Metals update for April 16

Gold prices were aiming towards their first weekly loss in one month early this morning on a number of external unfriendly factors. The stronger dollar was cited as the primary mover at this point; however a manifest gain in scrap gold flows on the back of a four-month peak in gold prices during this week also contributed to further profit-taking among speculators. Recall that surging supplies of recycled bullion actually surpassed mine output during the early part of 2009, on similar price gains.

However, a discernable pattern of weak gold during European trading hours due to the euro’s problems and stronger gold during New York’s market sessions –as futures specs keep loading up on the metal- has kept the yellow metal largely balanced this week. The metal’s behavior in this regard is precisely the inverse of that which stubborn conspiracy zealots keep offering up as explanations whenever gold declines.

The net loss – albeit potentially portending a technical bearish signal for the weekly close- may end up being only 0.50% to 1%, or so opines trading room chatter. News of the deployment of a team of IMF "S.E.A.L." (Size-up, Evaluate, Ascertain, Lend) experts into the heart of Athens pressured the euro and undermined Prime Minister Papandreou’s assertions that Greece does not ‘formally seek’ the agency’s assistance. Markets perceive the ‘landing’ as the precursor to the official process of the IMF’s Greek rescue mission. Soon, resident Athenian graffiti artists’ productions such as this one, which says "We do not seek help, we can manage on our own" may need to be replaced with the ones featuring the words "Thanks, IMF. We needed that." Pallas Athena may have prevented Poseidon from becoming the patron deity of Athens by offering its denizens their first domesticated olive tree, but how do you prevent the EU/IMF ‘gift’ of $61 billion from eclipsing any such fruit tree?

New York gold spot prices opened with a smallish, $1.90 per ounce loss this morning, as against a shrinking gain in the US dollar on the index (last seen up by only 0.16, at 80.59) and as against a still wobbly euro (at 1.354). Support at the $1140 to $1145 levels needs to hold lest sell stops are triggered beneath those levels. That said, our good friend Claudia Carpenter’s (she, of Bloomberg in London) weekly forward-looking gold price survey indicates that eleven out of twenty traders, analysts and brokers or 55%, said gold may rise next week. Four people expect a decline and five were neutral. Disclosure: this writer was (gasp!) on the ‘price: up’ list…

Crude oil lost 77¢ to ease to 84.74 per barrel while Dow futures slipped a tad following six sessions of gains that brought the index up to above the 11K mark. Many still find it curious to have the Dow and gold making 2010 highs in tandem fashion. We agree, as it is not what was, or is being taught in "Gold Behavior 101" at trading/investing schools… (Thank you, Prof. Holmes).

Indian gold demand remained muted as locals were seen awaiting fresh breaks to beneath the $1150 mark before committing to wedding and festival-related bullion purchases. The good news is that the country’s inflows during March (when steady-but-lower gold prices helped buyers beat a path to their local gold shops) were six-fold better than those recorded in March of 2009.

Silver fell six cents to start the trading day at $18.34 while platinum and palladium each dropped $6 to open at $1713.00 and $537 per ounce, respectively. Rhodium was quoted at $2930.00 per ounce on the bid side. On the economic front in the US, housing starts came in at 626,000 – up by 1.6% and significantly above economists’ expectations.

That data, along with what appeared to be an all but foregone conclusion that Greece will succumb to pressures and tap into EU/IMF aid imminently, gave the US dollar a further boost this morning, pushing it up to the 80.80 mark on the trade-weighted index. Meanwhile, crude oil sank a hefty $1.50 per barrel to hover near the $84 level at last check.

As the ash clouds from Iceland’s erupting Eyjafjallajokull's (yes, this name had to be a cut-paste job, folks, for the sake of finger integrity) have spread far and wide now. On the other hand, so have the apprehensions sparked by the furious natural event. Projections from volcanologists in various global institutions that focus on such science are about as dire as anything you can habitually read in a doomsday-oriented hard-money newsletter.

To wit: how does the prospect of 28,000 daily flights into/out of Europe being cancelled for months/years grab you. Such might be the case, if scientists are on the right track. How will it affect the already fragile Eurozone economies? The airspace of nine countries has already been declared ‘unavailable.’

Or, try flying to your London meeting next week, only to have to land in…say, Lisbon or Rome and take…the bus/train/horse buggy/ferry boat. That’s IF you can get onto a train or other conveyance (they’re all sold out), to begin with. This is pretty serious, and it is already a match for the air travel upheaval that was last seen just after the event on 9/11/2001.

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 a Senior Analyst at Kitco Metals Inc. North America
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