In The Lead – The Don To The Buck: You’re Fired!

by Jon Nadler, Kitco Metals Inc. on September 16, 2011 · 0 comments

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Precious Metals CommentaryThe largest week-on-week loss in gold since May and perhaps since early 2009 was still shaping up on the charts as of the overnight hours as the yellow metal headed to near the $1,760.00 area on the back of further signs of euro and European stability.

German Chancellor Merkel was heard reciting more comforting words on the topic of the common currency and how it must be defended in the face of debt crisis headwinds while equities on most European markets staged further advances as investors awaited the meeting of the EU’s illuminati over in Poland to yield more news such as the ones that bolstered markets on Thursday.

A concerted market action by five central banks not only wetted the drying up liquidity levels among local banks but it was also declared to be an intervention that will continue through the fourth quarter. While the dollar injection fell short of a Euro-TARP (Le TARP? Das TARP?) and while there is bound to be some disagreement in Poland, the markets at least have something in the way of tangible action as opposed to mere words to soothe them for the time being.

And, as certainty-even a modicum of it-works its way into investors’ psyches, so the need to take refuge in safe-havens ebbs in tandem. That is a shift that normally does not sit well with gold- not especially at the former $1,900 level, to be sure. Such lofty values did not stop one "The Donald" Trump from finally succumbing to auric fever and accept kilo bars in payment of a rental security deposit.

"No green paper for me, thanks!" The Don’s nod (and concurrent blasting of the Obama administration’s handling of the US economy which he used as the motivator for one to load up on gold) towards the precious metal has prompted some to declare that, with this gesture the top in gold must now surely be in.

The news release was a classic case of "I knew it when I saw it but I did not/could not say it." Publicity stunt, brilliant or unwise move? Who knows? Well, at least the shiny yellow bars, by the way, match his hair color perfectly. Mr. Trump still sees the day when the dollar regains its royal status among the world’s currencies as being in the cards. Provided, of course, his "type" of President is in charge at 1600 Pennsylvania Avenue.

Gold spot dealings started the week’s final session off at the $1,785.00 level (down about $4 as small bargain hunting narrowed earlier losses) as the aforementioned optimism about the European sky not yet falling made its presence felt among speculators. This morning, for a change, the yellow metal declined on the back of a rising US dollar (the greenback added 0.27 to touch the 76.60 mark on the trade-weighted index) and in tandem with a small loss in crude oil (down 40 cents to $89).

The latest monthly report on gold from the ABN AMRO Virtual Metals team finds that gold has now entered a volatile trading phase — one that presents weekly swings on the order of $150 as the "new normal" to which the small investor must warm up to, for lack of a better choice. Volatility is not exactly why said small investor came into the gold space to begin with.

Meanwhile the current (up to Sep. 9) tally in the gold ETF space reveals that 1.5 million ounces of bullion flowed out of the instruments’ balances since the end of last month. The ABN AMRO tables show projected gold supply for the current year at 4116 tonnes as against a demand total of 2926 tonnes. The residual (surplus) comes in at just under 1200 tonnes. Shortage of gold? What shortage of gold? One long-time and highly respected veteran gold market statisticians we spoke to at last night’s Platinum Dinner observed that the current gold market needs fresh (of freshly scared) converts from all walks of life (spec funds to taxi drivers) to buy something on the order of six billion dollars’ worth of the metal month in/ month out in order just to keep treading water, price-wise. That’s a lot of fear that must remain present on the investment scene, in anyone’s book of metrics.

Silver lost more value overnight and reached a low near $39.30 but recovered a tad by opening time in New York. The white metal traded at $40.10 (up 19 pennies) and attempts were being made at clinging to that important psychological pivot point even as technical indicators showed that the medium-term uptrend line on the charts had been breached and the precious metal appears vulnerable to further erosion in value. That prospect is in fact looming above the entire commodities’ complex as technicians suggest that the asset class’ index (the S&P GSCI Total Return) failed to overcome the 200-day moving average’s resistance level and that the tilt is towards lower levels still.

Platinum and palladium each added to values this morning as the confidence levels about economic growth continuing in the wake of recent central bank action were lifted a tad. Suddenly, Eurozone car sales prospects for next year do not seem as gloomy as some of the auto executives’ statements that were made while they were milling around the Frankfurt Auto Show this week, introducing their shiny new designs and offerings.

Platinum climbed $12 to reach the $1,795 mark while palladium added $8 to touch $730.00 the ounce. The platinum-gold parity morphed into a small, $20 offer-side premium of the former versus the latter but some industry insiders we polled at last night’s Platinum Dinner at the posh Plaza Hotel in Manhattan expressed confidence that the difference between the two will soon widen to nearer to historical levels (anywhere from 200 to 400 dollars or to a 1.5 ratio perhaps).

Whether such a premium in the 30-times-rarer-than-gold noble metal will reestablish itself as a result of it rising or gold losing additional value was not specified, but it could perhaps be a combination of both. During the week that is just about to pass we heard wide ranges being discussed here for gold (from $1500 to $2100) but also for platinum (from $1700 to $2200). That kind of price spectrum is sure to keep speculators as well as the small retail investor on their toes.

Until next week, at least, (Fed meeting and all) we suggest you remain in a similarly vigilant posture.

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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