Gold eying $1,800, but depends on Europe

In the Lead: “Arrivederci, Roma!”

Mining company executives continue to project not only $2K+ gold prices as being “just” around the corner, but also out-performance by their own firms’ shares in coming months (now there’s something not surprising at all). What is rather surprising, is the fact that one important mining firm’s executive has broken ranks with his unanimously uber-bullish peer group and has come out with a more…”tempered” view. He must be reading certain different “tea leaves” than the ones some US and Canadian execs are parsing in their teacups…

The vice-chairman of China’s largest gold producer (the Zijin Mining Group) – Mr. Lan Fusheng – stated that in his view "The gold prices currently are unreasonable, [and that] prices have been boosted not only by people's needs to hedge risks, but also by speculations." Mr. Lan said that he also thinks it would be more “sustainable” for gold prices to stay at $1,200-$1,300 per ounce in the next few years and that he is not “optimistic” about 2012’s gold prices, or the global economic paradigm.

While Mr. Lan made no observations about part or all of China’s economy for 2012, someone else – that country’s leader, Mr. Wen – certainly did. The Chinese Premier said today that his country is seeking a “reasonable correction” in housing prices and that Beijing is committed to making homes more affordable. There are many ways to interpret that language, but we will stick with the obvious; the red-hot real estate sector will not be red-hot in coming months and that has “other” implications for commodity bulls.

Other market watchers see signs of real trouble in China, and not just in real estate. The plethora of stories related to corporate fraud and to corruption at various levels (official and private) is a sign of big trouble brewing in big China. At least that is the take by global strategist Dylan Grice over at Societe Generale. The country is exhibiting the so-called five-stage Kindleberger pattern of manias, panics, and crashes. Economist Kindleberger’s model was based on the work of Hyman Minsky and it classifies the current situation in China as being ‘stage three going into four’ – i.e. the move from “euphoria” to “crisis.” Nobody wants to (yet) consider what ‘stage five’ (revulsion) might look like…

Albeit certain commodities experienced gains in the latter part of last week, the general sentiment (at least as reflected in the latest CFTC data) towards the complex has soured just a bit for the first time in a month. Speculators are evidently leaning towards the theory that the turmoil in Europe might just turn out to be damaging enough to derail the region’s economic growth (and in turn, the demand for “stuff”) down the road. Two-thirds of the complex declined last week as worries about Europe continued to unnerve players.

The Greco-Roman world’s wrestling match with its economic and political adversaries continued to occupy most of the available space in the global financial press as the new week got underway. Beleaguered Greek PM Papandreou will step down from his post but do so only after an interim government is formed and the bailout deal offered by the EU is agreed to. It is not yet known who will fill Mr. Papandreou’s shoes or what Greece’s socioeconomic near-term future will look like, but the compromise in Athens is being interpreted as a breakthrough and certain markets are thus rejoicing, even if perhaps (as has been learned in recent weeks) they are doing so just a tad too prematurely.

Another occupant of an office of leadership – Mr. Berlusconi – was rumored to have stepped aside overnight but the suave singer denied he was logging on to Linkedin in search of a stint on “Dancing With The Stars.” Instead, he was seen doing the “denial dervish” in Rome while being heavily pressured by many to do the “resignation rumba,” seeing as Italian government bonds reached what is being labeled as “bailout-level” yields of over 6.5% this morning. The bond markets as well as the soaring bourse in Milan have apparently voted Mr. B out of his office well before he eventually steps up to the podium and waves goodbye to Capitoline Hill.

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