Gold makes gains on dismal eurozone growth

In the Lead: “BitterSwiss Chocolate”

The sudden slowdown in the European Union’s largest economy aggravated fears of a regional and perhaps global contraction further this morning. Germany’s gross domestic product grew by one tenth of a percent in the second quarter and even its first quarter’s expansion rate was revised downward to 1.3% from the previously reported 1.5%.

The contraction in output in Germany now places the entire region into a paradigm of feeble growth at or near the 0.2% level and raises the bar further for the ECB as it tries to juggle the debt situation and the slowing eurozone economy. Just yesterday it was announced that the ECB had spent 22 billion euros buying regional bonds in a continuing effort to assuage the markets’ nervousness levels.

Nervousness also continues on the scene in India, where albeit inflation “cooled” to “only” 9.2%, the RBI is still seen as fretting and keeping one trembling finger over the “interest rate launch” red button.

Meanwhile, the battle over the “catastrophically overvalued” Swiss franc continued to rage in Switzerland; a nice, neutral and peace-loving nation that normally does not “do” battle. Estimates are that the national currency is some 39% overpriced against the European common currency at this juncture, and that something (anything) must be done to rebalance this distorted equation.

Exports (precision instruments, machinery, etc.) constitute 50% of the tiny picturesque nation’s GDP and the government is now hearing some very loud ticking coming its way; and not just from the Omega watch factories. What shape the active intervention might take in coming days, remains to be seen. But, just as you can count on the 8:03 Zurich-Canton train to depart at 8:03 sharp, you can count on the SNB’s imminent Swiss franc-“adjusting” maneuver to take place. Tick…tick…tick… Have a square of Nestle’s dark while you wait it out.

A second session of gains was on tap for gold as some buyers returned to the market in the wake of the yellow metal’s ability to regain the $1,770.00-per-ounce value zone and as the rising concern over Europe’s economic fate motivated others to place additional bets on bullion. Spot dealings in New York opened with a $12 per ounce gain in the gold pits and the indicated bid-side quote was $1,778.00 an ounce.

Today’s gains once again (as in several previous wild sessions last week) came not at the expense of the US dollar (it gained 0.25 on the trade-weighted index to rise to 74.14), and not in concert with rising black gold (oil gave up $1.50 per barrel to trade at $86.37), and — for a change — they were also in contrast to a declining remainder of the precious metals’ complex. The support level that “must hold” — at about the $1,730 area — is not in discussion at the moment albeit an approach towards it was made in recent sessions.

Something that is in discussion in the bullion niche is the fact that the second quarter of the year saw some sizeable gold liquidations by some of the more prominent bullion fans on the “Street.” Eton Park Management LP cut its SPDR Gold Trust holdings by more than 1.5 million shares while George Soros’ fund disposed of 6,600 of same.

Mr. Soros had already embarked on a pattern of selling his precious metal holdings not long after he had declared gold as being the “ultimate bubble.” The holdout holder remained the Paulson-managed fund.

This all took place before the epic five-week run in the metal that was witnessed this summer, but it does underscore the fact that smart money does stick to a time-honored strategy of selling into price strength while the opposite is true for… other kinds of money.

Silver lost 43 cents the ounce to ease to the $39.49 level and albeit there are some expectations that the white metal might poke above the $40.40 area, the resumption its larger downtrend following such a potential achievement still remains the more likely scenario. The April 25 high in silver keeps becoming more and more of a memory.

Platinum and palladium parted ways ever so slightly this morning, with the former notching a gain of $1 to open above the $1,800 mark (at $1,807 bid) while the latter sank $6 to trade at $742.00 the ounce. No change was reported in rhodium; still offered at $1,950 and still enjoying a narrower-than-previous bid-ask spread of only $100.

In other markets, copper lost more than 1.5% in value this morning as rising concern over a synchronized slowdown in the US, China, and now Europe impacted sentiment among bettors on the orange metal, despite not-so-terrible fundamentals in the niche. US housing starts dipped 1.5% in July according to the latest Commerce Department report. Let’s see what that fresh set of numbers might do to the aforementioned sentiment in copper. We already know that the statistical data release depressed Dow futures and set them on course for a possible day of losses in the market.

A couple of weeks after the non-event that was the US debt default, the reverberations of the preceding civil war in the US legislature over it continue to be felt and heard in various quarters. President Obama pulled out a sharp verbal sword yesterday and accused the GOP/Tea Party candidates for the office he currently holds as being (along with Speaker Boehner) responsible for not only derailing US consumers’ and businesses’ confidence levels but raising their anxiety as well. Mr. Obama squarely blamed Mr. Boehner for nuking his $4 trillion deficit-slashing package as Mr. Boehner presumably believes that “we can’t ask anything of millionaires and billionaires and big corporations.”

Well, someone is asking just such a thing (higher taxes) from those sybaritic uber-elites. Warren Buffett? What “treason” is this? What wrath will Uncle Warren unleash upon himself when he dares utter “heresy” such as he did in the New York Times, where he wrote that “my friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice. While the poor and middle class fight for us in Afghanistan and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks.”

Wow. Whodathunkit, Mr. Buffett? You can almost hear the phones ringing at Berkshire Hathaway; scouts calling on Mr. B to run for “it” in 2012. Nah, nobody will get that lucky. America has already had a “traitor to his class” at the helm and one “radical” presidency. Remember: "The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little."

Until tomorrow,

Jon Nadler is senior metals analyst with Kitco Metals Inc. in Montreal.

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