Gold touches $1,626 despite low physical demand

In the Lead: “A Plan B from DC?”

Gold scaled fresh peaks and touched the $1,626,60 level on the offered side of spot overnight following yet another day of no resolution to the debt ceiling/ debt reduction political wrestling match taking place in the USA. However, after the US dollar stabilized somewhat at levels above the 73.50 mark and US Treasuries hung on to the gains they had achieved on Tuesday, the yellow metal retreated a bit and dealings were taking place mainly in the $1,615 to $1,620 zone ahead of the opening of the market in New York this morning.

Spot metals dealings started the midweek session with a $2.50 per ounce gain in gold and a 6-cent rise in silver. The former was quoted at $1,622.40 per ounce and the latter at $40.97 as against a firmer greenback that was trading at 73.73 on the trade-weighted index. Crude oil fell 80 cents to the $98.79 level per barrel amid perceptions that the potential increase (to be reported later today) in US stockpiles cannot be conducive to a path towards the $120 mark that some commodity bulls had envisioned recently.

The euro did not decline a whole lot however this morning; it was last seen still changing hands near the $1.444 mark against the US dollar. Something that did show a decline – and a sizeable one, at that – this morning, was the data related to US durable goods orders. The June figure for the aggregate demand for autos and aircraft sank by 2.1% according to the US Commerce Department. Economists, according to Marketwatch reports, did not anticipate such a drop.

The gold market continues to exhibit the “one-leg” syndrome that has been in place ever since the turn-around from the $1,478 area several weeks ago. That leg has been built on the expected demise of the EU/euro and the US/dollar pairs on the face of what was (and is) being perceived as lethal debt issues. Absent from gold’s “equation” during this latest period of rising prices is the demand…for gold (in physical markets). The analytical team at Standard Bank (SA) reports this morning that:

“Physical demand for gold remains largely absent, which underscores our belief that at current levels gold will continue to meet growing resistance. Consequently, we would not be surprised to see a pullback, especially once a deal is reached on the US deficit issue. As pointed out in our Commodities Strategy - Gold Physical Flow Update [dated 14 July 2011] we don’t discount the possibility of more gold scrap coming to market in the second half of this year. However, as August approaches, we believe the probability of more scrap coming to market decreases rapidly.

Platinum climbed $10 at the opening and traded at $1,812.00 per ounce on the bid-side. Palladium advanced $5 to $838.00 per ounce. The noble metals have exhibited quite a bit of strength in recent trading sessions despite the potential economic implications of a US default. On the other hand, the labor strife in South Africa (which never seems to end) is seen as supporting the PGM team of metals. Rhodium showed no change this morning; the bid-side quote remained at $1,900.00 the ounce.

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