Gold, Silver, Metal Prices Commentary – August 13, 2010

Gold futures prices retreated early Friday morning following data showing that inflation rose 0.3 percent last month and that retail sales climbed 0.4 percent higher in July. The metal surged 1.5 percent Thursday.

U.S. gold for December delivery was down $1.60 to $1215.10 an ounce as of 10:40 a.m. EDT.

In other precious metals prices, September silver was leaning a half penny higher at $18.070 an ounce, while platinum for October delivery was down $6.60 to $1,525 an ounce, and September palladium was up $3.40 to $474.45 an ounce.

Following immediately is the daily precious metals commentary, compliments of Jon Nadler, senior analyst at Kitco Metals, Inc.:

The Wizards of Oz and Tales From The Black Forest

Good Morning,

If the pace of economic growth is what has been troubling investors of late, such apprehensions should have been (at least partially) placated by news this morning that German GDP gained 2.2% on a quarter-on-quarter basis in Q2.

This most impressive figure represents the fastest growth rate since the country’s reunification two decades ago, and it came in at nearly double of that which economists had expected for the year overall. The icing on the German statistical cake is the fact that such growth came to be recorded precisely during the darkest days of Q2, when the world of punditry was hard at work, writing daily obituaries for the euro and the EU.

Tugging at worry beads is however, quite fashionable among investors this summer. If there is anything that they appear to hate, well, that would be uncertainty. The same unsettled set of background conditions that drove Mr. Bernanke to come up with his latest over-quoted label for what ails the economic world ("UU") is giving market participants everywhere the shivering fits and has had them react in all sorts of counterintuitive ways following the release of this, or that economic statistic.

To wit, the euro was stuck near $1.28, unable to gain traction from the news that the German economy was burning rubber last quarter. Cisco CEO John Chambers (whose firm’s disappointing results helped further derail the Dow on Thursday) concluded that:

"We are seeing a large number of mixed signals in both the market and from our customers’ expectations. We think the words ‘unusual uncertainty’ are an accurate description of what is occurring,"

Others, such as former Fed governor Fred Mishkin, were more…direct their assessment of what the Fed sad/did on Tuesday:

"They’ve actually created worries in the market that things are going to be worse than people previously thought" noted Mr. Mishkin in a recent Bloomberg interview.

"The Fed is effectively saying that they need to find ways to resuscitate the economy, and the mere fact that they’re acknowledging that reinforces the fear that’s out there," said a New York-based money manager.

A recent WSJ poll found that two-thirds or so of the American public believe that the US economy has not yet hit bottom. And we expect them to go…shopping? Maybe, for this delicacy:

Amid such "UU" spot gold prices opened in New York this morning with at $2.20 gain, quoted at $1,215.70 the ounce. The yellow metal continues to flirt with one-month highs as momentum players have made a reappearance on the scene following what has been interpreted as the Fed’s ‘towel-throw’ as regards US economic conditions and what to do about them.

Silver prices opened with a three penny gain at $18.08 the ounce. Platinum was down $1 at $1,524.00 while palladium rose by the same amount, to start at $469.00 per ounce. Rhodium was quoted at $2070.00 after chalking up a $30 loss on Thursday. Talks between the NUM and Impala Platinum are at a standstill and the prospect of a strike still looms fairly large. The firm is the world’s second largest producer of the noble metal.

The metals markets will now prepare for book-squaring ahead of the weekend, and absent some more grim news of the economic variety, some profit-taking could creep into the picture before the day draws to a close.

Yesterday’s initial unemployment claims only bolstered negative investor perceptions and gave gold quite the lift. This, while RBC analysts (correctly) ask the questions:

"Why we should get excited about these daily streams of depressing data? After all we are in peak [summer] holiday season, so why should we believe that jobs data will improve?"

Like we said, once the mood is set, good luck trying to be objective. To wit, go out and try to find evidence of a positive reaction to the German National Statistics Office, (Destatis), saying that:

"Such quarter-on-quarter growth [as the aforementioned 2.2% pop in GDP] has never been recorded before in the reunified Germany."

Up for speculative grabs this morning, were US retail sales and consumer inflation figures. The former gained in July, but came in just a tad weaker than anticipated (there goes the greenback, up another 0.10 to 82.71 on more safe-haven bids) and the latter (core prices) showed prices edging up by 0.10% in July. That summer month is typically the slowest in terms of retail activity, but as we noted, investors want to remain glum. Dow futures fell following the release of the data.

That the US is perhaps but one small step away from turning Japanese can be sensed in the slow but steady appearance of headlines such as "US Consumer Prices Rise First Time in Four Months, Easing Deflation Risk" Recall that during the ‘lost decade’ (more like two) there were countless instances of talking heads on Japanese television and numerous articles in the local media, alluding to ‘desirable levels of inflation’ in a nostalgic kind of way…(they did not get them).

Time for Friday the 13th market trivia: Guess which stock market has outperformed all others? For the past 110 years? Why, yes, of course you knew: ’tis that in The Land Downunder, Oz, The World of Wonder, The Land of Thunder. The Aussie market beat them all, by a long-shot. Good on Ya, Mates!

Buried in this set of quite interesting Marketwatch findings, a little secret that should please commodity fans, and a little cautionary caveat that should worry anyone (the same commodity fans) who places too much faith in China’s ability to keep on growing at break-neck speeds, forever and ever:

"Australia has tons of coal, iron ore, uranium, zinc, nickel, and gold. It produces oil and natural gas, but oil imports are growing. It also grows wheat and other grains. In recent decades, the country has moved away from its Anglo-Saxon roots and embraced Asia, its rapidly growing next-door neighbor. That has paid off big time. Half of the country’s exports now go to Asia, and China is its biggest trading partner. So, Australia’s economy and markets have ridden China’s coattails to prosperity."

Anyone ready to move?

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America 

Editor’s Note: Meet the Kitco Team at the upcoming Kitco Metals eConference September 12-13, 2010. A not-to-be missed event featuring Ron Paul, Marc Faber and other industry heavyweights. The eConference is free with Pre- Registration www.kitcoeconf.com.