Gold, Silver, Metal Prices Commentary – July 8, 2010

It’s Acronym Day, Again: ECB, BoE, IMF, BIS

Good Morning,

Following yesterday’s bounce back to the $1200 price zone, gold prices gained in the aftermarket overnight and climbed as high as almost $1209.00 per ounce. However, India’s physical buyers thinned out in numbers as soon as the metal crossed above the psychologically important round figure.

Thereafter, gold was left to take its cues from the continuing improvement in sentiment regarding the state of the global economy. Credit Agricole analyst Robin Bhar opined that the yellow metal might still however be near the top of its range and that the there is little to be found of the "fear factor anymore, the end of the world, Armageddon, to really drive gold significantly higher."

Optimistic observations regarding the global economic recovery coming from the IMF helped bolster confidence on Wednesday. To wit, the Dow gained 274 points in one of the largest rallies in recent weeks. Copper prices were set for a fifth day of advances on the back of the IMF analyses. The IMF found that the global economy is recovering at a speedier pace than anticipated and that the threat of a "W" event has become "very unlikely."

The organization sees the US economy expanding at a 3.3% pace this year, albeit it envisions only a 1 percent growth rate for Germany and the eurozone. Chinese economic growth is seen near 10.5% and Japan’s at 2.4% while that of India could reach up to 9.4% in the current year. The IMF forecasts are not quite as strong for 2011 however they do not factor in the dreaded double-dip under any circumstances. World GDP is expected to grow at 4.6% this year, despite the sturm und drang of sovereign credit conditions.

Meanwhile, the much-anticipated European bank stress tests have met with mixed reaction in the markets and have yet to inspire higher levels of confidence among players. The 91 institutions that will be subjected to the test are the region’s largest; however it is the modeling inherent in the simulations that has come under fire by critics who feel the criteria are too mild. Most of the polled analysts feel that all of the banks involved will receive a passing grade when the ‘possible credit loss treadmill’ results are published later this month.

In the interim, the ECB left interest rates unchanged (at 1%) and the markets awaited a press conference by the institution’s leader, Mr. Trichet. The BoE also left well enough alone and stood pat on rates today.

Here,  in a Telegraph-sourced candid camera shot, he is seen peering through the currently thick fog of uncertainty into the future – the future of the euro, the region’s banks, his now delayed ‘exit’ strategy implementation, and other similar nagging issues. Or, perhaps, Mr. Trichet was reading the fine print in a BIS report which found that banks (in Europe and in the US) remain in a delicate situation and that their loan losses could still mount in coming months. The ‘zombie bank’ syndrome last seen in Japan, in other words.

The BIS, on the other hand, in a separate report, wasted no time in calling for immediate and aggressive monetary and fiscal tightening –recovery concerns be damned. The bank feels that ultra-low interest rates are doing nasty thing to the world’s money markets.

The euro remained firm, near $1.265 following the rate announcement. Mr. Trichet on the other hand, remained on the lookout for things unknown (and probably unknowable). For the moment, he faces higher interest rates –of another variety– as seen in interbank borrowing costs which have been climbing ever since July rolled around.

Metals markets opened under some renewed selling pressure this morning, as participants exhibited uncertainty over yesterday’s recovery attempts. Spot gold started off just under the $1200 mark, at $1198.90 basis the bid, with a $4.30 per ounce loss. Silver fell two pennies to open at $18.04 and palladium dropped $1 to start at $446.00 the ounce. While rhodium was unchanged at $2400.00 platinum managed a $1 gain opening at $1526.00 per troy ounce. The fourth largest primary platinum producer –Aquarius Platinum-halted production at one of its shafts in South Africa following an accident that took the lives of five of its miners.

In the background, the US dollar was steady at just under 84 on the trade-weighted index while crude oil gained more than half a dollar to rise to the $74.73 level in the wake of the forward-and-upward-looking IMF forecast for the global economy. Initial jobless claims data revealed a 21,000 claims decline (down to 454,000) in the latest tally. Initial market reaction was: dollar down, gold down, Treasurys down, Dow futures higher.

Something else down: US Mint American Eagle gold coin sales. They were off by 19,000 units in the month of June vis a vis the same month of 2009. On the other hand, sales of its Silver Eagle coins rose by 756,000 units on the month versus levels a year ago. Take your pick as to whether the stats imply crisis abatement or a too lofty gold price making ‘poor man’s gold’ shine somewhat brighter…

Market dictionary word of the day (for yet another day): Swaps. As in BIS gold swaps. The release of the information about commercial (or was it central?) banks handing over tonnes (382 of them at last count) of gold to the BIS in exchange for (evidently) more desirable (gasp!) paper dollars has the bulls and the bears out in full force, trying to spin the news in their favorite direction.

Mineweb offers a roundup of most of the ‘pros’ and ‘cons’ surrounding the issue. The one finding that should be the take-home lesson from the brilliant Rhona O’Connell-penned Mineweb piece is the one that is applicable to both the bulls and the bears who are attempting to ‘steer’ this news as positive or negative. It goes: "if the system fails completely it won’t matter who’s got what as no one will be able to trade." Spot-on, Rhona. Then again, there’s always lead to ‘trade’ at such a juncture…

Happy Trading.

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America 

For the latest United States Mint weekly coin sales figures — both numismatic and bullion — visit sister site CoinCollectingNews.org and read US Mint Sales: America the Beautiful Quarters, Silver Coins.