Gold, Silver, Metal Prices Commentary – November 2, 2010


Good Morning,

Bullion Bars

Precious metals markets recorded small gains as they opened for business in New York this morning. Most of the action to the upside in gold was US dollar related (what else is new these days?) as the latter struggled to maintain the 77 level on the trade-weighted index. The yellow metal opened with a $5.30 per ounce gain, quoted at $1,356.60 bid, showing signs that the pre-Fed "certainty" premium was not about to dissipate; certainly not with a weaker dollar still on the scene.

Silver started Tuesday’s session with a 19 cent per ounce gain, quoted at $24.82 on the bid-side. Meanwhile, platinum added $7 to open at $1,711.00 the ounce and palladium fell a modest $1 to one dollar under the $650.00 mark. Some signs of fatigue have begun to emerge in the noble metals complex following a spectacular recent streak. Rhodium remained flat at $2,230.00 the troy ounce.

All of the metals (and many another commodity) were seen as largely treading water into the latter half of the day when some US election results might start making their way into the news flows. As things stand now, of course, all eyes and ears are fixated on tomorrow’s Fed announcement. Will the Fed give? How much? Over what period of time? Will its program meet/exceed or fall short of market expectations? Have most scenarios already been ‘baked into the cake?’ Will someone sell the news, having bought the rumor? Crystal ball vendors reported shortages across the board and did not blame Sunday’s Halloween for the lack of supplies.

U.S. midterm election day dawned amid indications that the Republicans were likely to at least retake control of the House of Representatives and to also boost their presence in the country’s Senate, without recapturing that majority, however. As Americans go to the voting booth today, there are also 37 state governorships up for grabs. The possible shift in the political landscape should have the US dollar’s ever-growing ranks of morticians up at night, but it does not — just yet. Complacency, complacency.

Perhaps more than any of the above, yet-to-be-played-out dramas, the one thing that appears most important to those who will punch the ballots is the state of the US economy and what can be done about restoring it. Coming out of the most severe downturn in the country’s economy since the Great Depression has engendered a set of conditions that is sure to take its toll on the current leadership as the electorate identifies it (rightly or wrongly) with pretty much everything that has not gone well over the past two years. Blame, blame. The name of the game.

There is at least one school of thought that believes that a GOP victory at the polls means the potential ushering in of a more fiscally (and perhaps monetarily — though the Fed is supposed to be independent) ‘responsible’ era and that such a development would be immensely dollar-supportive. Some credence is being given to the idea that the Fed may have to show restraint on Wednesday of the US election map turns crimson under the effects of the Republican ‘tsunami’ (as some have labeled the currently manifest political trend).

On the eve of the Fed meeting at least a couple of other central banks went against the trend and hiked interest rates in order to avert inflation from taking root. Australia and India raised rates last night (the former, for the sixth time in a year). The Fed’s decision will see the light of day later tomorrow, while within hours of that announcement, the BoE and the ECB will also chime in with their respective policy statements. Anticipation, anticipation.

One central banker who made a statement well before statement time, was Paul Volcker — he, now an advisor to President Obama. Mr. Volcker warned that a prolonged ‘easy money’ policy would create more of the same type of bubbles that brought about the current conditions when they popped. He did not refrain from raising interest rates as high as 20% when inflation threatened to do damage to the US economy. Courage, courage.

At the cost of triggering a recession, Mr. V used the blunt end of the monetary policy stick and put an end to the core melt-up underway at the time. His eventual successor, Mr. Bernanke is running hard to avert the opposite phenomenon from dragging the country into GD2 with tomorrow’s putative QE2. Contrasts, contrasts.

As things stand this morning, the majority of Bloomberg’s polled economists indicate that they fall into the half-trillion-dollar camp. Half a trillion dollars’ worth of long-term securities’ purchases by the Fed, that is. Such a shopping spree would, however, be stretched out over the coming half year in a wait-and-learn-what-the-effects-are strategy. The Fed’s membership remains at odds not only on the size of the QE but also about its timing, but most of all about its efficacy. Debate, debate.

The "Street" however is all ‘game’ with what is to come. Recall yesterday’s financial network headline, if you will. Easy money for a while longer means the "Street" can play out its own version of the asset shopping spree and buy all of those things that we have seen making headlines since 2008 with their price performance. A wonderful (speculative) world, if you can get it. So far, they got it. Going forward, there are more questions than certainties, however.

With but hours to go before the Fed speaks, interest rate futures offered indications that the markets will be able to enjoy something, courtesy of ultra cheap dollars in the pipeline. However, Monday’s robust ISM figures were indicative of a US economy that is somehow managing to remain more active than the doomsayers would have it presently.

Evidence of solid job growth was contained in the ISM data, as the component labeled "factory employment index" revealed. While few expect Monday’s economic data to impact the Fed’s ultimate decision, it has introduced some fresh doubts into speculators’ minds. Like, perhaps, those speculators who were shown to have cut speculative long positions in gold and silver recently- for a second week in a row (according to CFTC data).

Commercial gold positions are actually net-short as of October 26 tallies. In silver, swap dealers and producers as well as commercials were net-short. This took place even as spec activity in platinum and palladium continued to show gains in the size of bullish positions. Divergence, divergence.

On that note, we must politely end it here. Another plane to catch very soon.

Chiming in from New York tomorrow — F Day.

Now, go vote. It’s a privilege to treat as a duty.

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America and

Original article link: Crimson Tide To Lift Dollar?

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