If there were any signs of hesitation manifest in Monday’s speculative activity in gold, they certainly dissipated overnight following news reports that indicated a sharp slippage in German investor confidence. Fears the growth is stalling and possibly turning to contraction have plagued the markets since late spring, following a slew of less-than-encouraging U.S. economic data and the unfolding of the European debit crisis.
In a delayed reaction to yesterday’s drop in the U.S. dollar and on the back of the German sentiment indicator, the yellow metal gained nearly one percent ahead of the New York market’s opening this morning. In the opinion of MKS Finance spokesmen, the “concern about a slowing recovery” could be another reason why gold was being bought. Of course, such concerns hardly explain the near 30 cent rise in silver (or the double-digit gains in platinum and palladium) during the early hours of Tuesday. The footprints of spec funds in these markets are abundant and deep.
No signs of slowdown-related apprehensions or any hesitation to speak with conviction were manifested by Warren Buffett or by Steve Ballmer yesterday. Mr. B not only minimized the odds of a second recession taking place in the U.S.; he stated we will “not have a double-dip recession at all.” Meanwhile, speaking to the same Montana Economic Development Summit audience as Mr. B, the other Mr. B – Steve Ballmer – teased said audience with the coming wave of technological innovations that will fuel all kinds of investment and business growth.
For the moment, the visible “growth” is in the levels of participation by speculative entities in the entire precious metals complex. As mentioned, the overt excuses being used allude to a curious combination of fears and optimism. Fears of economic contraction and the need for a safe haven are attributed to gold buying, while optimism about economic recovery and higher demand for materials are linked to the placing of bets on silver and the noble metals. Someone is fudging something in fund-speak-land (see copper, which fell 1.22% on the German (lack of) confidence news). Hmmm….
Judging by at least some of the positive news making headlines this morning, the fear factor is either living off the fumes of the crisis of the Q2 period, or is – at best – misplaced. To wit: US retail sales played right into Mr. Buffett’s hands this morning, as they showed a “rise for the second consecutive month, easing concerns that the economy will stumble in the second half of the year” (so reports Bloomberg). To wit: Greece sold $1.51 billion in six-month T-bills this morning, and the sale prompted one Finnish analyst to opine that: "Today's Greek T-bill auction very much illustrates that the country does not have any problems getting its bills sold."
Gold prices showed a $12.90 gain at the start of the Tuesday trading session and were quoted at $1,257.90 per ounce. Majority opinion is that if the yellow metal overtakes the $1,267 area and manages a sustained close or two above that level then the road might be clear to an advance into the $1,280-$1,320 zone. Today might just be the start of that sortie and probing. Some will say that festival season is underway in India and/or this is but a manifestation of predictable gold seasonality.
How about this little factoid, in that case: “Indian jewelry sales will expand at the slowest pace in five years in the 12 months ending June 30 as higher prices crimp demand, according to S. Ravi Kant, the executive vice president of Titan Industries Ltd., the country’s largest jewelry retailer.” Our local sources validate Mr. Kant’s findings and exhibit concerns about this year’s festival-related demand. But, fear not; the hedge funds and ETFs will countervail anything (or so goes today’s story).
Of course, not everyone is in the majority. Commodity Broking Services Managing Director Jonathan Barratt expects a 10-15 percent correction in gold values, albeit he does concede that a convincing break to levels above $1,265.00 might lead him to reassess his position on the metal. Others see a possible three year-plus pattern of declines as large as 50% developing from here, even if the market has legs to sprint higher within for the next six weeks or so.
Silver traded higher as well, adding 29 cents on the open, to start at $20.34 the ounce. The white metal’s ratio to gold shrank to about 61:1 – about the lowest since the start of the year. The more interesting statistic (or perhaps the more frightening one) is the one that shows speculative silver positions exploding by 60% or more over the past couple of weeks. It’s all about the lure of the $20 magic (price) marker. That, and the word “momentum.” Or the word “off-exchange hoarding” – as in, the more than 13,000 tonnes of silver piled warehouse ceiling-high on behalf of ETFs of the same ilk.
At any rate, seasoned RBC analyst George Gero cited “all night upward pressure [in gold] due to fund buyers from Far East and later Europe. Momentum buyers are in here as higher volume, higher close and higher open interest inspired traders in silver as well.”
Platinum jumped $18 higher on the open and was quoted at $1,569.00 per troy ounce on the bid side. Since its sizeable, 16% fall in Q2 (from $1741 to $1500), the noble metal has basically oscillated in the $100-broad price channel that ranges from $1,500 to $1,600 the ounce. Producer Northam’s striking mineworkers are reportedly causing a loss of 1,000 ounces daily in platinum output and that plus the aforementioned speculative plays are contributing to this latest upward burst in values in the complex.
Palladium rose $15 to the $545.00 level at this morning’s session’s start. That metal, too, fell from a high of $564.00 to $415 (a 36% correction) during late April/early May and since has added $100 to values up to this point-but certainly not in a pattern of uninterrupted gains.
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Pure. Magic. At any price.
Jon Nadler is a Senior Analyst at Kitco Metals Inc. North America