Gold lower on firmer dollar, economic slowdown

In the Lead: “Vanishing Silver? Not a Chance.”

Gold appeared set to record a second week of declines in value as the final trading session for the current week opened for action in New York this morning. The principal drivers of the yellow metal’s weakness were still the firmness of the US dollar and the rising perception that some kind of economic slowdown is grinding away out there and that it will impact the demand for commodities.

As a reflection of the latter, the S&P Goldman Sachs Commodity Index fell by over 4% this week while the impact of the former yielded a 1.1% gain on the trade-weighted USD index. At this point, gold might have to turn in a performance that would result in a larger than 20% ($300) move between now and this year’s end in order to match its 2010 achievements.

New York spot metals dealings opened with small losses across the boards as traders eyed the larger than $1 decline in crude oil (now trading well under $94) and a potential rebound in the Dow following tiny glimmers of hope related to the European situation. The Greek stock market gained 5% today as statements by various EU political figures bolstered optimism that perhaps there could be a resolution to the crisis by virtue of a permission being granted for the private sector to participate in a restructuring deal.

The European common currency was able to eke out a gain and to rise to the 1.427 level while the US dollar index eased by 0.34% and thus contributed to the fairly small losses in precious metals. Spot gold started off with a $1.50 loss per ounce at the $1,527.70 level but was still slow to move within a now smaller than $10 range. Silver showed a 15-cent decline and opened at $35.44 while still remaining relatively far from the near-$38 resistance point it needs to overcome in order to turn slightly bullish.

Meanwhile, the analytical team over at Standard Bank (SA) feels that “this afternoon’s release of US consumer confidence figures and the leading economic indicator, if disappointing, could provide some support for precious metals, especially gold and silver.” Market observers are anticipating a decline in US consumer confidence (from 74.3 to 74.0) and an increase in the US’ leading indicator.

Platinum fell $6 to start the Friday session off at $1,747.00 per ounce while palladium dropped $2.00 to open at $752.00 per troy ounce. Rhodium was unchanged at $1,850.00 the ounce at last check. In the background, black gold was near its lowest level in four months, and it was set for its largest fall in value in six weeks as fears that the Greek crisis might upset the EU’s economic rebound gained traction.

On the automotive front however, there was some good news for the noble metals’ complex. Automaker Toyota Motor expects its North American facilities to resume full production by September. While that is better than had been expected in terms of the timeline (original estimated called for such resumption not before November at best) the firm still faces the prospect of a 31% decline in fiscal profits for the current year as a result of the aftermath of the March Sendai quake.

Speaking of Asia, things do not appear all that rosy in China where local stock markets completed a second week of declines on the rising apprehension that the PBOC will raise rates once again, and that it will do so sooner rather than later. The Shanghai Composite Index has lost 14% since the middle of April as inflation-oriented firefighting by the authorities in that country continues to be Job #1. As China slows, so does the performance of commodity producers and the value of that which they supply to markets.

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