Gold, Silver, Metal Prices Commentary – October 18, 2010


GoldGood Morning,

Additional declines were noted in gold prices during the overnight hours as the emergent resurgence in the US dollar helped prompt additional profit-taking on the back of that already having been witnessed last Friday. The yellow metal appears poised to retrace some of its recent chart steps all the way to possibly the $1,327.00 level, according to analysts at Barclays Capital.

This, as bullion failed to hold the record $1,387.00 mark and then broke its previous channel high at $1,368.00 the ounce. Barclays team notes that so long as gold manages to remain above $1,300.00 and its 10-week trend line, the bullish tilt would remain in place.

Similar observations were tendered regarding silver, this time by GFMS’ Chairman Philip Klapwijk, at a conference in Shanghai over the weekend. He noted that the silver market remains in a substantial surplus position even as investors continue to mop-up the excess tonnage in the marketplace, and that — in his view — "silver is likely nearing a top now, and that is has more downside in the short-term than upside." GFMS remains bullish on the white metal in the long-term.

Speaking of China, the country’s Ministry of Industry and Information Technology announced over the weekend that gold production will likely rise to 340 tonnes in the current year, to record an 8% gain over last year’s output levels. China remains the world’s top producer of the precious metal and shows no signs of having trouble with the putative ‘peak gold’ conditions that have been warned about (mainly by hedge fund managers) during gold’s climb towards current levels.

On the other hand, the US dollar’s current depressed levels have apparently begun to worry a handful of countries’ finance ministers. As said ministers, along with others, gather in Seoul, some currency analysts expect some type of ‘calming’ statement to emerge and give the markets an opportunity to at least pause before the Fed finally makes its next policy step clear(er) come November 3rd. Whether or not they will be able to patch the emergent row on currencies over in the South Korean capital, remains to be seen.

Speaking of "Seoul-searching" the country’s head of the Bank of Korea, Mr. Kim Choong-soo, said this morning that his institution might consider placing part of South Korea’s foreign exchange reserves into gold but "cannot help but be cautious about investing in gold because of its high price volatility." Evidently, the Governor has not been reading many a bullion-bully website that dismisses such caution as ‘lunacy.’

This, even as the Aden Forecast notes that (while it still allows for even higher values) "the gold price is turning parabolic" while also observing that "despite all the reasons why stocks shouldn’t be rising, the fact is they are." Chalk those two strange and in-tandem-performing…bedfellows up to…hedge (fund) hogs, say we.

Currently, very little attention is being paid to the fact that the day prior to the Fed meeting, mid-term elections could alter not only the makeup of the US political scene but also impact the willingness to throw more money at a problem (chiefly unemployment) that is probably not likely to be cured by the same.

Market participants take the Fed’s signal that it might want to ease by buying assets with ‘naked money printing’ of the type that is sure to bring [the] Weimar [Republic] to Washington. Perhaps a little "Crises of Capitalism 101" should be mandatory viewing for all those who are trying to lay blame so nonchalantly on certain parties at this juncture.

Gold prices opened with a $6.60 per ounce loss this morning, and with a quote on the bid-side at $1,362.30 as against a 0.23 rise in the US dollar on the trade-weighted index (last marking a 77.28 print).

The market’s opening level was some $8 away from the lows recorded overnight but the dollar was not exactly able to pile on sizeable gains just yet, as echoes of the Boston Fed’s Eric Rosengren’s words kept markets hopeful that the Fed will indeed ‘give,’ come November. The possibility of a rebound to above the $1,368 level should not be discounted as the ‘force’ is still with the longs-even if they have decreased their positions as reported in the latest CFTC trading data compilation.

Mr. Rosengren said over the weekend that he favors ‘early and aggressive’ Fed action designed to ward off deflation, which in his view, can be every bit (or more) unpleasant than a bout of strong inflation. Meanwhile, another Fed chief, Charles Evans (he of the Chicago ‘branch’) said that he is in favor of raising the central bank’s inflation target for a short while. Anything to deflect deflation. Anything.

Silver started Monday’s session off with a 23-cent drop, and a quote of $24.09 on the bid. The white metal has basically met and exceeded the most optimistic of GFMS and CPM Group projections for the current (and coming) year, rising to not too far from $25 during its recent fund-fueled race upwards. Silver’s mine supply is all set to record another gain for the current year –perhaps as much a 5% gain. The who’s who and what of the silver niche gather this week in Spokane to debate the metal’s current and future prospects, as the annual Silver Summit gets underway.

Platinum fell $6 at the open, quoted at $1,684.00 per ounce, while palladium lost $11 out of the starting gate this morning and was indicated at $577.00 the ounce. No change was reported in rhodium with the last bid quote notched at $2,250.00 per troy ounce. Auto sales appear on course to reach back to the annualized 12 million level of sales; a figure that could be taken as a pivot-signal of the return towards more ‘normal’ conditions in that market.

Meanwhile, Japan’s National Institute for Materials Science has developed a spherical shell-shaped catalyst that is highly effective and long-lasting. The novelty factor in this invention is the fact that the catalyst could use less expensive metals (such as iron) for the active key cell as a substitute for noble metals. While this is not the start of an imminent switch away from the platinum-group metals, the development bears watching. For the moment, the NIMS used platinum in order to showcase its product. Tried and true.

Today’s market focus will likely be zeroing in on US production figures. Analysts expect to learn that America’s factory, mine, and utilities — generated output rose by 0.2% and that such a gain (if it happens) was to be recorded as the 14th out of 15 months that have elapsed since the ‘official’ end of the recession last summer. Recovery, yes, but slow enough to prompt dollar-sellers to demand that the Fed weaken the currency even more so that they can enjoy more…dollars in their pockets. Such a concept.

Battered as the US dollar might appear to be, foreign investors bought a net of $128.7 billion of long-term US assets in August. That figure was UP from $61.2 billion in July. China, Japan and the UK all ratcheted their US Treasury holdings up in September. ‘Cause, you know, the dollar is "doomed," and the "country" along with it. Aha. For sale: stone bridge in okay condition, near Brooklyn.

Have a nice week ahead

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America and

Original article link: Seoul Patch?

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