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

by Jon Nadler, Kitco Metals Inc. on September 9, 2010 · 2 comments

Gold, Silver, Metal Prices Commentary - July 28, 2010If you were asked to quickly name the world’s second largest sovereign wealth fund, would…Norway be in the running, in your mind? Now, if you were asked to guess what it is that this, near half-trillion dollar-sized fund just loaded up on, would…Greek debt be anywhere on your list? Well, that is exactly what is happening these days, when it comes to the pile of cash that the oil revenue-rich country has amassed.

Call them Norwegians crazy, if you will. Their Finance Ministry also let it be known that it has not been averse to other debt purchases, especially those seen as ‘toxic’ by others; namely, Portuguese, Italian, and Spanish debt. In effect, Norway is voting with its pocketbook that defaults among PIIGS are as likely as…flying pigs. Adding to the contrarian-flavoured take on matters of Greek debt, that country’s own Finance Minister — he said that his government’s bonds are no longer "something to fear."

Lest such actions and words lead one to conclude that someone in Norway is smoking something other than its national dish (salmon), it might be worth recalling that Latin America — circa 1982 — was about to implode (and parts of it did) as regards matters of debt. Mexico comes to mind, and so do Brazil and Argentina. Of course, hardly anyone who is running around these days calling for the collapse of the PIIGS mentions just what exactly has taken place in Latin America since the darkest days of 1982.

Safe to say that some of the same folks are now extolling the virtues of the BRICs when it comes to all things good (at least as far as consumption of commodities is concerned), and frequently pointing out that Brazil, for example, is now occupying the eighth spot among the planet’s largest economies, and the top spot among all of the ones in South America. But, hey, nothing sells like fear. These days, there are plenty of pundits making a cushy living on such sales.

Spot precious metals traded in a bit of a broader range this morning as the aforementioned fears were intermittently countervailed by gains in risk appetite based on certain news flows. Gold prices oscillated between $1,246.30 and $1,260.00 an ounce, and were basically caught between profit-taking on the back of better-than anticipated jobless claims filings last week, and light purchases on perceptions that statements being made about German banks possibly requiring more capital meant something more than the obvious. Profit-taking did appear to dominate dealings in the late morning, however. The jobless claims filings and a narrowing in the US trade deficits appears to do the trick as regards the taking of profits in the yellow metal.

Resistance was indeed expected to become manifest at around the June record level, however there is no dearth of fresh prognoses for higher prices to come. Last night’s Elliott Wave analysis argued that — should a decline in gold not commence within, literally, "hours" — then there is still a chance for the yellow metal to possibly record a high somewhere between $1,300 and $1,320 an ounce.

Our own projections made several months ago allowed for a possible $1,280 overshoot of the June figure but only under fresh, crisis-like conditions. Thus far, the resemblance to Q2’s crisis conditions has been as close as that between Ben Stiller and George Clooney. The two of them are both actors, but that’s where that stops. See Norway for further clues about the ‘imminent risk of default by Greece’ that has been fueling some of the recent safe-haven bids on gold by certain spec funds.

Silver meandered between $19.78 and $20.10 — also a wider than your run-of-the-mill trading session normally witnesses. A significant (largest in 60 days) drop in copper (more than 2.8%) obviously impacted some of the runaway enthusiasm hitherto manifest in the silver pits. At the end of the day, much as some would love to convince us of silver’s lingering monetary attributes, the white metal is largely defined by its industrial demand features. Thus, even is there might be room left for a run to $22-$23 in this fall fund frenzy, the wary eye must still be focusing on where (other than ETFs) real demand for the metal will actually come from — since the manifest and overriding preoccupation appears to be about economic contractions, these days.

Platinum-group metals also gyrated within broader price orbits this morning, with platinum witnessing a near-$20 range (of from $1,547.00 to $1,568.00) and with palladium running from $516.00 to $532.00 per ounce. Should we mention that rhodium was unchanged at $2,080.00? We just did. Strikers at Northam Platinum continued to do so, while little in the way of news from the auto sector was visible in the news flows this morning, other than the obviously positive take by FoMoCo on the global car market’s growth.

The auto giant expects a 5 to 10 percent rate of expansion for the sector in 2010 — "as worldwide economic recovery takes hold." Norway buying Greek debt, and now, Ford envisioning more cars sold. One can hardly stand all this optimism, eh? Not so fast; the OECD — while taking nothing away from the idea that growth is underway, said today that the process is ‘proving slower than projected.’

Slower by how much? Oh, by about half of the originally envisioned 3% earlier this year. Oh, and OPEC warned that is expects weakening demand for black gold due to such outlooks as that of the OECD. You would not know it from looking at oil — it was up nearly a full dollar at last check. Wacky funds, you know…

A couple of Chinese news items were on tap for players to consume this morning. The first one reported the fact that the government sped up the release of August economic data by 48 hours (to Saturday!), in what is being perceived as a prelude to an interest rate hike intended to combat inflation. The Chinese economy ‘cooled’ to a growth rate of 10.3 percent last quarter but inflation may have taken a step forward, perhaps rising as high as 3.5% last month.

The second news story concerns the allegedly imminent probe of potentially illegal fund activity in the Shanghai market in rubber and soy (and possibly copper and other metals). There was speculation that illicit bank loans may have been used to play in financial derivatives. Once the rumour was dismissed, rubber prices…bounced back. However, the apprehensions surrounding the government’s crackdown on speculation in the property markets did not dissipate, and this helped keep most commodities at lower levels.

Finally, in the ‘I told you so’ department, news that US President Obama called for an end to the tax breaks being enjoyed by those who are fortunate enough to pull down more than a quarter of a million bucks per annum. Said Mr. Obama:

"This isn’t to punish folks who are better off — it’s because we can’t afford the $700 billion price tag.”

More than a few of the very folks to be affected by the eventual hike in taxes have been quite vocal about the fact that the US could not afford the…$700 billion Emergency Economic Stabilization Act of 2008. Now, it might be their turn to do their part in helping restore fiscal order in the States. Provided they are willing to give a little up.

Their ‘messengers’ in Washington (Hello, Mr. Boehner) have promised quite a fight on this one, to no one’s surprise. However, as previously opined, the combination of higher taxes, higher interest rates, lower spending, and re-prioritization of various domestic agendas will be the likeliest formula by which the US will likely escape that which is currently fashionable to predict, but deserves not to be mentioned here.

It has been calculated that a doubling of taxes and a 10% give-up in compensation across the board would completely eradicate the deficits in the US. How about starting out with half as ‘severe’ a concession? One step at a time. It might still have a similar effect on deficits as that seen here.

Until tomorrow, ha det bra!

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America 

www.kitco.comand www.kitco.cn
Blog: http://www.kitco.com/ind/index.html#nadler

Original article link: They Bought What?! No(r)way!

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.

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