Gold Ends Mildly Lower, Silver Advances Slightly

New York bullion futures were mixed on Tuesday, with gold and platinum closing mildly lower while silver ended slightly higher. Gold reached its lowest price since Feb. 26 as the US dollar strengthened against the euro. Pundits also linked gold weakness to comments from China’s top foreign exchange manager signaling that the yellow metal would not likely be a main reserve investment.

In other markets, crude oil edged down for the first time in three days while US stock marked modest gains — although enough for the Nasdaq to finish at a new 18-month high.

New York precious metal figures follow:

• Gold for April delivery declined $1.70, or 0.2 percent, to $1,122.30 an ounce. It ranged from $1,108.20 to $1,125.10.

• Silver for May delivery climbed 6.6 cents, or 0.4 percent, to close at $17.338 an ounce. It ranged from $16.875 to $17.420.

• April platinum retreated $3.20, or 0.2 percent, to end at $1,596.90 an ounce. It ranged from $1,570.80 to $1,600.50.

In PM London bullion, the benchmark gold price was fixed earlier in the North American day to $1,115.75 an ounce, which was a decline of $10.00 from the price on Monday. Silver fell 28 cents to $17.050 an ounce. Platinum was settled at $1,574.00 an ounce, falling $29.00.

Notable bullion quotes follow:

The dollar’s strength "as well as general profit-taking from a large run-up seem to be the first lines hitting gold," Zachary Oxman, managing director at TrendMax Futures, said on MarketWatch.

"It’s all about the dollar," Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois, said on Bloomberg. "With the dollar continuing to strengthen, gold doesn’t have a chance. There isn’t enough gold for China to make it its primary reserve. They have to hold dollars."

"Gold needs a quick rebound towards the $1140.00 per ounce area, but now, maintenance of the low $1100’s or that figure itself become the focus of the day for gold players at this juncture as the heavy dose of thinly warranted bullishness that was recently on display appears to be fading due to external factors," wrote Jon Nadler, senior analyst at Kitco Metals, Inc.

"Extreme bullishness was dealt an unappetizing dish or crow overnight, as China’s head of the State Administration of Foreign Exchange made comments about his country’s reserves, gold, and related issues… The country does not intent to ‘dump’ dollars from its massive holdings — certainly not in favour of a massive amount of bullion." [Read Nadler’s full commentary.]

Gold, considered a hedge during times of high inflation and economic uncertainty, tends to follow oil and move opposite to the U.S. dollar. A rising greenback makes dollar-denominated commodities, like bullion, more expensive for holders of other world currencies.

Oil and gasoline prices

Oil prices declined "weighed by a stronger U.S. dollar, but coming off intraday lows as sentiment improved about the global supply-demand balance," wrote Liana B. Baker and Polya Lesova of MarketWatch.

"There’s a healthy amount of skepticism about both the global economic situation and sovereign debt problems in Europe," John Kilduff, a partner at Round Earth Capital, a New York-based hedge fund that focuses on food and energy commodities, said on Bloomberg. "This is leading to the revival of the dollar as a safe haven, which is hitting oil."

New York crude oil for April delivery lost 38 cents, or 0.5 percent, to $81.49 a barrel.

The national average for regular unleaded gasoline rose six-tenths of a cent to $2.759 a gallon, according to AAA fuel data. The current average is 5.6 cents above last week, 10.2 cents more than a month back, and 81.4 cents higher than the average from a year ago.

U.S. Stocks

U.S. stocks climbed modestly higher, "helped by gains in the telecom and industrial sectors, though the advance was limited by falling commodity prices that pressured materials shares," wrote Caroline Valetkevitch of Reuters.

"You’ve seen this massive rally over the last year, but it hasn’t coincided with the retail investor really participating," Larry Glazer, managing director at Mayflower Advisors, said on CNNMoney.com. "The retail investor skepticism could prolong the market advance because there is so much potential that they haven’t tapped into yet."

The Dow Jones industrial average rose 11.86 points, or 0.11 percent, to 10,564.38. The S&P 500 Index gained 1.95 points, or 0.17 percent, to 1,140.45. The Nasdaq Composite Index climbed 8.47 points, or 0.36 percent, to 2,340.68.

Gold, Silver, and Metals: Prices and Commentary – March 9, 2010

by Jon Nadler, Kitco Metals Inc.

Which Part of "Bu Dui" Is Unclear?

Good Day,

Gold prices fell to a one-week low of under $1115.00 per ounce overnight as the US dollar continued its recent climb and reached 80.74 on the trade-weighted index. The rallies in risk assets came under pressure as perception resurfaced that this type of speculation has been largely underpinned by generous liquidity and ultra-low interest rate and that it has a finite shelf-life in the big scheme of things.

The euro also continued under selling pressure early this morning as the Greek situation appears to remain without an obvious and/or imminent solution. The common currency was last seen trading near 1.354 against the greenback ahead of the closed-door meeting between US and Greek leaders today.

Prime Minister Papandreou will sit down with US President Obama today and will discuss not only possible solutions to what ails Greece, but also quite likely, the recent calls for clamping down on credit-default swaps made by German Chancellor Merkel and Luxembourg’s PM Jean-Claude Juncker – both of whom very much want Mr. Obama to align himself with the need for such oversight. "Unprincipled speculators’ are being pointed at, as possible catalysts for a new global financial crisis. This is about to get   interesting. A bit late, but interesting nonetheless, unless one is one of those ‘unprincipled’ persons…in which case, things might become very interesting…to say the least. Curb thy greed. Fast.

