Gold, Silver, Metal Prices Commentary – September 21, 2010

by Jon Nadler, Kitco Metals Inc. on September 21, 2010 · 2 comments

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

Gold prices opened with minor losses on Tuesday morning, as market players held their cards steady ahead of US housing starts numbers and the post-Fed meeting microphone session.

Spot bullion slipped $3.70 per ounce to start the session at $1,274.80 following overnight lows near $1,272.50 per ounce. Not much here that can be labeled as anything resembling profit-taking or correction.

Indian gold shoppers remained sidelined for yet another day, as near record price tags offered nothing in the way of incentives to lure them out to local dealers during the present festival period.

Silver fell one dime at the opening bell, and was quoted at $20.63 on the bid side. Meanwhile, modest profit-taking did manifest itself in noble metals, with platinum dropping $8.00 to $1,615.00 and palladium shedding $9.00 to $528.00 per troy ounce.

Rhodium, on the other hand, continued and built upon yesterday’s $130.00 advance and added $30 more to rise to $2,290.00 this morning. In the background, the markets witnessed a softer US dollar (pre-Fed sellers out on a sortie) at 81.03 on the index, and a slipping oil price (down nearly $1 to $73.90 per barrel).

Several declarations made in various parts of the world appeared to leave crisis-oriented and crisis-dependent investors relatively unfazed over the past twenty-four hours, as they continued to pile bet upon bet in asset sectors that effectively constitute a contradiction of such assertions.

First, the statement made by the US-based National Bureau of Economic Research yesterday, that the contraction that started in late 2007 in the USA came to an end in June of last year. If ever there was a finding met with more howls and expressions of disbelief as regards economic statistics, this has to be the one that took the proverbial cake.

The NBER nowhere near concluded that conditions have been rosy since the slow climb-out began last summer, or that the US economy is running at anything that can be considered a ‘normal’ pace. Such details were ‘lost in translation’ on every single skeptic who accused the research body of being out of touch with reality and chose instead to focus on hammering home other points made in the report (such as the fact that this was, indeed, the longest such economic swoon since the Great Depression).

The NBER also opined that if in fact a dip does come about now or in the near future in the US economy, it would have to be considered as a separate event with a life of its own, rather than being seen as the second leg of a "W" or similar continuation pattern. For the moment, one might as well advise the NBER to either buy some megaphones or write their report in all-caps, as hardly anyone chose to hear it.

On the same day as that report was issues, Europe’s biggest bond dealers declared that ‘the worst is over for the eurozone’s most indebted nations.’ "Say what?" say the naysayers. "At a time when bets show that Greece is still expected to sink into the Aegean, and Ireland is seen as turning brown from its current colour?" Never mind the equally successful sale of Greek and Spanish bonds.

Minds are made up to try to continue crisis investing. To wit, the much better than expected US housing starts figures this morning; they made for a paring of losses in the gold pits. Makes sense, no? Not. US homebuilder confidence may have take a surprise turn lower this month, (and helped gold accelerate its run to fresh records near $1,285) but the 10.5% jump in new construction — which appears to contradict builder sentiment — made for the same effect in gold, go figure. Here is a market that will use any/all excuses to push higher. Sounds all too familiar.

Yes, indeed; bettors keep on betting the other way, despite this morning’s successful (five times oversubscribed) sales of $2 billion worth of Irish bonds (previously considered radioactive), and despite statements that Ireland will not knock on the EU or the IMF’s doors for a ‘funding package.’ Even the perception that the Fed may offer no candy to carry traders later today failed to dent the pervasive anti Fed/dollar/economy bets that are manifest in the yellow metal (and other, related assets).

Rounding out the Ripley’s-flavored assertions that investors are sending to the shredder, the Bloomberg survey of 1,408 investors, analysts and traders that finds that nearly two-thirds of the surveyed feel that the global economy did make it through the financial crisis and that it has stabilized during the two years after the Lehman collapse.

No list of Ripley-esque quotes would be complete without the mention of a stark warning by uber-doomsday-prophet Marc Faber. You know, no gold bubble, gold to $X,XXX.XX per ounce, America only produces beer and prostitutes, etc. While asserting that gold is still ‘cheap’ (try calling India) Mr. F alerted his Hong Kong audience that

"under the right conditions, there could be a pullback as high as 30 percent. [that would give us $890 gold].

"He cited the 50 percent drop in gold prices [that would yield $640 gold] in the 1970s, where prices fell from $195 an ounce to $105 an ounce, although they resumed their upward climb to over $800 an ounce afterwards."

No mention was made of what happened for 19.6 years following the January 1980 $845 gold peak. Also no mention of what formula was employed to label gold as ‘cheap’ while factoring in a still-possible one-third correction in values (seems like at $890 gold would be indeed ‘cheap(er), no?’

But, who knows? Marketwatch’s Brett Arends concludes that as much as he likes gold and that as much as he thinks that it might just go higher, it is effectively impossible to value the metal. He nukes the argument whereby gold’s ‘value’ (if there is any) is to be computed on the archaic formula that takes the expansion of money supply and tries to arrive at $X per ounce for gold. No dice, says Mr. A, relatively bullish as he might be. Right now (countered his interviewers) the gold bets are negativity-based. That, and cheap dollars courtesy of the Fed-based, we might add.

Then again, it could just be that all this negativity and crisis-rooting is simply a reflection of larger social trends, such as the one the Vanity Fair editor Graydon Carter identifies as an

"America [that] went from being an essentially optimistic nation to being an essentially pessimistic one, and finally one that seems to be just plain angry all the time. We are now defined more by what we don’t like rather than what we do like."

Thus, why cheer the recovery, housing starts, Irish bond sales, and such, when you can still dance on a pile of rubble and try to fan the destructive flames that might still lurk beneath it all?

Faites Vos (Fed) Jeux,

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: The Good News Bears

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