Gold, Silver, Metal Prices Commentary – July 21, 2010

Good Morning,

Tuesday’s price recovery in gold extended into the overnight hours and over to the early part of Wednesday’s action overseas. Sporadic bargain buying and some short-covering were noted ahead of the New York opening. The yellow metal rose as high as $1199.00 basis spot ask values but remained largely confined to a roughly ten dollar range in the absence of fresh news of either the bullish or bearish variety.

Traders are currently focusing on tracking risk appetite and are keeping an eye on slowing investment flows into gold as the euro-centric crisis appears to be dissipating. Holdings in the SPDR Gold Trust fell by more than six tonnes through yesterday’s close. There is still quite a bit of work left for the metal to accomplish before participants can declare the current slump as having come to an end.

If you think that gyrations in currency values such as we have seen over the past trimester or two are but blips on price tables on various screens, well, they are hardly that. Take the Swiss National Bank for example. It lost more than 14 billion Swiss francs over the past six months as the currency rose against the euro (which makes up the bulk of its more than 130 billion in foreign currency investments). Recall the aggressive intervention the SNB undertook in an effort to halt the euro’s fall against the Swiss Franc and it all makes sense now. Still, despite the efforts, the portfolio now resembles a nice hunk of…something else Swiss (think: lots of holes).

The US dollar gained on the trade-weighted index, rising to 83.00 while the euro held just above the $1.28 mark with little to go on but the anticipation of the release of European banks’ stress test results on Friday. The publication is said to contain three distinct scenarios under which the region’s banks are to be measured for soundness (or lack thereof). Up to now, opinion is that the stress tests’ conclusions will be ‘underwhelming’ — pointing to possibly only half of the 75 billion euros that are thought to be needed to be raised in order to bolster bank capital to ‘adequate’ levels. Another yawn in the making.

On today’s news radar, the blips players will be looking out for will come from the direction of Capitol Hill. That is where Fed Chairman Bernanke will be testifying in front of the US Senate and will attempt to explain what he and his team are prepared to do to avert the likelihood of a double-dip ride on the US economic roller-coaster.

Notable advances were seen in crude oil following the news that inventory levels of black gold are shrinking in the US — the largest user of the stuff. Copper also gained in value after the revelation that Asian inventories are on the decline and after technical analysts took note of a head-and-shoulders pattern that may portend additional gains.

In the interim, earnings report festival period continues and Wall Street will have plenty to digest following yesterday’s not-so-hot figures from IBM. Well, at least Apple continued to report rosy results. No surprise there. On tap today, numbers from Wells, United Technologies, Morgan Stanley, and eBay.

New York spot metals dealings opened with mild gains across the board this morning. Gold was ahead by $2.70 per ounce, quoted at $1194.90 on the bid side. Silver advanced 14 cents to start at $17.84 per ounce, while platinum gained $9 to open at $1524.00 the ounce. Palladium rose $1 to the $452.00 level and rhodium was unchanged at $2130 after losing another $90 yesterday. Gold briefly turned negative once again, within the first half-hour of trading action. Such choppiness will remain on offer for the rest of the week, if not longer.

Northam Platinum halted operations at its Zondereinde mine today as an accident killed two miners there. The year-to-date tally of fallen South African mine workers is rather grim; 70 lost already. In 2009 the death toll in the country’s mines totaled 165 individuals. "Blood Diamonds" may be born out of armed conflict, but ‘blood metals’ are the result of another type of battle; that of man versus Mother Earth.

In a recent announcement and introduction to its brand-new report entitled "All That Glitters is Not Gold" the Roubini Global Economics submits that team made reference to several items of interest for those who follow the metal very closely and mainly for profit-seeking motives.

The Roubini team acknowledges that "the concerns propelling the price of gold specifically are very real and should not be ignored." However when it comes time to asking the critical question of "is now the time for investors to jump on the gold bandwagon?" it tenders a terse: "We wouldn’t encourage it."

Let us examine the reason why the team is lukewarm (at best) about the prospects for further major gains in the price of bullion. Chief among them, the recognition that for the majority of the past decade gold has already bested other core asset classes with an annualized average gain of 15.3%. The expectations of yet another decades’ worth of similar stellar performance might be of the ‘great’ variety at this juncture.

The analytical team under the leadership of Dr. Nouriel "Doom" Roubini notes that "gold is most attractive as a hedge in one of three extreme scenarios: high inflation, persistent deflation, or when the risk of global financial meltdown is large." As it envisions none of the above scenarios actually developing, the team does not advise fresh chases for the yellow metal (note that no one said ‘sell your gold now!’ or ‘be totally without gold in your asset basket.’)

Roubini Global Economics submits that "Our core scenario is thus that once national balance sheets are repaired through a protracted and gradual deleveraging of household and public sectors (following the relatively rapid deleveraging of the financial sector, particularly in the United States), excessive deflation and inflation fears will [both] subside. There are certainly financial storm clouds to [still] worry about–not least because of sovereign debt concerns in the Eurozone."

While allowing for further possible gains in the price of gold due to just such concerns, the Roubini team warns that risks to the downside remain in the yellow metals and that they ought not to be ignored.

Such risks include "the possibility that the dollar-funded carry trade could unravel, popping asset prices–including that of gold–that have been bolstered by cheap borrowing in dollars; the concern that central banks will end quantitative easing and raise interest rates, again decreasing demand for risky investments like gold; and most basically the fear that gold prices have been driven up by herding behavior that could quickly turn the other way, prompting swift losses."

This just in: The LA County DA is investigating certain things following the Glenn Beck ‘golden’ saga. Soon, so might Congress.
http://www.huffingtonpost.com/2010/07/20/glenn-becks-sponsor-goldl_n_652766.html

Happy Trading. At your own risk. Happier Holding (at little, if any risk).

Jon Nadler
Senior Analyst

Kitco Metals Inc.

North America 

Original article link: Swiss Miss-Stresses

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