Monday Kitcommentary – Where There Is Smoke…


The new week began as grey plumes rose skyward for very different reasons in two very distant parts of the world. The billows of smoke that were seen rising from two of the crippled Japanese nuclear reactors were raising concerns that feverish, but apparently somewhat successful, weekend efforts to cool their cores suffered some kind of a setback.

Bullion BarsMeanwhile, over in Tripoli, the smoke emanating from certain buildings within Col. Gaddafi’s own compound underscored the success of the sorties that allied military forces have undertaken since Friday in targeting key assets in Libya.

The outcome of either dramatic even is, at this juncture however, far from certain and even though Japan’s Prime Minister Kan, as well as Western coalition leaders do see some kind of light at the end of respective tunnels in Japan and in Libya, the road to those exits may yet offer hard to fathom setbacks and difficulties. That’s the kind of uncertainty that will be keeping oil, gold, and equity markets on the volatile side for yet another series of trading sessions set to unfold this week.

As mentioned above, there was some optimism on both fronts, as the 11-day-long scramble to prevent a meltdown at Fukushima and the three-day-old campaign to neutralize Mr. Gaddafi and his forces appeared to be going in the right direction as of late Sunday. However, the final chapters of either saga have yet to be written. Estimated casualties in Japan could rise above the 20,000 figure, while Libya’s political future remains pretty much anyone’s guess at the moment.

Thus, Monday morning’s New York trading sessions opened with robust gains both in black and yellow gold as speculators continued to add a healthy dose of fear-based premium to both commodities, and as they sold the US dollar off some more in the process. Spot gold dealings started the day off with a $12.20 per ounce climb to the $1,431.90 level and although resistance is thought to be looming overhead in the mid-1,430s, the bets being currently made by market participants allude to potential visits to the previous highs near $1,444 or perhaps higher (in the range of from $1,480 to $1,530).

Analysts at Standard Bank (SA) took note of the latest 2.5% decline in non-commercial net long gold positions and thereby reiterated their $1,500 target for the metal for sometime in the third quarter of this year. Of course, not everyone shares the same opinion about future price prospects in the yellow metal, but most observers do appear to be linking pivotal future developments in bullion on the ones yet to come in US interest rates.

Silver trading opened with a gain of 78 cents as the white metal rose in concert with its more precious relative to touch $36.06 per ounce. As with gold, a successful breach of the previous highs might provide sufficient speculative fuel to possibly propel the metal higher, but conditions become sufficiently rarefied at those levels to make for a notably nervous trade.

ABN AMRO analysts confirm that speculative activity in silver has been "quick to pile in" as reflected by a sharp recovery in net long positions on Comex since late January. Contract rollovers in the precious metals are not far off, and they have tended to bring plenty of intra-day drama to these markets on a historical basis.

As has been the case with a plethora of previous, non fundamentals-based spikes in the complex, the slightest amelioration in background geopolitical or socioeconomic conditions can lead to sizeable bouts of profit-taking and outright unwinding of fear-induced long positions. Those are the dime-turns that small investors generally end up being negatively impacted by, and which they have not historically had the good fortune to be able to see coming.

Platinum and palladium also opened with solid gains on Monday, helped by the prospect of the resumption of work at several Sony and Nissan plants in Japan as well as by renewed fund speculation in the complex. The recent sell-off in the noble metals gave rise to perceptions that certain value zones were being reached and/or breached (under $1,700 for platinum and under $700 for palladium) which then made for a compelling short-term play opportunity.

Platinum opened with an $18 per ounce gain, quoted at $1,739.00 while palladium showed a $13 per ounce rise to start off at $742.00 in New York trading action. The PGM niche did record what is being labeled as a "sharp decrease" in speculative positioning among non-commercial longs in the latest reporting period covered by CFTC data.

Crude oil touched levels above the $103 per barrel this morning as traders continued to monitor the situation in Libya and (perhaps more so) the relative calm in Saudi Arabia. Continuing unrest in Syria, Yemen, and Bahrain as well as uncertainty over the shape (and makeup) that governments in Egypt and Tunisia will take has kept black gold on the boil in recent days.

For the time being, Iran and Saudi Arabia (two of the leading suppliers of oil) have managed to avert larger social upheavals either by force (the former) or by concessions (the latter). However, that complex MENA situation is not expected to resolve itself either, in coming days. Staying tuned for "breaking news" alerts on one’s closest screen will prove to be the wisest course of action, for yet another possibly tumultuous week.

Meanwhile, the US dollar remains on the weak side and analysts over at Standard Bank (SA) see scope for the greenback to slip to last November’s low of 1.428 against the European common currency if the current trend holds up. However, the research team also opines that regional debt issues will come back to plague the euro with sufficient enough force to make for an eventual (within12 months) return to the 1.20 level. The analytical team over at Elliott Wave notes that there is a feel of ‘capitulation’ among dollar bulls (a species that is now sees as ‘endangered’) and that last November’s low at 75.63 on the trade-weighted index remains very much in play.

Standard Bank’s currency analysts also project a stabilization of the dollar/yen equation, albeit the trading range of from 75 to 82 they expect is probably a tad lower than what the Bank of Japan might prefer to see in coming months. At any rate, the analytical team remains highly doubtful that Japanese selling of US bonds will materialize — a concept that was already all but dismissed out of hand by Treasury Secretary Geithner in the days immediately following the devastating quake in Japan. Something else that did not materialize just yet this morning was any selling in the Dow. To the contrary, the equity index was able to recapture the 12,000 mark in the wake of a 175-point surge (largely fueled by advances in AT&T and Verizon).

We close this morning’s edition of "In the Lead" with an invitation to view two items. First, do stay tuned for the video edition of this week’s looking-forward market analysis — it should appear later this afternoon. The other "must-see" item is the new range of gold bars manufactured by Metalor Technologies SA (Switzerland) as they appear on the fabulous GoldBarsWorldwide website from Down Under. Most fascinating (aside from the stunning pictures of the bars) is the fact that new "DataMatrix" coding technology was used and incorporated into these state of the art gold bars. Enjoy.
Until tomorrow,

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America and

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