In The Lead – Silver’s Cloudy Lining

by Jon Nadler, Kitco Metals Inc. on November 22, 2011 · 1 comment

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Precious Metals CommentaryMonday’s near-$50 loss in gold elicited some modest physical buying in the Asian markets but the evening hours were still showing plenty of nervousness in the market with occasional dips to levels as low as $1,665 per ounce.

Attempts to patch some of the price damage with a corrective rebound were manifest in the early morning hours as well as at the opening of trading action in New York. The precious metals complex exhibited mixed prices however, as gold and platinum advanced, and as silver and palladium did not initially join the gainers’ club.

Spot bullion started the Tuesday session with a $12.50 rise to the $1,690 bid level as the US dollar fell about 0.23% on the trade-weighted index amid signs that the reaffirmation of the US’ ratings despite the crumbling of the debt Supercommittee was prompting some risk takers to do just that. In fact, the neutral Moody’s stance on the US debt rating also emboldened some players to bid the euro a tad higher albeit nothing substantive has yet come out of the European debt theater to really prompt such types of bets.

Silver fell seven pennies on the open this morning and started the session off at $31.57 per ounce. The white metal has seriously diverged from its yellow partner this year. While gold is still up by some 18% on the year, silver is higher by less than one percent and struggling to maintain even that metric. Making matters worse, at least one area of demand has hit a rough patch in the metal: China.

Bloomberg has reported that "China’s trade data revealed that the country’s silver imports slumped 26 percent in October from a year earlier. The inflow of silver powder, used in the photovoltaic industry, dropped 20 percent.

"The (photovoltaic) sector had provided some support to silver prices, but in light of the concern about industrial demand, this is an element that has now softened, thus increasing the importance of investment demand to make up for the fundamental surplus," said Barclays in a research note.

Barclays added that"However, investment demand in silver has also slowed recently, leaving prices more vulnerable to the downside."

In fact, photovoltaic-oriented demand (solar panels) was the singular bright spot in the supply/demand picture for the white metal in several recent analyses (see CPM Group NY Silver Yearbook 2011) on its fundamentals. Silver has fallen to or below a long list of moving averages in the washout of 2011. To wit:

10-Year London Fix

Elliott Wave analysts also point out that the miners (XAU) that are supposed to offer heaps of leverage to the price of the physical metals are actually showing a 16% loss year-to-date; something not only unthinkable to anyone who has ever listened to their favorite mining shares gurus at various investment conferences, but something that is indicative of what EW calls a ‘fractured market.’ As such, a fractured market is deemed to be an unhealthy market.

Platinum gained $2 to open at $1,548 per ounce while palladium lost $1 to ease to $588 the ounce this morning. Rhodium remained at $1,650 after having shed $25 in the previous session. Swiss Customs data released this morning shows platinum imports to have totaled 2.36 tonnes in October versus September’s 6.33 tonnes. Palladium imports amounted to 368 kilograms versus more than ten times as many in September.

Metal Miner’s Taras Berezowsky points out that "In a recent FT article, Johnson Matthey forecast that palladium would trade at an average of $650 per ounce over the next six months, and platinum to trade at $1650 per ounce during the same time period. Russian agency Gokhran, the body in charge of selling Russia’s infamous palladium stockpiles, announced they would drastically reduce stockpile sales to 145,000 ounces next year — a more than 400 percent decrease — according to the article. In the short term, however, investors have been selling off; physical palladium ETFs will sell 215,000 net ounces of palladium, whereas they bought 1.1 million ounces last year."

To say that global conditions remain fragile pretty much everywhere one cares to look is to understate things by some margin. Yes, the US economy grew by 2% in the third quarter, but that figure constitutes a half-percent scaling back from previous estimates. Yes, Moody’s reaffirmed the ratings of the US but the unraveling of the congressional committee (there really isn’t anything ‘super’ about it) actually poses a material threat to America’s economy in the near-term. Bloomberg notes that:

"The committee’s failure to reach a deal means several tax programs, including a payroll tax holiday, risk expiring at the beginning of next year, weighing on the household spending that accounts for about 70 percent of the world’s largest economy."

Yes, France still has its AAA rating as of this morning, but the bond market sure isn’t trading the country’s debt as if it had such a coveted crown. Monday’s Moody’s warning that the nation could lose part of that alphabet soup is still reverberating in the markets.

GFT Forex analyst Kathy Lien cautioned that "a downgrade of France would cause far more carnage on the market than a downgrade of Spain or Italy even though it would all be extremely bad on the market."

Yes, China is still growing but witness its stock market dropping for a fifth session on the anxiety resulting from caving property investment, slowing exports, and a World Bank warning that short-term risks to growth are omnipresent. East Asia in general (ex China) will grow at a projected 4.7% rate this year, and that is lower than the previous estimate of 5.3%. Some investors have begun shifting funds out of Asian countries and BRICs in general lately.

A while back we reported on the environmental disaster that large-scale gold mining is bringing about in Peru’s forests. We leave you today with a piercing insight into Colombia‘s new "drug" of choice: gold. Forget cocaine, that’s so… 80’s. The drug barons of the country have shifted their efforts (and millions) into what is apparently more profitable and… much easier to "move." This four minute BBC video clip shows you just what gold fever has engendered and why the mob is so fascinated with the yellow metal.

Stunning.

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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{ 1 comment… read it below or add one }

James November 22, 2011 at 12:41 pm

Gonna have to change my portfolio to 30% Gold & 40% Silver.

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