Gold, Silver, Metal Prices Commentary – 3/12/2010

The Blame Locker

Good Day,

Spot gold bullion prices rose overnight, having once again tested the (and held at) the just-under $1100 level yesterday — a fresh, three-week low. Dollar weakness ahead of the release of US economic data this morning kept bullion specs interested, however an early push towards the $1120 resistance area was truncated and the metal retreated towards $1110, and then even lower, turning negative within the first hour of trading, as the US dollar pared losses incurred immediately following the release of US retail sales figures for February.

Spot dealings started the week’s final session with a $6.90 gain in gold, at an $1116.50 bid quote per ounce, as against a fairly hefty 0.49 slip in the US dollar on the trade-weighted index (to 79.79 at last check) and tracking a half-dollar gain in crude oil (now at $82.66 pbbl.).

The International Energy Agency earlier hiked its estimated global oil demand for 2010 for a second month and that sparked a near 1% surge in black gold futures. In any case, this morning’s action once again shows to what extent gold has taken on risk asset attributes and that it has lately traded in tandem with such –normally thought to go in the opposite direction- other assets as stocks for example. Anything for an additional buck.

Silver added 13 cents to open at $17.29 per ounce, while platinum rose $12 to the $1621.00 per ounce level. Palladium also climbed this morning, gaining $6 to reach the $465 spot bid figure. No change was reported in rhodium prices, at $2400.00 per troy ounce. Indian gold buyers remain in the spectators’ seats, apparently awaiting lower prices. The upcoming weekend’s gold shopping sorties at the local bazaars might have been much more robust, had shoppers been met with sub-$1100 per ounce bullion prices, according to our local sources.

A double-dose of better-than-expected economic news (one from the US, the other from Europe) helped depress the greenback and bolster the euro as Friday’s price action got underway. Over in the USA, mall-dwellers braved February’s snow drifts and took refuge in their favorite retail shop for a bit of mid-winter wallet therapy. Retail sales (led by the electronics category) climbed to a seasonally-adjusted $355 billion last month, never mind the three separate massive snowfalls that engulfed parts of the country. The sales gain was the fourth in the past five months.

Thus, three cheers for risk assets this morning, on that piece of good news; Dow futures gained, oil continued higher, gold followed suit, and the dollar retreated. Of course, such good economic news has another edge to it as well, as usual. Whilst the release was good enough to spark risk appetite this morning, players are fully conscious that the very same data set –if the trend accelerates and holds together- will eventually give the Fed all the ammo it needs in order to pull the interest rates trigger. But, beating the iron while you-know-what never goes out of speculative fashion…

News from the Eurozone this morning indicated that industrial production rose by the most in two decades (!) in January — as reflected by a 1.7% leap in output from the previous month. That’s about double of what economists expected, and it gave the euro enough of an adrenaline rush to reach for the 1.378 level in early market action. In the Old World, as well as the New One, the consensus appears to be growing that the worst –economically speaking- might be behind everyone. That said, the radar, and all other early warning defense systems remain on full alert for the dreaded possibility of a double-dip.

Also in Euroland, discussions are continuing regarding the setting up of an EMF (European Monetary Fund) to help distressed nations cope with their…distress. Also on the ideas roster is the whether the EU should fund a Greek bailout with EU bonds or with loans made by the sixteen-nation group. All of this sounds encouraging, and is still reflective of a helpful mood. However, Germany’s Finance Minister has called for measures last used by Draco (ironically, in Greece of days past) to rein in the debt-irresponsible. The Ministers’ proposed ‘sanctions’ include expulsion from the EU as the ultimate punishment.

Speaking of punishment, Marketwatch’s Mark Hulbert finds that when it comes to the gold market getting punished (as in price), its ardent supporters blame a variety of factors — some plausible, but many, not. Mr. Hulbert illustrates with:

"The most common excuse that gold bugs have used to explain why they didn’t anticipate gold’s recent weakness: Strength in the dollar. And I’m sure they’re right that dollar strength does translate into gold weakness. But I’m cynical about their using this rationale as an excuse. A loss in gold is a loss, regardless of what caused it, isn’t it?"

Well, yes and no. There is ample evidence (up to, and including December) that the US dollar had been severely oversold, and that the spec trade was so heavily piled into one single airless corner, that something had to give — and, give, it did. Unsurprisingly to all, but the stubborn hyper-bulls. At the current juncture, Mr. Hulbert finds that the same extremely vocal group continues to refuse to build up positions in cash (after gold’s sizeable decline since the aforementioned December peak) and keeps chanting that we remain on the verge of a lunar target launch.

Mr. Hulbert normally uses his contrarian indicators as a short-term market timing tool, but we might offer him a plethora of other little indicators which also point to some mighty strange goings-on in the uber-bull camps.

The above include items such as: the endless conspiracy and price suppression theories, the wild fairytales of tungsten-filled bullion bars at the core of the global bullion market, the alleged ‘concentrated’ sinister shorts present in the market, the putative coin shortages purposely created by sinister government that would wish to prevent the man in the street from buying gold, the ‘imminent’ purchase of massive gold tonnage by China (and a corresponding dumping of its USD position), the also imminent move to confiscate one’s gold, etc., etc.

We eventually get to the "etc." after this far-from-exhaustive list that leaves one breathless. Sadly, these figments of some severely overheated imaginations continue to permeate the landscape in gold and silver, confusing, scaring, and misleading would-be (as well as current) investors. Whether they are used as excuses to explain the obvious (more sellers than buyers, poor fundamentals, etc.) or to propagate a thinly-veiled sales agenda, or to just sell newsletters based on sensationalistic-flavoured headlines, matters not. What matters is that the tactics give the niche a poor image and reflect badly upon it. The violin now goes back into its velvet case.

Happy Weekend.

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America 

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