Gold, Silver, Metal Prices Commentary – April 1, 2010

Bully

Good Day,

Gold prices held steady in the $1110-$1120 range overnight, but then again, so did the US dollar near the 81-mark on the index, while the euro followed suit and parked just under the 1.35 level once again. Dowry-related Indian demand was noted in the overnight hours, but little else was on offer in the market news flows on this first day of April ahead of tomorrow’s (and Monday’s) market closures.

Gold opened with a $2.40 gain at $1116.00 per ounce in New York amid fast-thinning participation. As yesterday, we cannot rule out out-sized moves for later in the day, but the pivotal market item –tomorrow’s US employment data- will be met with a closed trading floor, thus it’s all going to be a bit of an anticipatory day in nature. Resistance in gold remains in place overhead at the $1130-$1135 levels.

Silver added 24 cents this morning, to open at $17.72 the ounce. Platinum gained $10 and palladium rose by $8 on continued intense ETF courtship. They were quoted at $1653 and $486, respectively. Rhodium was higher again, quoted at $2530.00 per troy ounce.

Questions once again arose about China’s growth and manufacturing output. The Wall Street Journal said that: "Even the world’s most gifted economists cannot figure where all the manufactured goods are going." And then concluded that: "There are really only three options."

"The first is that the consumer buying power in China is growing at rates that are both unprecedented and unexpected" This could be true, but it appears highly unlikely.

"China could be manufacturing goods at such a rapid rate because its trade partners are doing extraordinary well." The evidence for that is notably absent in various nations’ GDP figures.

"China may be in the process of sending goods abroad which it has made at below-market prices and sold at below-market prices." Quite plausible, and what a dollar-yuan standoff could it lead to!

Or, perhaps, the Wall Street Journal theorizes, "China’s $585 billion stimulus package may have done its work in ways that were unexpected. Consumer borrowing may have lifted off even if employment did not. That means that Chinese consumer is following the American consumer down that path of leverage. The end point of that path is known all too well in the US."

The Journal then warns that: "Under almost any circumstance, Chinese growth, on fire again, cannot continue for too long." — Alas, no metrics were given for "too long." Thus, we wait and watch.

With the market news channels being bereft of news of an immediate impact nature, we decided to take a look at some other stories of potential interest to our audience. On Tuesday, for example, CNN.com reported that Scientists in Geneva marked a “new territory” in physics, by smashing two proton beams at record high energy rate. Scientists cheered Tuesday’s historic crash of two proton beams, producing three times more force than researchers had created before and marking a milestone for the $10 billion Large Hadron Collider.

“This is a huge step toward unraveling Genesis Chapter 1, Verse 1 — what happened in the beginning,” physicist Michio Kaku told The Associated Press. Less reported but equally important was the fact that another team of scientists working behind closed doors in a small house in rural Switzerland have stumbled upon a discovery of major proportions just this morning.

Although no official announcement has yet been made, the multi-national team of chemists and engineers has effectively reached the conclusion that centuries-old efforts by alchemists to turn base metals into gold can now be scrapped altogether. A far simpler, more elegant, and infinitely cheaper solution is readily available. The discovery centers around something that the scientific teams initially code-named "lapis ponderosus" or "heavy stone" and later christened "wolframite" in order to throw certain Internet search engines into a state of perpetual ‘results not found.’

In fact, all along, the subject of the research has been…tungsten. Yes, (ferro)tungsten, which sells for about $1.00 an ounce — unlike gold bullion which currently commands an $1115.00 premium over "wolframite" for each precious ounce. Evil-minded central bankers, manipulative bullion banks, and dishonest gold dealers have now besieged the tiny community of Alpenmilch and have set up camp outside the garage where the scientists are believed to be holed up.

The prospect of replacing all of the world’s gold reserves with tungsten has fired up everyone’s imagination and greed in the international financial community. After all, here is a metal that looks equally good, especially when coated with a few microns of gold. A metal that shines far, far brighter than gold especially when several hundred volts of electricity are driven through it. A metal that has the highest melting point of all elements except carbon, and has excellent high temperature mechanical properties as well as the lowest expansion coefficient of all metals. A temperature of about 5700C is needed to bring tungsten to boil – which corresponds approximately to the temperature of the sun’s surface — and who, will ever go there to test it?

But, density is where tungsten really…offers substance. At 19.25 g/cm3, tungsten is among the heaviest metals, and is a virtual match for gold’s 19.3 g/cm3. In other words, it is a ‘no-brainer’ when it comes to substituting gold in its most important application: that of constituting the core of LMBA, NYMEX, IMF, and hundreds of central banks’ bullion bars. Who needs gold, when you can have all the tungsten you want, and at a fraction of the cost?

