In The Lead – Bartering In Style, The Day After Tomorrow

by Jon Nadler, Kitco Metals Inc. on April 30, 2012 · 0 comments

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Precious Metals CommentaryGold prices started the final trading day of April with minor ($3 per ounce) losses (that turned into larger, $12 ones within the first 20 minutes of action) in New York and were seen headed for a net loss for the month (based on the PM Fix) on the order of 1.75%.

In the post-festival environment in India, the market’s previous preoccupations have once again resurfaced:

"India’s physical demand for gold in the coming months could face further headwinds since the country’s current-account deficit may result in another wave of rupee weakness, an analyst at Swiss bank UBS noted.

Platinum’s estimated losses for April were not so minor on the other hand; the noble metal could record a 4.5% decline over the period.

Silver prices did not fare much better in April either; the white metal fell by roughly 6.0% during the past 30 days. By contrast, our perennial favorite, palladium, will have notched a gain of more than 4.25% on the period. Monday’s opening level bid-side quotes came in at $1,659 in gold, $31.05 in Silver, $1,569 in platinum, and at $680 for palladium.

With regards to gold at the moment, the yellow metal is evidently taking almost all of its cues from every nuance of every word coming from the US Fed. Indeed, words are about the only thing the bulls can hang their hopes on for the time being, as the anticipated hyperinflation that was supposed to occur in the wake of QEs I and II has not materialized and conditions elsewhere (the EU and China) point in the opposite direction, actually.

However, as one market observer puts it "If the Fed were to begin pulling back the reins on easing, it would suggest that the U.S. economy has really started to make significant strides towards a strong and sustained recovery. A strong economy could "translate into a stronger currency, which has historically come at a detriment to [dollar-denominated] gold."

None of the above has however slowed down the amount of bubble/no-bubble gold sightings present out there in the blogosphere and the financial media. Bubble proponents can now point to the fact that a recent Gallup poll found that gold has now replaced real estate as "America’s favorite long-term investment." Investing in McMansions has now fallen to second place and is seen as so… 90’s and 00’s. How many months have elapsed since homes were the apple of American’s investing eyes? You know the answer. It should worry you.

Meanwhile, The Toronto Star asks "What do Canada’s real estate market, Apple shares, gold prices, and the entire country of Australia have in common?"

The answer, according to the paper,

"starts with a "b" and rhymes with "rubble," — which is all that investors may have left when prices suddenly come tumbling down, as pundits insist they will. All the above are being called bubbles."

One of the defining characteristics of such a paradigm is the fact that when it is present

"naysayers are roundly shouted down as "not getting it," and observers and experts are happy to explain why "this time it’s different," when rationalizing why an asset class has taken off. There’s also a feeling that values will continue to rise."

Sound familiar?

In terms of where the silver market finds itself currently, well, we do not have too much in the way of good news to bring you.

Intrepid Dow Jones News reporter Tatyana Shumsky notes that the white metal’s"charms are fading-and so are chances of a quick comeback. The metal has had a manic-depressive 12 months."

There may be other labels that apply but it is hard to call silver’s roller-coaster anything but manic and depressive.

After falling 27% from a peak of $48.59 per ounce (spot prices touched just over $50) in five days one year ago, the white metal continued to take unprepared bullish investors by surprise. It surged 33% in late February only to fall by more than 16% since then. And while we are still being regaled with fairytales of putative silver shortages and sinister institutional manipulation of the metal, the reality is that CME warehouses are buckling under the largest hoard of silver (nearly 141 million ounces) in a decade and that US Mint silver coin sales are 30% below last year’s first-quarter levels.

Background market conditions offered a mixed bag this morning but the net result was reflected in a slight advance by the US dollar on the trade-weighted index (up 0.17% to 78.88 at last check) and an emergent larger decline in commodities. Crude oil fell 0.75% and copper declined by an equal percentage. US consumer spending metrics showed a gain of 0.3% for the month of March along with a 0.4% rise in personal incomes and a personal savings rate of 3.8%. The data helped the dollar hang on to its early gains. Tomorrow we will get the ISM manufacturing survey numbers and we will round out the week with the Friday Labor Department report on changes in US non-farm payrolls.

Overseas, albeit the euro managed to remain above the $1.32 mark, the chips over in Europe did not appear to be stacking up in its favor this morning. Spain followed the unpleasant example recently set by the UK and fell into recession once again. Twelve nations in the Old World have now experienced two consecutive quarters of economic contraction, fitting into the classic definition of "R" word conditions.

So, just how bad are the economic signals coming from the EU? Well, according to some reports, the region’s leaders are now considering the launch of a so-called "Marshall Plan" whose value is near 200 billion euros. The jobs-and-growth stimulating plan is believed to be ready for implementation by the time of the next EU summit and it involves the cooperation of the European Investment Bank.

We move over to Asia now, where, despite reports and rumors to the contrary, it appears that the PBOC is not playing into the hands of commodities’ newsletter scribes whose fervent wish and illusion of late is the imminent or on-going loosening in monetary policy. Just as has been the case with the Fed, there are throngs of commodity bulls who hear things that are not actually being said and see things that are not actually being done.

The Chinese central bank has recently seen an uptick in bank lending activities across the country but — for the first time in history- such an expansion has not led to a growth in the essential niche of fixed, long-term investments. Translation: China is experiencing a familiar demand "slack" that could turn into the type of pants generally worn by hip-hop artists.

We close today on a lighter, but still-bubble "flavored" note, with Reuters blogger and self-proclaimed gold skeptic Felix Salmon, who went out shopping in the Big Apple but did not meet with too much success. How can that be, in the shopping Mecca of the universe? Well, Mr. Salmon tried to pay for goods with… one gram of gold. "No Sale" rang up on a case of beer, postage stamps, and toys. However, someone did accept the tiny, ($50’s worth) yellow ingot from Mr. Salmon and sold him… some lobster rolls. We should all face Armageddon eating such delicacies…

Suggestion: try buying champagne next time, Mr. Salmon. Or, better yet, try shopping for smokes in Peru.

Until Wednesday,

Jon Nadler
Senior Metals Analyst — Kitco Metals

Jon Nadler
Senior Metal 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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