Gold, Silver and US Stocks Rally

Gold and other precious metals spiked Thursday, as did crude oil and US stocks following a report by the Commerce Department saying the economy expanded at a 3.5 percent annualized pace in the third quarter. Gold’s rise broke a losing streak that had extended to five days. The Dow and S&P enjoyed their best one-day jumps in three months.

New York bullion figures follow:

• Silver for December delivery jumped 41.5 cents, or 2.6 percent, to $16.655 an ounce. It ranged from $16.12 to $16.71.

• Gold for December delivery advanced $16.60, or 1.6 percent, to $1,047.10 an ounce. The yellow metal ranged from $1,048.40 to $1,026.90.

• January platinum surged $31.30, or 2.4 percent, to $1,338.20 an ounce.

The most notable bullion quotes of the day follow:

"Gold is in play," Frank Lesh, a trader at FuturePath Trading LLC in Chicago, was quoted on Bloomberg. "The dollar is off because risk is back in favor. Risk appetite is equated with inflation, and you buy gold to fight inflation."

"It’s the better economic figures, better oil and better moving averages in gold," that are supporting prices Thursday, George Gero, vice president of global futures at RBC Capital Markets, was quoted on MarketWatch.

"The US dollar fell along with the yen overnight, as speculation ahead of the release of US GDP data pushed stock index futures higher and reignited a modicum of risk appetite," wrote Jon Nadler, senior analyst at Kitco Metals, Inc. "Yesterday’s sell-off capped the longest slide in gold since March – the dollar was cited a the prime mover, yet again." [Click to read Nadler’s full commentary.]

In PM London bullion, the benchmark gold price was fixed earlier in the day to $1,040.50 an ounce, which was a gain of $8.75 from Wednesday’s PM price. Silver remained unchanged at $16.330 an ounce. Platinum was fixed $15.00 higher to $1,328.00 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 soared "following a report that the U.S. economy grew in the third quarter for the first time in more than a year, spurring optimism that fuel demand will increase," wrote Mark Shenk of Bloomberg.

"Our thinking is that this is the best evidence, to date, that perhaps a sustainable recovery, and consequently, a revival of energy demand, is starting to take hold," Michael Fitzpatrick, energy analyst at MF Global, said in a report cited on MarketWatch.

New York crude-oil for December delivery advanced $2.41, or 3.1 percent to $79.87 a barrel. It reached an earlier high of $80.46.

The national average for unleaded gasoline rose eight-tenths of a cent to $2.691 a gallon, according to AAA fuel data. The price is 7.5 cents higher than last week, 20.4 cents more than a month back, and 10.2 cents higher than a year ago.

U.S. Stocks

U.S. stocks rallied "in a broad-based advance as a strong report on economic growth in the third quarter reassured investors that the recovery is on track," wrote Alexandra Twin, senior writer for CNNMoney.com.

"The stock rally is not over yet," Jeffrey Kleintop, who helps oversee about $247 billion as chief market strategist at LPL Financial in Boston, was quoted on Bloomberg. "The stock market can celebrate. This news is an important confidence boost, in particular to individual investors."

The Dow Jones industrial average rose 199.89 points, or 2.05 percent, to 9,962.58. The S&P 500 Index surged 23.48 points, or 2.25 percent, to 1,066.11. The Nasdaq Composite Index .IXIC gained 37.94 points, or 1.84 percent, to 2,097.55.

Gold, Silver, and Metals: Prices and Commentary – Oct. 29
by Jon Nadler, Kitco Metals Inc.

A Rough Diamond

Good Day,

The US dollar fell along with the yen overnight, as speculation ahead of the release of US GDP data pushed stock index futures higher and reignited a modicum of risk appetite. Following four days of  climbing against the euro, and backing away from the 75 mark on the trade-weighted index, the greenback slipped 0.20 this morning, coming down to 76.27 and this action resulted in partial repairs of yesterday’s $12 rout in gold prices. Yesterday’s sell-off  capped the longest slide in gold since March – the dollar was cited a the prime mover, yet again.

A couple of fresh charts shown by Zwermann Financial from Frankfurt on CNBC television this morning, show a developing ‘diamond’ formation on the gold charts, indicating a potential move towards $1015, and possibly to as low a price as $980. That second number presents a big question mark for gold and the confirmation of a possible major trend turn. The same scenario, in reverse, applies to the USD index. A vault to the break-down point of 77.50 could mark the first level of a comeback, but a move to 79.20 on that same gauge could confirm a major turnaround by the US currency against its rivals.

