Gold, Silver, Metal Prices: Commentary – 12/21/2009

Good Day,

The weekend brought our few additional gold buyers overseas, as Friday’s better than 1% gain in gold prices dampened the bargain-hunting spirits. At the start of the new week, the best thing that could be said about the metals, the dollar, and other markets was that steadiness was manifest. Whether or not such calm is of the typical variety that one sees prior to a little storm of volatility (exacerbated by thinness in participation), remains to be seen.

Perhaps tomorrow’s GDP data might shed a bit of additional light on matters. If however, the GDP figures are weak, the dollar could be subject to a bit more profit-taking following its recent spectacular resurrection. At last check, the greenback was seen at 77.64 on the trade-weighted index, and at 1.434 against the European common currency. For the moment, the US dollar remains well-bid, amid concerns that Greece is still headed for financial trouble. The ECB as much as said this morning, that bailouts are not in the cards for the country, and that spending needs to be cut.

The other factor also supporting the greenback as the new (abbreviated) trading week got underway was Japan and its deflationary woes. The country’s central bank implied that it will continue to keep interest rates at the ‘ultra-low’ setting for some time to come, as prices show no inclination to rise, and every indication to the contrary.

Thus, there is emerging trade-talk about the US dollar losing its 2009 title of ‘carry-trade champ’ and relinquishing that crown back to the yen in 2010. In that possible context, the recent breakout by the US currency could turn out not only to be the real thing, but is could offer some sizeable upside surprises on the charts. The same would apply to bullion prices, in the opposite direction, however.

The precious metals’ trade in New York was confined to smallish ranges as Monday’s sessions got underway. Participation is thinning out with each passing hour, and we can expect larger-than-normal volatility if market news of importance makes its way into the headlines. Gold continued to meander between $1110 and $1120 in the early part of the day, as little in the way of major news had hit the wires. By 10 AM however, the market felt the weight or renewed selling and sank to $1104 per ounce as the dollar narrowed its losses on the day, underscoring the fact that ‘profit’ is a five-letter word, while ‘loss’ is short one letter…Ah, funds at play…

Support in the metal is thought to lie just under $1100 for now, and its advances are being capped by dollar strength at this time. "Commerzbank predicted that prices could fall in the coming weeks given the focus on investors and the light demand for physical gold. We now believe the probable year-end gold price will be around $1,050/ounce. The deteriorating technical outlook is likely to prompt investors to close out their positions to take profits, which will push the gold price down, it said." -reported the Wall Street Journal this morning.

Silver was trading in the lower $17 range on Monday, gaining a nickel at last check – quoted at a bid price of $17.32 per ounce. Platinum lost $3 to $1426 and palladium rose $1 to $364. Rhodium climbed another $20 to reach $2330.00 per troy ounce. Automaker SAAB, thought to have bitten the dust on Friday was seen to be receiving some post-last-minute bids from Dutch firm Spyker and other unnamed car nameplates.

With more than 50% of European car sales being of the diesel variety, and with the growing acceptance of oil-burners in the US market, the outlook for platinum and palladium (as used in diesel car catalyst applications) remains positive. See a recent video interview with Mother Earth’s Roland Jansen on Bloomberg.

We close today’s observations with an interesting find. Perhaps a not so welcome one, at this time of the year, but… Mr. Joel Waldfogel, Ehrenkranz Professor and Chair of Business and Public Policy at the Wharton School of the University of Pennsylvania, delved into the Christmas gift-giving tradition and found…massive inefficiencies, waste, and lost value. The author of The Tyranny of the Market and a columnist for Slate, has some other gif suggestions for those still in a quandary about what to give. Feel free to substitute the word ‘gold’ for the word ‘cash’ in the following. The Economist did, anyway. So, what did Mr. Waldfogel find? And, is he now to become this poster child? And what about the child on the cover of his very book?

"Over a period of time, a series of surveys have led him to conclude that the average deadweight loss from gift-giving is around 18%. Given his estimate that Americans spent $66 billion on Christmas presents in 2007, this amounts to a whopping $12 billion of lost value. Where others see generosity, Mr. Waldfogel sees an orgy of value destruction.

So what should people, especially those obliged to bestow holiday gifts on those whose tastes they do not know well, do? Since the best a gift-giver can do is give the recipient exactly what he wants, economic theory has a simple solution: give cold, hard cash. However, social norms make it a bit awkward to give money to all but a small subset of (usually much younger) relations in most societies. Mr. Waldfogel [also] offers a proposal of his own — gift vouchers that are designed to expire after a set period of time, with unused balances going to a charity of the giver’s choice."

$12 billion of lost value. Hmmm…twice the value of the 200 tonnes of gold that India bought recently. Time to write Santa a note wishing for Eagle coins, rather than Johnny Eagle toy guns.

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America 

Check out other site market resources at Bullion Prices, Silver Coins Values and the US Inflation Calculator which easily finds how the buying power of the dollar has changed from 1913-2009.