In The Lead – Today Shall Be My Dancing Day

by Jon Nadler, Kitco Metals Inc. on September 21, 2011 · 0 comments

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Precious Metals CommentaryThe midweek trading sessions in New York opened on a mixed-to-down note in precious metals this morning as pre-Fed announcement posturing and a stronger dollar had traders darting in various directions.

Gold spot prices fell $13 at the start of the floor action and were once again trading beneath the $1,800 pivot point while silver climbed 22 cents but still traded under the $40 psychological figure on the bid-side.

The greenback advanced 0.36 on the trade-weighted index as some specs interpreted the possible Fed tack (the one that goes by the name of that crazy 60’s dance) as ultimately dollar-supportive. Crude oil fell $1 to the $85.92 mark and Dow futures appeared to do nothing more than mark time ahead of the Fed. After the open, the Dow fell about 50 points but still appeared hesitant to undertake larger order of magnitude moves.

Platinum and palladium slipped a modest $1 each and opened at $1,775 and at $713 respectively. We have now received fresh platinum-group metals import/export data to share with you. August was the third month during which Switzerland continued to be a net exporter of platinum. Over 54.5 thousand ounces of the noble metal were shipped out of Swiss vaults during the month, but the analytical team over at Standard Bank (SA) deems that the country might have actually been a net importer of the metal on account of the fact that the bulk of the outbound shipments were headed to London to serve as settlement metal for physical contracts.

On the other side of the platinum market’s import/export flows, China appeared to have imported 5.5 tonnes of the metal last month as local consumers continued to exhibit a fondness for platinum-based jewellery, especially now that gold is trading at parity and/or a small premium vis a vis platinum. The Standard Bank team still envisions support for the noble metal around the $1,700 level and feels that the $1,900 mark might still comprise a near-term top target.

Gold’s near-term fate, on the other hand, remains an open question for many observers and participants as well. Some, such as Marketwatch’s Mark Hulbert ask whether gold is in a bubble, but they see missing "components" for that label to be applied at this juncture; components such as stubbornly held bullishness by the gold timing community.

On the other hand, bubble or no bubble, Swiss-based hedge fund the Tiberius Group advises that investors would now be better off to consider investing in platinum-group metals as they offer superior fundamentals than those which gold and silver currently do (a view that this writer shares as well).

In a news item that curiously vanished from Tuesday’s headline flows quicker than a meteor normally does in the night sky, the Swiss-based $2.8 billion European fund’s manager, Christoph Eibl, said that:

“from a strategic long-term perspective, you don’t want to be investing in precious metals,” referring to gold and silver. Contrarian heresy, or level-headed caution in the wake of a decade-long "sprint?"

You decide.

Mr. Eibl told Reuters Monday on the sidelines of the London Bullion Market Association (LBMA) annual conference that was held here in Montreal that:

“the moment when you have no ETF buying or investment buying, who would buy your gold? Not the Indians; they will not jump in at these levels.”

Asked how low the gold prices could fall, he said “Below $1,000” an ounce, which better reflects bullion’s production cost.Cash costs for gold production run near $600 while all-in costs are bumping up closer to $900. Silver costs roughly $5 to produce in cash-cost terms. Both metals are in a supply surplus. You do the math.

For the time being however, Mr. Eibl envisions a somewhat smaller-scale pullback in the yellow metal; one that depends on the situation in Europe.

He opines that "we are now in the final, overheated phase of gold’s protracted bull market. Gold is already so overbought in the wake of panic selling of bank stocks that a calming of the European financial markets could well trigger a tactical pullback by about $200 to $300" [think the oft-cited $1480 level from which the summer price explosion commenced].

As for silver, Mr. Eibl remarked that:

"ten years ago, silver was trading at around $4 an ounce when the silver market was at a 10 percent deficit, and now silver is trading at around $40 with a 30 percent market surplus. He then said “I don’t have to be a rocket scientist to see that something is going wrong.”

Meanwhile, this morning, financial media outlets recycled a few more "Greek worries rattle Europe" headlines while the mass media’s business section reused our Monday title for the nth time and declared that today will be "Twist and Shout" day over at the Fed. It’s not like there wasn’t some truth to those tired headlines; European shares did fall this morning as investors awaited the Fed to decide what to do about kick-starting the stalling US economy and as they heard (once again) that Greece is about to tighten the collective belt some more in order to secure desperately needed funding from the EU.

The investment community appears to have resigned not to expect a fat little QE3 package courtesy of the Fed on its doorstep when tomorrow dawns. This has now come about despite a previous storm of newsletter and commentary assurances that the US central bank will in fact launch that third ship. Now, of course, whatever the Fed will do — the twist & shout, the limbo, or the lambada — will promptly be labeled as in fact being QE3 by any other name. The remaining questions at this juncture are basically trying to ask whether or not the markets (metals included) have already priced in such policy or can still make a run based on what the fallout from today’s announcement might yet yield.

Some of the possible "deflation" of QE3 expectations among speculators came on the heels of the GOP leadership’s (as in: the Kyl,Boehner,Cantor troika) warning (!) Mr. Bernanke in writing (!) not to go ahead and try to ease today "because such a move would hurt the US economy and the buck." The GOP calling monetary policy shots: now there’s some strong-arming the likes of which we have not seen since… oh, June/July when it also called the shots on US fiscal policy. And you thought you’d seen/heard it all…

Well, here is something you probably did not (yet) hear too much about: investing in… Africa. Yes, that’s correct. Africa. While everyone is still singing the praises of Asia and the BRICS (now that Europe and the US appear so… "yesterday") many a visionary investor has begun considering the "last investment frontier" that offers potential rewards. Marketwatch’s Matt Lynn finds that there are at least eleven countries on that continent that are showing economic growth rates beyond the 7% level annually.

Some nations in Africa are even flirting with 10% growth rates (Nigeria). Now this has not been accomplished via profits from e-mail scams; not by a long-shot. While the political systems and the infrastructure still leave much to desire, the reality is that a rising labor force, vast raw material resources, and a quest for modernization all make for a bright African future. No more "Dark Continent," this. Think: emerging markets before they emerge. Who would not want to be in on that game?

Until tomorrow,

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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