Gold and silver gain as euro advances against dollar

Chinese economic growth slowed to record ‘only’ a 10.3% pace in Q2 (from a torrid 11.9% rate reported in the corresponding quarter of 2009) as the Beijing government’s efforts to contain things from boiling over appeared to take hold. Meanwhile, inflation in the country rose by 2.9% last month, following a 3.1% reported growth rate for May.

All of this possibly means that authorities may not need to apply the fiscal and monetary brakes quite as soon and/or as aggressively as first anticipated. In any case, analysts at Citigroup foresee single-digit growth rates for China in coming quarters, and for at least a period of one year. Whether this is to be considered just a much needed ‘soft-landing’ or the start of a more serious contraction in growth rates, remains to be determined. Over in the U.S., the Fed determined that the ‘Great Deleveraging’ might take as long as three or four more years, and bring with it more of the same; high joblessness, high risk of deflation, and continuing low interest rates. As well, the Fed is unable to see any, or hardly any (1% or at worst under 2%) inflation down the road to 2014.

At least, that’s the upshot of parsing through the FOMC’s meeting minutes that were released yesterday. In those minutes, the Fed is seen as allowing for the possibility of a worsening in the outlook for the U.S. economy and deliberating what to do if such conditions arise (especially now that it is essentially out of stimulus ammo with which to defibrillate a possible episode of U.S. economic arrhythmia). Thus, as far as the ‘extended period’ language goes, the Fed may or may not apply it to key interest rates between now and a year from now, but it seems quite likely to couple those words with ‘economic weakness’ as it describes the state of affairs in the US going forward.

Gold opened with a $6 gain in New York this morning, quoted at $1214.50 per ounce as against a 0.40 decline in the US dollar on the index. The euro advanced to 1.28 against the greenback and gave further credence to the perception that the gold-dollar coupling may have come to an end recently. Europe (stocks and the currency) got a boost this morning as Spain was the next country to successfully sell bonds at auction this morning and as Greece announced that Piraeus Bank will buy a stake in two other domestic lenders.

Silver added 14 cents to open at $18.42 the ounce, while platinum and palladium recorded modest gains, with the former starting off at $1525.00 and the latter opening at $466.00 the ounce. Rhodium was lower by another $30, quoted at $2350.00 per troy ounce. Technicals in gold point to a possible rally up into the $1220s but much more than that is needed to restore the fully bullish footing lost in the recent declines in the metal.

Jon Nadler is a senior analyst for Kitco Metals Inc. www.kitco.com

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