Sources we contacted at the world’s two remaining light bulb manufacturing plants in Hungary told us that they are extremely worried about this breakthrough. Up until recently their biggest threat was the advent of fluorescent and LED-based lighting. But now, those who insist on the (literally) ‘warm’ glow of a good old-fashioned ‘incandescent’ will have to pay a dear price for each such fetish object.

Analysts expect tungsten prices to absolutely skyrocket and perhaps reach as high as $2 per ounce. To be sure, there are some in the scientific community who absolutely refute the Swiss-based team’s findings and have already labeled them to be as ‘legitimate’ as the ‘cold fusion hoopla’ of several years ago.

Namely a group of researchers at Podunk University in the USA claim that there is no way to do the ‘big switch’ in the world’s gold vaults. The reason? Well, said one of the academics, "you would have to add osmium, rhenium, or Iridium to balance it all out. Sounds like a whole lot of trouble. You have to come up with: a gold shell, then add osmium, and finally a tungsten mixture inside that is accurate enough to fool today’s sophisticated scales. Too costly, too time-consuming, and certainly not foolproof enough to bypass the testing equipment being utilized by modern vaults."

Next up, our sources in London informed us via a middle-of-the-night Skype call that no fewer than 44 whistleblowers have now come forth in The City and have admitted to an effort by a consortium of 9 banks and market-makers to rig all of the world’s markets. In particular, the plot to corner and manipulate the gold price up to $5000 per ounce, was blown wide open by these latest revelations. Here is what we have learned:

A decade ago, two of the manipulators’ comeliest agents, code-named "Leggy" and "Busty" were dispatched to take then PM Gordon Brown to lunch at the Savoy and managed to convince him with a fictional story that a huge gold discovery would soon be announced by Japan, and that it was going to cause bullion prices to plummet to $140 or less from the then current $280 average levels. The PM evidently went into a state of utter panic and ordered the sale of nearly 400 tonnes of the UK’s gold. Score: manipulators:1 – GB: 0.

Subsequently, the ‘cartel’ deployed over 11,000 "dough-for-gold" outlets worldwide and convinced millions that the dormant gold in grandma’s bedroom drawers was best left with the world’s market-makers, as only they knew how to really value the metal. The plotters drove prices higher and higher through a complex scheme involving futures and options contract and thereby convinced the masses that the peak in gold had arrived, week after week. Immense quantities of gold began to flow into the scrap market. Score: manipulators: 2 — "sheeple:" 0 Thus far, everything was going according to plans.

This very morning, however, the sinister market-corner-plotters were dealt a deadly blow. They are effectively out of business, and the coincidence and irony are overwhelming. Astronomers at the Ginza Observatory in central Tokyo announced that based on their latest nighttime imaging results, a 164,000 tonne stray asteroid made of pure gold, has been confirmed as having been captured by the Moon’s gravitational field and is currently in orbit around the Earth’s satellite. Nicknamed "Bully" (presumably from ‘bullion’ or ‘bull market’) the object has inspired headlines such as "Gold Heads to The Moon" and "Sky-High Gold" in many financial newspapers.

What to do about this massive precious metals bit of cosmic debris is the hot topic of the day. Australian gold fans have already exclaimed: "That’s a fair dinkum bloddy nugget, mate!" while several local mining firms have offered capture solutions for the golden piece of star stuff. The Perth Mint is making plans to produce a one metric tonne bullion coin for retail investment sale.

For instance, Deep Sea Diggers Pte. Ltd. has already re-incorporated as Deep Space Cowboys LLc. and is currently offering commercial space rides to view to huge object in order to raise the capital eventually needed to literally lasso the asteroid down to Earth. The IMF on the other hand, has other plans for the gold.

Market analysts at the world financial body see nothing but upside in bringing the golden lump down and burying it in the IMF’s vaults. Such a stash of bullion –some sixty times more than the institution’s current holdings- could fund the developing (and developed) world’s needs for decades to come. Naturally, the one factor that the IMF has yet to add to the equation is that the more than doubling of above-ground gold supplies that the gold asteroid’s landing on Earth would bring about, would result in an instant revaluation of the world’s bullion reserves. When asked what prices such a recalculation would result in, one Australian official remarked:

"What? Do you want me to be accused of working for Jon Nadler? You drongo!"

Enjoy your day off if you have one.

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America 

In addition to the bullion 2010 American Silver Eagle that is already available, the United States Mint this year will also issue the Grand Canyon America the Beautiful Silver Bullion Coin. Click on the link to learn about the coin and the new bullion series from the Mint.