Gold, Silver, Metal Prices: Commentary – 12/02/2009

by Jon Nadler, Kitco Metals Inc. on December 2, 2009 · 0 comments

Bullion update ... Double Bubble Trouble

Good Day,

Wednesday’s opening market action looked like an instant replay of the last three weeks’ worth of "the trade." Put on your blue coat, pin your trading badge on, go sell USD, buy gold, oil, stocks, and whatever else you can get your hands on. Hey, buddy? It’s that easy? "Oh yeah. An easy day’s work. No fuss, no worries. What could go wrong? Oh, that little sandstorm? Nah, it was just the ‘thin’ conditions over the holiday, and the news was blown out of proportion. Anyway, gotta get back to more speculation, sorry to run off."

The following numbers were in play as the big roulette opened for the midweek gambling session: Gold advanced $13.50 to $1209.50 spot bid, silver was up 11 cents on the $19.20 marker, platinum rose $6 to the $1485 spot on the felt, and palladium gained $5 to $386 on the board. Rhodium was unchanged at $2600 per ounce. The words ‘correction’ and "overbought" have now been banned from the trading vocabulary, replaced with nicer-sounding ones, and those who are talking a 20% -25% "clean-out adjustment following frothy conditions" (while noting that no ‘real’ damage would be done to the overall trend) are, well, just talking. Why, unless they warn us that it could all unfold in one or two sessions, they won’t even be noticed, much less heard.

Continuing dollar weakness made for one more overnight record – the 21st in 23 days (!) in gold prices – this time near $2018 per ounce. The financial media is-by now-yawning at the prospects of having to write yet another story on the subject of gold price records, having run out of uber-bullish statements from every possible source. Thus, the latest statements one runs across in various articles are no longer just uber-bullish – they have actually turned comedic in nature.

Dreams -make that assurances- of China buying 10,000 tonnes of gold, fairytales -make that ‘breaking news’- on market defaults and of tungsten-filled good delivery bars – these are the topics that are unfortunately making their way into what is supposed to be journalism based on facts and/or figures as offered by verified sources. If that is not a sign of you-know-what, then we do not know what is. Perhaps, the following quote:

No, this is not a Jon Nadler quote. No, it is not a Dennis Gartman quote, either. Or a Ned Schmidt, Nouriel Roubini, Bob Prechter, or Paul Krugman label on the gold market, either. Though they might still be thinking it, despite the thrashing they are taking in certain uber-bull gold quarters for daring to entertain the idea that gold might currently just possibly be inside a floating, thin-film, rainbow-coloured spherical object. This, folks, was pure heresy, and it came our way from a ‘higher’ source.

None other than the soon-to-be-winner- of the "new darling" central bank contest of the bullion bulls, China, uttered the "B" word overnight. Just as bullion set new price records near $2018 per ounce. "Gold prices are currently high and markets should be careful of a potential asset bubble forming" a senior official at China’s central bank said on Wednesday, as prices for the precious metal hit a record high. This is the China that is supposed to be getting ready to go on a gold shopping spree that some have estimated to range from 2 to 10 thousand tonnes?

"We must keep in mind the long-term effects when considering what to use as our reserves," Hu Xiaolian, a vice-governor at the People’s Bank of China, told reporters in Taipei, when asked if China had plans to increase its gold holding in its foreign exchange reserves. "We must watch out for bubbles forming in certain assets, and be careful in those areas." In so many words, no thanks. Not at this time, certainly not at this price. And, most certainly not, when one considers what such a little shopping spree might do to prices during the process, and what the other side of the mountain might look like when sitting on such a pile and possibly having to sell some tonnage for whatever purpose.

And, definitely not, when considering the possible value damage that could be done to the remaining Chinese US dollar reserve holdings- the giant $2 T pile of which would barely be dented in size by a 77 billion dollar purchase of, say, 2,000 tonnes of the shiny stuff. A case of "reverse-replay UK" – where the act of buying or selling the stuff has larger repercussions on the remaining holdings than the value of the entire transaction.

In the interim, another central bank representative uttered the "i" words yesterday. Another heretical statement at a time when the carry-traders are swilling the ultra-cheap dollar Ripple and buying up everything in sight while high on it. While most people see this first "i" word (but not the second one) as being as close a reality as the nearest quasar is to Earth, the jawboning by this central banker ought to at least be noted as a pivot point in Fed-think. Therein lies trouble for the other ‘bubble’ – the dollar-shorting one. But, hey one should not be heard talking in church…

"Charles Plosser, the president of the Philadelphia Federal Reserve Bank, became the first top central bank official to call for higher interest rates in this cycle. In a speech on Tuesday, Plosser said the Fed had to start raising interest rates sooner rather than later and had to begin withdrawing excess cash from the financial system. If the Fed does not act soon "the inflation rate is likely to rise to levels that most would consider unacceptable," he warned, reported Marketwatch on Tuesday.

Today’s jobs data might only go a small way towards shifting Fed jawboning to manifest Fed action, but it is nevertheless one of the signs for which various officials (including the Treasury’s Mr. Geithner) have been holding out for before revving up the interest rate machinery. Marketwatch observes that: "Private-sector firms in the U.S. eliminated 169,000 jobs in November, according to the ADP employment report released Wednesday. It was the fewest jobs lost since July 2008. The private-sector has shed jobs for 22 months in a row."

More numbers, more bets based on the numbers, and more talk based on the bets made on such numbers. The wheel keeps turning. Faites Vos Jeux.

Until tomorrow,

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America 

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Check out other site market resources at Bullion Prices, Silver Coins Values and the US Inflation Calculator which easily finds how the buying power of the dollar has changed from 1913-2009.

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