Good Day,
Following their (sovereign debt jitters-induced) worst drop in seven weeks, gold prices managed to stabilize in the overnight period. Bullion climbed back towards the $1095.00 value zone after the euro regained a bit of lost ground ahead of the start of an EU summit later today.
The common currency remains not too far from ten-month lows against the US dollar however, as credit problems in various EU nations continue to roil the markets and unnerve investors. For the moment, however, the euro got a bit of a reprieve following assurances by ECB President Trichet that emergency collateral rules will be extended beyond the end of this year. Volatility will not be lacking today either therefore, as the markets face options expiry, testimony by Mr. Bernanke on monetary policy, and, a few doors down from that room, discussions on whether or not to try to impose position limits in metals trading. A strong potential news brew, that mix of events.
Gold prices opened higher in New York this morning, gaining better than half a percent against a 0.34 decline in the greenback on the trade-weighted index (to 81.65 at last check). Spot bullion was quoted at $1093.40 per ounce, albeit the technical damage resulting from the breach of support at $1088.50 yesterday still offers possibilities for further declines that might result in a test of lower ($1044 or nearby) levels in coming sessions.
Such selling could ignite should bullion breach what is currently seen as support at the $1075.00 per ounce level. Conversely, gold would have to overcome the $1108-$1110 zone to elicit more than the half-hearted buying we have seen thus far this morning.
Silver added 21 cents at the open, rising to $16.77 per ounce, but the gains in noble metals were more subdued than the sizeable declines they posted in the previous couple of trading sessions. Platinum climbed $7 to $1585.00 the ounce, while palladium rose by $4 to start at $447.00 per ounce. No change was reported in rhodium; it remained quoted at $2280.00 bid the troy ounce.
Today’s early market focus was on the better-than-expected, 14,000 position decline, in jobless claims for the latest reporting week. Stock futures were higher following the report. Then again, so were crude oil and gold values, while the dollar was off 0.24 at 80.75 in the index.
As the EU gets ready to sit down and discuss the Greek issue, the latest buzz is that Germany’s Chancellor Merkel supports IMF-originated loans but also from various EU governments, in the event push comes to shove. That was a bit of a departure from comments Ms. Merkel had made earlier, which were taken to mean that only the IMF can cure what ails Greece at this time.
The pushing has been intense over the past few weeks and yesterday’s downgrade of Portugal by Fitch’s certainly did not help matters. Still, it sounds to us that perhaps some $20-30 billion in IMF-branded aid might begin to make its way towards Greece in the coming year. Who ya gonna call? The institution that was set up with just such a purpose in mind, that’s who.
Speaking of institutions, and as has been widely reported, the CFTC will witness much ado about the metals markets from various quarters in its Washington DC public hearing today. Market officials, bullion banks, market statistical analysts, traders, and fringe groups will all chime in as to what and how the market presently is, is thought to be, or ought to be structured going forward.
The imposition of trading position limits will be argued in front of the microphones by various camps, with some pros and many cons. Those in favor will point to sinister goings-on that might be affecting the markets, whilst those against such regulation will argue that it is the single best way by which to suck liquidity out of the markets and make for the departure of nearly all of the important players.
While there is no doubt in this writer’s mind that some of the markets have become distorted, such distortion has almost exclusively been to the upside, and has been caused by speculative hedge fund players looking to make a buck or nine. Recall the Everestian pile of gold futures contracts that neared 800 tonnes late last fall and helped push the metal to $1226 amid poor real-world fundamentals.
Price suppression? What price suppression? Quite the opposite, as, in price inflation to a point where a commodity was driven far beyond its equilibrium and fundamentals-based fair value. You may rest assured that gold would not only not have risen from is multi-year $252 lows to $1226 by December of last year, but it would not have made it past even the $500 marker for instance, if in fact there were any "dark forces" at play.
Regulation and more transparency are all fine, but be careful what you wish for. This (if it ever succeeds) will result in the departure of shorts and longs from the market and alter the game in ways yet unfathomable.
Sadly, many adherents to the sci-fi genre that constantly sees market manipulation, price suppression, and other such evil schemes out there, do so because they are wedded to the idea that gold can, and should only go up, and that this is all about some hidden battle between the little people and Imperial Storm troopers. What they have never understood is that when a market-maker takes a short position in the market, it does so not in some evil/naked/sinister fashion, but normally as a hedge against a physical position it just acquired in the process of…market-making.
The fact also remains that the decades-long bear market in precious metals whittled the number of ready/able/willing market-makers to but a slim number of firms. "Concentrated" shorts? You bet. Due to the changed nature of the market landscape. Intent to keep and/or to drive prices down so that the masses bleed? Better come up with solid proof. Fast. In any case, as regards silver for example, the CFTC itself has already issued a study about two years ago. Read about its conclusions, here:
For a refresher on things silver conspiratorial (not), take a second look at this video that was created for us by the experts at CPM Group NY, a while back. Mr. Christian will be a panelist at the CFTC hearings today. We do not believe he will radically depart from his findings offered up herein:
mms://media.kitco.com/kitco/CPM_Silver_2008-09-16.wmv
Happy Spectating. Stay tuned to the CFTC hearings and the fireworks on Capitol Hill right here:
http://capitolconnection.net/capcon/cftc/032510/cftc-live-wmv.htm
Jon Nadler
Senior Analyst
Kitco Metals Inc.
North America
Blog: http://www.kitco.com/ind/index.html#nadler
Check out other site market resources at Live Gold Spots, US Silver Coin Melt Calculator and America the Beautiful Silver Coins.
