Gold, Silver, Metal Prices: Commentary – 11/2/2009


Will Work For Less

Bullion update ...

Good Day,

Gold prices pushed higher overnight, breaking above the $1050 mark and touching a high near $1058 per ounce. The metal recovered from Friday’s indecisiveness and actually showed a bit of a de-couple from the dollar – while still rising in tandem with oil prices – and a return to contrary behavior against stocks as the Nikkei average slumped by 231 points during the nighttime hours. Today’s action – indeed, the rest of the week’s- will be punctuated by a plethora of US economic statistics and by the FOMC meeting’s results (even if only verbal ones).

A verbal nod – of sorts- was given to gold by an ECB official today, at the LBMA conference in Edinburgh, Scotland. While clearly dismissing the wishful thinking that gold will once again become the peg to which fiat currencies are to be anchored, the speaker highlighted that which we have said for years: that gold as a diversifier of risk, and as the insurance policy in the basement, has a role, and will continue to have a role. Just not the role that is being envisioned by the TEOTWAWKI crowd. NASDAQ reports that:

"Speaking at the London Bullion Market Association conference, Paul Mercier, deputy director general of market operations at the European Central Bank, said gold is no longer important from a monetary point, but is important as an asset. "Gold makes sense as a contributor to risk diversification," Mercier said. " Even if some central banks continue to sell and there is a new potential seller with the IMF, I wouldn’t conclude that gold holdings in central banks will decline in the coming years."

Thus far on this first Monday of November, the New York spot markets started off looking quite robust -at least as regards gold. The metal rose $10.70 out of the starting gate, stimulated by an amalgam of short-covering above the $1049.50 21-day moving average chart point, the weekend’s CIT failure news echoes, and by news that Chinese industrial activity rose at the fastest pace in a year and a half. Spot gold was quoted at $1055.40 an ounce while the dollar was seen at 76.20 on the index and oil gained 71 cents to $77.71 per barrel. Volumes peaked right at the opening and then aimed back towards the thinness seen earlier on. Risk appetite was once again on the rise among spec funds following the strong readings coming from Asian and European purchasing managers this morning.

Technical review from Commtrendz describes the $1055 area as a potentially important pivot point for the yellow metal. It opines that "corrective declines are expected towards $1,025-27, followed by a crucial support at $1,009-1,011, also being a rising trend line support point. In the near-term while below $1,055 we can expect prices to edge lower towards the support levels mentioned above. As we have been maintaining a bullish view for some time based on the big picture charts, we believe the bullishness to extend with some deeper corrections. As long as the crucial support at $1,009-1,011 remains intact, we feel gold futures could again inch higher towards $1085 or even higher towards $1,100.

An unexpected fall below $1007 could dent our bullish expectations. Such a fall could take it lower towards $980 or even lower towards $928. Elliot wave analysis indicates a possible fifth wave move in progress. This has been confirmed above $978. A potential fifth wave target lies at $1,100. RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are still above the zero line of the indicator indicating the bullish trend to be intact. Therefore, look for gold futures to correct lower initially and then rise higher again. Supports are at $1025, $1,011 & $982. Resistances are at $1,055, $1,072 & $1,085."

Silver gained 23 cents an ounce to open at $16.55 while platinum added $9 of its own, starting the day off at $1333 per ounce. Palladium rose $3 to $322 and rhodium was unchanged at $1800 the troy ounce. Expectations are that economic activity such as shown in the figures cited above will naturally extend over to the automotive industry and end-of-chain car sales as well. Net speculative long positions continue to present a clear and present danger to the market in terms of size and ratio to short ones, despite the possibility of the 1080-1100-1130 EW target price range achievement looking as if it has odds of materializing.

As mentioned, in short order, we will be bombarded with data and news from: the ISM gauge, construction spending (today), factory orders and car sales (tomorrow) and the Fed meeting (on Wednesday) and then head into the employment figures-rich Thursday/Friday period, which some deem as the place where the stimulus ‘rubber’ meets the economic road. In fact, Mr. Geithner pointed to the same pre-requisite in his Sunday grilling on "Meet the Press" as the one signal that he needs to see in place, in order to call this a real recovery.

