Gold, Silver, Metal Prices Commentary – September 20, 2010

by Jon Nadler, Kitco Metals Inc. on September 20, 2010 · 0 comments

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

The US dollar fell to five-week lows near 81 on the trade-weighted index and some commodity markets headed higher overnight, as the waiting game for Fed policy hints began to take hold among global investors.

Recent speculative talk of a second round of quantitative easing remained at the front and center of investors’ (and greenback short-seller’) preoccupations. However the certainty levels about just what the Fed might say and/or do following this week’s meeting revealed a good dose of skittishness among them as well.

A raft of economic data that shows the US economy is not yet sliding into the abyss that might prompt the launch of the "good ship QE2" has the aforementioned anti-dollar bettors just a bit on the nervous side, especially given the sizeable positions they appear to have amassed of late on the basis of such perceptions of imminent further easing, whatever the form it eventually takes might be.

The US economic growth patterns, as seen at the present time, may well not qualify for that second round of the Fed’s deflation-obsessed largesse that so many pundits are ready to bake into the market price equation for various assets. However, that same rate of economic progress away from the abyss of 2008 is still lacking the job creation levels that might make said pundits give up the claims that QE2 is about to take to the high seas.

To wit, nearly 50 percent of Bloomberg-polled economists envisage US growth at rates short of the between 2.5 to 2.8 percent that the Fed would like to witness in the coming year. As such, although the US central bank will most likely not tinker with the obvious (rates, since it pretty much can not) it still might be making an announcement that some asset purchases will take place in coming months.

Such a plan might be unveiled even if there is no documented evidence (say, as that which is available from Japanese experience) that it will have the intended effects. The point is, it seems, that no one wants, or is prepared to handle a second unpleasant ride down the economic escalator. Thus the ‘whatever it takes’ policy stance that we already got a preview of from Mr. Bernanke some time ago, might define this next post-Fed-meeting presentation as well.

Such actions will, very likely, and immediately, be interpreted as "QE2" — just bearing another name. Certainly, such Fed actions could be good for $1300-$1320 gold, and a lower greenback as well, for the time being. Let the ‘told you so’ self-congratulatory blogs begin. Actually, they already have — you do not have to look very hard for them.

It is a time, after all, when at least one talking head seen on television (CNN) over the weekend finally uttered the famous sentence last heard in Japan (circa 2003) about ‘desirable levels of inflation’ (say, anything near the 2% Fed target) and how a ‘weaker dollar’ might ‘make life easier.’ Yes, for the same camp that was pouncing on it one year ago and made for the memorable ride in gold at about the same time.

New York spot bullion markets traded near $1,280 in the first hour of action this morning, after the yellow metal was pushed to a new highs earlier ($1,284.40 was seen on the offer side of spot gold). Momentum trades lived to see another day as recent action has emboldened a few more participants to jump into the fray despite what some say is an after-hours party at this juncture.

Overbought conditions? Who cares, when you are about to receive yet another gift-wrapped present from the US Fed? Ignoring the potential key reversal pattern that was thought to have emerged last Friday? Just an integral part of the cocksure speculative behavior that brought prices to where they already are. Corrections more overdue than the arrival of certain ships from a voyage to the Bermuda Triangle? Nah, it’s all about one ship: QE2 (no, not THAT QE2).

Silver maintained the pre-Fed premium as well, and was last seen trading near $20.80 an ounce (a gain of about three cents) while the noble metals complex offered a mixed showing in early going. Platinum continued to rise, adding $4 to climb to the $1,617.00 level, while palladium witnessed some profit-skimming action as it sank $7 to the $534.00 bid level.

Rhodium added $50 in previous trading action and was thus quoted at $2,130.00 per troy ounce. All of the above took place against a marginally lower US dollar at just after the nine o’clock hour in New York (81.39 on the index, down 0.03). Crude oil hovered near $73.50 (down 15 cents) and was unable to climb out of its recent funk.

Metals traders remained convinced that the Fed will say that which they already believe it might say, however progress through the $1,285-87 area remained a tad problematic at this juncture. Some are also keeping a watchful eye on the period ahead of options expiry due on the 26th. As well, gold’s progress to the round number is being eyed within the context of how much help the euro can still provide to it.

The common currency stalled out this morning as regional debt jitters put pressure on it, and had it trading at near 1.303 against the greenback. There is, however, something out there which has already hit the 1,300 figure; that is the bullion holding tonnage found in the GLD. Meanwhile, the GLD’s ‘parent’ opines that the five-fold augmentation in gold prices since the beginning of this decade is not only not a bubble, but that it will not turn into one, or burst, (ever) even if it does so.

All of this, presumably, because, now, people are buying gold because it is rising (!), but also because it is nowhere near its inflation-adjusted value (some $1K above here…). No one however recalls seeing a market or economics course formula by which it is stipulated that every asset must eventually rise to such a level. Plenty however do recall what happened after some folks bought the metal (under similar ‘nuttin’ but blue skies’ conditions) at its record of $845 in 1980; they are still searching/waiting for the day they might break even on.

It’s as if last week’s George Soros-originated caution about everything being temporary (as opposed to eternal) and not much at all (including gold) being utterly safe (a truism, if ever there was one) prompted an insta-study to control the possible psychological damage it might inflict. Fervor, fervor. Behold the religion of gold it all of its glory; prophets everywhere and lost flocks desperately searching for sage guidance and salvation.

"Some say, "Yes! Physical gold!"; others are crying, "gold ETFs". And still others: "Forget gold — SILVER!!!" And some disagree completely and proclaim, "Neither. It’s a bubble." writes one Seeking Alpha market blogger.

Meanwhile, the very bull camps that speculate that the GLD has nothing but air bubbles occupying its various vaults,…praise the six tonne addition in balances that took place on Friday as the harbinger of more sweet price ‘manna’ to come from Gold Heaven.

Will the Fed Giveth? One sure must hope so (and not just for the sake of the economy)…

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: Gimme, Gimme Shelter

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