In The Lead – Raining Pain in Spain

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

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Precious Metals CommentaryNew York precious metals dealings opened the abbreviated trading week with losses across the boards as Europe-centric angst continued to dominate the psyche of global investors. Near-term gold price prospects have taken a more decidedly bearish tilt and market watchers are now eyeing the $1,680 value zone as a potential first-stop sortie with potential for a visit to the $1,580-$1,600 area still in the cards.

Auerbach Grayson global technical strategist Richard Ross on the other hand, feels (on CNBC last Friday) that given the "double-top" near $1,900 he sees as having been put into place earlier this summer, the premium in gold above its 200-day moving average and the current conditions in the market, the yellow metal could be headed towards the $1,300 target amid a deeper corrective phase. Spot gold started off with a loss of $17.60 per ounce and was quoted at $1,707 this morning but soon retested the $1,700 level as the selling intensified. Silver, ever the ‘leader’ in percentages, fell 3.61% and touched $31.24 per ounce after an overnight low at $30.80 the ounce.

Platinum and palladium lost between 1.5 and 2 percent respectively, and followed the rest of the complex to lower price ground. The former declined $32 to the $1,560 mark while the latter slipped $10 to the $590 per ounce bid level. BNP Paribas analysts opine that platinum’s discount to gold may yet widen as a developing (small) surplus takes its toll along with tepid industrial demand and the aforementioned eurozone fear factor.

Last week however, it appears that platinum-friendly ETF buyers did make a reappearance and added more than 38,000 ounces to current balances in the noble metal — the largest such addition to the pile since March. Rhodium was unchanged at $1,675 the ounce. Copper got clobbered and lost 2.4% this morning (falling to a one-month low), crude oil oozed lower towards the $96 per barrel level, and stock market indices flashed ‘loss’ as well.

European markets fell while Dow futures portended a similar (possible 200-point sell-off) outcome for today. Contributing to the pre-Thanksgiving thanklessness in the markets was the expectation that the only "super" thing the US debt-reduction Supercommittee was preparing to announce was a "super-failure" of a stalemate. In a virtual replay of this summer’s finger-pointing festival in DC, the two sides that have been sitting at the negotiation table since August are best agreeing to disagree on basic bullet points that would commence tackling the US’ deficit; outlays and revenues.

One side wants to cut but will not give an inch on higher taxes, while the other will not take the scalpel out unless something is done on the income side of the government’s ledger. If nothing is done in the next couple of days, then ‘automatic’ spending cuts (heavily affecting defense) totaling $1.2 trillion will kick in, come January 2013. It would also make for a heckuva year of election rhetoric in 2012. Already, 42% of the polled American public lays blame for the supercommittee disaster on the GOP and fears further ratings downgrades down the road.

Gold prices fell to under the pivotal $1,700 round figure overnight as further waves of fear-based selling buffeted the commodities markets. The change in Spain’s government did not manage to bolster optimism levels among global investors as newly-elected conservative Mariano Rajoy does not take the country’s helm for another month and as many remain unconvinced that he will succeed where his predecessors failed-in righting the listing Spanish economic and bond market ships. This was the fifth European government to fall in the debt domino series of 2011. For the markets, it’s as if the event did not occur. Worse, the markets see this as Mr. Rajoy’s "mission impossible" and today’s bids bear this out.

Once again, the euro pierced the $1.35 mark and headed into an uncertain future for the week. The US dollar, on the other hand, picked up about 0.6% and headed towards the 78.50 level on the trade-weighted index while trading at a six-week high against its rivals. If anyone is still out there, puzzled by the dire forecasts of the hard money newsletter vendors, wondering why the beleaguered greenback is ‘suddenly’ enjoying the restoration of its global reserve currency status, well, they need look no further than…the current year’s pattern. It is not what was expected.

It has been one year during which the world’s foreign banks doubled their deposits with the Fed (to $350 billion, from the end of 2010). Unfazed by the deficit debacle in DC, unfazed by some of the economic conditions in the US, unfazed by Moody’s rating shift, unfazed by virtually nil interest rates, the worried money of the world has rediscovered the fact that when pushing and shoving are involved, the rest of the safe-haven platter has very little to offer in terms of credible alternatives to the buck. Add to all that the fact that the US economy is showing signs of being on a firmer footing of late and you have most of the ingredients for the growing fan club of the American currency. The Chicago Fed’s national activity index ticked higher in October and it is approaching "growth above-trend" level readings.

This is not a big surprise; not at a time when AAA-rated France is staring at ballooning bond yields and Italy, Greece, and Spain are being taken to the market woodshed. So, instead of the buck ‘stopping here’ (as in: its grave) as you were constantly told all year, the rest of the world has decided to ‘stop at the buck’ and take refuge in it. Digest this, dollar morticians: despite all that has transpired in three and a half decades, the US currency is now trading at only 4% less that it traded at in 1975 — two years after Mr. Nixon made the currency’s divorce from gold official.

Also adding to the manifest anxiety in the commodities’ space this morning are the reverberations of the words of Chinese Vice-Premier Wang Qishan who said yesterday that the world is apparently set to experience a dragged-out economic contraction and that the global outlook is "extremely severe" at the present time. It is widely accepted that China’s leaders are wringing their hands as they observe a synchronously developing global slowdown in the wake of massive de-levering. That’s not a process that takes only a few months, normally. Just as synchronized as the planetary economic contraction appears to be (Japan and the US excepted, for the moment) so is the divergence in the responses to it manifest among central banks; some are easing, while some are tightening.

Meanwhile, file this one under the "caveat investor" category that still remains all-important especially at times such as these.

The South Florida Business Journal reports that one "Jamie Campany was sentenced to 12 years and seven months in federal prison for running a gold bullion scam. Campany, 47, of Delray Beach, was charged in June with wire fraud and mail fraud in connection with $29.5 million in misappropriated money from 1,400 investors. He pleaded guilty in August. Campany was the owner of three investment firms specializing in purported gold, silver, platinum, and palladium bullion purchases on behalf of individual clients: Gold Bullion Exchange in Lake Worth, and Barclay Trading Group and The Bullion Group in West Palm Beach."

The news release appears to have gone largely ignored and the article elicited but one reader response. However, the comment caught this writer’s attention since it really does go to the core of the matter as regards precious metals investing.

"Croesus" writes: Sadly, the investing public will not learn, and the scam artists will not quit reincarnating under different names. Gold is ‘hot’ and the temptation to dump money foolishly into it expecting to get rich is strong. Meawhile [sic] the conmen [sic] actually get rich with your money. Once and for all, gold is not an investment; it should not be bought in order to make profits. It is no more than an insurance policy. It is not for the elderly, for those who depend on income, or for anyone worth less than $100K."

Thanks, Mr. {King?) Croesus — could not have said it better ourselves.

Until tomorrow,

Jon Nadler
Senior Metals Analyst — Kitco Metals

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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