Silver ETF drops nearly 67 tonnes

In the Lead: “Milling Rumors”

Monday morning’s markets saw a lower opening in gold but a tad higher values in the other components of the complex. Gold continued to be sold off and it lost $10.60 per ounce (to $1,735.70) out of the starting gate as risk appetite made a tentative reappearance among market participants, as it also did on Thursday and on Friday. The decline in the yellow metal took place despite a small (0.14) dip in the greenback on the trade-weighted index (to 74.38) but then again in the past several sessions there really has been a notably poor inverse correlation between bullion and the dollar.

The analytical team over at Standard Bank (SA) notes that “the sharp decline in gold speculative longs points to a market running out of momentum. With speculative long positions totaling 933.4 tonnes, gold looks vulnerable [and] it could see some price weakness in the near term. “ Speaking of (similar) statistical facts, the CFTC reports (via Bloomberg) that speculative bets on further gains in the value of 18 various commodities have been decimated by the largest percentage in a year-and-a-half; nineteen, to be exact. Gold and silver were also heavily sold off in physical form by their speculative-minded ETF-invested owners, as we learned from recent tonnage flow tallies. The SPDR Gold Trust lost 12.7 tonnes from Thursday to Friday while the iShares Silver Trust’s holdings dropped by nearly 67 tonnes.

Silver climbed 21 cents on the open, and it was being quoted at $39.26 per ounce in New York on the bid-side. Not breaching the critical $37 level remains the white metal’s priority #1 while bullish conditions are still considered as becoming valid only above the $42.29 mark. A similar-to-gold situation has developed in the silver market’s positioning as well. The Standard Bank team remarks that “the massive decline in speculative longs for silver, coupled with a strong increase in short positions, points to increasingly bearish sentiment. If gold should come off in the short term, we could see silver hit harder.”

Platinum fell $1 to open at the $1,791.00 mark per ounce while palladium was higher by $10 at $753.00 the ounce. The latter is still hovering only some $60 above its six-month nadir that was recorded near $695 the ounce. The speculative positioning tally in platinum reflects that which is also underway in the gold and silver sentiment. Standard Bank comments that “platinum’s net speculative length has {also} decreased, ending five weeks of successive gains. With 222.4k oz shed, this is the largest loss since the end of June when prices fell 4.0% w/w in just two weeks. The speculative market seems more bearish towards platinum, which could see the metal lose ground in the coming weeks.”

However, recent price developments quite conceivably represent a rare opportunity to buy platinum cheaper than it has historically been in relation to gold. Over the past 20 years, the spot price of gold has rarely overtaken platinum’s. The lowest the ratio between the two metals has fallen during that period was 0.93:1 in October 1992. Astute buyers have been returning to the platinum and palladium markets with more enthusiasm than they have shown for some time now. Potentially good news for the noble metals comes from the current situation in the car market, by the way.

Bloomberg reports that “there is an industry-wide shortage of used cars in the U.S., the product of manufacturing cuts amid slumping sales the last three years. That means some people have effectively been priced out of the used-car market and into brand-new models. As many as 500,000 new vehicles by mid-2012 may have been sold to people who would have [otherwise] bought used [ones].” Continued demand for fresh production vehicles implies more platinum/palladium/rhodium demand than previously estimated.

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