Gold, Silver, Metal Prices: Commentary – 12/09/2009


Bullion update ... E.T.(F) Phones Home

Good Day,

Gold closed Tuesday afternoon’s session with whopping $29.30 loss per ounce, at $1128.30 (after hitting a spot bid low price of $1123.50). Worries about a possible default by Greece (after a ratings downgrade that took many by surprise, coming just days after the Dubai tremors) and a souring attitude towards risk assets gave the dollar a strong dose of ‘safe-haven’ bids and helped it sail up to 76.20 on the trade-weighted index last night. Thus, gold underwent its second biggest fall of 2009.

According to analysts at Belgium’s, the gold market shapes up as follows at the moment: Technically, decent layers of support were seen to the downside for spot gold, initially between $1,135-$1,130, followed by $1,123 (Nov 12 high). A break below here could open for $1,110 and ultimately $1,100 an ounce, GoldEssential’s founder Matthias Detremmerie said.

Resistance for spot gold was ahead of
$1,139-$1,140-$1,143 initially, followed by $1,150 an ounce. However, it would need a break above $1,170-$1,175 an ounce to suggest that downside pressures have faded, Mr. Detremmerie said."

Bargain hunting did emerge during the overnight hours, as gold’s longest losing streak since the late summer period attracted some buyers. A slippage in the US dollar was seen as the primary catalyst for the better than 1% recovery in gold prices ahead of the opening of the NY session this morning. Bloomberg indicated that:

"The U.S. Dollar Index, which measures the strength of the greenback against six currencies, slipped as much as 0.6 percent. Bullion fell for a fourth day yesterday, reaching a three-week low, as the dollar strengthened and the Bank of Korea described the metal as an "illusion" and said it was unlikely to buy more. Gold and the U.S. currency usually move inversely."

New York bullion prices opened with good gains in the precious metals complex, following a 0.20 dip by the US dollar (down to 76.01) on the index. Crude oil was last seen sporting a 90 cent gain, hovering near $73.50 per barrel. Spot gold opened with a $13.30 per ounce gain, quoted at $1141.60, and taking back about half of yesterday’s losses on the back of the dollar story and some fresh buying. Silver added 23 cents on the open, to start the midweek session at $17.77 per ounce. Platinum gained $9 to open at $1420 the ounce, while relatives palladium and rhodium showed no change on the day, thus far.

Still, as out good friend George Gero over at RBC Capital pointed out last night, "platinum group metals [are] holding up better [than gold], as the automobile industry outlook seems to be improving and recyclers are busy. Something else George also pointed out yesterday was that:

"For now, we still see a current 508,000 contract gold open interest, due to previous heavy short-covering as miners had bought back hedges and gold contract rollovers came just as the Dubai story had surfaced. But, US dollar improvement vs. euro and yen is adding to the woes of the longs. Carry-trade reversals and year-end upcoming book squaring could make an impact, as December is normally used for evening out the books and not for risk taking. We have thus now seen recent longs being pushed into becoming recent sellers."

Of course, by now, it has become most ‘fashionable’ to provide very nice little explanations as to how it was in fact, so-called "speculative excesses" that drove gold to levels above $1,200 per ounce. Were you to ask some of the same sources about the state of affairs, say, one week ago, no such "insight" (now, hindsight) would have been detectable.

Also, now, the crowd that shouts: "I told you so" is growing exponentially although we know of no more than a small handful of commentators who got this one right, and they promptly received labels of ‘mentally deranged’ at the time. See Ned Schmidt and/or Bob Moriarty, just for starters. The archives are there. But, what? Worry in the uber-bull camp? That’s not in the vocab.

Now, then, here is something to actually worry about. Once again, we consulted the news items from our friends at, although the story is also verifiable over at Mineweb.That is, that the gold ETFs –at least the largest among them- shed more gold in a single day’s worth of redemptions yesterday, than the combined recent purchases by Sri Lanka and Mauritius. And, boy, were those storied hyped to the max. Are you likely to hear about such an instant offset? Not very. It is called an attempt to shield you from less than happy news. So, in a nutshell:

"Gold holdings on behalf of investors in the twelve (thirteen) by monitored bullion backed exchange-traded funds (ETF’s), were seen dropping 14.565 tonnes on Tuesday, December 8. The decrease in joint holdings was the consequence of a 441,083 ounces or 13.719 tonnes (-1.21 pct) outflow in the world’s largest gold-backed ETF, the SPDR Gold Trust. The decline marked the strongest one-day redemption since July 14th."

This massive tonnage blow-out came after GLD had experienced practically no growth at all from its peak in early June, all the way to the most recent past. We have repeatedly alluded to the fact that when buying turns to selling, the gold ETF will act as a nitro boost to the price action. Works every time, works in either direction. The question of the day is, what happens if in fact something like five or ten times as much bullion is sold by ETF holders on a given day, or in a given week? Nobody knows.

These giants — with balances larger than many a central bank holding- have been on a largely one-way, accumulation path since their inception five years ago. They have not been tested in a true bear phase in the gold cycle, although one could speculate about the possible size of future redemptions if something like 14 tonnes are unloaded during what is (still) seen as only a ‘correction’ on the way to the lunar surface in gold. Undoubtedly, they will be. Just don’t ask for clairvoyance on how such "tests" will turn out.

Stay tuned.

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America 

Websites: and

Check out other site market resources at Bullion Prices, Silver Coins Values and the US Inflation Calculator which easily finds how the buying power of the dollar has changed from 1913-2009.

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