Silver and gold begin new week with gains

Commodities in general, and the precious metals we normally track stabilized overnight and showed some gains as the new trading week got underway. Crude oil led the pack, notching a near-3% gain early on Monday, and nearing triple-digit territory once again. While the US dollar remained relatively stable around the 74.70 level on the trade-weighted index, the precious and base metals were still able to stage advances as a few tentative buyers returned to the smoldering landscape left in the wake of last week’s $100 billion collapse. Some $13 billion worth of precious metals flowed out of specialty ETFs over the course of the past week, but Goldman Sachs this morning suggested a possible recovery (sometime in the latter half of this year perhaps) in the commodities’ niche.

Well, a recovery-of sorts is what we had on display in the metals’ space this morning in New York. Spot gold dealings opened with a $5 per ounce gain and were quoted at $1,500.50 at last check. Silver bullion traded $1.08 higher at the $36.70 level while platinum and palladium showed more modest gains. The former rose by $2 to open at $1,787.00 the ounce, while the latter climbed $7 to the $724.00 per ounce mark. In the background, crude oil advanced $2.64 to the $99.82 value marker while the US dollar was down a tad, losing 0.33 on the aforementioned index. Of note in the PGM complex this morning was the announcement by SA platinum-producing giant Lonmin that it will spend about $400 million a year to boost annual production to 950,000 platinum ounces by 2015 from the 750,000 ounces it plans for this fiscal year ending Sept. 30.No question that volatility and fits and starts will once again define the trading action at least for a couple of sessions more, as the job of collecting the dead and aiding the wounded continues following last week’s carnage in the pits.

As is the norm at such junctures historically, there is ample yet divided opinion as to what might come next in this emotion-driven investment space. Some (Morgan Stanley and Barclays among them) continue to offer the prospect that nothing has changed in terms of fundamentals and that rallies will resume before too long in all of the assets that recently made for spectacular headlines. To any a hard money newsletter, the sell-off is nothing more than an ostensible opportunity to “reload” and not to “retreat.” They see dollar weakness resuming before too long and continue to point to the largest short-dollar positions in place since 2007 as a validation for such a vision.

Others, such as noted analyst Michael Aronstein (Marketfield Management) who correctly predicted a similar crash in 2008 feel that the commodities’ space is entering a five and up to ten year bear phase specifically on account of a paradigm where “supply and demand is almost meaningless” and where the nature of recent trading reminds one of “the last days of the tech bubble.” Crude oil’s most accurate forecaster recently noted that black gold became “detached” from its fundamentals as well due to the manifest excessive speculative fever in the complex. Recall that almost $10 billion rushed into commodity funds in Q1 (an amount that was triple that seen in that period a year ago) and that commodities outpaced stocks, bonds and the US dollar for the five months that ended in April. That advance was the longest in nearly a decade-and-a-half.

The commodity rocket ride to outer space became most visible in silver however. An entirely new class of buyer came to the silver table in recent weeks; unemployed youngsters seeking a quick buck, day traders who still recalled the heady days of Webvan and, grandmothers who might hardly be able to sustain losses, etc. And, although silver ascended by over 165% since last August, and the daily contract volume in the metal doubled and exceeded certain other normally much larger market trading niches, the metal was still seen as the new “it” trade for many. One young trader declared, “Silver is the new stock market.”

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