Gold continues gains courtesy of Chinese inaction

An overnight foray to resistance levels near $1,410.00 was noted in gold prices as the US dollar slipped closer to the 79 mark on the trade-weighted index and commodity speculators continued to enjoy an early Christmas courtesy of Chinese inaction on interest rates.

Copper, for example, made headlines yet again with a fresh price record achievement. However, with the Fed meeting due later on today, the early advances weakened somewhat and the yellow metal drew closer to what appears to be a ‘comfort’ zone for the moment; the tight orbit around the $1,400 level.

Spot bullion trading opened with an $11 gain in gold which was quoted at $1,405.50 on the bid-side as against a 79.25 print on the dollar index. Silver advanced 22 cents to the $29.75 resistance area and platinum and palladium continued to shine brightly on the commodities’ holiday tree. The former gained $11 to touch the $1,706.00 bid level while the latter rose $5 to reach $761.00 the ounce.

Invariably, the shop talk turns to precious metals ETFs and their recent, present and potential future impact on markets (read: prices). Our long-time friend Rhona O’Connell writes (in a detailed Mineweb piece) that certain metals (as we pointed out last week) might be facing swings that would leave Elvis Presley green with envy, were he around to witness them.

Rhona notes current conditions in the gold and silver ETF domain and relays that, “The major [silver] ETFs have taken up 2,473 tonnes so far, with a net dollar inflow of just less than $1.5 billion and the total tonnage in the funds is almost 14,800 tonnes, with a value of $14 billion. The increase in [gold] tonnage so far this year has amounted to just under 300 tonnes, for a net investment of $12 billion. At gold prices of more than $1,300, there have been ETF purchases of 62 tonnes, but also sales of 58 tonnes, which could suggest that investor appetite is becoming sated.

At this [price] level [$1,300+ and $25+], momentum has also slowed in both metals, but the slowdown has been more marked in the gold market than in silver. In terms of the value of the gold in the coins bought in the first days of December, investment is running at approximately 45% of the average daily level in November. The silver coin investment has slowed to 75% of the November rates.

So at the moment, while silver is continuing to command attention, the market is, as always, keeping a close eye on gold, where momentum has slowed. The levels of investment in silver only have to be considerably lower than in gold in order to maintain upward price momentum. Weight of money arguments only apply up to a point, however and if and when gold momentum investment stops or reverses, then silver could be in for a rocky ride.”

As the action intensified in the first half-hour on Tuesday, so did the fluctuations in at least gold and silver, both of which gave back portions of their gains (gold touched levels under $1,400 and silver reversed to near $29.50). After the first hour of trading activity the entire metals’ complex turned lower as risk appetite dissipated a tad and profit-taking ahead of year-end returned to the scene. The gains in the US dollar (back up to 79.40 on the index) following the PPI and retail sales data sets were still the key driver behind the slippage in metals. But, is this a flash-in-the-pan for the US currency? Let’s ask Tokyo:

Bank of Tokyo-Mitsubishi UJJ Ltd. opines that the recent dollar sell-off (following the Obama tax break extension agreement) is strictly temporary, and that the greenback will likely rise to as high a level as $1.27 against the euro, possibly in the coming quarter. The BTM team remains “unconvinced” (and in the minority, we might add; but, then again, we like maverick-ism) that “US fiscal concerns will remain the key driver of currency trends through the first half of 2011.”

What, then, could represent those ‘key’ drivers? Well, (wrote he, glancing over at a map of Europe on the wall), look at the alternatives. BTM did, and found that “The relative safe-haven appeal of U.S. government debt has been reinforced by the ongoing euro-zone sovereign debt crisis given that the dollar is the only viable liquid reserve-currency alternative to the euro,” wrote Hardman. “We expect that both the recent dollar and U.S. government debt sell-off will prove temporary although moves could overshoot before reversing in illiquid year-end markets.”

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