Bullion recovered from the $1025 lows seen on Wednesday, adding about three-quarter percent in the hours ahead of the NY opening this morning. Also recovering, was crude oil – it climbed 38 cents to $77.84 . Not faring too well overnight, was the Nikkei average – it fell 183 points on the session.

New York spot prices opened as follows this morning: Gold was up $5.80 an ounce, quoted at $1033.50 bid, while silver rose 18 cents to start at $16.31 per ounce. Platinum climbed $11 to $1316 and palladium moved $3 higher, quoted at $317.00 the troy ounce. GDP data will be the focus as we move into the active part of the day. Some recovery is expected in gold, perhaps back to the $1044 area, but the jury is out on the nature and size of the overall correction and rebound that has now followed, as you will read below. The GDP data did not disappoint analysts – it was, in fact, right on target. Going forward, they expect less of the same…

On the ground, where prices meet the man in the street, and where the bars and coins of gold actually change hands, the picture is not so rosy, still. Bloomberg reports that: "Gold imports by India, the world’s biggest buyer, probably fell for the sixth month in October as record prices curbed demand from jewelers, a traders’ group said. Purchases this month are 27 tons compared with 44 tons a year earlier.

Mr. Suresh Hundia, president of the Bombay Bullion Association Ltd., said, citing preliminary data, that: "Retail demand was absent except during Diwali festival because of high prices," he said in a phone interview. "The price will have to fall significantly for demand to revive." India’s imports may be 40 percent less than last year’s purchase of 420 tons, Hundia said. "  If anyone is still sitting out there, writing sky-high gold price predictions, and believing that India is irrelevant to gold, we would advise a thorough re-think of that flawed assumption.

Elliott wave analysis shows a largely similar picture in terms of the dollar and gold.

"Prices have already come back under the March 2008 intraday extreme at $1033 (basis spot). The 240-minute chart shows that gold is in the process of tracing out "five down" from the $1071.29 high on October 14. Once five waves are complete, odds would be extremely high that Primary wave C (circle) was underway to below $680. At the current juncture, only an unexpected rise above $1068 would denigrate the bearish case." The firm’s analysts also observe a now tandem-pattern move between gold and equities, called "all the same market."

What’s the latest word on ‘that gold’ from Russia? Well, that depends on the day of the quote coming from officials. After announcing that the news leak regarding the planned 20-50 tonne gold sale placed the liquidation on hold for a while, yesterday’s tune sounded more like this:

"Finance Minister Alexei Kudrin said Wednesday that Russia is considering selling gold on world markets to cash in on high prices as the government faces its first budget deficit in a decade. Kudrin’s remarks follow a report last week that the Gokhran precious metals depository was planning to sell up to 50 metric tons, or 1.6 million ounces, of gold in London by the end of the year. With gold prices reaching record highs of over $1,000 per ounce, the sale could bring Russia some $1.7 billion. The finance minister gave no details Wednesday in remarks to journalists carried by state news agencies.

"We will continue to study this issue and the decision may come in the next few days," Kudrin was quoted by the ITAR-TASS news agency as saying. The head of the state diamond and precious metals exporter said Tuesday that no sale was planned this year, in what analysts described as an attempt to prevent expectations of a major sale from affecting the market price. Russia is running a budget deficit of 7.7 percent of gross domestic product — its first in a decade — and expects a 6.8 percent deficit next year." On again, off again. In any case, is appears that the sale -whenever it comes- will bring along the surprise factor that the market probably wishes it did not have to deal with.

Next, what market (and marketing) signals are coming from Vienna’s Austrian Mint?  I will say, level-headed ones, but…will, let Bloomerg fill you in on the latest, as: " the world’s largest marketer of pure gold coins, plans to slash output by 32 percent next year from a record, forecasting the end of the financial crisis will weaken investor demand.

Muenze Oesterreich AG aims to cut production of Philharmonic gold coins to 650,000 ounces in 2010 from an estimated 950,000 ounces this year, mint President Kurt Meyer said in an interview in Tokyo. Output in 2009 is set to reach an all-time high for a second year after financial turmoil triggered by the collapse of Lehman Brothers Holdings Inc. spurred demand, he said.

