Gold, Silver, Metal Prices Commentary – September 16, 2010

by Jon Nadler, Kitco Metals Inc. on September 16, 2010 · 1 comment

Gold, Silver, Metal Prices Commentary - July 28, 2010Good Morning,

Thursday’s early action in gold yielded yet another price record; this one, but a dime short of the $1,280.00 spot offer level. The market opened with a $6.80 per ounce gain at $1,275.00 and as shown on the Kitco Gold Index, the increase was due in equal parts to fresh physical offtake and a once again falling US dollar.

The latter lost 0.22 on the trade-weighted index (last quoted at 81.24) but appeared less affected by the plethora of economic statistics that hit the wires this morning than by its dynamics within the yen-euro-dollar triangle.

On the statistical front, we got quite a slew of fresh data; some better than others. Initial unemployment claims fell, but only by 3,000 filings in the latest reporting week. Translation: anemic job creation continues. Wholesale prices edged up 0.4% last month. Translation: gasoline was the main culprit in that equation. Food prices fell, and core producer prices recorded but a 0.1% gain on the month. Translation: inflation continues to be absent from the scene, reflecting a still-weak economic recovery.

Foreign investors bought $61.2 billion of long-term US assets in July. Translation: that’s 38 percent more than they bought in June. Not lost in the translation: China (the allegedly-disgusted-with-US-debt-country) increased its US Treasury holdings in July, following a much-touted but mostly misinterpreted decline in same during May and June.

Oil prices fell to within a hair of the $75 level. Translation: supplies are looking more like a glut and market fundamentals are still a viable price impact factor (unlike in gold, for the time being). And, finally, Greek Finance Minister Papaconstantinou said: "Restructuring is not going to happen." Translation: "Greece’s debt default is being ruled out."

Seizures of US homes by domestic lenders rose to 95,364 last month. That was a 25% jump in repos and a new record (for the third time in five months). Translation: there are another potential eight million homes that have not yet hit the market and will likely add to the already-on-record 28% price drop that the US home price barometer has already recorded since 2006. Translation: not everyone was entitled to their own McMansion.

Now, here is something that needs very little in the way of translation:

"I called gold the ultimate bubble which means it may go higher but it’s certainly not safe and it’s not going to last forever." were the words with which billionaire George Soros –for the second time this year- tried to caution novice investors about the seductive allure of the yellow metal at present. His take on the asset is viewable on Reuters. Certainly, such opinion did not come from a man who is lacking gold in his portfolio. However:

Before anyone spins (and, they will) the man’s cautionary stance as some kind of weird ‘jawboning’ whereby he somehow hopes to drive prices down only to later be able to ‘back up the truck’ and buy more of it, a quick reality check is in order. Item 1: his $658 million worth of GLD shares amounts to…2.6% of his reported $25 billion asset basket, as represented by the Soros Fund Management.

Item 2: a $41 million ‘sliver’ of that golden pile was let go of in Q2 as gold reached for its first record of 2010. At what point the decision I made to lighten up on more of the same, remains to be seen. But, as this writer told TheStreet.com yesterday, Soros will likely never be totally bereft of gold; not given his background, and not given his temperament.

It is just that — at the moment — he too, is probably shaking his head in disbelief at the plethora of TEOTWAWKI gold-oriented TV ads with which viewers who have never owned the metal are being lured into the market with. In effect, if there is any need for translation here, Mr. Soros was saying that gold may well be in a bull market, it may be the ultimate bubble, but that it was a heck of a lot ‘safer’ at half of its current value.

Meanwhile, those very same values brought about a larger than 25% decline in Saudi Arabian gold offtake among certain retailers during the Ramadan-Eid Al-Fitr period this year. Overnight feedback from Indian retail contacts tell pretty much the same story; demand is virtually nil at current price levels. Translation: high gold prices trump tradition. More evidence that the latest surge in gold prices is largely a fund-driven futures/options/momentum/technicals flavored one comes from the…retail physical gold coin demand front. Of course, you could just consult Kitco News for validation of same. However, consider this little ‘golden’ nugget, for perspective:

The Austrian Mint reported that sales of its highly popular Philharmonic 24K coins fell by 41% in the twelve-month period that ended in August. The exception, of course, was the month of May when European buyers flocked to coin dealers due to the debt storm taking place in the region. The drop in sales was apparently correctly anticipated by the Mint’s management, which announced last fall (to incredulous perma-bulls) that it was scaling back its output of coins by at least one-third for 2010, due to what it saw as an ‘abatement of crisis conditions last seen in 2008 and 2009.’

Translation: not everything you read on bullion bully bullish gold websites is true. Some of it is dangerously oil-circa-2008-flavored: "There is no downside to gold." Whoa. While it may well reach pinnacles $100 higher than today’s the idea of ‘no downside’ is as valid as it turned out to be for $147 per barrel oil two summers ago. Translation: consult Mr. Soros on that one, no matter what things appear like today.

Silver opened with a one dime gain this morning, and was quoted at $20.70 the ounce. No let-up in the gains within the noble metals complex, either; platinum started the session with a $4 rise, and so did palladium. The former was quoted at $1,610.00 and the latter at $558.00 per troy ounce.

Over in yen and yuan territory, all was relatively calm overnight- but only on the surface. The Wednesday intervention by Japan is fueling speculation that the dollars which were bought in exchange for the $23 or so worth of yen sold might find their way into short-term US Treasuries. Translation: watch that yield curve.

The US administration has reportedly lost the last traces of its patience with China’s dawdling regarding the upward revaluation of the yuan. Words such as ‘unacceptable’ and ‘unsustainable’ were being bandied about by US officials. Translation: unless China does something to revalue it currency (and help create one million US jobs as well as make a deep cut in the US trade deficit in the process), US officials will ask their Chinese counterparts to translate "trade war" into Chinese. Fast. Even if Mr. Obama wants no Chinese feathers ruffled.

Until tomorrow, "Minden jot kivanunk" — Translation (from Mr. Soros’ native tongue): We wish you all the best.

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America 

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

Original article link: Not Lost in Translation

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