Gold enjoys hikes as oil spikes higher

The melt-up in precious metals (with the exception of platinum) resumed with the start of the new trading week, reflecting the the crude oil-fueled commodities rally that has gripped the world’s trading floors since the start of the Libyan upheaval. Recent clashes in that country have turned even bloodier as Mr. Gaddafi’s forces intensified their campaign to recapture a couple of key cities along the coast. Black gold has already leapt 25% since Libya descended into the state of civil war it is now in.

Outside military intervention showed no signs of materializing, and was still under consideration, lacking sufficient consensus by global powers. This, even as the humanitarian crisis was aggravating with each passing hour, having already resulted in the exodus of more than 150,000 people to Tunisia and to Egypt. Meanwhile, some protests continued in Yemen and Bahrain, but Saudi Arabia remained relatively calm. The fear premium being reflected in nearly $107-per-barrel crude oil continued to spill over to other commodities and it remains the main source of momentum behind the fresh records being set in gold and silver prices.

The Libyan situation has prompted the Obama administration to consider resorting to the US’ Strategic Petroleum Reserve in an effort to curb the potential economic reverberations that the resultant spike in energy values is engendering. The emergent US economic recovery stands a realistic chance of being derailed if $100-$115 oil remains on the price boards for an extended period of time, or if $140+ crude were to rematerialize, complete with $5 per gallon gasoline, just as spring and summer roll around. The latest, 2.35% advance in WTI crude (to $106.55) and the 2.2% rise in Brent crude (to $118.50 pbbl) have ignited fears that consumers will stop consuming and that employers will halt employing folks.

Precious metals trading got off to a flying start on Monday, with gold prices rallying by $11.10 per troy ounce, and they were initially quoted at $1,443.90 on the bid side of spot after having touched early highs at a new, $1,445.90 per ounce record. Gold trading positioning continued to show a rise in open interest for the latest reporting period (ending on March 4) and the net speculative length in the yellow metal is at its most robust thus far in 2011. Gold ETF balances however continued to experience some on-going leakage in their underlying tonnage, despite the recent, headline-making ascent in the metal’s value.

Over at the PDAC event in Toronto (amply covered by Kitco News), the mood is quite upbeat; no surprise, following the performance that gold and silver turned in during 2010. However, at least one speaker on Sunday sounded a bit of a cautionary alarm when dissecting the picture in gold, as it relates to macro funds. Heavy courtship by hedge funds and similar spec players has propelled bullion values to stratospheric levels in each of the past two year, at least. However, the behavior of said players is precisely what was on the mind of JP Morgan strategist Michael Jansen as he addressed the crowd of diggers yesterday:

“We are a little bit concerned about the signs of some fault lines emerging in the market. For one thing, there has been a shift by wholesale investors and some funds out of gold and back into equities, which now “look quite cheap” compared with the yellow metal. We have received a lot of feedback at the significant wholesale investor level, or the big macro funds, and they are generally starting to pull back their exposure to gold and get more exposure towards equities. We see equities emerging from a multi-year funk and moving into a two or three year bull market. And that obviously reduces the need for a portfolio hedge like gold.”

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