Gold and silver lower as dollar picks up steam

In the Lead: “Ridi, Pagliaccio!”

The countdown to the end of a tumultuous market week (haven’t they all been that lately?) commenced with this morning’s opening in New York. Precious metals headed lower (all but platinum) as the US dollar picked up a tad of energy and the euro ran into a wall of overhead resistance amid the still (!) on-going crisis. Market participants have plenty to keep an eye on today but are exhibiting fatigue syndrome from what has been a roller-coaster of a string of trading sessions. Spot gold opened $10.20 lower at $1,754 per ounce and albeit it has not pierced the $1,750 support level it has also not managed to vault above the $1,775 mark yet.

Silver traded 42 cents lower at the start of the Friday session in New York and it was quoted at $34.20 the ounce on the bid-side. The white metal’s support levels are thought to reside at the $33.82 and the $32.75 figures while overhead resistance could emerge at $35.42 and $36.95 per ounce. Platinum fell $3 on the open and was indicated at $1,630 per ounce. Palladium lost $5 to open at $651 the ounce. Standard Bank (SA) observes that simply parsing the total level of auto sales in certain global markets may not be an accurate indicator of total palladium demand. Let’s focus on these metrics for a moment, as palladium remains one of our favorite metals that merit investors’ attention.

Standard Bank’s Walter de Wet first notes that “there is weakness in the European auto sector with auto sales in Europe stagnating on y/y basis during the first nine months of 2011.” This does not come as much of a shock, given the events we have seen unfolding in the Old World all year long. Then, Mr. de Wet remarks that “Japanese auto sales, due largely to the earthquake, are down 23% for the same period” and that “auto sales in China are still growing, but are only 4% higher in the first nine months of this year compared to the same period in 2010.” Again, little in the way of surprises here, as the March quake and the actively-sought slowdown by China are both playing a role in such developments on the automotive scene. The good news is that “in the US, data released earlier this week, indicates that auto sales have grown 10% y/y during the first nine months of 2011.”

The SB analysis then shifts to a “proper” calculation method of palladium demand in order to ascertain the current market situation. Mr. de Wet notes that “while an aggregate number of auto sales in the four big auto markets might prove informative, total auto sales are not necessarily reflective of total palladium demand. To correct for the skewed usage of palladium in different auto markets, we weight auto sales per region by the amount of palladium consumed in auto catalytic converters in that specific market. This provides us with our palladium-adjusted auto sales numbers.”

Using the above-mentioned methodology, the Standard Bank team concludes that the “palladium-adjusted auto sales numbers” 2010 auto sales were “still low, but were steadily improving.” For 2011, the team expects palladium-adjusted auto sales match levels seen in 2010 while it also envisions a “seasonal pick-up in auto sales towards year-end.” Finally, using the palladium-weighted calculations as the basis, it appears that “auto sales look more supportive of palladium than for platinum.”

The analysis concludes with the observations that “Tactically, we see value in platinum below $1,550 and on approach of $1,500. Palladium, we believe, provides value below $600. Levels for both metals depend on a ZAR around 8.00 to the dollar. Given the current macroeconomic environment, we believe that platinum above $1,700 and palladium above $700 offers little upside (also at ZAR8.00/USD).”

Well, instead of counting the votes from the proposed referendum on the EU debt deal, Greek PM Papandreou might soon be counting the number of no-confidence votes he will receive today; votes which might send him to the office where he would draft his resignation letter. One day after dropping the controversial call for a popular vote on Greece’s future within the EU, Mr. Papandreou still faces the ire of his own Socialist Party and that of the Greek government’s opposition leaders. Conclusions from this week’s Greek “odyssey” might boil down to perhaps two: a) ultimatums work because they are…ultimatums, and b) miscalculating the mood of others has a price. In essence, in might now be a matter of only certain graceful formalities to be carried out before Mr. Papandreou waves goodbye to his fellow Greek politicians.

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