Gold, Silver, Metal Prices Commentary – May 12, 2010


Bullion update ... Paper Cuts

Good morning,

The high-stakes/high-visibility poker game-flavored battle of the ‘wolf packs’ versus Europe’s finance managers continued to rage on for yet another day.

The uncertain conditions which have now blossomed in various markets following the $1 trillion ‘contagion containment’ package maintained the lift on the wings of the gold market and helped it rise to overnight records near $1245. The yellow metal remains in uncharted territory but then again so does the sentiment level among traders about just where bonds, currencies, equities –and, indeed, entire economies may be headed.

Bullion prices traded near the $1240 mark during the opening first hour this morning. Technicians expect higher intra-day magnitude moves (in either direction) as we go forward and as the level of intensity of the duke-fest of the trend-followers versus the profit-rakers gathers strength.

Divided camps continue to parade on financial channels with calls for $1500 or $2000 gold versus observations (as one this very morning from Deutsche Bank on CNBC) that the ‘only thing keeping gold afloat is the eurozone turmoil as translated into fund plays.’

Over in physical gold-land, the battle for the metal (and its value) took on a similarly confrontational overtone. Trend-following ‘must not miss the boat’ coin buyers made tracks to gold dealers once the metal matched its 2009 high, while Indian demand at what is one of the two annual pinnacles of traditional demand was feared to halve this month. This, then, is all about perceptions of value and a matter of where in the world you find yourself, literally.

Whether the folks who ignored gold until now manage to prevail over the masses that have held gold all along (and are finding it an appealing sell at this juncture — as scrap flows reveal) is the question to which to try to find an answer. At the end of the day, the funds remain at this golden vessel’s helm and the price tickers have no choice but to live with their obvious influence.

Silver added 15 cents this morning, rising to $19.48 per ounce, after having risen some 30% since March. Still, given where gold is situated in terms of the newspaper headlines over the past couple of days, there are certainly some whose puzzlement over the fact that the white metal is not trading at $30/$50/$150 per ounce is obvious. While no such head-scratching was noted at the annual presentation of the Silver Yearbook by CPM Group analysts yesterday, they did offer the audience a bit of a mixed silver bag of expectations for the white metal.

While noting that prices may still attain a level somewhere north of $20 while this crisis unfolds, the group’s analysts also offered some words of caution about the ‘patterns’ exhibited by silver-oriented ETFs in recent months, and about the prospects for somewhat lower ($15-$16 per ounce?) for the latter half of the year. We will have more to report about the details of their annual survey in coming days.

Platinum and palladium price action slowed considerably this morning and the noble metals showed sub-$5 moves for the first hour of the session. The former attempted to remain in orbit near the $1700 level while the latter marked time near $535.00 the ounce. Rhodium –which we have covered extensively over the past several days- remained static at $2780.00 on the bid-side this morning. The metal remains the talk of the town in New York (and Toronto as well, as you can see in this little clip from BNN following our launch of the allocated physical product).

On the other hand, the level of chatter about the eurozone situation from various official and market camps has seen an exponential rise during the past two days. Practically no one in a position to alter public perception of the unfolding European story held back from throwing in their proverbial two cents’ worth of thoughts (some, more carefully fleshed out than others). The latest rage in the Old World is nip and tuck. Cutting spending (or at least talking about doing so) is suddenly as fashionable as the opposite of same was until just very, very recently (okay, aside from the frugal and disciplined Germans).

Spain’s PM, Mr. Zapatero, cut public wages in a kind of pre-emptive ‘nuclear option’ way and chalked up the move to the pressures of current realities with the romanticized observation that ‘desperate times call for desperate measures.’ That should sell, coming from a Socialist leader (especially with labour unions…). Over in the UK, the BoE’s Governor, Mr. King had nothing but kind words for newly-installed PM David Cameron’s blueprint to cut the British budget deficit.

While lavishing praise on the take-the-machete-to-spending plan, Mr. King also offered up dramatic words that sounded as serious as any that Mr. Zapatero had spoken. Mr. King said that: "we are still halfway through the world’s worst financial crisis ever.’ No specification as to whether he was referring to the UK or the entire world. President Obama was quoted as saying (off the record) that he does not intend to ‘preside over a situation in which US debt becomes 90% of GDP’ (as, say, is the case on certain other places).

Did fund players pay much attention to such headline-grabbing words full of gravitas? You can bet your bottom dollar (or euro) that they did not. Bluff-calling continues to be the order of the day despite warning that the ‘greedsters’ are playing with highly combustible materials in this game of chicken.

Over in market guru-land an equal amount of drama-laden jawboning was heard over the past day. Jim Rogers declared he is angst-ridden over the fate of paper money (depicting a ‘final nail in the coffin of the euro’ to listeners), but that he likes gold. Stop me if you have heard that one before, from microphones located in Mr. Rogers’ neighborhood.

We have not heard from Marc Faber as yet, but he is likely to chime in with something to the effect that all that Spain produces anymore, are bullfights and other bull, and that he is doing his part to help. Nouriel Roubini opined that certain ‘laggards’ in the eurozone may wave goodbye to the union and the common currency and go their own way to keep economic growth afloat. Speaking of which, the rebound in Europe –all Greek drama aside- at least in Q1, rose by 0.2% and defied economists’ expectations. Industrial production was up by 1.3%.

Will the new penchant for wielding budget scalpels put a dent into this kind of bounce-back? Or, will the trillion-dollar doomsday-prevention device actually help the region’s economy pick up additional steam as confidence is restored and the short-sellers are assassinated?

If the answers to the above were readily ascertainable, the ensuing trade would have been put to bed some time ago. For the moment, we will continue to be spectators to the opposing trades being placed on the waging tables by the factions that continue to see diametrically opposite outcomes resulting from current headlines.

Remain alert.

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 5 oz. bullion America the Beautiful Silver Coins that are duplicates of the America the Beautiful Quarters. The first of five coins will be released this summer, with the remaining four to follow in short intervals. To see the U.S. locations honored on all the 2010 coins, check out a sister CoinNews site and its page 2010 America the Beautiful Silver Bullion Coins.

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