Gold, Silver, Metal Prices Commentary – July 30, 2010

Good Morning,

Gold prices made modest advances overnight, ahead of the release of the US GDP data this morning as more tentative buyers emerged following the precious metal’s largest monthly for of the current year. Almost at the same time, and as a few funds made a fresh foray into the market, physical gold buyers in India backed off and started to once again hold out for lower prices. The country is set to import half of the gold it imported in the month of July last year.

Gold prices opened with a $4 gain this morning, quoted at $1170.50 the ounce as the trade prepared to square books ahead of the weekend and as it digested the results of position roll-overs from the past couple of sessions. There are still vocal bulls around, though just a tad fewer, and they are now happy to indicate that we might yet see $1,300 this very year. Curiously, a lot of the $2K sloganeers have quietly slipped away; perhaps to a summer vacation spot on a remote beach.

This morning’s principal focus however, remains on the GDP numbers; that much was being made clear by investors, as currency markets largely Moody’s warning that Spain’s sovereign rating may yet see a one-letter downward adjustment, that the IMF warned that the US financial system may yet be in need of some $76 billion in additional capital, and that European inflation climbed to a near two-year high. The dollar was last seen climbing by 0.19 to 81.80 in the index and the euro remained above 1.30 even as local equity market (in Japan and Europe) sold off a bit in anticipation of the US data.

Silver lost a nickel on the open, quoted at $17.67 per ounce on the bid side. Platinum continued a bit higher, adding $3 to open at $1560.00 while palladium also gained in value, climbing $4 to reach the $487.00 mark at the start of the week’s final session. Rhodium marked time at $2170.00 per ounce after having posted a $20 loss during the previous trading day.

And, drum roll… here it was. The US GDP number. The one that showed the economy slowing to a growth pace of ‘only’ 2.4%. Yes, that is well below the 4.4% rate recorded in the past half-year, but at the same time, Q1 growth was revised upwards, to 3.7% from the previous 2.7% estimate. Recall that surveyed economists had already baked an estimated 2.5% rate of expansion into the cake. In all, not a shocking number, nor one that screams "double dip here now! "at all. If anything, the GDP number was indicative of tepid consumer spending (see below) and a wider trade gap.

Go tell that to the markets, however. Or, especially, to certain fund dudes who will have a field day trading the juice out of the news for the day. Until the next set of statistics is on the horizon, anyway. Sure enough, gold was up (?) on the news, mainly as the dollar took it on the chin just a tad after the GDP. Should gold be up on the news? Judging by June/July’s behavior as relating to contraction tremors in the global economy, no. Judging by perhaps recently oversold conditions, it’s good enough for a Friday morning. Does it alter the bigger trend? Also probably not.

That so much was riding on the GDP figure shows more that markets and investors have become addicted to the next set of statistics from which to take trading cues, rather than a deeper understanding of what it all means. After all, to simply throw ‘double-dip’ labels around — while quite the fashion these days- is rather silly at this juncture, as: a) as no one really knows how to clearly define such an animal and b) as most economists do not expect the GDP to fall into negative territory, now or perhaps even later on.

In fact, perhaps the best way to define the current set of economic circumstances might be to admit that no one knows anything with any certainty, despite their vocal claims to the contrary. Even in the gold market, all euro and sovereign debt-oriented explanatory punditry aside, the reality of the trend change is of another variety. It is no mystery that, in June, we got data showing that the Conference Board Consumer Confidence Index fell 9 points after an 11 percent drop in the S&P 500 the month before.

Then, the markets were on the receiving end of news showing that new housing starts in the US were at an eight-month low. Factor in that pesky unemployment rate still hovering near double digits, and Fed Chairman Bernanke‘s new, to-be-used-until-shopworn-phrase, "unusually uncertain" only added to the malaise and en masse asset sell-offs. If there is anything that investors hate with a vengeance, that would be uncertainty.

Plug in the ‘unusual’ adjective and you have them in a total display of headless chicken behavior. In so many words, these are the conditions which may have pulled the rug out from under the gold rally, rather than the fact that Europe lived to see another day; something that practically everyone should have know was going to be the case, anyway.

Bloomberg sums it up by saying that "In such an environment, optimism about the economic future ebbs and flows constantly, with far-reaching consequences for a nation in which consumer spending accounts for 70 percent of the gross national product. It’s an economy that suggests an EKG- shaped recovery — a sequence of mini booms and busts as consumer fads and pent-up demand drive sales, until the impulses fade. Erratic behavior is everywhere."

None of this has stopped the Fed’s James Bullard from warning that the US remains in danger of turning Japanese- when it comes to the incredible shrinking economic act that comes with spiraling downward prices and other assorted trimmings. Mr., Bullard suggested buying more Treasuries to combat the rising threat of Nipponization of the American economy, but he firmly defended his stance of blasting the policy of keeping rates ultra-low for the ‘extended period’ that was in the previous Bernanke hit-parade of overused words.

Overlooked news item of the day: China grabs the number two spot on the global economic roster. Japan slips to number three. Raise your hands if you are one of the ones taken by surprise by this news item. Anyone? Hello? Okay, no one.

Back to "unusual uncertainty.’

Here is something certainly…certain: the weekend is upon us. Please go and make the most of it. That’s an order.

Happy Trading (but not until next week).

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America 

Original article link: G.D.P. = Grossly Distorted Punditry

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