Gold, Silver, Metal Prices Commentary – 3/10/2010


Bullion update ... A Sentiment(al) Journey

Gold held steady overnight and its trading range has thus far been confined to only about $10 –between $1120 and $1130. Then again, steadiness was the operative word in the US dollar as well, and the euro did not show too much further movement after falling to a fresh one-month low of under 1.461 against the Swiss franc. The latter had gained against the common currency as speculators manifested a large pile-in into the currency until the SNB fired off a shot across the gamblers’ bow by reportedly stepping into the market and intervening. Take zat!

No further developments were reported on the Greek odyssey front, following a largely symbolic show of support by US President Obama during his tete-a-tete with Greek PM Papandreou. There really isn’t much the US can do for Greece at this moment, but nods of approval for the country’s efforts are always a nice thing to offer…Meanwhile, the EC is still at work sorting out the details of a putative European Monetary Fund (EMF?) designed to help Greece and Portugal through their respective credit travails. For its part, Portugal has now also offered a deficit-reduction plan intended to boost (fast-slipping) investor confidence levels.

Gold, copper and certain base metals gained traction early in the midweek session following the release of strong Chinese economic data. Spot bullion opened with a $3.30 per ounce gain this morning, quoted at $1125.50 as against the 80.60 mark notched by the US dollar on the trade-weighted index, and a 1.361 tick on the euro-dollar rate. Crude oil was last seen at $81.66 per barrel, up $0.17 following OPEC projections of strong(er) demand for black gold in the near-to-medium term. Silver started the session with a 13-cent rise, opening at $17.42 per troy ounce, while platinum added a solid $18 to rise to $1608.00 the ounce.

Palladium climbed $4 to start at $471 per ounce, and rhodium was unchanged at $2400.00 bid per ounce. Not much in the way of automotive news to report except for the fast running-away Toyota Prius vehicles. Suddenly, everyone is pouncing on this one, and the early results indicate little more than runaway…media hype. As we have always warned: wade into Internet forums (of ALL kinds) at your own risk…

The complex subsequently lost some of the wind present in the early morning sails and drifted lower before making another stab (which also failed) at higher levels by around 10:30 AM NY time. By 10:40 NY time, on the other hand, the selling aggravated and gold lost some $9.00 per ounce (despite a 0.23 loss in the dollar on the index), to sink to $1112.00 and rekindled fears that yesterday’s Chinese news-induced bullish-tempering news may still be reverberating in the trading pits out there. In addition, and, ironically, jitters related to the same robust Chinese import data dented sentiment on the floors as players fretted that a 44.7% gain in inflows of ‘stuff’ into China might set off interest rate hikes by local official in an attempt to temper the once again fast-overheating economy.

Thus, it is now back to where (and when) these key currency pairs/triplets (USD-Euro-Yen) and a few others will be trending in the near-to-medium term. Gold will still take its cues from the movements in the above-mentioned yardsticks of value, while trying to sort out its own comfort level –with the added caveat that fundamentals still matter a heck of a lot, even if occasionally apparently ignored by spec players.

Take the dollar, (many would say, "Take the dollar, please!" for example. Beaten to a pulp in 2008 and 2009 by investors. In the dog house, or, better yet, the funeral home, as far as every single hard-money newsletter vendor was/is concerned, were it not for a small little detail, as brought to us and to you by Bloomberg this morning:

"Investors are the most bullish on the dollar since the collapse of Lehman Brothers Holdings Inc. on speculation the U.S. economy will expand at a faster pace than in Europe and Japan, a survey of Bloomberg users showed. The world’s reserve currency will rise over the next six months, according to respondents in the Bloomberg Professional Global Confidence Index. Sentiment toward the U.S. economy rose among the 1,612 participants in the survey, even as the outlook for global growth fell for a second consecutive month."

While this may sound like heresy at a time when we were assured that there would no longer be a dollar around (certainly not as a reserve currency anymore and certainly thrown out with the trash by China by now) there are actual reasons why the 1,612 queried professionals are of the opinion that they tendered. Come on now, they can’t all be on Tim Geithner’s secret payrol…:

"The dollar strengthened this month to the most since May against the euro on concern Greece’s struggles to close the biggest deficit in the European Union as a percentage of gross domestic product will weigh on the region. The Federal Reserve will raise interest rates before the European Central Bank and Bank of Japan, according to the median estimate of more than 30 economists surveyed by Bloomberg."

Here is what the hard numbers show as far as sentiment goes — speculative in nature though this set of metrics may be, it reveals that something is afoot…:

"Sentiment toward the dollar climbed to 66.39 this month from 55.72 in February, according to the survey. The measure is a diffusion index, meaning a reading above 50 indicates Bloomberg users expect the dollar to strengthen. The high for the index was the 68.86 reading in September 2008, when Lehman’s bankruptcy drove investors to the dollar as a refuge. The Bloomberg Correlation-Weighted Index for the dollar rose the next two months."

And, finally, the ‘why" of all of this — the underlying (and up to now admittedly fragile, but still on-track) economic recovery in the US of A:

"Speculation the U.S. economy will grow at a faster pace than those of Europe and Japan is bolstering bets that differences in interest rates may begin to boost the dollar. The Bloomberg Correlation-Weighted Index for the dollar has risen 6.1 percent to about 101.5 from last year’s low of 95.63 on Nov. 17.

"The U.S., perhaps not this year, will be one of the first to raise interest rates," said Fabian Eliasson, head of U.S. currency sales at Mizuho Corporate Bank Ltd. in New York, and a survey participant.

The Fed is forecast to lift its target rate in the third quarter to 0.50 percent from a range of zero to 0.25 percent, according to a Bloomberg News survey of 75 economists. The European Central Bank will boost its key rate to 1.25 percent from 1 percent in the fourth quarter, while the Bank of Japan may keep its rate at 0.10 percent at least through the second quarter of 2011, separate surveys show." opines that: "From a contrarian perspective, such a large rise in dollar optimism is a bullish sign for the gold price, which is generally thought of as an anti-dollar hedge. In a week particularly light on economic reports, market participants will be eyeing weekly jobless claims data on Thursday, as well as retail sales and the University of Michigan Consumer Sentiment Index reports on Friday. Going into the second half of the week market participants will look to see if the economic recovery continues to gather steam, as well as if the gold price can remain resilient in the face of the optimistic sentiment toward the dollar."

Happy betting as to whether the "Mainstreamers" or the "Contrarians" emerge as vindicated, oh, circa mid-2011. Let the duke fest begin.

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America 

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