Gold, Silver, Metal Prices Commentary – April 7, 2010

Wrap Artists Beware

Good Morning,

Bullion values carved out a record price of 851.92 in euro terms ahead of the opening of the midweek session in New York this morning. Parsing the minutes of the last Fed meeting led speculators to believe that the practically zero-cost dollar environment could be with us for a while, and that its departure remains linked to economic conditions and deflationary pressures as opposed to a set schedule on the calendar.

A thaw was noted in the hitherto tense environment on the currency front between China and the US as Treasury Secretary Geithner –who is currently in India — is scheduled to visit officials in Beijing shortly.

Currency players are banking on the Chinese central bank either ending the nearly two years-old peg to the dollar or hiking its benchmark interest rates soon — all in an effort to stave off inflation. For starters, the central bank will sell three-year bills for the first time since 2008 in a move designed to drain cash from the country’s financial system.

Meanwhile, Greece’s banks were seen knocking on the government’s door in Athens, pleading for more financial adrenaline as they are close to swooning under the suffocating pressure of a 7.7% level in non-performing loans. The country’s economy is now expected to shrink by at least 2 percent in 2010 as the effect of self-imposed (and outside-requested) austerity measures becomes manifest. IMF specialists landed in Athens to discuss the implementation of such belt-tightening. Welcome to Sparta.

New York spot bullion dealings started in the ‘green zone’ this morning, with gold rising $1.30 per ounce. The yellow metal was quoted at $1135.60 as against a 0.28 gain in the dollar on the index (to 81.64). The Kitco Index showed a virtual wash between the losses precipitated by the rising dollar and the gains engendered by predominant bullion buying. Thus, the net gain of $1.30 per troy ounce.

Silver opened with a six penny gain, quoted at $17.96 per ounce. The unending price rally continued in the noble metals pits, where platinum added $10 to start at $1709.00 and palladium climbed $2 to open at $507.00 the troy ounce.

Rhodium joined in, notching a $40 gain to the $2630.00 bid level per ounce. We reported on rhodium yesterday, but let us not forget the ‘shy’ one in this complex; palladium. It hit a 24-month pinnacle at $513.75/oz. this morning, reportedly as automakers rushed out to stock up in anticipation of the global economic recovery…recovering some more.

All that is fine, but we suspect that ETFs have an undeniable, and probably larger than thought role in the latest surge in noble metals. Here is an illustration of the linkage between the ebb and flow of ETF holdings and platinum values, courtesy of our good friends over at CPM Group, in New York- and it does not even reflect the last four months…

On tap today will be the afternoon Treasury auction of the benchmark 10-year T-notes (last seen at 3.94%) and expected words of wisdom on the economy coming from Fed Chairman Bernanke as well as the Fed’s lone dissenter, Mr. Hoenig.

In particular, market participants will dissect their speeches for further signals of the presence of the ‘extended period’ formula that gave speculators yesterday’s green light to pile into risk assets. What is not going to be much of a surprise is the likely presence of a fresh review of the effects and challenges of the "Great Recession" as regards the US economy.

Whatever that assessment turns out to be, here is one that does not play very well in the Old World: the continent’s economy experienced an unforeseen stall in Q4. The GDP in the euro zone remained stagnant at 0.4% – a match for Q3 as corporate investment fell 1.3% and threw a wrench into the works.

Some analysts now expect a double-dip recession in Germany, but other see the trio of Germany/Italy/France growing at nearly 1% in Q1 and perhaps as much as 1.9% in Q2. For comparison, the US economy is projected to grow at a 2.4% pace this quarter. What is not in debate, is the fact the it has been the Asian economies that have cranked up the winch with which to extricate the global economy out of the swamp of recession up to now.

Speaking of swamps, the murky waters in which tax cheats are frequently seen swimming are about to be drained — if Swiss regulators get their way. Bloomberg reports that the hitherto popular "wrapper" products (whereby people who wish to conceal money from the gubmint’s prying eyes by buying life insurance products overseas) could come under regulatory action. Duh.

It is estimated that there is a huge pool of undeclared assets sloshing around in non US insurance companies, and it could lead to an opening of the drain valves, or –at the very least– to a situation where the ‘no swimming’ signs are posted on a permanent basis.

Watch for the Fed speak, watch for attempts to take out the March gold high of $1146.50, watch for the on-going Greek odyssey, watch speculators enjoying the last days/weeks/months of the "carry-oke" party.

Happy Trading.

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 Mount Hood America the Beautiful Silver Bullion Coin. Click on the link to learn about the coin and the new bullion series from the Mint.