Gold, Silver, Metal Prices Commentary for Nov. 15, 2010


Bullion Bars

Leftover selling pressure depressed gold price as the mid-month session got underway this morning in New York. Spot gold bullion traded $9.10 per ounce lower out of Monday’s starting gate, with a bid quoted at $1,359.70 and all indications were that this was about to develop into another volatile and highly unpredictable trading day.

Silver fell 20 cents at the open and a bid of $25.84 was seen. Traders will be watching US economic data and the first tranches of Fed purchases while still fixating on charts to ascertain what the damage from Friday’s action might be. Retail sales and the Empire State’s manufacturing index reading will provide the additional fuel for more gyrations (including possible recovery attempts after the Friday selling event).

Indian gold imports totaled 43 tonnes last month — a 65% improvement over October of 2009 levels (albeit Diwali, the festival ahead of, and for which most of such gold flowed into the country took place a fortnight later this year). The question now turns to what happens post-festival, especially if gold remains above $1,320 (this, as a good number of "bargain-hunting" orders are said to be on local jewellers’ books beneath such a major support point in prices).

The white metal lost a hefty chunk on Friday, after having traced a parabola of its own on recent charts. As of the opening minute, only platinum showed at $2 gain quoted at $1,668.00 while palladium slipped $4 lower to $672.00 and rhodium market time at $2,400.00 per ounce. Fasten seatbelts and keep hand on wallets would be the most likely-to-succeed advice for the day. Instead, ‘back up the truck, honey’ is what one is more likely to encounter advice-wise.

Don’t look now, but a small (very small) headline count about possibly difficult going in these markets has started to crop up. Some of them might yet raise eyebrows. On Wednesday, Comcast Finance listed ten bubbles that Daily Finance’s Charles Wallace had identified. Top spot, and the title of "the biggest, baddest bubble of them all," went to gold. How Soros-esque. This, as per Robert Wiedemer, author of "Aftershock: Protect Yourself and Profit in the Next Global Financial Meltdown."

Not far behind (and certainly ahead on reader response comments-more than 1000 of them) was Marketwatch’s "Why Gold Is a Bad Investment" weekend investor feature. Bad as that title might sound to some, it lacks no soundness. Gold is, in fact, not an investment. Heard this one first-hand, way before this video segment, in London last fall, from an instantly recognizable "gold is money" guru. Gold is, but a simple, fool-proof, credit risk-free, insurance policy for your other (actual) investments in the event they should turn to ashes. When it become pure speculation, that’s when you start seeing more of what was seen not only on Friday but in the weeks leading up to that day.

Friday’s metals meltdown (the largest in four months) brought a couple of background items that had perhaps been somewhat neglected by exuberant speculative bulls into sharp focus. First, one was able to identify an acknowledgement that whatever China says and China does still very much matter to the markets, and especially to the commodities markets.

Granted, the weekend passed without any further rate hike surprises from Beijing. Nevertheless, commodities traders will remain acutely attentive to the news stories coming from that all-important (to them and to the rest of the world) country.

We saw just such a Chinese-originated story buffet the markets early this morning. Reports (later denied by two firms) that the Chinese authorities had asked major banks to suspend real estate lending send shivers of fear through base and precious metals markets and overcame apprehensions manifest at the same time about Ireland’s potentially imminent decision on whether or not to ask for a life jacket from the EU.

As well, there was (on Friday and over the weekend) a hint of the realization that when rooftop-based yelling about the next lofty price target for x (insert favorite metal here) is but ‘a shot away’ and that claims that markets are "far from being overbought" made when in fact they are…far overbought, tends to result in some pretty dramatic rushes for the exit doors when there is even a small change in sentiment.

Normally, that kind of stampede tends not to work very well. Fear not; "damage control" sprang into full action over the weekend and the "bellyfeel" and "blackwhite" — laden gold market Newspeak being propagated by some was back in full force.

Thus, the attempts to brush aside emergent concerns that trend-following retail investors may have been rushing into metals-oriented ETFs right about when an overdue correction was most imminent (and has now partially materialized) were at their most fevered-pitch in quite some time this weekend.

The new week began with markets watching rising a US dollar that was able to hit a six-week high on the trade-weighted index (78.51). Call it post-QE2 ‘fatigue’ among dollar bears, some surely will. However, there is something else weaving its way into the greenback’s apparent capability to secure a new lease on life. Something that, up to now, was only considered to be as remote of a possibility as aliens suddenly landing in Times Square: the Fed heading for the ‘exit’ door.

Such a "prospect" was intimated — and not in a fuzzy manner — in the words of Richmond Fed President Jeffery Lacker yesterday, when he said that the Fed will need to tighten even with (gasp!) US unemployment still at elevated levels. That would be an ’emergency exit’ all right. Mr. Lacker also explained that the Fed’s recent action was not aimed at monetizing debt (as most believe) but rather a strategy to improve the outlook for inflation and unemployment (as almost none believe).

Fabrizio Fiorini, the head of fixed income at Aletti Gestielle SGR SpA in Milan Italy, believes that:

"Bernanke will be successful. A rise in yields, perceived as proof of the Fed’s success, will create a virtuous circle that will be helpful for the housing market, consumer confidence and consumption and probably employment."

Something else that will very likely be quite successful is the Perth Mint. Capping 111 years of successes in minting and refining, and on the heels of a year of record profits in 2009, the Aussie government-owned institution has just launched a new gold and silver trading website, amid continuing strong investor demand for the precious metals.

The new website, intended for both small and large purchases, is plugged into live market pricing data from the spot markets. The Perth Mint’s Sales and Marketing Director, Mr. Ron Currie said the prices of online-offered coins and bars would be "held" for at least one minute, thus giving clients sufficient time to lock-in the then current unit price.

"That’s a significant benefit for online bullion buyers in volatile times," Mr Currie said in a statement. The new site was aimed at a broad spectrum of investors, from first-time buyers seeking a single bullion coin, to institutions looking for volume breaks on larger orders, the Perth Mint said.

Until tomorrow,

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America and
Article: Emergency Exit

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