Gold, Silver, Metal Prices Commentary – May 3, 2010

$800 Gold Prediction. No, A Zero Is NOT Missing.

Good Morning,

Sunday night’s initial price trend in precious metals was one of modest declines. The US dollar remained above the 82-mark on the trade-weighted index, while the euro did not immediately benefit from the announcement that Greece’s debt had been granted the reprieve that we alluded to in Friday’s closing lines. In fact, the common currency fell from a one-week high against the greenback after fears arose that the package may be insufficient to solve the contagion problem and that it will also bring about economic contraction (at least in Greece).

In an effort to stimulate apparently less-than-interested (at these prices) gold coin buyers, India Post is offering a 6% discount to would-be purchasers, good through the end of the month. In a joint effort with the World Gold Council, the country’s postal service is making 1,5, and 8 gram pure gold coins available through local head offices in various Indian provinces. It remains to be seen how much foot traffic the discount will engender.

Meanwhile, Indian’s jewellery buyers in India steered clear of their local bazaar over the weekend following gold’s momentum and fund-driven price spike to five-month highs on Friday. As the yellow metal remained above the 17,000 rupee (per 10 gr.) level, locals crossed their arms despite approaching auspicious gold buying days on the calendar, preferring to hold out for price corrections.

Speaking of price corrections, at least possible future ones, Michael Crook, VP & Strategist at Barclays Wealth (the UK’s largest money manager with nearly a quarter-trillion in assets under management) made a stunning (for some) prediction on TheStreet.com that aired yesterday. Warning: not for the squeamish.

Mr. Crook argued that once the current crisis is over and gold starts to reflect its ‘fair, adjusted for monetary policy (post liquidity extraction) price.’ That price is about $800 per ounce in Mr. Crooks’ opinion. Yes, not the $7,000 per ounce price TheStreet.com was offered last week by one of its rip-roaringly perma-bullish guests. Mr. Crook is thus shorting the GLD. Period. Buying Jan. 2012 puts, to be precise. He also sees platinum and palladium (bullion and ETFs) as the ‘winners for the next decade.’

May’s first trading session brought further gains to the precious metals complex, while gold in particular touched new records in sterling and euro terms on the back of continuing euro-wary bids it received in early trading. New York spot gold started the day with a $2.20 gain at $1181.50 the ounce (fresh, five-month highs) as the Friday momentum continued to exhibit remaining energy.

London markets were shuttered for a holiday (you know, that socialist one, all about workers) this morning, albeit the weather did not seem to cooperate with those who got the day off. There is little standing between the $1185 resistance area and the magic $1200 round figure (or perhaps the EW target for this overshoot, currently computed for near the $1210 level). After that, the questions are pretty much wide open as to what comes next.

Silver gained 4 cents on the open, rising to the $18.68 level. However platinum and palladium fell a tad with profit-takers afoot on the floor. Platinum gave up $2 to open at $1737.00 while palladium dropped $4 to start at the $545.00 figure per troy ounce. The dollar/euro pair was still tilting in the greenback’s favour this morning (USD index at 82.15 up 0.26 and the euro at 1.324) while black gold drifted 16 cents higher to the $86.31 per barrel indication. The economic calendar this morning will be looking for number on personal income and spending and the ISM’s Manufacturing Index. Dow futures pointed higher early on.

Well, Greece and China dominated the weekend’s news on the economic and market fronts. Several photo-op quality handshakes sealed the 110 billion euro rescue package’s approval on Sunday. After weeks of intense deliberations and bitter wrangling, replete with a long string of false starts and dashed hopes, the EU’s ministers finally came to an agreement on that which needed to be done in order to avert a default by Greece and a potentially lethal blow to the common currency.

That said, nobody (at least in Greece) has any illusions that this is a magic Band-Aid for the situation. To wit, Greece has to acquiesce to a truly…Spartan existence as it swallows the bitter pill of austerity imposed by its saviours. Some 13 percent of its GDP’s worth of a bitter pill, no less. Local unions have already labeled the measures coming their way as ‘savage.’

The financial life support hookup will last for three years and although expectations are that Greece will be able to pull this off, there are also somber projections of the four percent expected shrinkage in the country’s economy attached to such hope. The markets at large now need to ascertain to what extent this ‘containment’ of the eurozone’s hitherto spreading debt contagion will be successful. A task for coming days and weeks, we say.

Over in China, the PBOC announced that bank reserve ratios will once again need to be hiked in order to avert the nascent property bubble and emergent inflation threat. While the regulators could avail themselves of ‘blunter’ tools (such as higher lending rates, for one) to contain these looming threats, their preference has been to jawbone and resort to these ‘softer’ instruments as part of their policy up to now.

Some analysts feel that such mild-mannered measures are doomed to fail and that swifter and more meaningful moves will have to take place later in the year. In any case, the local markets have already not taken kindly to the prospects of the stoppage of what –up to recently anyway- has been a very nice party indeed. The SGE index has already shed better than 12% in 2010 on account of said dislike of any potential tightening.

Whatever measure are taken or not, some Citigroup and other seasoned economists opine that China is already on a path towards a ‘boom, bubble, and bust’ scenario, with another two years to go while the bubble shapes into its final form, and three additional and painful years during which it will deflate. This writer feels that stages one and two are basically complete and that unless aggressive measures are put into motion during 2010, stage three could commence within the same timeframe. For once, we agree with Marc Faber on something; the GB&D’s publisher told Bloomberg last night that he expects "a Chinese crash" within the next 9 to 12 months.

Commodity players greeted this particular mix of weekend news with…mixed feelings. On the one hand, risk appetite was expected to gain strength (along with the euro) following the Greek rescue. On the other hand, the fear of a slowdown emanating from the country that is shortly expected to take the role of runner-up on the global economic scene (dethroning Japan) has many a speculator spooked when it comes to throwing money at the markets with wild abandon.

Happy Trading.

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America 

In addition to bullion 2010 American Silver Eagles that are already available, the United States Mint this year will also issue the 5 oz. bullion America the Beautiful Silver Coins. Click on the link to visit a sister CoinNews site and learn about the coin and the new bullion series.