Gold bounces and silver rises

Yesterday’s downturn in gold was followed by an overnight bounce of fairly sizeable proportions. Once again the metal’s price gyrations occurred without much of an obvious impact from news-related external factors (aside from the Portugal downgrade story, relayed below).

Actually, the rebound also took place in the continuing absence of Indian physical buyers whose orders for bullion now appear to be spread out from just under $1190 and towards much lower levels, according to our local sources. Bullion may also have been helped by a slump in Chinese shares overnight as the Beijing government indicated that it has no intention of relaxing its anti-bubble combat stance as regards property markets in the country.

While most market participants are now focused on the start of the release of U.S. Q2 corporate earnings results, a few other items will also likely be on the watch-list as the trading day rolls on. Among them, the International Energy Agency’s projection that world and Chinese oil demand is likely to slow by about 1.6% in 2011 and that German investor confidence took yet another hit for a third month in row.

Aside from the above, and on the good news front, the fact that BP successfully installed a new containment cap in the Gulf and that it hopes to do more to stop the tragic oil leak that now seems to have been going on for eons. Market radars did not register an echo from Fidel Castro’s lengthy ‘presentation’ on how the Middle East stands on the verge of nuclear Armageddon as the U.S. ‘plays with fire.’ Could be that Mr. Castro has been reading a lot of Harry Schultz newsletters, or the other way around. Nothing ever changes when it comes to end-of-world prognostications. They are as regular as a bottle-fed baby.

Also on the market radar, the nervousness-inducing news that Portugal’s credit rating was trimmed two notches by Moody’s –an action that sparked a bit of additional selling in the euro, but nothing like the aggressive speculative attacks that were witnessed in Q2. If anything, the Portuguese downgrade news could be attributed with the double-digit bounce from under the $1,200 level in gold. However, the metal’s gains were contained by offsetting news on the credit front as Greece successfully (bids outpaced supply by a factor of 3.6) sold $2 billion worth of six-month bills.

Spot precious metals prices opened with gains across the board this morning as funds made their presence felt once again and as black gold surged more than $1 on the back of rising stock markets and reports of declining inventories. Equity futures showed gains following reports from bellwether firm Alcoa that it made a return to profitability by posting per-share earnings of 13 cents in Q2. The U.S. dollar hovered just above 84 on the trade-weighted index while the euro held near 1.257 against the greenback. Gold showed a $13.70 per ounce gain at the market’s opening, quoted at $1,210.80 on the bid-side.

Silver added 22 cents to start at the $18.13 per ounce level while the noble metals complex rose as well. Platinum climbed $12 to the $1525.00 mark while palladium was ahead by $9 to post an opening price of $462.00 per ounce. On the technical side, the gold correction to the upside is not unexpected albeit the overall tilt remains pointed lower. Long-time market veteran Leonard Kaplan over at Prospector Asset Management in Evanston IL, concluded yesterday that we have seen the highs in gold for the year back in the June rally to $1,265.

Meanwhile, over in the United States, the Fed gave every indication that it has no plans to roll out any further stimuli in order to bolster economic growth. According to Fed sources, it would take an extraordinarily large external shock to revive the idea of providing more liquidity than has already been bestowed upon the economy –and which appears to be working, albeit at a slower than desirable pace. The results of a third test of one variant of the upcoming liquidity mop-up operation –that of the Term Deposit Facility- will be announced later today.

Jon Nadler is a senior analyst at Kitco Metals Inc. North America

www.kitco.com

About the Author
Jon Nadler

Jon Nadler is senior metals analyst with Kitco Metals Inc. in Montreal.

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