Metals update for April 13

Spot metals dealings in New York opened somewhat lower this morning as profit-taking among specs continued despite a marginally weaker dollar on the trade-weighted index. Gold eased to $1154.40, starting the session off with a $1.60 per ounce loss. Silver fell 7 cents to open at $18.15 per ounce. The euro’s stalled rally was a contributor to this morning’s declines as apprehensions resurfaced regarding how Greece might make use of the 45 billion euro Band-Aid it received over the weekend.

Gold is still seen as running into heavy resistance above the $1160-$1165 area and reports that supplies of secondary metal (scrap) have once again made a strong appearance above $1150 appear to bolster the perception that the two-week uptrend may be nearing its ”sell by” date. Of course, we will once again be offered ‘explanations’ about putative gold ‘cartels’ wanting to ‘cap’ gold’s advance, because, you know, it’s bad for gold to rise. Say, like what it has done ever since…oh, 2001? This exactly is what the holders of 720 tonnes worth of long positions must be thinking as well, no?

A larger, $16 drop was recorded in platinum which opened at $1708.00, while palladium lost $6 to start at the $511 per ounce level. Trading-shop talk was that Anglo-Plat’s revelations that it might be able to produce 200,000 ounces more platinum this year (in a market that saw a 334,000 ounce surplus in 2009) took some of the froth off a market that had hitherto benefited handsomely from lavish, ETF-originated attention. Anglo-Plat’s refined 2009 output was up 3% to more than 2.4 million ounces of the white metal.

Rhodium once again remained steady at the $2780.00 per ounce bid mark. Noble metals producers are a relatively happy bunch these days, as global auto sales appear somewhat bubbly. China’s auto sales once again took the lead last month, posting a 56% gain versus the same month a year ago. Japan did not fare badly either, moving nearly 700,000 cars off dealer lots in March. The US also finally had something to brag about as regards moving iron into drivers’ hands.

Last month, 1.06 million vehicles were snapped up by U.S. buyers. Not exactly the pace the market needs (it is commonly thought that anything under 14 million units per annum constitutes a ‘car sales recession’ and that perhaps as much as 17 million autos need to find adoptive parents in order for the industry to be considered at ‘healthy’ sales levels) but a good start, to be sure. European numbers are not out yet, but expectations are not as optimistic for that region’s sales. We will learn about all that on Friday.

That said, our good friend, Claudia Carpenter, over at Bloomberg’s classy-looking London office (complete with aquaria) writes this morning that: “Platinum and palladium prices will rise faster than “yesterday’s jewelry” gold as consumers in China seek more novel precious metals and demand from industry grows, according to Credit Agricole Corporate & Investment Bank.

“They want the latest fad,” Robin Bhar, a commodities analyst at Credit Agricole, said in London today. “They like gold but one could almost argue gold is yesterday’s jewelry.”

China, the biggest auto market, also needs palladium and platinum for catalysts to curb exhaust fumes. Platinum prices are up 17% this year and palladium 25% while gold rose 4.7%. Imports to China will contribute to a global platinum deficit of 386,000 ounces in 2010, following a surplus last year, while palladium’s surplus will narrow, Bhar said.

“These two metals will outperform gold, possibly silver, going forward as economic recovery strengthens,” he said. Platinum will average $1,650 an ounce in 2010 and $1,750 an ounce next year, while palladium will average $500 an ounce this year and $576 an ounce in 2011, according to Credit Agricole.” Something to consider when reading about projections (make that assurances almost) that China’s gold demand will fully double in the next decade, and/or when considering investing into metals for return (as opposed to capital preservation)…

To some extent, the retreat in the commodities’ complex this morning was due to crude oil slipping for a fifth day in a row, and to the missed sales target reported by aluminium giant Alcoa Inc. In fact, the company’s status as an economic weathervane underscored the lack of vigor plaguing the on-going recovery process in the US economy. The Alcoa report was seen as already pressuring US stock futures early this morning, just one day after the 11K mark on the Dow was celebrated on a closing basis for the first time in a year-and-a-half.

Adding to the selling pressure, word from Beijing that revaluation of the yuan remains on the wish list rather than on a ‘to do’ list for now. Still, the country may let the currency climb by mid-year according to surveyed analysts. In an effort to avert inflationary pressures, China may let the yuan float ‘more freely’ between now and the end of June. But…don’t go betting on such developments –you’ve been warned…

…Remember last week’s noise about an imminent revaluation of the Chinese yuan? Well, it turns out it was nice to perhaps mollify Mr. Geithner while he was visiting the country, but in terms of concrete action regarding the currency…that’s another matter. China’s top FX regulator warned local currency traders not to speculate based on yuan revaluation rumors.

The country’s President, Mr. Hu Jintao is quoted to have said that China will “stick to its own path on currency reform, despite pressure from the US.” Plus ca change…as they say…

The US February trade gap swelled to $39.7 billion according to the Commerce Department this morning. The figure came in at above-consensus by about $1.2 billion, as US imports rose sharply. Much of that near $40 billion number (some $16.5 billion in fact) was represented by the country’s trade deficit with China. However, it is worth noting that February’s deficit with China was the smallest in one year. Crude oil and gold remained lower following the release of the trade gap data whilst the dollar appeared to struggle (and not manage very well) to hold on to the 80.50 mark on the index. More like-minded dollar-gold trading today? Could be.

Jon Nadler

Senior Analyst, Kitco Metals Inc. North America

Websites: www.kitco.com and www.kitco.cn

Blog: http://www.kitco.com/ind/index.html#nadler

About the Author
Jon Nadler

Jon Nadler is senior metals analyst with Kitco Metals Inc. in Montreal.

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