Metals update for June 29

Good Morning,

Monday’s double-digit losses in gold showed little in the way of reversal early this morning as news that [revised] Conference Board calculations indicate a possible slowdown underway in the economy of the now largest exporter globally: China. The corrected leading Chinese economic index figure showed an April gain of just 0.3% as compared to the previously reported 1.7% rise. The news undermined speculative appetite and dented a number of stock indices, commodities, and boosted the Japanese yen.

Further damage to risk-taking was done by growing apprehensions that Friday’s US Labour Department data might show a loss of jobs for the first time in six months. Finally, despite three major German banks’ “passing” grades on stress tests, investors were seen fretting about the potential results of similar experiments being applied to other European financial institutions. In all, it appeared to be shaping up as a day to pull in one’s speculative horns and be less than taurine in approaching the markets.

New York spot metals trading opened with assorted magnitude losses this morning. Gold bullion was off by $4.20 at $1234.20 after having touched an overnight low near $1231.00 per ounce. Silver opened with a 12 cent loss, quoted at $18.64 the ounce. Platinum dropped $20.00 to start at $1545.00 while palladium was down $6.00 at $461.00 at the start of the session.

Rhodium continued to mark time at $2440.00 per troy ounce. In the background, a stronger dollar was the standout feature early this morning, quoted at 86.11 on the trade-weighted index (a gain of 0.42) while the euro sank back under the 1.22 level on the aforementioned regional jitters. The common currency was also impacted by news that Greek unions staged their fifth general strike this year in a signal that they are unhappy with the government’s austerity measures.

While such a possible further decline in the euro could still come to help gold as the day wears on, a manifest trend now appears underway over the past several sessions, in the yellow metal (once again) becoming inversely correlated with the US dollar and positively so with black gold. Those reviving correlations could make for additional declines towards $1225 (with caution flags being raised at that figure). Noble metals have also come under selling pressure as base metals have sunk in the wake of economic recovery-related nervousness among investors.

Noble metals received a vote of confidence for at least the remainder of 2010 from the CPM Group Annual Platinum Group Metals Yearbook, being released in New York. Highlights indicate positive expectations for the price performance of all three of the group’s metals. Rhodium demand could be boosted by added investment interest among high net-worth individuals and institutional desks. Platinum could witness additional price gains as tight supplies and robust ETF-flavored demand keep fundamentals tilted in a positive direction.

Finally, palladium supplies are expected to be unable to keep up with demand from primary fabricators and further interest on the part of investors. The metal outperformed platinum by a 2:1 margin last year in percentage terms. If one could only state the same things about the fundamentals in the gold (and silver) markets…both of which remain in surplus and have become dependent on investment offtake to a degree that could easily be deemed unhealthy.

Over in India, gold demand remained lackluster following a near-19,000 rupee/10 grams price achievement on Monday. The onset of monsoon season is also biting into bullion offtake in the country, as households in rural areas (normally accounting for about two-thirds of India’s typical gold buyers) divert money into the purchase of something more precious (at the moment): crop seeds and the fertilizer with which to make them thrive.

US stocks opened sharply lower on the Chinese index revision news and April’s gains in US housing prices did not manage to cheer the bulls to any notable degree. The fear of a double-dip continues to dominate investors’ psyches. See crude oil, down nearly $2.50 this morning, as it ignores the potential for production disruptions posed by tropical storm Alex’ (now churning at just 4 miles per hour under official hurricane status) in the Gulf of Mexico. When China sneezes…

No sneezing (at gold ETFs anyway) over in Japan. Respected bullion house Tanaka Kikinzoku said this morning that its physical gold business has not been impacted by the advent of bullion-oriented exchange-traded funds. Japan’s first such fund is scheduled for a Friday debut. The legendary firm (with a spectacular showcase store in the heart of the Ginza district) feels that gold ETFs are attracting day-trader types, or at the very least short(er)-term speculators than the type of investor who seeks a kilo bar to take home, for example. Actually, there is much in the way of investment wisdom as applicable to gold that might be gleaned from the ways of Japanese investors. They epitomize the allocation approach which correctly states that ‘gold is not an investment’ but rather an excellent ‘savings vehicle.’

The firm’s GM, Mr. Osamu Ikeda, told Reuters that “the way Japanese invest in financial products also helps set precious metals backed ETFs and physical gold apart,” Ikeda said. Japanese people allocate more than half of their assets to deposits, while investment in commodities remains extremely small.

"Gold is a means to supplement deposits. Precious metals ETFs and gold are seen as different products." The Japanese attitude toward gold is in sharp contrast to investors in the United States and Europe who have turned to the metal as a hedge against financial system instability or an alternative to currency, pushing up prices to record highs. "I don't expect Japanese investors to turn to gold because of a loss of confidence in their own currency, at least not as long as I live," said Ikeda, who is 54 years old. Despite the country's huge budget deficit, Japanese people retain confidence in the country and the currency it issues.

Japanese investors also differ from their overseas peers in that they have been selling their gold holdings, particularly the older generation who had bought gold before prices started to plunge, though younger investors are becoming more interested in precious metals, Ikeda said. "It's unique for Japan, a move that's different from abroad. While people globally are buying gold, Japanese are selling," he said. Japanese households rushed in April to sell gold coins and jewelry to bullion dealers as retail prices hit a 27-year high in yen, signaling exports of the precious metal will continue as domestic sales remain soft.

Such level-headed attitudes have helped ensure the success of physical gold retailers such as Tanaka and the on-going robustness seen in demand for GAP (Gold Accumulation Plans) in the country. No ‘gold fever’ in the Land of the Rising Sun (although mild versions were seen following the 1995 Kobe earthquake), just a basic respect for that which gold can do best; preserve capital over generations. But, also a recognition that there is always a time to sell some, when circumstances dictate. Like, just when the West feels the urgent need to be over-allocating into the yellow metal based on “sky-is-falling” fears which may not be validated.

Happy Trading.

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

About the Author
Jon Nadler Jon Nadler is a Senior Analyst at Kitco Metals Inc. North America
Comments
comments powered by Disqus
Check out Futures Magazine - Polls on LockerDome on LockerDome