Gold, Silver, Metal Prices: Commentary – 1/22/2010


Bullion update ... "V" For…Volcker"

Good Morning, 

Precious metals continued to struggle overnight, albeit a slight rebound was attempted in gold as the US dollar eased following perceptions that President Obama’s plan to rein US banks in could dent demand for US assets (the greenback among them). Very mild physical buying emerged overseas, as would-be owners ponder whether the yellow metal might still find itself under $1075 or, perhaps $1000 before this phase is over. 

The big declines ahead of the start of Friday’s New York session, however, came in the noble metals complex. Platinum fell as much as 4.5 percent to $1,531.00 an ounce, the lowest price since at least Jan. 8, and palladium dropped as much as 4.5 percent to a one-week low of $431 an ounce and was last seen at $433.00.  

A spokesperson from ETF Securities Ltd. attributed the whopping declines to profit-taking and noted that the ETF vehicles had seen a case of "pent-up demand" prior to their launch, while opining that demand should level off and prices stabilize after this initial stormy period. The word we used to describe the huge recent price rally in these articles recently was "euphoria."  

Now comes a bit of a hangover, not unlike that feeling which is permeating Chinese policy-making rooms these days. We have continued to warn that the transition seen in China over the past week or so is a tectonic shift that no market player (especially in commodities) should treat with a cavalier attitude. Now, Marketwatch informs that: "The omission of a handful of words from statements by senior Chinese officials this week has fueled speculation that unofficial government policy has tilted towards tighter monetary conditions, a milestone that could have policy implications for years to come. A speech by Premier Wen Jiabao posted on the People’s Bank of China’ Web site on Tuesday left out the words "proactive fiscal policy and relatively loose monetary policy" when referring to China’s macroeconomic policy."  

The bigger question is, lending curbs and other measures aside, will that country’s economic engine be able to provide enough torque to pull the whole global stump out of the muddy rut it finds itself in? Not according to Nouriel "Dr. Doom" Roubini, who, in a Marketwatch piece is attributed to have said that"

"Expectations [that] China can buoy the global economy on its own will meet with disappointment, adding that a glut of worldwide industrial capacity threatens recovery from the financial crisis." 

US metals markets opened with small losses in gold and silver, but larger ones in platinum and palladium, continuing on the overnight theme. Whilst gold appeared to be holding just above its three-week low of under $1090 as the euro clawed back ever so slightly against the US dollar, the yellow metal is facing some seriously damaged technical charts following successive breaches of formerly key support figures. 

Spot gold opened with a $0.90 loss this morning, quoted at $1092.20 per ounce, against an only 0.07 drop in the US dollar on the trade-weighted index (at 78.34), with the Kitco Gold Index showing that the dollar’s slippage –effectively a potential price-booster- was basically offset by predominant selling in the metal. Over the past three sessions we have noted several disconnects between bullion and the greenback, most notable yesterday, when a retracement to lower levels by the dollar (following not-so-rosy jobs data) not only failed to push bullion to higher levels, but the metal sank under its own weight due to persistent liquidations. As of this writing, bullion continues to feel on the heavy side, and could still be aiming towards the $1075 area, pre-weekend book-squaring and a lower dollar notwithstanding.  

These last two sessions of the week should have brought about a swift recovery in the metal, in order to rekindle confidence that progress to higher ground can resume. We did not get such a bounce. As a result, the Bloomberg weekly survey of market analysts and makers shows a 71% bearish tilt as regards next week’s market trend. We shall see. 

Silver started the last session of the week with a decline of four pennies, quoted at $17.33 per ounce. Platinum was off $61 (after having lost as much as $65 per ounce earlier) at $1535 and palladium was down $15 at $434 an ounce. A small (for it) drop was noted in rhodium, which lost $20 at ease back to $2580 the troy ounce. Crude oil was holding steady at $75.90 per barrel,

We advised yesterday to keep attention focused on the current and future words and deeds (direct or indirect) of one, Mr. Paul Volcker. This is a man not to be taken lightly. His stellar career of sixty years included witnessing the collapse of the Bretton Woods Agreement, but his claim to fame arose out of his dogged fight against inflation.

This writer vividly recalls that when Mr. V was Fed Chairman, he annihilated US inflation rates, bringing them down to 1 percent from 15 percent, all by pushing the Fed Funds rate up to 20 percent. What the US got following his bold actions – was an environment sterilized of the inflation virus, and two decades of sub-5% inflation. Not to mention dynamic growth. All the while, the doomsayers were gearing up for Weimar-style hyperinflation, famine, and martial law in the USA. Sure thing. They are still calling for the same, today.

Well, Mr. Volcker is baaaack! "V" for vendetta, some say. Anti-inflation stance, and all. More importantly, he is back with the same vigilant attitude when it comes to big banks. Bloomberg reports that:

"Volcker was vindicated yesterday when Obama proposed limiting trading activities of financial institutions to prevent another crisis, adopting recommendations of the 82- year-old former Federal Reserve chairman. Obama called it the "Volcker Rule."

"This represents somewhat of a shift from the positions of those in the administration in favor of deregulation," said Joseph Stiglitz, a Nobel laureate and frequent critic of the administration. "Volcker has been pushing for this for a year, and it was one of my biggest disappointments that his idea wasn’t picked up by decision-makers until now."  

NB: This portion is pure Op-Ed and although it involves politics (a place we normally do not go to), the subject matter in question could certainly help impact and shape the markets of the future. 

Messrs. Obama and Volcker drew on some hefty doses of populist anger when drawing up these latest proposals to curb the size and activities of banks. Whether or not these plans will actually see the light of day, is another matter however. If, perhaps, the [US] populace should exhibit the same degree of anger towards its Supreme Court which just sold its electorate down the river yesterday, then such changes can come about. If yesterday’s decision to allow corporate billions to make their way into the US political process goes unnoticed and/or unchallenged, well, then, it does not much matter what Messrs. Volcker or Obama dream of. Not in the least. Looks to this writer like someone has some choices to make, now that a century’s worth of separation of money & state has just been nuked. 

Have a pleasant weekend, everyone.

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America 

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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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