Metals report for May 21

Erosion in precious metals values continued overnight as gold was headed for its largest weekly fall in 15 months. Yesterday’s price rout capped the biggest decline in twelve years in palladium and the most significant drop in platinum in over seventeen months. Lest we think this complex was the only one sliding sharply, consider crude oil which traded at lows not seen since last September.

Or, you might examine copper which lost 4.3% this week on Chinese slowdown concerns. The country imported 8.1% less of the red metal last month vis-à-vis March, albeit the very latest in import tallies give reason for some optimism . Finally, also keep in mind that as of yesterday, every major equity index into correction territory (or worse). Clearly, something of a sentiment change about global economics is afoot among investors, following the weeks of Graeco-European turmoil.

That crisis is still not close to a resolution, as a number of events intended to achieve such a goal are still on the agenda as of this writing. The Lower House of Parliament in Germany approved the $1T rescue bill after having come to the realization that there really were no other alternatives handy. Meanwhile, German business confidence fell in the wake of the recent sturm und drang. The Ifo Institute labeled the decline as ‘unexpected’ however, it was anything but.

U.S. Treasury Secretary Geithner will travel to the UK and to Germany next week to discuss more of the same. The global recovery is at stake, after all. It is precisely this kind of fear that has gripped investors who rushed to cash during the past week, and turned them off to all investments. Kitco News reporter Debbie Carlson encapsulated this fear and brings it to you in an incisive article here.

Gold bullion extended its losses this morning, easing back under the $1180 mark as general commodity sector weakness and further damage in Asian equity markets (Japan’s Nikkei Index was off 245 points last night) conspired to elicit more selling among weak longs.

Reuters market technicians are looking for an end to the current gold-euro correlation, which at a negative 0.57 is at an extreme. A return to more ‘normal’ correlation is expected and could thus have bullion and the common currency headed in similar directions as we go forward. Trouble is that direction is seen as lower for both assets.

Technical analysis of another ilk –of the EW variety- finds that gold and stocks are once again declining together. Snapshot analysis issued last night observed that the odds are rising that a top in gold might be at hand in last week’s figures and that “The break of the exponential curve was the initial signal of gold's turn down, which, when coupled with a reading of 98% bulls at the high (trade-futures.com), suggests that prices have further to fall.” It would in fact take a recapture of the $1250 level and more to aim prices towards a possible high up near $1370 for the yellow metal. Current conditions apparently favor a different direction. RBC Wealth Management notes this morning that: “The real haven seems to be cash for now even for some metals holders.”

Kitco’s own technical market contributor Jim Wyckoff notes this morning that: “Another potentially bearish market factor for gold that is gaining more attention this week, and which has likely caused some additional selling pressure in gold, is the specter of price deflation. With crude oil prices declining around $20.00 a barrel in a short time, and with copper and lumber futures prices in a steep price downtrend, combined with world stock markets that are sputtering, traders are now wondering about a double-dip world economic recession that could be accompanied by commodity price deflation. Price deflation is the archenemy of all raw commodity market bulls.”

Friday’s New York session initially opened with mixed results in the precious metals complex. Silver was ahead by 5 cents at $17.68, palladium reclaimed $5 of lost values (at $420.00) but platinum continued to decline, losing $17 to start at $1493.00 the ounce. The noble metal had recorded a $1752.00 per ounce London PM Fix just seventeen sessions ago.

Crude oil was down 117 cents at $69.63 while Dow futures once again pointed lower for the day. Platinum’s near 17% loss since then pales in comparison to palladium’s 36% drop from a $571.00 Fix since that same time. Rhodium was quoted unchanged at $2690.00 per ounce.

Gold opened the week’s final session with a $0.60 per ounce loss at $1182.40 bid. The selling intensified in the first 30 minutes of trading and gold spot prices fell to the $1170 level as unwinding of positions ahead of the weekend continued to add to the week’s damage. Platinum fell $31 to $1479.00, silver dropped to $17.51 and rhodium showed a $10 loss to $2680.00 the ounce. “Wanted” posters might be needed now as the search for bargain hunters continues. If only India could alter the calendar via time travel and have Akshaya Trityia take place this weekend…

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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