Gold, Silver, Metal Prices: Commentary – 2/3/2010

Carry On

Good Morning,

Overnight gains continued in gold, courtesy of manifest risk appetite and additional consolidation in the US dollar. Highs near $1125 were seen, albeit the advance softened by the time the NY session got underway this morning. Spec funds are back in the market, emboldened by the successful breach of the $1117 mark yesterday, and are trying once again to wrest the metal away from the bears who almost got going in earnest near the $1070 area.

Although the greenback gave up some additional ground on the trade-weighted index (last seen at just under the 79 level), it did not -as yet- allow for a recapture of the 1.40 level by the euro. The common currency continues to be plagued by worries about Greece, albeit today’s advance took place because the European Commission approved that country’s austerity plan. The IMF still has to express its support for said deficit-slashing plan.

Although a convincing breach to above the $1,125 area would conceivably obviate a downtrend line in the metal, there is still repair work for gold to do at this time, not the least important aspect of which ought to be a return of interest (and actual accumulation) by the gold-backed ETFs. Said vehicles continued to shed small amounts in balances even as the yellow metal underwent its $40+ bounce over the past three sessions.

Indian gold demand abated once again as locals continued to mention ‘sizeable’ orders clustered at levels beneath the $1100 mark, but had little positive to say about present offtake levels. The market’s focus now shifts to the ADP payroll figures, ahead of the US government’s own official report due on Friday. The numbers revealed that the US shed only 22.000 jobs last month, making it the smallest such loss in two years. The statistic helped engender a small recovery in the US dollar.

The midweek New York trading session started off with significantly pared (as compared to the overnight action) gains in gold, which was quoted at $1114.00 per ounce, showing only a $0.60 advance per ounce as against a bit of a rebound in the US currency. Silver headed lower on the open, shedding 3 cents to $16.67 an ounce. Meanwhile, platinum fell $4 to $1575 and palladium held ground unchanged, to start the day at $442 the ounce. Following the ADP data, gold slipped closer to the $1110.00 per ounce mark and silver declined a more sizeable 18 cents.

Rhodium was steady at $2380 after having risen $70 on Tuesday. Carmaker Toyota continues its repair campaign affecting over 2 million vehicles, while rival Ford managed to cut into its sales turf during this period of technical troubles. Meanwhile, Saab –rescued by tiny auto firm Spkyer- is expected to churn out new models and return to profitability by 2012. Provided there is a $1 billion injection from as yet unknown sources, first.

As befits such a bounce in prices as we have seen since the end of last week, the bulls and the bears are back to making statements that underscore their view. Inflection points in markets tend to elicit such posturing. Mining company executives-turned-market-technicians continue to assert that we will see not only $1250, but $1350 gold in the current year, and even multiples of same, in coming years. Most of this is predicated upon the arrival of hyper-aggressive levels of inflation, which, at the moment, remains curiously absent from the scene.

Over in the bear camp, the bets are aimed in the opposite direction (from $650 to $850 more or less), and are focusing on three important factors. First, that "the underlying physical market for gold, particularly the Indian demand that dominates trade in the yellow metal has atrophied at gold prices above $1,000, and this has happened right through the peak in annual demand dictated by the Hindu wedding season."

Second, that "despite the reams of commentary expended on the spectre of inflation, governments around the world know that in the near term the real danger actually remains a deflationary environment should they withdraw their various stimulus packages too soon."

Finally, the bears continue to acknowledge –in a quite Roubini-esque manner– that: "the boom in metals seen over the past year – base metals as well as precious ones – has been a function of a vast carry trade fuelled by investors funneling cheap dollars into riskier assets. As the dollar strengthens with the nascent US recovery, comparative eurozone fiscal concerns and the increasing likelihood of the US authorities tightening up monetary policy, this carry trade is now unwinding. Risk assets, including gold, are [seen as] falling as a result."

And then, there is the middle ground. Knowing that a core gold position has –and will always be- very useful. Divorcing the obsession over daily price gyrations from the intrinsic comfort that a life insurance policy for one’s other assets provides. Not backing up the truck to overload for the wrong scenario. Not following the oft-unwise ‘wisdom’ of the crowds. Recognizing bubbles, manias, and similar gut-driven events and not allowing them to take the intellect hostage to greed and/or fear. For the level-headed, we propose a quick breakfast read of this National Post article. Free (but priceless) advice by Andrew Allentuck, which, alas, will not prevent some from labeling him with what the Encarta Dictionary defines as an "offensive term that deliberately insults somebody’s intelligence or competence." Look it up.

Off to the World Money Show, here in not-so-sunny-but still very pleasant Orlando.

Happy Trading.

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America 

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