Gold, Silver, Metal Prices Commentary – April 20, 2010


Bullion update ... I Can See Clearly Now…

Good Morning,

Portions of the Icelandic ash cloud and dissipated along with some portion of the concerns about the fate of Greece’s debt overnight.

Thus, risk-taking (in the air as well as on market floors) became manifest once again and attempts were made to get back to business as usual. Whatever ‘usual’ has come to mean lately, that is. While a new ash cloud was already looming in the skies near Europe, the Goldman legal cloud appeared to have very little chance of having a successor of its own.

The SEC is seen as having slim chances of finding similar ‘misleading’ deals/products which may have been flogged by other firms. This, despite the obvious rise in apprehensions about other investment banks, the certainty that the Obama administration’s efforts to curb Wall Street orgies have just received a shot of major adrenaline, and the opening of enquiries into Goldman’s dealings by the UK’s FSA. Fraud charges or not, GS pocketed $3.46 billion in earnings during the first quarter.

Trading in bonds, currencies and commodities was cited as the prime contributor to such a bounty of profits. Well, at least there is plenty of money with which to retain the army of lawyers who will go to battle on its behalf. Dow futures rose on the Goldman (and UnitedHealth) earnings news as the Friday shockwaves slowly ebbed.

Marketwatch’s Mark Hulbert feels that the Goldman saga is the least of what should worry the gold market, given the size of the possible (but not yet probable) gold liquidations which could arise if investors in the Paulson funds want their investments back. Mr. Hulbert reckons that the real culprit behind gold’s Friday swoon (and similar ones yet to come) is to be found in the "underlying complacency, if not outright bullishness" manifest among bullion bullies these days. Contrarian analysis –as practiced by Mr. Hulbert-would argue that such smugness is what is not conducive to ‘much higher prices.’

Well, at least as of this morning, we got somewhat higher prices. A small drop in the US dollar and a near-$1 gain in crude oil this morning were sufficient to spark a rebound in bullion prices following yesterday’s hesitation. Spot gold dealings opened with a $5.60 per ounce rise in New York, quoted at $1140.80 on the bid.

Resistance remains overhead in the yellow metal at the $1145-$1150 zone. Current support extends down to near $1130 the ounce. Silver gained 19 cents to start at $17.91 the ounce, while platinum regained traction and surged $16 to the $1711.00 level. Palladium also climbed, adding $3 to open at $539.00 per ounce. Rhodium showed no change at $2900.00 bid.

Anemic buying patterns were noted in overnight markets in India as locals did not see gold following through on Friday’s price trend — one that encouraged shopping sorties over the weekend. It was noted that Turkey’s gold imports cratered last year, dwindling down to 37 tonnes as against the 165 tonnes of metal that were imported in 2008. On the export side, some 120 tonnes of bullion were shipped out of the country.

Notably, about 40 tonnes of the total (the remainder was made up by previously imported bullion and by scrap gold) came from ‘reintroduced’ gold flowing from under many Turkish mattresses and into the market as prices went to the stratosphere. A local industry official was quoted as being ‘truly unhappy’ with $1100 gold as numerous firms have had to shut down in the wake of same while not having ‘played a role in this process [of rising prices]. A finger pointed squarely at fund speculators who have distorted the market’s fundamentals along the lines depicted by the GMFS annual gold market survey presented last week.

Over in the Old World, there were signs of life outside of the clouds of ash. Greek T-bill auctions were met with a fairly warm reception, even as EU rules were seen as constitutionally not allowing for a bailout of the financially beleaguered country. German investor confidence rose to a six-month high (and higher than economists expected), while inflation in the UK spiked to 3.5% last month (also higher than economists had expected). The euro inched higher on the Greek short-term auction results. The EU, the ECB, and the IMF continue to have their hands full with the pesky Greek situation, nonetheless.

While the talk continues about how central banks must be disgusted with the US dollar and are just waiting to clean up every available ounce of gold supply, something of interest was noted just yesterday. Namely, that the majority of official sector sales in 2009 came from the ECB. More than 35 tonnes of bullion were mobilized by the institution last year, making up the bulk of the very small total official sector disposals.

Curiously (for some), the proceeds were used to boost the ECB’s…dollar reserves. Ponder that one, while facing a barrage of dollar morticians who had already sung the US currency’s last rites during the year. Selling gold at near-record prices while buying battered (oversold) pieces of US paper with the money? What kind of strategy is that? Don’t know, but it once used to be called ‘buy low/ sell high.’

Speaking of buying low, if the recent surge in bond yields is any indication of where interest rates are headed, we may be witnessing the curtain finally falling on the "period of near-zero." Bond markets –via the long-term rates– are showing a rise in expectations that the US Fed may allow short-term rates to rise in the not-too-distant future. Timing and size will remain an issue as the US central bank keeps walking the fine line of not wanting to cause a double-dip with a rate hike, while keeping the inflation-alert periscope in the fully-extended position. Transitions are always interesting, and this particular one will be contentious, to say the very least. However, it is underway, undeniably.

That said, the IMF did caution today that the threat presented to the global economy by the financial industry has been supplanted by the danger of rising government debt. According to the institution’s director of monetary and capital markets department, "Greece is a wake-up call. Do not let the financial situation get out of hand and [do] undertake the necessary measures to remain on the safe side."

The wake-up alarm was seen as directed at the US, Italy, France, Japan, and the UK — countries that bond fund PIMCO earlier this year identified as sitting in a ‘ring of fire.’ This is not to say that China is sitting on a bed of roses by contrast. The IMF sees the local ‘boom’ (nice euphemism) in real estate as potentially turning into a ‘ka-boom’ and posing a risk to financial stability.

Well, at least Canada is doing its part in keeping out of such potential trouble. Hard to believe, eh? Welcome to the new Switzerland, where banks are safe and the central bank fights inflation now (F.I.N.?). The central bank ‘indirectly’ said this morning that it will start raising interest rates by virtue of the fact that it dropped the ‘pledge’ to keep its key lending rate at 0.25 percent through mid-year from its jawboning. Cheers.

The loonie took flight on the news and gained 1.5% against the US dollar. Meaning, gold went down for us. It is still down nearly 1% over the past 60 days as against the 1.62% gain in US dollars for the same period. It’s all about the prism through which one views the gold price. Which means…?

…continued…Happy Trading.

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America 

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In addition to bullion 2010 American Silver Eagles that are already available, the United States Mint this year will also issue the bullion America the Beautiful Silver Coins. Click on the link to visit a sister CoinNews’ site and learn about the coin and the new bullion series.

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