Gold Falls Slightly Despite Inflation Data, Silver and Platinum Advance

by on December 15, 2009 · 0 comments

Bullion update ... New York gold futures declined slightly on Tuesday despite a government report showing soaring wholesale inflation in November.

Gold tends to rise with inflation, as it is often purchased as a hedge against it. The yellow metal did tick higher for a time, but it was pulled down due to a stronger US dollar.

In other commodities, silver and platinum prices rose modestly while crude oil broke a 9-day losing streak to push back above $70 a barrel. U.S. stocks retreated in part due to the same aforementioned inflation data, according to reports.

New York precious metal figures follow:

  • Silver for March delivery ended up 11.5 cents, or 0.7 percent, to $17.455 an ounce. It ranged from $17.1350 to $17.480.

  • Gold for February delivery fell 80 cents, or 0.1 percent, to $1,123.00 an ounce. It ranged from $1,130.00 and $1,112.00.

  • January platinum gained $5.50, or 0.4 percent, to $1,452.50 an ounce. It ranged from $1,431.80 to $1,456.40.

In PM London bullion, the benchmark gold price was fixed earlier in the day to $1,122.00 an ounce, which was a decline of $1.75 from Monday. Silver retreated a penny to $17.180 an ounce. Platinum was settled at $1,434.00 an ounce, falling $2.00.

Notable bullion quotes follow:


"It’s a dollar play for gold," Zhang Dajiang, a senior analyst at Pioneer Metals Group, was quoted on Bloomberg. "As long as the dollar stays resilient, we’re going to see volatility and some weakness in the gold price."

"The U.S. dollar is broadly stronger, pushing gold futures prices down," Sal Guatieri, senior economist at BMO Capital Markets, said on MarketWatch.

"Ebbing confidence was the theme on the global economic scene early on Tuesday morning. As has now been the case several times in recent months, when such a fade takes place, the US dollar quickly benefits from the rising jitters," wrote Jon Nadler, senior analyst at Kitco Metals, Inc. "A fresh, "safe-haven" bid boosted the US currency, while the euro and gold got clobbered pretty badly in early going." [Read Nadler’s full commentary.]


In related gold bullion news, the US Mint on Monday resumed 2009 Gold Eagle sales in the fractional sizes of 1/2 oz, 1/4 oz and 1/10 oz. The bullion coins were suspended due to enormous demand that depleted the Mint’s inventory. No additional 2009-dated fractional coins will be produced when the remaining supplies are gone. One-ounce Gold Eagle sales resumed on Tuesday. They had also been placed on hold as a result of inventory depletion.

Oil and gasoline prices

Crude oil prices rose, breaking a 9-day losing streak, "as traders anticipated a drop in weekly crude-oil supplies and after the Organization of Petroleum Exporting Countries lifted its global demand forecast," reported Laura Mandaro of MarketWatch.


"We’re a little overcooked on the downside, and I think we’re going to see a little correction, maybe to $71 or $72," Jim Ritterbusch, president of Ritterbusch & Associates, a Galena, Illinois, consultant, said on Bloomberg.


New York crude-oil for January delivery advanced $1.40, or 2 percent, to $70.91 a barrel.

The national average for regular unleaded gasoline declined a half penny to $2.598 a gallon, according to AAA fuel data. The price is 3.6 cents lower than a week ago, and 3.7 cents down from a month back. However, the price is 93.8 cents more than a year ago.

U.S. Stocks

U.S. stocks fell "in a choppy session that saw investors struggling amid reports that showed rising inflation and a mixed outlook for manufacturing," wrote Alexandra Twin of


"The PPI data was a little bit worrisome and maybe just whatever comes out of the Fed — there might be a little bit of concern about that," Wayne Schmidt, chief investment officer of Gradient Investments in Minnesota, said on Reuters.


The Labor Department’s Producer Price Index (PPI), which measures inflation pressures before they reach the consumer, soared 1.8% in November — the biggest gain in three months. Compared with a year earlier, producer prices moved up 2.4% — their first 12-month increase since November 2008. The annual wholesale inflation rate was 1.9% lower in October.

The Dow Jones industrial average fell 49.05 points, or 0.47 percent, to 10,452.00. The S&P 500 Index declined 6.18 points, or 0.55 percent, to 1,107.93. The Nasdaq Composite Index retreated 11.05 points, or 0.50 percent, to 2,201.05.

Gold, Silver, and Metals: Prices and Commentary – Dec. 15
by Jon Nadler, Kitco Metals Inc.

TD, Or Not To Be…

Good Day,

Ebbing confidence was the theme on the global economic scene early on Tuesday morning. As has now been the case several times in recent months, when such a fade takes place, the US dollar quickly benefits from the rising jitters. This morning was no different. A fresh, "safe-haven" bid boosted the US currency by another 0.60 on the trade-weighted index, while the euro and gold got clobbered pretty badly in early going. Oil was eking out a small, 41 cent gain to rise to $69.92 amid subdued conditions.

Gold slipped to a low of $1111.40 basis spot bid ahead of the NY opening this morning. This, as the US dollar approached 76.95 on the index, and the euro was quoted at 1.454 and threatened to break over the pivot point that had offered some support up to this point -even if just psychological.

