Gold, Silver, Metal Prices: Commentary – 2/24/2010

by Jon Nadler, Kitco Metals Inc. on February 24, 2010 · 0 comments

Bullion update ... Dig’Em. Fast.

Fading US consumer confidence ended up fading gold speculator confidence as well, as the yellow metal continued to slide and broke the $1100 level in overnight trading. Bullion sank to a fresh one-week low of $1089 per ounce in London market action, even as the US dollar fell back a tad on the trade-weighted index (giving up 0.13) to reach 80.76 at last check.

The euro continued to hover near the 1.35 level against the US currency, as news of a massive and widespread Greek labour protest action continued to unnerve Europe and its markets. London-based Capital Economics opines that the recent revelation that Greece used complex financial assets to improve the official figures on the public finances earlier this decade "highlights the uncertainty surrounding the reliability of these numbers. But with signs that Europe is developing a rescue plan and the Greek Government may soon announce further austerity measures, the chances of a near-term funding crisis seem to have receded." The ‘rescue’ word keeps popping up day after day…

Market participants were still seen as eyeing Ben Bernanke’s appearance before the HFSC today and tomorrow, with a view to gleaning and bits of evidence that the Fed will indeed tighten in coming months. Also on players’ minds, remain the impending IMF gold on-market gold sale, and the recent revelation that China is not a likely candidate for said gold. Several overnight articles have sounded a wishful-in-tone plea for the Reserve Bank of India to take the remaining gold. Memories of what the last such purchase resulted in, last fall, remain strong among perma-bulls. RBI officials remained mum regarding that topic, of course, but one can safely assume that they have already been approached –probably several times by now- as to the fate of the 191.3 tonnes of yellow metal – by its current owner- the IMF.

"The knee-jerk [selling] reaction [in gold] was due to stop losses being triggered on the COMEX futures market during overnight Globex trading hours," said Carl Johansson, Senior precious metals analyst with in Belgium. He added that: "Prices had been sitting comfortably on top of the $1,098-$1,100 an ounce platform over the last few days, but the breach below here saw a significant bout of stop-losses triggered, sending prices lower on the back of an avalanche of selling. An estimated 5,000 lots of the COMEX April gold futures contract were seen changing hands in a five minute timeframe as prices ducked to their intraday lows. This is a volume you rarely see overnight, confirming the notion of stop-loss driven momentum."

The midweek session in New York opened with losses across the precious metals price boards this morning. Gold spot was down $9.00 per ounce, quoted at $1094.50 as participants now look for additional support for gold to possibly emerge in the lower $1,090’s. Underneath that level, the $1,083.00 figure is thought to be able to offer some support, however, the technical charts are now damaged a bit more. This prompted Commerzbank technical analyst Axel Rudolph to warn about the potential "failure of support near $1,074 per ounce, which would mean [gold] bullion could slide back to $1,025.70, the October 2009 low." Jesper Dannesboe, a Senior commodity strategist at Societe Generale SA in London, said today by phone that: "The main driver for gold is as an inflation hedge. If people are worried about economic growth, then they are less worried about inflation.” 

Silver started the Wednesday trading session with a 12-cent drop to $15.73 per ounce.  The white metal has been the worst-performing precious metal thus far this year, and, in the opinion of Barclays Capital analysts, it "may drop as much as a further 11 percent (to $14 an ounce)." Silver’s technical charts show that prices have formed a so-called "head and shoulders top" and then failed to hold above a 27-month pivot line, which Barclays says "is a bearish signal."  

Platinum got off to a bit of a rocky start as well this morning, losing $6 to $1503 per troy ounce. Palladium fell $3 to start at $427 the ounce. Rhodium showed no change at $2420.00 per ounce. In the background, crude oil was off 14 cents, trading at $78.72 per barrel, while the US dollar was still down 0.20 on the index. South African state-owned utility Eskom got its requested 24.8% energy tariff hike this morning, engendering apprehensions that such a move will not only fuel inflation but erode mining company profit margins in that country. The news may potentially prove bullish for the noble metals, as there remains the possibility that platinum/palladium/rhodium miners might curtail production schedules in order to mitigate this latest sharp rise in energy costs. More similar hikes are slated by Eskom over the next couple of years.

Meanwhile, the noose appears to be tightening just a tad more around various commodity speculators’ necks in the wake of the egregious crude oil market hanky-panky of 2008. Reuters reports that: "The U.S. Commodity Futures Trading Commission said on Tuesday it will hold a public meeting on March 25 to examine whether position limits are needed for gold, silver and copper futures markets. The CFTC, the top regulator for futures markets, has long enforced position limits for grains trading, and is now mulling similar restrictions on the number of contracts speculators can hold for other markets.

Reuters also added that: "Metals traders have said it would be difficult for the CFTC to clamp down on speculation in precious metals because most trading takes place outside the United States, especially in physical markets." Yes, but…the trend is not exactly your friend – in this case.

Something that has been very, very friendly to Australia’s mining sector has been the Chinese economic miracle. The growth in that country has now given rise to what the Reserve Bank of Australia has concluded could be "the mother of all mining booms." The RBA surveyed 160 years of Australian mining booms and found that: "It’s a very big boom," – according to its Deputy Governor, Mr. Ric Battelino.The five big mining booms recorded in Australian history have generated periodic surges of export-based wealth but have also forced abrupt economic and social change and usually generated inflation pressures that have been difficult to contain. However, perhaps this time around, the Aussies have a bit less to worry about on those fronts, mining boom notwithstanding. The problem? The very recipient of those commodities being dug up at a feverish rate. Read on:

Harvard University Professor Kenneth Rogoff might have something to say about the likelihood of the Chinese phenomenon continuing at its current (and former) torrid pace. In fact, he has a lot to say about it. Namely that- in his opinion: "China’s economic growth will plunge to as low as 2 percent following the collapse of a "debt- fueled bubble" within 10 years, sparking a regional recession."

You’re not going to go a decade without having a bump in the business cycle," Rogoff, former chief economist at the International Monetary Fund, said in an interview in Tokyo yesterday. "We would learn just how important China is when that happens. It would cause a recession everywhere surrounding" the country, including Japan and South Korea, and be "horrible" for Latin American commodity exporters. If there’s a this-time-is-different story in the world right now, it’s China," Rogoff said in the speech at a forum hosted by CLSA Asia-Pacific Markets, a unit of Credit Agricole SA, France’s largest retail bank. People say China "won’t have a financial crisis because there’s central planning, because there’s a high savings rate, because there’s a large pool of labor, blah-blah," he added. "I say of course China will have a financial crisis one day."

Until that day comes, Good on You, Bruces. Keep digging.

Happy Digging.

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America 

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Check out other site market resources at Bullion Prices, US Silver Coins Values and the US Inflation Calculator which easily finds how the buying power of the dollar has changed from 1913-2010.

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