Gold, Silver, Metal Prices Commentary – August 20, 2010

Good Morning,

Gold trading opened with a small $1.50 loss on this, the last trading day of the week. Spot prices started off the session at the $1230.90 level, following an overnight dip to near $1227.00 the ounce. A hefty 0.50 gain in the greenback kept bullion’s persistent advance attempts to above the $1235.00 resistance zone in check for the moment.

So did mild profit-taking by funds, and a once again swooning Indian overnight demand for the yellow metal just ahead of what would normally amount to a quarter’s worth of festivals-related buying. Within the first half hour of trading, gold lost more ground, sinking to the $1223.50 bid level (some $15 lower than Thursday’s peak) as additional profit-taking bit into values.

Curiously — in the context of recent headlines — today’s slip in gold is being attributed to ‘jitters over the economic recovery as reflected in the drop in stock index futures.’ Wait; wasn’t the ‘jitters’ issue the same one that helped gold gain earlier in the week? Stay confused; we will too. Not.

The simplest formula is still likely to hold: economic contraction = asset liquidations = lower gold (but hopefully fewer percentage losses than other assets might sustain). Any time the word ‘hedge’ (or ‘reverse hedge’) can be used and appended to the word ‘gold’ the case for its core 10% presence in any prudent portfolio is an open and shut case.

Or, perhaps, some of the "profit-taking" came not only from the "usual suspects" — the Friday book-squaring squadrons — but from…well-to-do owners who decided to let go of at least some of their golden stacks following Goldman’s ‘sell gold now’ advice. Yes, the story sill has legs in the media and is adding to uncertainties despite this week’s 1%+ gain in the precious metal.

Silver dropped 13 cents at the session’s opening, and was quoted at $18.18 basis spot bid. The white metal later fell another 12 cents to draw closer to the $18.00 round figure. Platinum continued its downtrend, losing $8 at the start of the day; with a $1514.00 per ounce quote that later turned into a $1504.00 quote as the noble metal shed another $11 on top of its initial loss.

Palladium also fell today; losing $4 on the open, to ease to the $479.00 mark — it later saw that loss more than double and the bid quote turn into $474.00 per ounce. Meanwhile, once again, no change was seen in rhodium values — apparently stuck at $2,070.00 the troy ounce for the week.

The US dollar vaulted above the 83 mark on the trade-weighted index earlier this morning, after remarks by German central bank head Axel Weber convinced market participants that the ECB will keep emergency liquidity parachutes deployed until year-end. The euro fell more than a full penny to $1.27 in the wake of the comments. My, what strong beliefs (in never-ending zero rate policies) you have!

Another (and perhaps more proper) way to interpret Mr. Weber’s remarks is to say that he actually said that the ECB should embark on its exit campaign no later than the first quarter of 2011. Mr. Weber also happened to say that he believes that the ECB will raise its growth projections for the unified region next month, following the Bundesbank’s lifting of its own expectations for the German economy (to 3% from 1.9%).

But, hey, many market players hear, see, and read into the news mainly that which they want to believe. Kind of like 20% of Americans who firmly believe that their President is actually a Muslim. Or, kind of like the Florida church that is planning to censor Islam by burning copies on the Koran on 9/11 in the belief that it makes an effective statement against…something its followers presumably believe in.

Or, kind of like the forced mass expulsions of the Roma (gypsies) from France by Mr. Sarkozy, who believes that the ethnic ‘cleansing; will boost his standing with the right wing in France. Perhaps Mr. S should concentrate on trying to explain to the right why he is cutting the country’s 2011 economic growth forecast to only 2%, down from the previous 2.5% projection (must be those pesky Roma biting into the recovery…). France’s President evidently does not believe that the Roma come back. They do, every time they are deported. Go figure. Hello, Good-Bye, Hello again.

Or, kind of like US administration officials who believe the oil that spilled into the Gulf of Mexico is all gone, and that the Gulf’s seafood is safe to consume, when researchers spot a 22-mile long by 1.2-mile wide plume of hydrocarbon sunken at about 500 fathoms in the same Gulf.

Speaking of sinking black gold, the commodity dove by $1.18 and more, to a six-week low near $73.60 earlier this morning, in the aftermath of rising US jobless claims (reported on Thursday) and an apparent contraction in US manufacturing (also reported yesterday). Not helping matters was a reading that showed total US crude and distilled oil product inventories reaching their highest level in more than two decades (according to the US Energy Department).

Over in Asia, equity markets ended the trading week broadly lower after Chinese authorities turned the screws a few more degrees on speculators who are still gorging on property plays. The Beijing government announced (via its Ministry of Land and Resources) that it will bolster its efforts to crack down further on what it calls ‘land misuse.’ Developers found to be hoarding land will be barred from receiving loans and will face other sanctions as well.

Sanctions of another ilk may be facing Down Under’s election candidates Gillard and Abbott; the wrath of voters who either favour or oppose the recently proposed (then shelved for the time being) tax on mining company profits. Ms. Gillard (Labour Party) has toned down the amount and the scope of the proposed Harvey Tax to 30% and says it would apply only to coal and iron mines.

Mr. Abbott’s coalition enjoys strong support in the Aussie mining community and stands to win the additional 17 seats he is seeking in order to form a government. The race is now a draw at 50/50 going into the home stretch. Regardless of who wins, the core issue is unlikely to simply go away quietly. Kind of like the idea that the US is facing Weimar Republic-style hyperinflation any minute now. Despite what the accompanying picture actually spells out in bold, squiggly, blue lines. The opposite.

Have a pleasant (inflation-free except where applicable, on account of birthday balloons) weekend.

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America 

Original article link: Believe It. Or, Not.

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.