Gold gives up early gains, opens with loss

In the Lead: “Pedestrian Safety”

Volatility continued in unabated fashion in the precious metals markets overnight as gold and silver each gave up more than 2% in value on the heels of a firming US dollar. Thursday’s gains in gold largely evaporated and the yellow metal stuck closely to its week-long see-saw pattern while it further disoriented short-term traders and small retail investors. Marketwatch’s Myra P. Saefong has been following gold’s recent “performance” and has come away concluding that the “ultimate safe haven” has begun to lose not only the superlative that precedes it, but some of the “safe” part of its label as well.

Courtesy of the entrée of hedge funds and other players afflicted with short-term trading myopia, the yellow metal has quickly shifted from being among the least volatile assets (see 2010) to something that has given cause for alarm to many who sought it out since around April of this year. And, this kind of roller-coaster ride, well, it is looking like it is far from being over. In fact, we could just be entering the really rough, stomach-churning portion of the track. Questions as to what might come next are out there in the blogosphere, in more than ample supply.

The problem with such behavior is that it strips away some of the metal’s historical attributes and it might result in investors starting to seek refuge in other places deemed somewhat “safer.” Ironically, cash comes to mind. A factoid that has escaped the notice of many in recent months is the one that reveals that more than 35% of the global pool of private investment money is actually parked…in cash. Call it waiting for a better opportunity, or call it the fear of losing principal amid stormy investment seas; the conclusion (play it safe) remains the same: Few are willing to lose much when it comes to their hard-earned dough.

Thus we come to this morning’s market opening time in New York; not a pretty picture, even for a “get me out” Friday. Book-squaring rituals notwithstanding, post Bernanke and Obama speeches aside, the metals headed lower as the US dollar diverted investment funds away from base and precious metals with a vengeance. If this week’s patterns are possibly any indication of what might yet come, well, the odds of closing much lower or much higher than the opening strike price are…50/50. (Sorry, the crystal ball is still out on loan to Madame Sylvia.)

Spot gold opened $37 lower at the bid quote of $1,833.00 while silver gave up 75 cents in value and started the session off at $41.59 the ounce. Platinum and palladium also headed lower as the markets opened for action. The former lost $31 to drop to the $1,829.00 mark while the latter fell $10.00 to start at $743.00 the ounce. The PGM complex may have declined in sympathy with gold and with silver this morning but traders are keeping a wary eye on developments a world away.

Reuters Metals Insider reports this morning that “the Zimbabwean unit of Impala Platinum, the world's second-largest producer of the precious metal, said the government had taken steps to revoke its operating licence and it remained in talks with authorities. The government has been trying to get miners to transfer 51% stakes in their local operations to black Zimbabweans.” As mentioned in yesterday’s market comment, the Zimplats operation is single-handedly responsible for 6%, 5%, and 4% of global platinum, palladium, and rhodium output (as was projected for 2012).

In the background, crude oil was down almost $1 at $88.25 while base metals lost anywhere from 1% (copper) and up to 2% (lead). Misinformed market comments had gold declining under the “sinister” hand of official sector “intervention” this morning and once again also blamed exchange margin hikes (SGE today, CME who knows when) and margin calls (from where?) for the sagging market. Last we checked, the 29 tonnes of Libyan gold hit the market back in…circa, April.

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