Gold, Silver, Metal Prices: Commentary – 12/28/2009


Bullion update ... Ursus Versus Taurus

Good Day, 

Gold prices continued to advance on Monday, amid various market closures (Boxing Day UK/Canada, India closed and thin trading. The metal rose nearer to $1110 per ounce as the US dollar gave up a bit of previously gained ground (the euro, for examples, managed to climb to just above 1.44 following perceptions that the greenback’s recent hefty gains were somewhat overdone). 

Last Thursday’s pre-Christmas break-over at the $1100 level prompted speculators to throw some buy orders at the market with the expectation that a near-term bounce could carry the metal to perhaps the $1125 area. Analysts at pointed to the breach of the psychological number as the catalyst for "some strategically placed opportunistic buy orders on GLOBEX opening late on Sunday." 

New York spot bullion trading opened with a $5.70 per ounce gain in gold, which was quoted at $1110.90 against the US dollar losing 0.07 on the trade-weighted index (last seen at 77.58) and a small loss in crude oil (off $0.89 at $72.73 per barrel). Silver climbed one nickel, starting the day at $17.52 per ounce, while platinum moved substantially higher, rising $23 to $1483 per troy ounce. No changes were recorded in palladium and rhodium. Don’t look now, but platinum has gained nearly $100 since the 22nd of the month, largely on the optimism that the CFTC’s moving closer to green-lighting a new noble metal ETF has engendered. 

For the moment, support is thought to be available just beneath the $1100 mark (a break to under $1090 could usher in a re-visit of the $1070-1075 levels) while overhead resistance is seen capping the metal around the $1140 level. Lack of participants for the remainder of this abbreviated week will continue to make for larger-than-normal moves and we continue to recommend trading abstinence as the best course of action amid such conditions. In any case, keep an eye out for closings above $1100 and for the dollar/euro currency pair tango. It is where the speculative bodies are buried at the moment. 

A recent Bloomberg article revealed the results of a survey of analysts it conducted in Japan, and the consensus is that the Fed not only means business when it alludes to letting the various alphabet soup programs die of natural causes when their calendar dates dictate, but that it is also likely to embark on the next phase of ‘Operation Big Mop’ – interest rate hikes- and perhaps sooner than previous expectations had it doing so, even as a minor drop in such bets was being seen last week: 

"Futures trading in Chicago indicated a 48 percent chance that policy makers will increase the zero to 0.25 percent target rate for overnight lending between banks by at least a quarter- percentage point by the June meeting, down from a 52 percent likelihood a week ago.

Seven of the 12 Tokyo-based analysts forecast the Fed will begin increasing borrowing costs in the second half of 2010, and three said the central bank will begin tightening in the first half of 2011.

Benchmark U.S. rates may rise above 1 percent by the end of next year, said Koji Fukaya, senior currency strategist in Tokyo at Deutsche Bank AG. That could spur investors to shift away from borrowing in dollars for carry trades in favor of lower- cost yen loans, he said. The Bank of Japan will keep its benchmark interest rate unchanged through 2010."

The emergence of such diverging interest rate environments could shift the carry-trade players back towards the yen and away from their favorite choice of 2009 – the dollar candy cane. Such a shift might also bring with it certain value…realignments in particular asset classes those ultra-cheap dollars had been pumped into during the same period. Think commodities, emerging markets, and certain currencies.

Speaking of expectations for 2010, our own Globe and Mail queried two of Canada’s top economists in order to learn where they stand on the "hot-button 2010" topics of interest rates, currencies, commodities, and such. Messrs. Stéfane Marion, chief economist, National Bank Financial, and Carlos Leitao, chief economist at Laurentian Bank Securities minced few words when questioned by the G&M over the weekend:

Q: The Canadian dollar was the subject of much chatter this year as it teetered toward parity. Where will the currency trade in the coming year?

S.M: We see the loonie trading at 92 cents (U.S.) at the end of 2010. In our opinion, there is too much pessimism on the greenback. There is still no "heir apparent" to the U.S. dollar as a reserve currency.

Q: Commodity prices sunk, then came back this year. Gold prices have blasted into the stratosphere. How do you think oil, gold and metals will fare next year?

S.M: In a context where the global economy grows relatively strongly, commodities should remain at elevated levels. However, the whole sector remains vulnerable to U.S. dollar appreciation. Bullion is the most vulnerable at this juncture.

Q: Inflation was a non-story this year. Any inflationary threats on the horizon, and if so, when and where?

C.L: None whatsoever. Zero. There really isn’t inflation. The BoC will move not so much because of inflation expectations but to prevent asset prices from bubbling.

Q: The Canadian dollar was the subject of much chatter this year, as it teetered towards parity. Where will the currency trade in the coming year?

C.L: The currency’s sharp movements now seem to have pulled back and will stabilize in 2010. Any additional appreciation, if there is one, will be minimal. I don’t think we’ll go to $1.10 again, but maybe close to parity or just above.

8. Commodity prices sank, then came back this year. Gold prices have blasted into the stratosphere. How do you think oil, gold and metals will fare next year?

C.L: I don’t see such a big kick coming from the commodities front. Gold is quite the interesting thing. It’s in a world of its own. I’ve never been a big admirer of gold, so I missed this rally. There’s a great deal of speculative push behind gold prices, which I just think is contradictory. Gold is pricing in a more catastrophic scenario than is realistic.

Let’s do this next year, again!

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America 

Websites: and

Check out other market resources at Precious Metals 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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