Metals update for April 30

Gains in the euro to three-day highs did not manage to dissipate lingering concerns about the broader region’s debt problems and investors took refuge in the dollar as well as in gold despite rising hopes that a Greek bailout was very likely to see the light of day over the coming weekend. Gold prices touched a 2010 high at $1179 per ounce ahead of the opening of the New York trading session for Friday.

This morning’s economic news roundup from Europe showed that regional unemployment remained static at 10% while inflation rose one-tenth of one percent, to 1.5% in March. Two exceptions to note here: one is that Spain’s unemployment figure was far worse –double that of the regional number, the other that –at 1.5% annualized- the inflation number in the EU remains well below the ECB’s target of just under 2%.

Market players awaited US GDP data for the first quarter of 2010 this morning. Expectations were that the number will likely reveal a slower growth rate for the US economy (closer to 3.2% and down from the 2009 Q4 figure of 5.6%), albeit a hopefully more balanced and broader one. Opinion from Citigroup this morning is that the American economy is ‘gradually laying the foundation for a sustainable recovery.’ It remains to be seen if the weaker GDP report will put a dent into yesterday’s gains in the Dow – ones engendered by a string of positive earnings reports and an apparently [once again] approaching rescue of Greece.

Greece is the (still) word as we close out yet another week of uncertainty about it. No unclear conditions among Greek trade unions however. New strikes were in the planning stage as workers want no part of new austerity measures. Cinco de Mayo might have a whole different meaning in Athens this year, unless the government is able to convince the country’s denizens that this is no longer a ‘pay now/pay later’ proposition, but rather, that it’s a ‘(some) pain now, or (worse) pain later’ scenario that Greece is dealing with.

In other news, the federal prosecutors in the US are apparently are not buying the Blankfein/Birnbaum/ViniarTeflon Trilogy that was presented at the Senate hearings earlier this week, and are mulling whether to charge the Wall Street giant (or particular employees thereof) with criminal securities fraud. Meanwhile, Main Street believes Wall Street to be only the second most corrupt industry in the hit parade of evildoers. The Top Ten, in reverse order, are: Food, Retail, Insurance, Banks, Mining, Media, Construction, Telecoms, Wall Street, and….drum roll…Utilities! If that leaves anything out, we doubt it. There you go; a thoroughly corrupt world.

New York spot metals trading opened with robust gains across the entire complex. Gold gained $8.00 to open at $1175.00 per ounce, while silver played catch-up and rose 20 cents to $18.63 the ounce. More gains were seen in noble metals, where platinum added $2 to open at $1732.00 while palladium climbed $2 to the $552.00 level. Once again there was no change in rhodium at $2800 bid per troy ounce. The dollar was hovering near 81.75 on the index while oil made only a 30-cent advance to $85.48 per barrel.

The habitual Bloomberg gold survey for the coming week indicates that 18 out of 21 polled participants believe that bullion will add to this week’s gains – a level of bullishness not seen since last November, just ahead of the peak the metal reached in early December. In the five weeks prior to reaching the $1226 level during that period, gold prices had added $100 in the first 20 days of November, followed by another $85 over the following 12 sessions.

Over the past 25 trading sessions since a London Fix at 1090.75, bullion has climbed about $90. Déjà-vu all over again? Or the oft-forecast flight to outer space? Don’t know, but once again we are being offered an $8,000 (not a typo) per ounce prediction for the yellow metal. And not by some distant target such as 2020. Ask yourself if you will have any assets still standing on that fateful day, or if your $8K gold will actually be a liability that only a weapon might mitigate. "Convert all of your wealth to gold. Now!" Because, you know:

Such familiar recent gold market action, and market calls (plus structure of long positions) prompted one veteran market observer, Ned Schmidt, of the Value View Gold Report to observe yesterday that: "We are witnessing a speculative binge in Gold that will likely be short lived. Later when we look at the junior miners’ index we will observe that level of speculation is at an unstable high. Unless one thinks the investors of the world will convert their wealth to Gold, then simply watching in fascination as large investment funds panic is best. Remember, moves in stock and Gold markets this week are being fueled by the buying of MBAs that a year ago were buying mortgages and CDOs from Goldman Sachs. They are not the smart money."

This just in: US GDP did come in at the expected 3.2% figure and resulted in a trimming of gains in Dow futures shortly after the news was released. No immediate effects were noted in the US dollar, but crude oil did edge higher. The leading component of the gain was consumer spending, which rose at the fastest pace in 36 months (3.6%). Thank you, Mr. & Mrs. Mall Dweller.

Keep an eye on resistance near the $1185 level in gold, and monitor the temperature of Eurozone apprehensions, as fears about that country’s fate have been spreading faster than the oil slick in the Gulf this week. Should the IMF/EU life preserver be tossed into the Aegean Sea over the weekend (even though Germany continues to be recalcitrant on the matter) we might have a substantially different market week to contend with in the early days of May. Meanwhile, do not forget to go shopping and support your economy. Apparently, it’s working.

Jon Nadler

Senior Analyst, Kitco Metals Inc.North America

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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