"The crisis is over, and economies are recovering," Meyer said yesterday during a visit to Japan to promote sales of a new 20-ounce version of the coin. "Gold investment stimulated by concerns about the financial system will subside," he said. The coin design depicts musical instruments representing the Vienna Philharmonic Orchestra, according to the mint’s Web site.

"Gold rallied on speculation that the dollar will weaken because of low U.S. interest rates," said Kazuhiko Saito, chief analyst at commodity broker Fujitomi Co. in Tokyo. "If these conditions change, the metal’s advance will come to a halt."  The 800-year-old Austrian mint, located in a former Habsburg palace, sold 908,721 ounces of gold coins so far this year, exceeding overall sales last year by 14 percent, Meyer said. Including bars, the mint sold 1.9 million ounces of gold this year, 23 percent more than last year’s total sales of 1.54 million ounces, he added.

The Austrian mint became the top marketer of pure gold coins, taking a 30 percent share in the global market in the three months ended Dec. 31, as producers in other countries failed to catch up with growing demand on a lack of available metal, Meyer said."

We close today with an assortment of Dr. Doom Roubini opinions. Warning; contains statements deemed by some to be heretical in nature, and/or "shilling" for Wall Street. If easily offended, do not read on. The news and content is out there, on Bloomberg and elsewhere. Ignoring it is fine, but does present some risks. Material ones, that is.

"Now that Nouriel Roubini has dispensed with the current slump, it’s time to move on to the next global calamity. The New York University professor, nicknamed Dr. Doom for his famously grim but accurate prediction of the financial meltdown that flattened economies around the world, said Thursday the U.S. recession appears to be over. But he warned that a new asset bubble fuelled by rock-bottom interest rates and a falling U.S. dollar could trigger another financial disaster.

"This asset bubble is totally inconsistent with a weaker recovery of economic and financial fundamentals," Dr. Roubini told a conference in Cape Town, South Africa, by satellite, reported by Bloomberg News.  "The risk is that we are planting the seeds of the next financial crisis."

The culprit: Investors around the world borrowing cheap US dollars and using them to snap up equities, corporate bonds, commodities and other assets, driving up prices far beyond what could be justified by economic fundamentals or growth prospects. Nouriel Roubini believes that a "wall of liquidity" is chasing all kinds of assets, and once the economy disappoints, it will all come crashing down.

(He may have nailed that one, as the world has now seen an eight month-long, 68% rally in global stocks and a Bloomberg poll finds investors sensing a rout. Commodities have rallied hand-in-hand with equities, as you know.)

Yet for Dr. Doom, gold isn’t the answer. According to him, despite the temporarily asset bubbles right now, we’re still in a deflationary world and we’ll realize it soon enough once growth stagnates and all kinds of inflated asset categories come falling down. Index Universe has Dr. Roubini saying: "I don’t believe in gold. Gold can go up for only two reasons. [One is] inflation, and we are in a world where there are massive amounts of deflation because of a glut of capacity, and demand is weak, and there’s slack in the labor markets with unemployment peeking above 10 percent in all the advanced economies. So there’s no inflation, and there’s not going to be for the time being."

"The only other case in which gold can go higher with deflation is if you have Armageddon, if you have another depression. But we’ve avoided that tail risk as well. So all the gold bugs who say gold is going to go to $1,500, $2,000, they’re just speaking nonsense. Without inflation, or without a depression, there’s nowhere for gold to go. Yeah, it can go above $1,000, but it can’t move up 20-30 percent unless we end up in a world of inflation or another depression. I don’t see either of those being likely for the time being. Maybe three or four years from now, yes. But not anytime soon."

Well, we do believe in gold. Not gold as a religion. Gold as that must-have life insurance policy for your other assets. Gold as the core ten percent ‘rainy-day’ holding that is bought/kept not for profit, but for a better night’s sleep. Gold as a liability-free vehicle that offers liquidity, diversification, and enhanced portfolio architecture.

In that context, we can ask the question:  "Got Gold?"

But, also, the "other" question: "Got noise-canceling headphones to drown out the [moonshot, manipulation, end-of-the-world, etc.] screaming coming from the rooftops?"

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