Gold, Silver, Metal Prices Commentary for Dec. 1, 2010


Bullion Bars

The euro managed a decent overnight bounce as selling pressure on the region’s bonds eased somewhat and as Portuguese sales of 500 million euro of one-year bills went better than anticipated (albeit yields rose to an all-time record, possibly indicating that Lisbon is heading Dublin’s way). The selling respite brought the US dollar lower on the index (last traded at 80.84, down almost half a percent) and buoyed European equity markets (with some shares such as Banco Santander jumping more than 5% on the local bourse).

Also helping matters for the region’s currency and equity markets was this morning’s report showing that manufacturing activity in the sixteen-country zone picked up strongly, rising to a four-month high in November. France, for example, posted its best such figure in a decade. Not everyone was as lucky however. Shrinkage in manufacturing was noted in Greece and in Italy, with the latter showing its feeblest performance in nine months.

The focus among currency and other market traders will now shift to tomorrow’s news conference by the ECB’s Jean-Claude Trichet. He is widely expected to continue to jawbone about his institution’s intentions to keep the exit strategy from extraordinary accommodations in place. Should his presentation fall even slightly into the ‘dovish’ side of things, speculators might resume their punishment of the euro with renewed vigor. Thus far, the $1.30 mark has presented some modicum of a ‘line in the sand’ to that crowd.

The threat of the debt problem spreading like a bad strain of a flu virus among the eurozone’s weakest links (the PPIGS) has experts at firms such as Societe Generale calling for an all-out assault by the ECB. Others, such as PIMCO’s European unit head urge a departure from the ‘country-by-country’ approach that has been employed up to this time, and a new strategy that takes into account and tackles system-wide issues. As mentioned in yesterday’s article, coordinated policies are the best vaccine against this particular bug.

NYU’s Professor Roubini feels that the countries most likely to catch this ‘cold’ are Portugal and Spain, but also that one should not exclude Italy or Belgium from the list of possible recipients of the infection. Dr. Roubini said at a conference in Taiwan that the rest of the world can no longer rely on the US alone to spend more than it takes in. "That party, unfortunately, is over" said the Professor.

In fact, tackling the budget monster is apparently alive and well in Washington these days. A proposal by President Obama’s deficit-reduction commission — to be presented today — will include (gasp!) recommendations to cut Social Security. The general aim is to slice nearly $4 trillion from the US deficit which has now reached 9% of the country’s GDP. The White House’s former budget director, Peter Orszag, suggested that US policy makers ought to strive to cut said shortfall to a maximum of 3% of GDP.

As for the US dollar, the perception that is currently gaining more than a fair amount of traction is the one that sees a broader amelioration in sentiment vis a vis the American currency, and not just some temporary boost that came about mainly due to the euro’s woes. Don’t look now, but the greenback was actually the single best investment asset class in November. It outperformed stocks, bonds, as well as commodities and quieted the vocal anti-dollar crowd with the sheer power of (performance) numbers.

Smoke and mirrors you say? Nope. Robust economic data coming from within the US and rising risk aversion on the back of the mushrooming eurozone debt crisis helped restore the up-to-then beleaguered US currency to far better levels than even currency market experts had projected. The US dollar index showed a 5.2% gain in November, but the currency rose more than 7.4% against the euro. Meanwhile, the CRB Index of 19 commodities remained basically flat. The stand-out showing in that complex came from silver; it gained 14% during the month.

Gold’s early morning advances (stretching as high as the $1,398.00 figure) were truncated by the release of the largest-in-three-years private-sector employment gain numbers this morning. US firms added 93,000 private-sector positions in November. Tomorrow’s nonfarm payroll statistics may show the addition of 155,000 jobs, albeit the overall unemployment number is still anticipated to remain at 9.6%.

Spot gold bullion showed a $4 gain at the start of the midweek session. The bid-side quote was indicated at $1,391.20 per ounce, although the yellow metal gave back all of that gain following the aforementioned jobs data release. Silver bullion spot trading opened with a 50-cent rise to the $28.62 mark and the white metal subsequently halved those gains after the jobs numbers.

Platinum and palladium remained strong in the wake of the data, perhaps showing not only optimism about the economic recovery as seen via the job creation prism, but also the expectation that decent car sales numbers will be posted when carmakers such as GM and Ford later today. More robust demand for cars is also being envisioned for December. A climb to above the 12 million-per-annum sales level by the industry in November could bode very well for 2011’s sales outlook (and thus continue to encourage investment in noble metals — some of which (palladium) have well outperformed gold and silver for a second year).

Speaking of out(sized) performance, and of related sentiment based mainly on such past achievement, there is still such a thing as being "too bullish." Some of that sentiment is all too visible on the scene as we speak. Take the typical and all-too-common-by-now, 100% confident declarations by mining company executives that not only is gold not in a bubble, but that there is major headroom for prices going forward.

Marketwatch’s commentary of the day quotes Barron’s Online analyst Michael Kahn (who delved into sentiment analysis and found that…plus ca change, plus c’est la meme chose. Human behavior, that is) as observing that:

"In today’s market, the crowds are once again getting a bit too willing to sweep bad things under the rug. Without a healthy dose of skepticism, investors put themselves at risk because they have not planned for the possibility that they may be wrong. To wit, sentiment on such markets and gold and stocks was running very hot on the bullish side.”

He adds:

"I won’t bore you with gobs of statistics, but surveys such as Investors Intelligence (newsletter writers), the American Association of Individual Investors (individuals) and the National Association of Active Investment Managers (financial advisors) were all at lofty bullish levels. They were close to, if not at, levels that marked previous tops in the markets as the masses in each respective category were "too bullish."

Mr. Kahn’s advice — other than taking stock as to where your stocks and other assets are as the year draws to a close — is: do what feels wrong. In so many words, contradict the crowd. Your pocketbook may thank you later.

"Sustained good performance on increasing bad news suggests that the days of artificially propping up of the markets may be numbered."

Until Tomorrow,

Bullish trading.

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America and
Article: Gesundheit, Lisbon!

Notify of

Inline Feedbacks
View all comments