Gold, Silver, Metal Prices Commentary – 3/8/2010

We Are Indebted To You. And You, To US

Good Day,

Gold prices started Monday’s trading session on a relatively steady note, with gold making a small, $1.30 advance on the tickers, and opening at $1135.70 per troy ounce.

The weekend was rather bereft of major Greek-related news, save for the absence of any overt German or EU commitments to Prime Minister Papandreou. French President Sarkozy, on the other hand, pledged that the euro region stands ready to rescue Greece if the need arises. What he knows that his official friends in Berlin, Frankfurt, or Brussels, are reluctant to make public, remains an open question at this time.

In any case, the US dollar originally sank more than about half a percent against the euro as the common currency found a modicum of support following Monsieur Sarkozy’s indications that the Greek ship won’t be allowed to slip beneath the waters. The opening minutes had the euro trading up near 1.3673 against the greenback, and the latter at 80.26 on the trade-weighted index (off by 0.16). Against that mildly bullish backdrop, silver bullion opened with a 6-cent gain, quoted at $17.43 the ounce. Platinum racked up major gains at the open, adding $26 to Friday’s closing values and reaching $1603.00 per troy ounce.

Palladium fans watched their favorite metal open unchanged at $476.00 while rhodium’s followers were greeted with a $2400.00 per ounce bid price early this morning. Newly appointed Kitco News Editor-in-Chief Terry Wooten reports from the PDAC in Toronto that CPM Group New York’s managing director Jeffrey Christian opines that: "platinum group metals remain attractive investments because of their duality and the continued demand for automobiles in China and India. The platinum group metals not only have investment qualities, he said, but are "industrial metals in tight supply." 

Mr. Christian added that: "Most automobiles sold all over the world now require catalytic converters to curb pollution, boosting the attractiveness of the metals, Christian said. Demand in China and India will skyrocket again in 2010,   said Christian and sales in the U.S. will likely increase by 10% to 15%, although that would only be about 1 to 1.5 million cars. Sales in other emerging countries will also rise, he said, with Europe and Japan weak to flat."

The precious metals complex slipped somewhat lower as the morning wore on, with gold falling more than $12.50 per ounce to a low of $1121.70 per ounce, despite the dollar making no fresh gains on the boards (it actually slipped by about 0.04) and the euro only easing a tad, to 1.364 at last check. Silver prices followed suit, dropping 6 cents to $17.31 and palladium fell $4 to $472.00 per ounce, however platinum hung on to about an $11 gain (trading near $1588) as of 9:30 New York time this morning. Maintenance of the $1120.00 price level in gold might turn out to be today’s priority for gold as its recent uptrend has thus far not been able to overcome last week’s $1146 high and aim towards the key $1162.50 January high.

The NY Fed said this morning that it will greatly augment the list of potential counterparties for its reverse repos when the campaign to drain the jumbo-sized bathtub of liquidity present in the financial system begins. Thus, in addition to the eighteen current primary dealers, the Fed will scout for firms that have net assets of more than $20 billion, and have been around for more than a year. In a trial operation last December, the Fed sucked up about a billion dollars’ worth of reserves from the banking system, but this announcement presages a sizeable mop being laid onto a very wet floor of liquid(ity) in the not-so-distant future.

In the interim, guess whose appetite for US debt continues largely unabated, despite a plethora of hard-money newsletter declarations to the contrary? Yes, gold old China’s. In a recently released –but little followed- set of US statistics, the kernels of truth can easily be found: namely, that Chinese investment in US Treasury bonds may well have fallen by $34 billion or so in December (reaching $755 billion) but that its total holdings of US debt did not fall at the end of last year. In fact, analysts at Standard Chartered Bank –according to a Marketwatch piece on the matter- feel that China has actually been purchasing bonds indirectly through London middlemen.

Make no mistake, one analyst, Shi Lei, from the Bank of China warned that: "In the current climate, China’s move to reduce its U.S. government debt creates a large propensity for misunderstanding." while adding that: "In fact, U.S. government bonds remain a popular hedging instrument among Chinese government investment decision-makers."  Also, any ‘dumping’ of US T-bonds might turn out to be highly deleterious for China, were it to undertake such a poor course of action. For the moment, Chinese officials have much bigger fish to fry — namely, trying to curb the wild lending sprees among local banks. The Beijing government announced just this morning that it intends to ban all guarantees that local governments have thus far provided for loans taken by their financing vehicles –according to Bloomberg.

Indeed, China is basically in a bit of a pickle with its reserves, and might only opt for the logical strategy that would not harm the huge amounts of same it finds itself sitting upon; namely, diversification of foreign exchange reserves, but not necessarily into huge gold tonnage (albeit commodities might still play a role in such diversification efforts) — a subject that has been covered in minute detail recently.

Thus, China’s December "sell-off" of US debt represents monthly variations that ought not to be ascribed any special significance, as the long-term trend still shows a generally upward slope in such debt holdings. Other central banks continue to exhibit a similar fondness for US-flavored debt instruments. Yes, everyone is happily co-dependent in this world.

As if to underscore that very concept, Greek Prime Minister Papandreou warned in a speech at the Brookings Institution this morning, that: "a wider crisis would cause the euro to weaken against the dollar in foreign-exchange trading. "That, in turn, means a rising U.S. trade deficit, which will not help American’s economy rebound," he said.

Mr. Papandreou will meet US President Barack Obama on Tuesday afternoon, to discuss "the important role the United States can play to ensure that Greece, Europe, and America remain strong, healthy partners."

Happy Knocking on Doors.

PS In memoriam of the Internet bubble that burst one decade ago, a ten-second moment of no clicking on thy computer mice would be nice. Webvan.com, requiescat in pace. Then again, no worries. There are plenty of other bubbles to create and chase…The dot-com one and all the hype and greed it engendered was just one pearl on an endless string…

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America 

Check out other site market resources at Bullion Prices, US Silver Coin Melt Calculator and the US Inflation Calculator which easily finds how the buying power of the dollar has changed from 1913-2010.