Metals markets opened the midweek session on a positive note as players attempted to repair some of the damage that had been inflicted on Monday and Tuesday by the going-on in Europe and elsewhere. The dollar retreated a tad ahead of the results of the Fed meeting being made public, and as a better US private sector payrolls report than expected lessened the need for seeking safe-haven refuge in it this morning.
Spot gold dealings started off with a gain of $12.00 at $1,732.00 the ounce. Gold coin sales by the US Mint fell to almost half of the levels that were seen in September as well as compared to those reported in October of last year. Despite incessant reports in various forums that US retail investors are "cleaning out" their local coin shops, only 50,000 coins were moved by the Mint into the marketplace. Silver coin sales were down by 1.4 million units in the month of October versus September but were nearly on par with 2010’s October sales levels.
Speaking of coin sales, well, there are sales and then there are "selling tactics." In a criminal complaint filed yesterday by the Santa Monica City Attorney’s consumer protection unit, uber-popular and Glenn Beck-favorite gold vendor Goldline has been charged with "theft and fraud" to the tune of millions. ABC News reports that:
"The complaint alleges that Goldline "runs a bait and switch operation in which customers, seeking to invest in gold bullion, are switched to highly overpriced coins by using false and misleading claims."
We have, in these columns, countless times, warned our readers that the threat of putative Uncle Sam confiscation of gold or potential stellar profits from rare coin appreciation is being used in order to sell one high-premium and anything but rare semi-numismatic coins. That, folks is not what gold allocation (you can also call it investment if you like) is all about.
The three commandments that you should aim to follow when purchasing bullion have always been: 1) The most gold for your buck, on a per-ounce basis 2) the safest non-home/non-bank custodial arrangement and most of all 3) a product that offers top-notch liquidity when the time to sell comes around. It is also worth noting here that an A+ rating from the Better Business Bureau is about as valuable as… dirt. Caveat investor, for the nth time.
Silver advanced $0.49 to open at $33.94 per ounce. The white metal ETFs lost 3.2% on Tuesday after they lost 2.4% on Monday and the ‘poor man’s gold’ ETF (SLV) is trading right around its 50 as well as 200 day averages at this point. Barclays Capital reports indicate that silver production is growing at a record pace. With a cost of about $5.20 per ounce to give birth to an ounce of shiny white metal, who can blame the miners for cranking it up a notch or five? Little wonder that silver’s surplus is estimated to hover around the 7.000 metric tonne level at the present time. Those ETFs and hedge funds need to keep amassing the stuff in order to keep prices anywhere near current levels. The problem is, they have not done so, thus far this year; quite the opposite, in fact.
Platinum climbed $15 to open just above $1,600 (at $1,603 bid) and palladium advanced $10 to start the day off at $644 the ounce. US car sales were indeed quite robust, as they recorded a 7.5% gain in October; that makes last month’s figure the second fastest sales pace of the current year. Several US nameplates recorded gains while Toyota and Honda reported declines as a result of still-lingering supply chain disruptions that resulted from the March Sendai quake.
Bullion prices may do what they may do in coming months, but at least one "hedgie" — David Einhorn is putting his chips on bullion… producers. Mr. Einhorn’s horn of plenty (he feels) will come from the harvest he might reap from the miners, as opposed to what they produce. Greenlight Capital cuts its commodity positions in Q3 and plowed the proceeds into the Market Vectors Gold Miners ETF. It is not that Mr. E feels that gold might not rise; it is just that the type of (double-digit) gains he seeks are thought to be coming from the up-to-now under-performing sector that the miners represent. Well, with margins such as we mentioned above, this might well turn out to be the case.
Over in the Old World, team "Merkozy" was pedaling hard this morning in an attempt to convince Greek PM Papandreou that -despite the curve ball he threw at them with his proposed referendum- there was no alternative to the plan that was cobbled together with great effort last week by the EU. Separately, short-fingered vulgarian Silvio Berlusconi was also pedaling hard at home in Rome as he called a meeting of his ministers to discuss upcoming and necessary belt-tightening measures that would please Ms. Merkel (who is calling all the shots of late).
At this point, some kind of ‘showdown’ meeting between certain of the above-named folks could well be on tap, and soon. The nagging question (to which no one yet has an answer) is what happens if in fact the denizens of Greece vote to stop using the euro and/or to bail from the union. Put it this way: you think you’ve seen turmoil up to now? Just wait…
Politics and related turmoil aside, the European economy’s latest manufacturing activity data suggests a region in near-recession. The gauge fell to 47.1 last month and is signaling contraction. Add China’s slowing growth and a virtual recession in the UK to this equation and we have the US left to pull the global economic cart along at this juncture. Its relatively anemic growth (the US ISM said on Tuesday that its gauge unexpectedly fell to 50.8 last month) suddenly looks a whole lot "better" when the aforementioned conditions are taken into full account. One possible outcome of such economic temperature readings is a potential ECB rate cut either tomorrow or perhaps in December. Hello, Mr. Draghi, welcome to your new job. Bet you wish conditions were different.
Coming on the heels of last week’s reading of a 2.5% growth in US GDP, this morning’s private sector payrolls report furnished by ADP is quite a positive item to add to the Fed’s meeting agenda. There was a gain of 110,000 positions last month in the US’ private sector. Analysts had anticipated a feeble reading of 90,000 or so to be released this morning so they will now concentrate on Friday’s Labor Department statistics before they draw final conclusions. The Fed however must be at least somewhat encouraged by these data sets as they are certainly different that the ones they were facing one year ago in November when they set QE2 sailing.
Today’s press conference by Mr. Bernanke will shed some light on whether his institution is anywhere near ready to fire off another round of virtual easing via fresh asset purchases. In that regard, the Fed statement might take a back seat to what its Chairman actually utters in his own words. One school of thought sees the Fed embarking on QE3 only if the US economy shows clear signs of stumbling; this, given the politically sensitive situation in DC, where many a legislator has already castigated Mr. Bernanke and his team for having bought over $2 trillion in assets over the past three years. Another take, one quite popular with polled economists, is that the Fed has QE3 in the barrel and that albeit it will not announce its launch today, the trigger will be pulled prior to April of 2012.
QE3 or not, it is clear by now why, when Mr. Obama meets the other 19 fellow G-20 team members in Cannes later this week, the agenda will be overwhelmingly skewed toward global economic recovery/growth. That’s not to say that debt issues and the financial system’s health will be off the table, but with the world being as interrelated and as interdependent as it now is, the topic of growth and how to sustain it in order to avoid "social" consequences plays the leading role, unsurprisingly. The OECD has "urged" the G-20 to take "bold and coordinated" action to keep the world economic "choo-choo" on track.
Until tomorrow, stay tuned to the Fed Channel.
Senior Metals Analyst — Kitco Metals
Kitco Metals Inc.
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