 close. The developing range has seen bullion oscillate between $1040 and $1070 for several sessions now.

The market continues to be inundated with allegations of dastardly deeds and imminent collapses in orderly functioning. Intrepid Dow Jones reporter Simon Constable found one large piece of tinfoil littering the ‘Internets’ and set out to lift the veil of (non-existent) mystery from it all:

"A recent gold market conspiracy theory detailing nefarious activities by big bad banks should be dismissed as bogus.

The piece, by Rob Kirby published Oct. 9 on the popular GoldSeek.com Web site, stated "utter panic" broke out in London when certain banks that made "illegal" short sales of gold futures quickly found themselves unable to fulfill their obligations. The reason: Their customers demanded physical delivery of the metal. A shortage of metal in London meant that the banks needed to pay a premium above spot prices to buy metal in the spot market. Eventually, the Bank of England got involved, the piece states.

Kirby cites "impeccably reliable sources." He doesn’t name them, though. The short takeaway: It’s rubbish. Still, there was enough gold-market-specific jargon in the column to bamboozle a normally skeptical friend into thinking it might be true. That’s a shame because there were clues contained in the text to signal its falseness as well as the author’s lack of knowledge of how gold is traded. "They have absolutely no clue how the market actually functions," says Jon Nadler, a gold market analyst at Montreal-based bullion dealer Kitco.

I sent Kirby an email, but he didn’t reply. There are too many off-target comments to detail in my column so I’ll only dissect a few. A passage in Kiby’s column says, "…they simply did not possess the gold bullion which they had sold short [an illegal act which in trading parlance is referred to as a "naked short’]."

It’s not illegal to sell futures contracts when you don’t own the underlying commodity. In fact that’s completely normal. Naked shorting is a stock market phenomenon not a futures market one. Kirby continues "…a number of well-heeled market participants ‘bought’ substantial tonnage worth of gold futures on the London Bullion Market [Association]."

That’s curious because the LBMA is an over-the-counter market where forwards are traded, not futures. Gold futures are traded on the Comex division of the Nymex in New York. And then there’s this from Kirby:  "…these banks did not have the bullion to honor their contracted commitments, [so they asked if they could settle on a] "cash basis."

There is so much gold in London vaults at present that the idea of not being able to deliver gold is silly," says Jeff Christian, gold market veteran and managing director at New York-based commodities research firm CPM Group. Silly, indeed."

The Ministry of Silly Talks would certainly approve. Folks, use mental floss at your own risk.

And now, for something…completely different: a shameless piece of company promo. We thought you might be interested in learning about what we are up to in Toronto, following the World Money Show. We ordered in. An extra-large gold pizza, complete with armed guard ‘delivery boys’ as the Montreal Gazette puts it. Quite a pie, this one. Read on:

Royal Canadian Mint chairman Ian Bennett took one of the five 100-kg 99.999-per-cent pure gold Maple Leaf coins to Abu Dhabi, where it was on display for Sultan bin Nasser al-Suwaidi, governor of the United Arab Emirates Central Bank. Photograph by: KARIM SAHIB, The Montreal Gazette

"Montreal-based bullion dealer Kitco Metals Inc. is throwing an exclusive cocktail party tonight in Toronto for the world’s largest pure gold coin. And then it’s taking the 100-kilogram coin on a tour – a well-insured, high-security tour – before it is put to auction in a style befitting a priceless work of art during a live, online event sometime in late 2011.

The coin, one of five created by the Royal Canadian Mint in 2007, "is a tour de force as an artwork and as a technological achievement," Kitco senior analyst Jon Nadler said in an interview. Although it has a face value of $1 million, at current bullion prices its metal content alone is worth about $3.4 million U.S., said Nadler whose firm will auction the coin.

The owner, a Canadian who has asked not to be named, wanted Kitco to exhibit the coin "and share it with the public" in advance of the sale, Nadler said. After the cocktail party, the coin will be displayed at the Toronto World Money Show. Its tour itinerary, still being drafted, probably will include Montreal, Nadler said.

About the size of an extra-large pizza, and the weight of a fully equipped hockey goalie, the coin features a Maple Leaf design, has a purity rating of 99.999 per cent and has been certified the largest pure gold coin in the world by Guinness World Records. The coins were produced to showcase the Ottawa mint’s technological skill, promote its one-ounce gold coins and steal the thunder of other mints’ gold coins."

Until later,

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