"He cautioned that while there were some encouraging signs in the latest report on economic growth, the recovery will be choppy and uneven. "This is gonna be a different recovery than in the past because Americans are gonna have to save more," he said in an interview on NBC’s Meet the Press. "A lot of damage was caused by this crisis. It’s gonna take some time for us to grow out of this."

When asked if the recession is over, Geithner said it’s up to the economists to determine that and it won’t be known for years. "But the real test of recovery will be when we have unemployment coming down," he said. "People back to work. Businesses confident to invest again." Economists say October was probably another tough month for the labor market, with more job losses, weak wage growth and another increase in the unemployment rate. Unemployment reached a 26-year high of 9.8% in September, and economists say that number could be even worse in October. The report hits on Friday.

Mr. Geithner said the country’s economic recovery and job creation hinge on banks taking more risk and restoring the flow of credit to businesses. "The big risk we face now is that banks are going to overcorrect and not take enough risk," Geithner said in an interview today on NBC’s "Meet the Press" program. "We need them to take a chance again on the American economy. That’s going to be important to recovery."

Well, it appears those chance-taking sorties are anything but in the making, at least as far as the present is concerned. Proving once again that if you burn your tongue with hot chocolate, you will even blow on your ice cream before taking the next spoonful, the Bloomberg finding that:

"Citigroup and JP Morgan are hoarding cash as if another crisis were on the way. Citigroup has almost doubled its cash to $244.2 billion in the year since Lehman Brothers Holdings Inc. filed for bankruptcy, the biggest such stockpile of any U.S. bank. The lender, which last year came so close to a funding shortfall it had to get a $45 billion government infusion, is under pressure from the Treasury Department and regulators to keep more money on hand for emergencies, even as markets improve."

Meanwhile, the background conditions continue to point not only to a lack of inflation, but to something a bit worse. Yes, as Mr. Geithner mentioned, the banks are sitting on those piles of cash. M2 and MZM are shrinking while everyone is shouting "Weimar!" from their respective perches. Aside from the credit and money supply situation, some other telltale signs visible out there are also worth a quick scan. For example, reports Marketwatch.:

"The cost of employing a worker in the United States fell to a record-low level in the third quarter, the Labor Department reported Friday. For the past year, the Employment Cost Index increased 1.5%, the slowest pace since the government began tracking the data in 1982. The ECI increased at a 1.8% annual rate in the second quarter. Wages increased 1.5% in the past four quarters, down from 1.8% in the previous quarter. Benefit costs rose 1.6% compared with a 1.8% rise in the second quarter. These are both record lows."

On the back of that sobering wage (non)pressure statistic, is it any wonder that the on-going ‘less pay = less play" picture is still the order of the day?

"U.S. consumer spending fell sharply in September after the government’s cash-for-clunkers program expired, while after-tax incomes dropped for the fourth month in a row, the Commerce Department estimated Friday. On a real (inflation-adjusted) basis, consumer spending sank a seasonally adjusted 0.6% in September, a reversal from the 1% gain seen during in August, the government’s data showed. It was the largest decline in spending since December."

Player focus remains on equities and the dollar once again today. The daily flow of economic statistics will shape the numbers we might see in the former two, while giving definition to risk appetite/aversion and the action in the commodities pits. Closing levels will once again be closely watched. Volatility remains on the rise -as it has been, since last Monday. The arm-wrestling continues in bull/bear land. We take to the road for another week.

Until tomorrow,

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America

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Check out CoinNews and other site market resources at Live Metal Spots, the Silver Melt Calculator, U.S. Mint Collector Bullion Coin Price Guide and Silver Coin Values. The US Inflation Calculator easily finds how the buying power of the dollar has changed from 1913-2009.

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