Metals update for June 16

Good Morning,

Well, nobody expected an inquisition in…Spain, again. Yet, that is exactly what throngs of financial media reporters did following rumours of a Greek-style bailout package being prepared on behalf of the country by the IMF/EU teams. The media’s chief weapons; persistent questioning of the authorities, as seen for example, in the El Economista. Will Spain cave in? Will it be able to outline budget trimming measures that satisfy targets? Will the euro be subjected to more torture? Whither Gallegolandia? As they say: "¿Quién Sabe?”

And then, there is the upcoming Friday meeting between Spanish PM Zapatero and IMF chief Strauss-Khan… A tete a tete that is sure to have the paparazzi in tow. Denials ensued, both from the Spanish finance ministry as well as the IMF. However, the bond end euro vigilantes tried to equate rumor smoke with actual debt problem fire and brought out…the rack, interrupting the rally in the euro which had blossomed over the past few days. The common currency retreated to under 1.23 and eurozone bonds exhibited beads of sweat in the wake of the speculations on Spain. The jitters are as palpable as any being felt at a dramatic corrida.

In other news from the Old World, inflation gained traction in the eurozone last month (to 1.6%), mainly in the wake of the declines suffered by the currency of the realm. Meanwhile, unemployment claims fell in the UK and job creation showed 5,000 positions being added as the British economy appears to be weathering the recession and working through its own recovery process.

Gold prices held steady overnight against such a background of uncertainty. US inflation-tracking figures will be revealed in today’s PPI and tomorrow’s CPI data are not expected to provide much in the way of enthusiasm for gold bulls, according to Kitco News’ own Debbie Carlson.

Ms. Carlson quotes Mr. Jim Smitherman, a commodities broker at Coquest Inc., as having said that the attitude in the markets concerning inflation is “steady as she goes. Inflation data is tame and should remain so for the remainder of the year. I think the Fed will maintain its current policy for the foreseeable future. Commodity prices in general are lower over the last six months and barring a collapse in the dollar I would expect them to remain that way. Those calling for inflation right around the corner have been doing so for 2 years now. How far away is this corner? I think it is a long ways away."

As regards the gold/euro play these days, it is becoming apparent that at least some aggressiveness among speculators as regards pouncing upon the euro and piling further into bullion is still on the decline. Call it habituation. It may provide a cushion under current prices as few dare exit positions just yet, however it also limits fresh safe-haven shopping sprees as upside potential is being questioned following the possible pivot point that 1.20 on the euro has thus far shown to be. Thus, yesterday’s gains in bullion remained in the price equation this morning and only small-scale selling was manifest early on Wednesday.

Spot metals dealing in New York opened with a $0.50 gain in gold which was quoted at $1234.90 the ounce. The action was rather subdued but players were keeping an eye on the Spanish rumour-mill nevertheless. Apprehensions that the EU debt issues could translate into difficulties for the US economic recovery are still preoccupying the trade.

Physical gold off take continues on the lackluster side of things, with Indian buyers having crossed their arms for a third day this week and manifesting a predilection to buying the yellow metal at under $1220.00 the ounce. Meanwhile, flows of scrap bullion have shown signs of gaining traction in the wake of last week’s foray above the $1250 mark once again. While we may not get the traditional summer doldrums following next week’s solstice, any lull in the European theatre may possibly provide profit-takers with an opportunity to do just that.

Meanwhile, where is Russia –whose international reserves are the world’s third largest- buying in order to reduce its US dollar and euro exposure? Not that certain asset that some folks expected, to be sure. According to Bloomberg News, “Russia may add the Australian and Canadian dollars to its international reserves for the first time after fluctuations in the U.S. dollar and euro.” Bloomberg also reports that “U.S. dollars account for 47 percent of Russia’s reserves, while euros make up 41 percent, British pounds 10 percent and Japanese yen 2 percent, Ulyukyaev said in November. The central bank has reduced dollars from 50 percent in 2006, when euros accounted for 40 percent and the remaining 10 percent was in yen and pounds. Russia’s international reserves, the world’s third biggest, reached $458.2 billion on June 4.”

Nearly one year ago, Russian PM Medvedev regaled reporters at a G-8 summit in Italy with a prototype coin (not struck in gold) representing a ‘world currency’ intended to supplant the greenback. In fact the conspicuously absent word from Mr. Medvedev’s ‘launch’ of the proposed planetary-currency-to-be was…gold.

Kitco News’ own intrepid reporter Daniela Cambone caused quite the stir earlier this week when she interviewed a seasoned gold market insider who asserted that “gold is not a currency” despite having shown some signs of acting as one lately. We have always called it ‘life insurance for your basket of wealth.’ But, do you really wish to cash in on your life insurance policies (of the conventional or bullion kind) any time soon? Thought not.

“Mr. Miguel Perez-Santalla, interviewed on the sidelines of the 34th International Precious Metals Institute Conference, said gold should be bought for its normal value uses and not as a hedge against the end of the world. He also said that gold is a beautiful commodity and in great demand and should be used for its beauty and its properties. “You should invest in gold in the sense you need to hedge [with] something of value that will always have value,” he said. “But if you are looking for the end-of-the-world savings, that is not going to be the thing to help you.”

Silver started the midweek session unchanged, quoted at $18.54 per ounce. Platinum was off by $3 at $1570.00 and palladium lost $1 to open at $469.00 the ounce. Both noble metals spiked on Tuesday, overcoming perceived resistance levels, mainly on account of the news item that quoted South African state-owned power utility Eskom as saying it is “ready” for a possible strike among its 16,000 workers.

In early 2009, power supply interruptions to the country’s mines proved a major boost to gains in the price of PGM group metals. Now, the spectre of no juice is once again visible. Ever tried to play soccer in the dark? Perhaps spectators should consider leaving their vuvuzelas at home and bringing some torches to the country’s stadiums…

Happy Trading.

Jon Nadler is a Senior Analyst at Kitco Metals Inc. North America

About the Author
Jon Nadler Jon Nadler is a Senior Analyst at Kitco Metals Inc. North America
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