The precious metals complex opened with moderate-to-heavy losses across the board this morning, as the stronger dollar and a hefty drop in crude oil kept players on a selling tilt. Spot gold fell $7.80 at the session’s start, and was quoted at $1115.90 per ounce. Within the first half-hour of trading, the yellow metal sank to a low of $1107.60 per ounce as sellers kept up the pressure. The other factor undermining gold was a set of comments coming from China (more on that ‘delicate’ matter, below).

Silver started Tuesday’s price action with a 25-cent loss, quoted at $17.00 per ounce, while the noble metals also handed back some of their recently-achieved gains. Platinum sank $13.00 to $1579.00 and palladium dropped $14 back down to $457 the troy ounce. Rhodium showed no change at $2400.00 per ounce.

Gold needs a quick rebound towards the $1140.00 per ounce area, but now, maintenance of the low $1100’s or that figure itself become the focus of the day for gold players at this juncture as the heavy dose of thinly warranted bullishness that was recently on display appears to be fading due to external factors. None of this has stopped the persistent calls (demands?) for $2K gold (before year’s end, at that) to continue to be voiced over some rather large megaphones.

Such extreme bullishness was dealt an unappetizing dish or crow overnight, as China’s head of the State Administration of Foreign Exchange made comments about his country’s reserves, gold, and related issues. To say that these columns attempted to put the Chinese putative –and presumably imminent- massive gold buying spree into proper perspective, is to resort to some cheap ‘we told you so’ pontificating.

However, as of late, it seems that each and every time a Chinese academic or a second-tier financial sector official made any comment that contained the word ‘gold’ or even mentioned the concept of ‘reserve diversification’ some were quick on the trigger to declare that we were going to be witnesses to a big ‘back up the truck’ event in the offing. Well, now, Mr. Yi Gang’s overnight comments bear the weight of not only his title (which is about a high and as official as it gets) but also of the level-headed and methodical (let’s just say, unemotional) manner in which his government broaches the quasi-religious topic of gold.

To be quite precise, this writer has repeatedly tied to explain that any possible future Chinese gold purchases are a multi-faceted subject and that such should be viewed within various important contexts. First of all, Chinese policy calls for a gold allocation of about 2% of overall reserves at this time. Second, as mentioned just yesterday, the country does not intent to ‘dump’ dollars from its massive holdings — certainly not in favour of a massive amount of bullion.

Third, the purchase of an amount of gold ten times as large as India’s $67 billion adoption of half of the IMF’s gold disposal amount would be a drop in the proverbial Chinese reserves bucket. Fourth, the market ‘damage’ (both to the upside for gold and- more importantly- to the downside for the greenback) would obviate any potential benefits from such an action. Fifth, the country would find itself stuck in a position where if it needed to mobilize only a fraction of its then sizeable gold stash, it would be met with an unreceptive, small, and comparatively illiquid market. Thus, at the end of the day, why bother disrupting the gold and currency markets? In order to please and/or vindicate certain gold propagandists?

Several brief statements made by Mr. Yi Gang came across the news wires last night, mainly via the China Daily and Reuters. The essence of most of them was one and the same; China can, and might buy some gold in the future, but China will not take a headlong splash into the bullion market. China has no interest in damaging its US debt and dollar holdings, and China might buy gold from internal sources and at such times, and at such prices, as it deems fit. In the words of Mr. Yi Gang:

"It is, in fact, impossible for gold to become a major investment channel for China’s foreign exchange reserves. We have 1,000 tonnes now, and even if I double that holding, according to current prices, that would be about $30 billion, it would just increase the level of gold (in China’s reserves) to about 2 percent from the current 1 percent. Gold prices in recent years have risen very nicely, but if we look at the price over the last 30 years, gold prices moved in great swings," he said. "So as an investment, its yield is not very good from a 30-year point of view."

Apart from the precious metal’s "unsound yield," Mr. Yi explained that since the world gold market is limited, large purchases by China would inevitably push up the international price further dampening any hopes of a good return. Perhaps the next statement made by Mr. Yi was even more significant that his downplaying the speculation about possible gold purchases. He said that; "The U.S. Treasury market is the world’s largest government bond market. Our foreign exchange reserves are huge, so you can imagine that the U.S. Treasury market is an important one to us." The remarks were made at a press conference on the sidelines of the annual session of the National People’s Congress, the country’s top legislature.

What happens next? Oh, well, let’s see: Mr. Yi’s comments will be dismissed as "posturing" and as "trying to talk the gold market lower so the China can then back up the truck" and other similar fairytales. We will also, once again, hear all about how "disgusted" China really is about the US dollar, US debt, and the US in general. Some will accuse Mr. Yi of being on Bernanke’s or Geithner’s secret payroll. Pravda will report that China has (once again) already bought the gold from the IMF, on the same day that aliens landed in a remote Russian village. And commentators will continue to comment based on little more than conjecture and/or innuendo as opposed to relaying hard quotes such as the ones above, whilst keeping their readers poorly informed. Ah, but what else is new? Plus ca change…

Happy Guessing.

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America 

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