Gold, Silver, Metal Prices Commentary for Nov. 30, 2010


Bullion Bars

A breach of the $1.30 level in the euro-dollar pair was the standout feature in the overnight currency markets. The European common currency fell to a sixty-day low as a result of fears that the eurozone debt woes may spread. The concerns drove Spanish bond yields higher, while Italian and Portuguese ones got a similar yield boost.

The need for a clear-cut and well-coordinated uniform fiscal policy across the region became somewhat more pressing as the markets (including US equity futures) showed very little in the way of confidence this morning in either the bailout or the austerity programs which have been carried out, or only proposed, thus far.

No ‘austerity’ in sight among US shoppers, thus far. After what is being deemed as a successful "Black Friday," a "Cyber Monday" that recorded a sales surge of nearly 20% above 2009 levels was tallied yesterday. In fact, CM sales outpaced BF online sales by more than 31% this year. Ka-ching!!!

The US dollar gained once again as risk aversion made a return to the speculative scene; it rose to beyond the 81.25 level on the trade-weighted index, while only a great silence was heard from the ever hopeful dollar-morticians’ camp. If you recall, we were all to be regaled with a greenback on its death-bed by this time, in the wake of QE2 and other ‘fatal illnesses’ that are presumably plaguing it. Looking ahead this morning, traders will focus on US consumer confidence (or lack thereof) numbers and on the S&P/Case-Shiller September home price index level (still expected to be down on the month, but slightly up for the past year).

Meanwhile, a modicum of safe-haven oriented bids kept gold prices fairly buoyant overnight and the yellow metal managed a climb to the upper $1,370’s but its ascent was tempered by the aforementioned vigor being exhibited by the US dollar. In fact, the rest of the metals’ complex headed to lower levels as risk appetite waned. The round figures ($27, $1,650, and $700) were all breached in silver, platinum, and palladium.

One of the more significant to-worry-about notepad items on the speculative agenda remains the ‘cooling’ trend underway in China. The prospects for another round (as well as yet to come) of tightening by Beijing are keeping money intended for commodity plays on the sidelines at the moment. Shanghai’s market slid 1.6% and closed at a seven-week low on the perception that monetary tightening will put a dent into hitherto good speculative times. Similar rate-hike expectations are playing out in India as well.

The Indian economy grew at a very respectable 8.9% year-on-year, it was reported this morning. However, as in China, local authorities continue to be preoccupied with containing inflation. India’s central bank has hiked interest rates six times since March (by a total of 1.5 percentage points for lending rates and by 2 percentage points for borrowing rates).

As well, year-end profit-skimming and book-adjustment presents a few potential obstacles to hefty gains in the metals. Such apprehensions and trading maneuvers have effectively countervailed the thought-to-be-bullish effects of the recent exchanges of fire between the two Koreas and of the Irish ‘situation.’ For the moment however, we have yet another case of tandem dollar-gold safe-haven bids on hand.

Elliott Wave technicians find that charts allow for one more push (with resistance from $1,388 to $1,405) in gold before the resumption of a trend that targets $1,156 eventually. A similar upward move is allowed for in silver prior to what is seen as ‘recording a long-lasting top.’ A breach of the $25 support could usher in a slide towards $20 in the team’s opinion.

Spot gold prices opened the Tuesday session with an $8.10 per ounce gain and a quote of $1,375.40 on the bid-side. Some $16 worth of physical buying was offset by nearly $9 of dollar-strength-induced value erosion, as the Kitco Gold Index revealed at 8:20 New York time. Silver fell 3 cents and was bid at $27.10 per ounce, following earlier lows recorded near $26.92 the ounce. Platinum declined $1 to the $1,644.00 level while palladium was unchanged at the $690.00 mark per ounce. Rhodium dropped $30 to the $2,250.00 per ounce bid level.

As if ultra-high global bullion prices did not present a sufficiently difficult environment for Indian gold consumption, the idea that gold and silver imports into the country may be subject to higher tariffs in the near future may have local traders up a few additional hours every night.

The authorities in the country anticipate that they might be able to realize additional revenues of perhaps as much as $174 million from higher import duties on gold alone. On the last go-round, the Customs duty on bullion was lifted to 300 rupees/ ten grams from the previous 200 rupee/ ten gram level. The duty adjustment was met with scattered protests by groups of gold traders.

Hopefully, the upcoming launch of a Chinese mutual fund which will be permitted to invest into foreign gold ETFs will go at least part of the way in mitigating the potential fall-off in Indian tonnage that high prices and higher tariffs imply. The Lion Fund Management Co. did not provide details as to which particular gold ETFs it plans to consider for the new fund’s allocation structure. The country is currently lacking a domestic gold-backed ETF and local investors buy either ‘paper gold’ offered via the SGE or the SFE as well as physical coins/bars via specialized outlets and/or local banks.

Meanwhile, a rare sighting of rare-earths-laden vessels might be on tap in Tokyo Bay this week, as China sent four cargoes (totaling about 66 tonnes) of the essential elements out to sea. China is expected to retain is policy of exporting the stuff under a quota during 2011; however the trade does not expect any significant shifts (in either direction) in the supply of the 17 elements that are vital for certain high-tech industries.

Do note that ‘rare’ earths are anything but ‘rare’ and that concerns about their putative tightness in supply have been overblown. There are estimates (quite conservative ones, at that) that a 500-year supply of these "-iums" is available from current reserves. Other estimates (Wired magazine) indicate some of these exotic elements could be supplied for the next 8,000-13,000 (!) years before we run into depletion scenarios. That said, the ‘problem; is that 93-96 percent of global production is Chinese-mined. The Hague Centre for Strategic Studies opines that the ‘problem’ with rare earths of one of a political nature and not one of an actual shortage.

No shortage of volatile action in metals, either. Rolling over of contracts and the aforementioned book-adjustments related to year-end patterns will keep things lively for the next couple of days. Do not ignore the dollar, however.

Today’s closing insight, comes our way courtesy of RBC Capital Markets:

"Many analysts insist that inflows of speculative money into the futures markets cannot affect commodity prices and that the physical market drives futures prices rather than the other way around. But this is not how markets work. By now it should be clear that futures and physical positions are not perfectly interchangeable, since not every contract will (or can) go to delivery…"

Until tomorrow,

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America and
Article: A New Tariff in Town?

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