Gold can’t hold gains despite Eurozone crisis

In the Lead: “Rome is Burning”

Spot gold dealings started the Tuesday New York session off on the downside, with the yellow metal losing $7.00 and being quoted at $1,547.50 per ounce. The US dollar remained above the 76.00 mark on the trade-weighted index as it was seen attracting further wads of safe-haven-seeking cash among the aforementioned nervous global investors. The Dow finally stabilized and made an ever so small attempt at a gain this morning; it was trading at or near the 12,505.00 level.

The yellow metal hit a new all-time high in euro terms this morning, but the achievement prompted economist and newsletter publisher Dennis Gartman to reduce his gold position against the common currency as he deems the price equation to have become “overextended” at this time. EW analysis deems the test of the $1558.75 mark (or even a slight push above it) as “terminal” and that gold should turn down sooner rather than later after it exhausts its current run to the upside.

Silver opened with a loss of 67 cents per ounce and it was quoted at $35.08 per ounce on the bid-side. The white metal’s ability to pierce above the $36.80 resistance has opened up the (slight but realistic) possibility that it might try for a run towards the $39.82 target prior to resuming a broader downtrend. Only a close beneath the $33.15 level would cement silver’s fate and send it under $30 as a first step.

Platinum and palladium slipped as well this morning, with the former opening at $1,719.00 (down $4) and the latter losing $13 to start at $752.00 per ounce. No changes were noted in the rhodium quotes in New York. Automaker VW continues to be on a sales roll; it announced first-half 2011 sales of four million units globally, which was a first for the firm.

VW continues to rely on robust vehicular sales growth in the BRICs and it is now also considering the establishment of an Audi factory in North America. In China, the carmaker plans to invest more than 10.5 billion euros into expansion plans and globally the firm intends to hire more than 50,000 workers through 2018 in order to achieve its 10-million annual sales target. With this morning’s announcement, the 2018 goal is not very far away from being achieved, indeed.

On the other hand, China is not yet reaching the point where it can declare that domestic bank lending and money growth are well-controlled. The country’s banks lent more money than had been anticipated during the month of June as demand for credit remains robust despite the overt moves towards tightening by the PBOC.

We noted Saturday’s announcement that inflation has hit a three-year peak in China. Now comes word that the country’s foreign exchange reserves have swelled to the $3.2 trillion mark as of the end of June. Add it all up, and the case for additional monetary restraint is an open and shut case. That said, Premier Wen has cautioned that over-tightening might not be all that good, either. Slowing China’s growth too much has its own potential set of consequences, some of which (the social ones, to be precise) are more…unpleasant than others. A delicate balance to maintain, that one is.

Over in Japan, the government and the Bank of Japan remain optimistic about the pace of the country’s post-quake recovery process and a more upbeat projection about the Japanese economy was tendered by officials this morning. The BoJ on the other hand is keeping rates on hold for the time being, just in case further nuclear plant shutdowns might come to impact economic growth in the country.

Until tomorrow,

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

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