Gold drops as China hikes interest rates

Silver prices opened with a $0.44 loss per ounce, quoted at $23.94 and were broadly following the remainder of the complex to lower levels. China’s silver shipments may decline as much as 40 percent for the year as a combination of decent local demand and a revocation of export rebates in place since late 2008 could divert production into local users’ hands.

The country’s silver output has been gaining at an average of 14.9% annually, for the past twenty years. GMFS analysts believe that after having rallied 44% and outperforming gold in the process, silver prices could be nearing a top near $25.50 possibly, and that the current range in prices might see support emerging at near the $20.50 per ounce level.

Platinum and palladium also eased at the opening bell this morning, as the former shed $12.00 to start at the $1,677.00 level and the latter dropped by an equal amount to open at $574.00 the ounce. Rhodium continued steady with a $2,250.00 per ounce bid quote. UBS AG raised its palladium forecast for 2011 to an average price of $625.00 the ounce following what it expects to be a virtually certain round of easing to be announced at the Fed’s November meeting.

In the background, the US dollar climbed to 77.70 on the trade-weighted index while crude oil slipped fairly hard, losing $1.16 to a quote of $81.92 per barrel amid growing inventory apprehensions and the fallout from the aforementioned stronger greenback.

The surprise gain in US housing starts noted this morning also added to the selling pressure in the metals complex as perceptions that the vital real estate sector may in fact be stabilizing even after the removal of government-originated ‘sweeteners’ took some confidence away from the “QE-must-be” crowd this morning.

Over in Germany, investor confidence fell for the sixth month in a row and it touched a 21-month nadir. The ZEW Institute noted that this month’s fall in the confidence index was smaller than that recorded in September; however it also said that the drop underscores expectations of a sluggish economic growth pace for Germany among investors.

Part of what is playing into such downbeat expectations is the recent surge in the value of the euro. Germany remains the world’s second largest exporter, and is expected to be shipping out some 1.3 trillion dollar’s worth of goods this year.

Speaking of this year, many are casting a watchful eye on Indian gold demand as festival season is in full swing and the calendar is counting down the approach of November 5 and Diwali – the auspicious day on which to pick up some bullion. Provided one can afford it, that is. The surge in gold values that the speculative funds in the West have precipitated has effectively removed gold from the average consumer’s shopping list in India. The wealthy can afford to buy baubles no matter the price, but the question remains if their offtake will be sufficient to offset the slump in buying among the less fortunate.

The level if Indian jewellery demand in 2010 is down about 30% and dealers in the southern part of India report drops of as much as 40%. No wonder, when the local prices are hovering near 20,000 rupees per ten grams. Historically, about 60% of the country’s physical bullion demand comes from smaller towns and rural areas and gold sales experience their peak in the October-November timeframe.

The period from November 2 to November 6 is shaping up as a potentially gut-wrenching and mind-exhausting one for market participants of all types. Drama is sure not to be lacking in the markets with so many impact factors converging in a rare ‘alignment’ at that time. For now, we will have to contend with today’s drama. Equally compelling to watch, perhaps not so compelling to be caught up in.

Until tomorrow,

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

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