Gold and silver see declines as dollar rises

Good Morning,

A day ahead of the start of the G-20 meeting in Seoul, many a market acted as if the outcome of said summit was a foregone conclusion – namely, that despite attempts to show that efforts are being made to avert a true currency war, the various leaders will most likely only produce a communiqué that reiterates their commitment to ‘rebalance’ that which is heading into imbalance at this time.

As we stated here before, there will need to be some serious Seoul-searching going on in the S. Korean capital over the next couple of days, and the best thing we might hope for is that the gathering of leaders recognizes that the so-called ‘race to the bottom’ is actually to be thought of as a ‘race off the cliff’ and that it would not be a wise choice to make at this particular juncture, given the state of the global economy and its emergent recovery.

The impasse continues, G-20 jawboning notwithstanding. The United States would like to export more and rely on domestic consumption less, while it would also like China to export less and consume more. The trouble with that wishful thinking also continues, however. Especially in the case of China, which sees a stronger yuan and lower exports as a sure-fire recipe for internal social disorder. And then, there is also the delicate matter of timing. The United States would like to see results, like, yesterday, while China is quite happy to let things drift in that direction on the slow end of the spectrum.

Once again this week, U.S. Treasury Secretary Geithner – this time speaking to the Wall Street Journal – indicated that he believes that the dollar has probably fallen about as far as the level beyond which there is no need for it to sink further, as the major currencies are “roughly in alignment now.” Mr. Geithner also reiterated that the United States is not engaging into an active campaign to devalue the greenback.

Whether is was those comforting words (which, once again, had only a rather muted and somewhat short-lived effect), or the fact that the weekly jobless claims figures came in with another decline (albeit smaller than expected), the U.S. currency managed a rise to above the 77.15 mark on the trade-weighted index (having started off at under the 77 level) and, as a result, the usual ‘suspects’ (gold, oil, copper) took a fresh hit following a bout of selling in the wake of the data.

Gold opened the Thursday session with a $2.20 drop and a spot bid quote at $1,343.90 but later fell another $8 to a low of $1,335.90 as more sellers emerged. Silver commenced trading at $23.88 showing a decline of one nickel and it too slipped further within the first half-hour of trading, losing about 25 cents to touch $23.65 the ounce.

Platinum and palladium opened mixed, with a fall in the former and a slight rise in the latter – the initial quotes were $1,679.00 (down $4) and $591.00 (up $1) and they continued that pattern into the 9 o’clock hour. More recalls were on tap for automaker Toyota but news from VW AG that it will meet its ten million global vehicle sales target a full three years earlier than anticipated kept the noble metals complex buoyant overall. Spec fund profit taking also remained manifest however, and thus gold remained some $50 away from its peak of one week ago as decent earnings reports apparently shifted some assets in the direction of equities. Hopefully, some ‘red meat’ will be on offer from the G-20 summit for us all to bite into, come tomorrow. Until that time, we can expect nervous, but rather range-confined trading to rule.

Until tomorrow, do stay well.

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

Websites: www.kitco.com and www.kitco.cn

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