Gold, Silver, Metal Prices Commentary – September 3, 2010

Good Morning,

Some of the sardine can-like conditions in the gold trade were relieved this morning when news that US nonfarm payrolls dipped only by 54,000 positions prompted some latecomers to unwind their own positions in the yellow metal.

In fact, US firms added more jobs (some 67,000 of them) than the 40,000 or so figure that was previously forecasted by analysts. Result: some fear/doom/gloom cocktails are no longer served today. Good news, however, is not so, when it comes to gold.

Minutes after opening on a hesitant footing at $1,248.50 (and after having once again tried to vault above $1,255.00 per ounce) bullion values sank to the $1,237.00 mark (just below one pivotal support point) as the key employment statistic came in at a level much less worrisome than economists had anticipated.

This, despite the fact that the US economy’s recovery can still only be described as reassuring in only selected niches. At any rate, when anticipatory tallies talk about a loss of 105,000 jobs and you get a real-world figure of half of that number, safe-haven bids take a bit of a hit as a consequence.

Again, this, despite the fact that overall unemployment in the US edged on tenth of a percent higher in August. Market participants appear to have shed some of the uber-gloomy attitude they exhibited for most of the week and chose instead, to focus on the upward revision in June and July payrolls that also accompanied this morning’s long-awaited and much speculated-about set of numbers.

Silver was not nearly as much affected by the US Labour Department’s statistical news release. The white metal had opened with a six cent loss at $19.59 and dipped only an initial two additional pennies on the news, while it fell another nickel later in the session. Gold was showing a 1% loss at 9 AM while silver’s slip was on the order of 0.51% at the same time.

No frightening platinum and palladium speculators with employment data however; they continued to bid the two noble metals higher still, as the former opened with a $13 gain at $1,556.00 the ounce and the latter climbed $3 to $525.00 at the start of the session. Once again, rhodium price checks revealed no change in that noble metal.

In the background, crude oil was trading marginally higher (near $75.30 per barrel) following the data, while the US dollar lost a tiny amount of ground on the index, slipping to 82.41 at last check. Stock bulls appeared jubilant over the US jobs data, pushing Dow futures up by more than 100 points in its wake. The actual Dow gained 125 points within the first half-hour of trading this morning.

The markets have now been waiting for an intervention by the Bank of Japan for about a couple of weeks. It seems that one possible reason they did not yet get such a move on the part of that central bank is that it finds itself unable to rally the support of the US and Europe. The BoJ was expected to do that which the Swiss National Bank has done back in June and sell its currency to truncate unwelcome gains.

Mind you, the SNB’s gamble did not exactly pay off; speculators still pocketed hefty profits on the move that was largely seen as ineffective. For Japan, the situation is a bit more serious however, as much of its exports are affected and will continue to be so, in the event the yen does not lose some value. The question here is: what is it about the yen, and the ‘Swissy’ as well as the buck that makes them the belles of the ball these days?

Well, NYU’s Dr. Roubini says that the quest is on for safe havens in a world riddled with risk aversion. When push comes to shove — and, it might again — investors want a liquid, secure umbrella with which to dodge various falling assets out there.

Thus far, and in the foreseeable future, Dr. Roubini argues, the dollar-yen-swissy trio fits the bill, and it does so better than gold. This would especially be the case if the world economy moves into the second V of the W that so many economists keep discerning at this time. Not so, at least one ECB member, Ewald Nowotny, who opined that he sees no signs of the US heading for the double-dip event. In any case,

"I believe that gold is going to trade around current levels. There are two extreme events that lead to a spike in gold. One is inflation, but we have no inflation in advanced economies. If anything, there is a risk of deflation. The other event in which gold prices go up is the risk of a global financial meltdown, and that tail risk has been reduced because we backstopped the financial system." Dr. Doom –as he is also known- said, in an interview with Bloomberg.

Note that Dr. Roubini does not exclude gold (and neither should you) from core holdings designed to weather such possible storms; it is just that he sees the three currencies as offering more upside under such circumstances, due to their superior liquidity (the size of their respective markets and several other factors come to mind).

As far as China’s portfolio to weather whatever is in the cards is concerned, it also appears to be following the Roubini model. The country holds 65% of its reserves in the greenback, 26% in euros, 5% in British pounds, 3% in yen and near 2% in gold. No mention is made of Swiss franc holdings, if any, however. At least one popular urban myth should be laid to rest in the wake of such Chinese asset allocation disclosure: that of the school of thought that believes that all of China’s reserves are in dollars and that it will soon dump most of those greenbacks and replace them with gold bars.

Another sad myth that needs to now be euthanized is the one being propagated about the lack of ammunition at the Fed’s disposal in fighting crisis conditions. No sooner had the concept that the Fed is somehow aiding and abetting the bankers and maintaining a financial system that is already dead and gone been floated that it was summarily dismissed by these little gems full of warnings from the mouth of Mr. Bernanke himself:

"Tougher rules and market pressures will lead huge firms to voluntarily shrink themselves. Executives can no longer count on the government to bail them out if they veer toward failure, they said. Bernanke said that bailing out these institutions is not a healthy solution and great improvement will come from the new law. Too-big-to-fail financial institutions were both a source … of the crisis and among the primary impediments to policymakers’ efforts to contain it. We should not imagine … that it is possible to prevent all crises.”

Translation: "Let them (teetering banks which pose a risk to the system) fail, we will." Ammo that was only utilized in the Lehman case on the last go-round, might well be the carpet bombing projectile of tomorrow’s potential meltdowns.

But, not everyone wants to believe the man, or, another Fed person, Mr., Lockhart who said this morning that the Fed asset purchase decision made in August does not signal the launch of QE2, that the economic sluggishness is temporary, and that there appears to be excessive pessimism about the matter out there in market-land. Believe what you will. Believe who you will.

We on the other hand, believe you will have a terrific, long weekend. This summer holiday period has passed, too. The world is still spinning, the sky is still in place. The only serious bloodletting is to be found at the movies: "Machete."

Until Tuesday,

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America 

Original article link: Tres Amigos Seguros !

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.