Gold, Silver, Metal Prices Commentary – September 7, 2010

Good Morning,

Whatever selling pressure the stronger US dollar and a $1.60+ drop in crude oil had exerted upon gold prior to, and just after the opening of, the New York session this morning, dissipated along with the arrival to work in full force of the hedge fund crowd. More momentum money making for momentous mornings.

In the absence of any fundamentals-oriented news or any other significant news or statistics for that matter, the most visible of gold’s recent heavy bettors made their presence felt once again and accounted for a quick, $11 gain in the metal within the first 20 minutes of trading this morning.

Few participants question whether the June high will be revisited today, tomorrow, or in the next hour — so long as it is visited. Many question what happens next, however. Today’s plays are being explained within the context of some kind of imminent European banking system collapse — a fear that was somehow shelved for the duration of most of the summer vacation period.

Such plays appeared to be very much on the minds of strategists at DailyFX when they observed that:

"it appears gold’s appreciation has become the impetus for demand, the precise opposite of how an asset is normally expected to behave. Indeed, linear regression studies suggest that a whopping 89 percent of the variance in the spot gold price is explained by variance in the holdings of the SPDR Goldshares ETF (GLD), the leading exchange-traded fund tracking the metal."

Tuesday’s opening bell showed a $1.40 gain in spot gold prices with a quote on the bid side at $1248.00 an ounce. The roughly $8.30 drop in values attributable to the strengthening of the greenback (up 0.30 on the index to 82.61) was more than offset by the flurry of physical offtake from the spec fund sector; giving the metal a $9.70 boost at the start of the session and accounting for the aforementioned net gain.

Silver fell 15 cents as the starting gate opened this morning, with a spot bid quote at $19.70 the ounce. As with gold, it did not take very long for the market to receive a fresh boost of speculative interest and soon, the white metal was showing a $19.97 bid price — also in the absence of any impactful news. The $20 mark is a virtual no-brainer today, but questions surround what might happen as the metal might draw near to putative heavy-duty resistance levels thought to be located around $21.25 per ounce.

Platinum was unchanged at opening time this morning, quoted at $1551.00 per troy ounce. Meanwhile, some profit-taking emerged in palladium initially, as the metal fell $9 to $519.00 the ounce. A very time and price-specific prediction was on offer by Commerzbank technical analysts this morning, for platinum. In so many words, you can bet on platinum achieving a price tick at $1601.00 in three weeks. No suggestions were on tap as to what might happen with the platinum price on the …29th of September, however.

None of these initial fluctuations turned out to be trend-indicative for the noble metals either, as the typical post-Labor Day betting spree turned the complex higher as well and changed the price equation at warp speed, and the bullish decibels gained even faster. Platinum was up $6.00 (at $1559.00) and palladium showed a $1 gain (at $529.00) at last check.

If you prefer your [gold-oriented] decibels at a more moderate, but still quite ‘loud and clear’ level you have no further to look than Amazon.com. Or, Wiley & Sons for that matter. They both carry the newly published book by Jim Gibbons entitled "The Golden Rule." The book is a compendium of two dozen essays about gold. Jim’s book answers many questions, including: How do you purchase gold and in what form? Why gold now? When should you buy? And, most importantly, from whom? Throughout the book, Gibbons puts gold in perspective and shows you why it belongs in every investor’s portfolio.

The trade we spoke to in NY was still searching for headlines to account for the U-turn, but it was quick to remark that gold was the likely force of gravity here, pulling everything else up. Anti-gravity, is more like it. In the case of rhodium, it was more like the ‘steady-state’ universe this morning, as the metal started at the same $2,080.00 bid level at which it spent the entire previous week. A strike at Northam helped underpin pgms.

On the automotive front, the market still looks to Asia to fill the gap being created by sluggish-at-best auto demand in the US and parts of western Europe. India’s Maruti Suzuki Ltd. (that country’s largest auto manufacturer) announced that it will augment its output capacity by 46% in order to meet rising car demand in what is Asia’s third biggest auto market. Future factoid of import: A Nissan Leaf electric vehicle uses nine pounds of lithium for each car. Lithium ETF, anyone?

Australia and Japan left key interest rates unchanged overnight, as perceptions that uncertainty still rules global economic conditions convinced the countries’ respective central bankers that tinkering with them is probably unwise, for the moment. Australia’s Labour Party, led by PM Julia Gillard secured enough seats to form a minority government, sources in Sydney report. No consensus on what the impact of the development will mean for the on-going impasse over mining company profits taxation.

Greece, on the other hand, reshuffled its cabinet ahead of November elections that are likely to be met with rising anger amid voters. The country is in its second year of a recession and prices are rising at a rate that has voters grumbling quite loudly.

US inflation, on the other hand, (though you would not know it from the apparent gold bet explanations being offered by 105% of the players being quoted these days) remains hard to detect. In fact, quite the opposite. Daily FX analyst Ilyia Spivak on the thorny topic of potentially misplaced expectations, that no one seems to wants to mention, even in passing:

"[This] inflationary fear appears to be unfounded. Looking at the US as an example, the amount of money actually created by the Federal Reserve’s liquidity injections is a function of the money multiplier, a ratio measuring the total impact of a deposit into the banking system after it expands through lending and borrowing while cycling through the banking system. Data compiled by the Fed’s St. Louis branch reveals that currently the money multiplier is hovering near 0.8, the lowest level in more than 25 years.

This means that for every dollar created via quantitative easing, only 80 cents actually makes it into circulation. Furthermore, a Fed measure of the velocity of money – the speed with which it changes hands – has also fallen to a multi-decade low. On balance, this means that despite the Fed’s artificial creation of liquidity, a catastrophic period of inflation is unlikely because the mechanisms of monetary policy transmission are not operating as they should."

Meanwhile, over in the US, President Obama offered a non deficit-boosting, fully paid-for $50 plan intended to revamp the USA’s fast-crumbling network of roads, railways and airport runways. This, however, was only a part of the larger plan to revive the American economy, to be announced tomorrow in Cleveland, Ohio. Also on the US President’s agenda, is a tax break for businesses by virtue of which such entities will be able to deduct 100% of the cost of investment in plants and equipment. The plan would slash some $200 billion in business taxes over the next couple of years.

Happy Trading,

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America 

Original article link: Back To The Future(s)

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.