The Tuesday morning NY market open had gold starting out under dollar strength-precipitated selling and quoted at $1113.90 per ounce (a 1.11% decline), while silver lost 24 cents to open at $17.15 per ounce. Platinum fell $19, erasing Monday’s gains, and was quoted at $1429 while palladium dropped $5 to $361 per troy ounce. More Fed and European jitters later knocked the yellow metal to a low of $1110.40 in NY.

No change was reported thus far in rhodium, which was steady at $2040 per ounce. Minor losses were reported in the holdings of gold ETFs on Monday, but it would be difficult to classify them as opportunity-driven sales in the wake of yesterday’s relatively meager gain in prices. Gold holdings on behalf of investors in the thirteen by monitored bullion backed exchange-traded funds (ETF’s), were seen: "Dropping 0.547 tonnes on Monday, December 14th. The drop in joint holdings was the consequence of a 27,386 ounces or 0.85 tonnes outflow in the by ETF Securities marketed ETFS Metal Securities (PHAU). The decline was only partially offset by a 9,801 ounces or 0.30 tonnes inflow in the SPDR Gold Trust."

Meanwhile, Elliott Wave analysts still envision the possibility of a sharp gold price spike perhaps taking place this very week. EW’s short-term update opines that: "Gold could experience a sharp snapback rally at any time. We are less interested in calling the start of any near-term rally rather than the end of it, where a lower-risk opportunity will exist, in our view. This way we are not trying to position our forecast against the trend, which is down, but, instead, with it. My guess is that once a bounce starts, it will carry gold to at least the $1170 level. On an intermediate-term basis, the current C (circle) wave decline should draw prices beneath the A (circle) wave low at $680 before it ends." We say, much depends on the reading of the tea leaves prior as well as after the Fed meeting, and the shape that the emerging mini (or not-so-mini) European crisis morphs into. To wit:

The first item out of Pandora’s Box (of worries) this morning was the drop in investor and analyst sentiment as tracked by Germany’s ZEW think tank. Analysts at Capital Economics (UK) reported that: "December’s decline in German investor sentiment suggests that the improvement in economic conditions is relatively fragile. And Q3’s fall in euro-zone wage growth will dent hopes that the recovery will spread to the consumer sector."

Forbes relayed the words of one ZEW analyst as having said that: "The fizzling out of major temporary growth drivers will lead to a moderation in growth dynamic. Recent reports of banking woes had also rattled sentiment. This was accompanied by the downgrade of the Greek sovereign (credit) rating and the market jitters triggered by repayment problems of Dubai World."

Capital Economics also pointed out that: "recent comments from other member states like Germany and the EC itself have raised hopes that Greece would receive support if default became a real prospect. Nonetheless, market nervousness over both Greece’s position and sovereign debt in general looks unlikely to fade in the foreseeable future."

The intertwined problems that Dubai and Greece continue to present are rattling nerves, markets, banks, and sentiment as we head towards the end of this year. These problems are starting to look a bit like the H1N1, as they spread by popping up in places that offer fertile conditions for infection. Bloomberg adds that: "Spain had the outlook on its AA+ debt rating cut to "negative" from "stable" by Standard & Poor’s last week. Greece’s credit was reduced one step to BBB+ by Fitch Ratings, and Portugal’s outlook was revised to "negative" from "stable" by S&P." Amid such conditions, funds appear to be content to take profits where they are able to, and dress their respective windows with the warm glow of green. Who know? Next year might once again be a difficult one to make money during.

This, then, is what the funds are, indeed, doing. Observers at note that: "Short-dollar positions are getting erased, as the outlook towards the greenback has ameliorated on the back of expectations of a faster-than-expected Fed rate hike. Funds continue to liquidate a huge pile of long positions, as they see that the best for this year is likely behind us. This equally implies that the potential for speculative [gold] bargain hunting is limited into the next weeks."

Such bargain hunting may run into a plethora of…bargains, if analysts at Toronto Dominion are proven correct in coming months and years. The National Post’s Peter Koven reported last night that TD threw ‘cold water on the gold party’ with a devastating forecast for future gold prices. Highlights from the article read as follows: "TD economists Derek Burleton and Dina Cover think this [recent $100+ gold correction] is just the start: they see growing troubles for gold in 2010 and they expect the metal to eventually fall back toward its long-term, inflation-adjusted average price of just US$500 to US$600 an ounce.

Starting in 2010, they see gold facing increasing headwinds, the biggest one being the U.S. dollar. By the end of 2011, they expect the price of bullion to be trading close to US$800 an ounce (you can practically hear the gold bugs retching at that one). Of course, they also pointed out that such a price is way ahead of the average real price between 1983 and 2008, which was about US$580 an ounce.

Looking beyond 2011, they see even less reason to be bullish about gold. They noted that in historical terms, gold has generated little or no return in real terms over extended periods of time, with only a few short bursts where it did really well. And a major long-term drawback of gold is that it does not generate an income stream, unlike dividend-paying stocks. They pointed out that gold has generated a return of 180% from the average price of 1983 to today, far below the returns of the S&P 500 or U.S. treasuries." That said, the TD team also added that "Since they expect investors to take advantage of the current dip to buy gold, they think prices will likely spike up again soon."

2010. Last chance saloon, or the road to Eldorado? Stay tuned. We will be here to report either journey.

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America 

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Check out additional market resources at Bullion Prices, the Coin Melt Calculator, and the US Inflation Calculator.

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