Gold, Silver, Metal Prices Commentary – April 9, 2010

Knock, knock, knockin’ on the IMF’s door..

Good Morning,

Increasing worries about a possible Greek debt default undermined the jawboning offered by ECB President Jean-Claude Trichet yesterday and essentially relegated him to the role of a spectator in the crisis. The idea of a default (notwithstanding any likely rescues, should the apparently inevitable take place) kept up the pressure on the euro overnight albeit the dollar retreated a modest 0.10 on the index and was trading near 81.40 at last check.

As fear of a default morphed into expectations of a bailout, Greek bonds rose from their ashes for the first time in a fortnight and the euro also regained a modicum of composure. In fact, UBS analysts opined this morning that Greece will be knocking on the IMF’s door for help within days –perhaps, over the weekend. The dawdling might thus finally come to an end and the die will be cast. The common currency was last quoted at 1.339 against the greenback.

Against this background of uncertainties gold prices climbed to three-month highs and also set new peaks in euro and pound terms as speculators see a dearth of alternatives in an environment where their local beleaguered currencies might continue to pay next to nothing in terms of interest. Meanwhile, word is that China might allow the yuan to rise by about 3% this year. Now there’s something of a surprise, eh?

Any such revaluation’s salutary effects on US exporters could be rather muted by the presence of import barriers which of course the move would not obviate. Can we consider this as a token of appreciation for Mr. Geithner delaying a report that calls China a currency ‘manipulator’ which was due for release last week?

"Gee, we don’t know, but the man just met with Vice Premier Wang"…will say some. Our own opinion is that the prospect of China possibly posting its first trade deficit in some six years in the wake of its gigantic commodities and consumer goods shopping spree, defused the US finger-pointing about the undervalued yuan sufficiently to make the publication of the report moot for now.

Bullion prices rose to nearly $1160 the ounce ahead of the New York open this morning. The first quote of the day was showing an $1156.60 per ounce spot bid price, for a $5.40 gain. Silver was ahead by 24 cents at $18.30 the ounce.

Over in the noble metals complex, platinum advanced $2.00 to open at $1715.00 and palladium rose by $5 to the $507.00 level. No change was reported in rhodium, at $2700.00 the troy ounce. Resistance levels are cited as remaining at $1164 and $1175 while the $1145-$1150 levels should prove supportive.

Crude oil –a generally closely related trade to gold– was last seen trading just shy of the $86.00 per barrel mark and has now posted a better than 70% (!) gain over the past year. This spectacular rise has utterly puzzled many a seasoned energy trader who sees inventories well above the top end of normal seasonal limits.

If this massive gain is all about the optimism related to the economic recovery, well, we’ve seen something like this being used as the excuse back in 2008 when black gold climbed to $147 per barrel. The ebullience that is fueling fossil fuel is not at all shared by economists, the reality on the ground (or under it, in storage tanks), or by statisticians. We call it funds at play. See yellow gold for striking similarities.

Good news (more or less) from home this morning, where 18,000 jobs were added in March. The Canadian government says that the overall unemployment rate remains at 8.2% but the March jobs gain still remains the smallest one recorded this year and is below what economists had expected.

South of the border, on the other hand, despite what appears to be a run for the shopping malls –as reported in yesterday’s March retail sales statistical roundup– the spenders (at least some 10% of them) still lack jobs. However, as they say, conditions are "less worse" than they were. Recall that on year ago US workers were being shed at the rate of 35,000 per workday (!). Whether the March figures are indicative of ‘retail therapy’ or of pent-up demand, some economists remain skeptical about the sustainability of the trend.

Still, the march to the mall by US shoppers is indicative of the possible waning of the nuclear winter in which the retail scene was caught for two years. Consuming — a historically  favourite pastime of Americans — could come to play a pivotal role in the recovery. Needles to say that holding a job, confidence levels, and retail expeditions are all closely intertwined, but we’ll say it anyway.

Happy Trading.

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America 

In addition to the bullion 2010 American Silver Eagle that is already available, the United States Mint this year will also issue the bullion America the Beautiful Silver Coins. Click on the link to learn about the coin and the new bullion series from the Mint.