The midweek session in precious metals opened with some price softness across the complex but the situation soon shifted a bit towards the firmer side of prices (at least in gold which rose to near $1,620 an ounce) as poor US May retail sales data once again rekindled QE "Fedspectations" in the speculative crowd.
US retail sales dipped for a second month mainly on slumping gasoline demand and the data promptly sent the US dollar a tad (-0.28%) on the trade-weighted index. Also falling in the month of May were US producer prices (down 1%).
Silver, which briefly touched just above $29 but was last seen nearly unchanged, at that same figure. More on silver and on gold from both a technical as well as supply/demand perspective follows later. Suffice it to say, would-be Indian gold buyers — at these record prices (30,420 rupees/ 10 grams) — are crossing their arms and not buying the metal. Indian investors, especially those who bought it higher, are also seen as being unhappy with the yellow metal’s recent weakness, high volatility and atypical unpredictability.
No major dips were noted in platinum; in fact while the noble metal was initially off by $2 at $1,448 per ounce, it later managed to climb by $6 to $1,456 the ounce. Palladium initially dropped by a more substantial $9 to the $615 bid level per ounce but then recovered to $622 per ounce. Standard Bank SA) analysts continue to believe that platinum ought to be trading nearer $1,550 than $1,450 while they also see palladium "offering decent value on approach to $600" per ounce. In related news, bankrupt Swedish automaker SAAB has been sold to a Sino-Japanese group which plans to turn it into a maker of electric cars.
Speaking of metals precious and noble, the production difficulties (in platinum) being experienced in South Africa and the imminent depletion of Russian official stockpiles (of palladium) has shifted the focus in the marketplace towards the quest for a reliable place where these important metals might next come from. It now appears that such a source could be quite far from the hot-as-Hades deep mines in South Africa, and that place is… icy Greenland. The world’s largest ice cube (aside from Antarctica) appears to contain some very promising deposits of 14 critical raw materials including platinum-group metals and so-called rare earths.
Other sources would draw our attention away from gold and the other above-mentioned metals altogether and towards another unique, strong, and lightweight metal; titanium. The metal is also quite volatility-laden but appears to have put in a bottom in 2010 and is seeing robust demand from the aerospace niche. US mill shipments of titanium could reach 50K metric tonnes in the current year.
Tuesday’s metals markets’ action was principally defined by a rising euro and the return of a modicum of risk appetite to the markets in general. We saw tandem gains in the Dow (up 163) crude oil (back to above $83) with gold and silver joining the risk-on party. However a euro trading much above $1.25 is not seen as a sustainable event by many a currency strategist.
As it turned out, even Tuesday’s advance in the common currency was more a case of short-covering and of a mini relief-rally and it was easily capped by the rise to a record in Spanish bond yields during the day. Thin markets, low volumes, and speculative jockeying for positions ahead of the Greek elections on Sunday were all manifest during yesterday’s session. In any case, gold added 0.85% on the session and silver gained 39 pennies on the day. Closing spot bids came in at $1,610 and $28.97 respectively. The US dollar did not give up too much value on the index; it drifted 0.27% lower to 82.37 at the close.
Bullion Desk analyst James Moore said that gold "remains vulnerable to further pressure short-term, particularly if further weakness is seen in risk markets or Greece’s second election fails to yield an elected government, adding yet more euro-region concerns."
UBS analyst Edel Tully believes that a "drop below the June 8 low of $1,556.68 an ounce in London may trigger declines toward $1,526.97 and $1,522.65 per ounce."
On the upside of prices, CNBC technical contributor Daryl Guppy noted on Monday that the weekly gold chart indicates that there are ‘some serious barriers for a rise back to $1,750 or $1,850. The breach of the upwards sloping trading channel that has been in place since April of 2010 (the first such break in more than 16 months) is seen as a "major and significant change in trend behavior" and is bearish. The pattern places a cap in prices at or near $1,690 and the yellow metal needs to overcome that level as well as hold support near $1,550 lest it would otherwise aim towards the $1,400 mark.
As regards silver, CPM analyst Mu Li remarked at the International Precious Metals Conference in Las Vegas, NV, that the firm sees some softness in silver prices over the summer and that it expects the white metal to average near $29 in the latter part of the year (QIV). The view differs with some of the projections made at the conference that envision silver prices possibly reaching to near $40 per ounce later in the year. Investors are currently very cautious on going long on silver and there is not a sufficient amount of physical demand manifest in order to yield higher prices.
Meanwhile, newly sprung-up the cottage industry dedicated to projecting which EU member nation will seek a bailout or default next went into top gear yesterday as the Finance Minister of Cyprus said that his nation’s need for assistance for its banks was "exceptionally urgent." A statement of denial by Austrian Finance Minister Maria Fekter regarding similar "assistance" being sought by Italy managed to only raise anxieties in the region, not curb them. Go ahead and try to make dispassionate investment decisions amid such highly emotionally-charged market chatter.
At the end of the day, notes the Wall Street Journal’s Alen Mattich, the problem in Europe is really one of solvency and less one of a lack of confidence or even liquidity. Solvency issues are addressable with money. Where can the money come from? At this stage, basically from the ECB or from Germany.
Germany has already spent 1.5 trillion euros on reunifying. The ECB is not willing to fire up the printing press knowing that inflation could follow. So, the ball is back in Germany’s court. Or, is it? Germany has been the driving force behind the ECB’s firm stance against inflation. Go ahead and try to make rational investment decisions based on such conundrums.
There were also small, fresh doses of QE "Fedspectations" at play in the gold market on Tuesday in the wake of Boston Fed President Evans’ statements that he is in favor of any (without much distinction) accommodative policy by the Fed. Mr. Evans’ dovish stance was squarely in opposition to that of Atlanta Fed President Lockhart, who, 24 hours prior to that had stated that he does not see the need for more accommodation by the Fed. Go ahead and try to make successful investment decisions based on such daily contradictions.
The case being made for "inflation is here and now" by various alarmist financial "advisories" was dealt yet another blow yesterday with the revelation that US import prices experienced their largest decline in almost two years last month. Aggregate import prices fell 1% (fuel and food made up the bulk of the decline). The perception that inflation is not only under control but possibly ebbing also gave some encouragement to the bulls who figure that the Fed might have room to ‘maneuver’ in terms of some form of QE seeing as there is no threat from the inflation bogey.
Japan, on the other hand, was advised to aim for some kind of "powerful monetary easing" by the IMF on Tuesday; this, in order for the country to have some chance at meeting its inflation goal of… 1%.
Japanese officials have been talking about "desirable levels of inflation" for more than a decade now but have not had much success in firing it up. Separately, the IMF also urged Japan to consider a bump in its consumption tax from 10% to 15% in order to mend the country’s fiscal condition.
Senior Metals Analyst — Kitco Metals
Senior Metal Analyst
Kitco Metals Inc.
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