Gold, Silver, Metal Prices: Commentary – 1/27/2010


Bullion update ... PIGS Feed = Euro?

Good Morning,

All was quiet on the western gold front ahead of the FOMC meeting slated for later in the day. The dollar remained firm near 78.50 on the index and it traded at 1.408 against the euro as players awaited what is likely to be a non-event; the post Fed meeting announcement.

It is widely expected that the Fed will leave rates at their current levels once again, while also reaffirming that the acronym-laden soup of liquidity still in the system will be left out in the snow, to completely cool and expire, come March. The US central bank is seen as taking a chance the American housing market can make a comeback without its support, as it sticks to its plan to end $1.25 trillion worth of mortgage-debt purchases.

In that sense, currency and metals markets players have more ‘red meat’ to bite into, courtesy of China’s new penchant for tightening, and President Obama’s imminent announcement of his own version of tightening (spending, that is) as well as last week’s shot across the bow aimed at the big banks. In fact, it appears that such a diet has been on the speculative menu, as evidenced by the strongest dollar in some time, and by gold’s current travails at treading water above the $1100 mark.

New York spot metals dealing opened with minor losses in gold, which was quoted at $1092.90 an ounce with a net change of minus $3.90 this morning. Within the first hour, the metal fell further, touching levels just under the $1090 mark, despite a small decline in the dollar index. Rolling over of contracts could be a contributing factor this morning, but, as noted, the trade is looking for a bit more direction it hopes to find in the words coming from the Fed. Absent anything spectacular in the Fed announcement’s content, the customary (by now) speculative moves might once again take place later on. That is, that when the lack of changes in the interest rate environment is confirmed, participants could take the opportunity to make a quick dollar sale, and concurrently buy some gold.

This, at least until Mr. Obama concludes his own announcements tonight, and possibly offers more meaningful long-term directional cues to various markets. The US President is seen as conducting a ‘reboot’ of his leadership during the State of the Union speech, and is expected to talk tough while wielding a big spending cut stick. Critics and insta-pundits have-of course- preempted his proposals even before they hit the public eye. The new party in US politics is now the "No" party. Just say "No" — to any and every thing.

Silver lost 14 cents at the start of the midweek session this morning, quoted at $16.63 per ounce. Losses continued in the noble metals complex, with platinum shedding an additional $14 (to open at $1519) and palladium dropping $7 (to $418 the ounce) as the specialized ETF launch-engendered price euphoria fades away. Toyota has halted sales of eight of its models (and will also suspend production of certain ones) due to technical issues. Sticking accelerator pedals are making for a major unintended deceleration in the firm’s sales. In the interim, SAAB (finally) found an adoptive parent in Spyker. At least the brand lives on. The jury is out as to what rolling form such a life extension opportunity will morph into.

On the bright side for gold, the nearing Year of the Tiger is making for an expected but welcome temporary boost in gold sales in China. Such demand is hopefully offsetting a portion of the lack of same on the part of the gold ETF niche –one that has not pulled its weight thus far in 2010. Analysts at relayed to us overnight that "from what we’ve heard from our Asian sources, physical demand [for gold] has been really spectacular this week, with both India and China seen as constant buyers ahead of the Lunar New Year and Indian Pushya Nakshatra. This has certainly helped to keep losses in check, with a key technical support level in the mid $1,070s still unharmed."

While the end of an inauspicious gold-buying period and much softer gold prices (in the second half of January) helped India import some 35 tonnes of bullion this month, the gold taken in does not appear to have found its way into the retail buyers’ pockets as yet. Wholesalers were seen stocking up for (hopefully) better over-the-counter sales for the coming month or two. The country can use some good news on the gold demand side for this year, as last year’s imports fell to an incredibly low (for it) 339 tonnes. Resistance for the April gold futures contract looms ahead, at $1,106 an ounce. Key support rests at $1,083.00 and $1,076.50 an ounce. The pre-Fed doldrums could still give way to mini-fireworks later.

Thus, we are back to observing the (still stronger) dollar and the (possibly boring) Fed for the moment. But, wait! What is this we hear? One of China’s own central bankers confirming the existence of the carry trade in the greenback, its contribution to various asset bubbles (including those in China) and hoping for a stable domestic currency? Bloomberg reports that:

"People’s Bank of China Deputy Governor Zhu Mindefended his country’s "stable" yuan policy and warned that dollar volatility is threatening a global economic recovery. "It’s absolutely important to have Rmb stability. It’s good for China. It’s also good for the world" Zhu said in a panel discussion at the World Economic Forum in Davos, Switzerland.  "Everybody understands that because of the U.S. dollar carry trading, all this money was brought into the emerging market, and someday if U.S. monetary policy changes, this money will go back to the U.S. market," Zhu said."

One currency that might not follow on the path that is apparently shaping up for the US dollar at the moment is the euro. Trouble brewing among the "PIGS" (Portugal/Italy/Greece/Spain) now threatens to undermine the health of the common currency, and, possibly, its very existence. This warning comes at a time when we were guaranteed an already dead-and-gone dollar by various greenback morticians. Go figure. Bloomberg reports in a video clip from (near the ski slopes in Davos), that:

"New York University Professor Nouriel Roubini said he’s never been more pessimistic about the future of European monetary union, saying Spain poses a looming threat to the euro region holding together. "Down the line, not this year or two years from now, we could have a breakup of the monetary union," Roubini said in a Bloomberg Radio interview from the World Economic Forum’s annual meeting in Davos, Switzerland. "It’s a rising risk."

Risk. It’s omnipresent. But, without it, what trading would there be? Not the kind worth writing about.

Happy Trading.

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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