Gold lifted on hopes that EU disaster is diverted

In The Lead: “Lotsa News At Eleven, Eleven, Eleven”

Precious metals markets opened firmer this morning as the passage of the austerity budget measures by the Italian Senate gave comfort to certain market participants who have been pinning hopes (and trading positions) on the avoidance of a Eurozone meltdown lately. Gold received a $14 lift out of the starting gate and traded at $1,772 the ounce. The $1,730-$1,780 channel appears to be confining the yellow metal for the moment, but do not discount the possibility of out-sized moves yet to come – it all hinges on news from Europe at this time. The Dow surged by over 200 points on the Italian Senate news, for example. Let’s see: Dow up = Can gold be far behind? That’s the new ‘normal’ for ya. Gracias, hedge funds. De nada.

Silver made a tenuous, 6-cent advance to open at $34.09 but fell back to under the round figure shortly after it opened. The white metal continues to exhibit a worrisome disconnect vis a vis gold and its reluctance to join the euro-optimism-engendered party might not bode well for it, or for gold in the medium-term. There was a small amount of trading room chatter yesterday about some MFG positions being unwound but we have no specific confirmation on that matter. Something that is on the other hand confirmed in the wake of the MF debacle is the fact that the CFTC is now reviewing about 120 other futures brokers in order to make sure that they are segregating customer funds from house funds.

In other global news, China’s trade surplus broadened last month but by less than had been projected by economists, as some of its key export recipients appear to be slowing down (see: Europe). Even some commodity-centric economies such as Canada appear to be experiencing an ebb in Chinese imports at this time. Earlier this week, commodity bulls ascertained the news of cooling inflation in China as a major positive.

“Not so fast,” we might say. More importantly than the inflation metrics, China’s bank lending activity swelled in October (to 9.27 billion dollars). The analytical team over at Standard Bank (SA) feels that China’s recent inflation figure does lend support on the downside to industrial metals but that its lending data tends to have the second-largest influence on commodity prices. Such data, “within the context of a Chinese clamp-down on inflation, remains one of the greatest obstacles to stronger commodity demand and greater support for prices.” The SB team opines that until ‘substantial’ easing takes place in China demand for industrial commodities should remain ‘lacklustre.’ There might be exceptions to that rule; see the next section.

Platinum gained $13 this morning and it opened with a bid of $1,633 per ounce while palladium advanced $6 to start the final session of the week off at $653 the ounce. No change was reported in rhodium at $1,675 bid. The fundamentals’ related picture in the platinum-group metals space continues to show supportive conditions for medium-term price improvement in them. The supply/demand paradigm in the group is unlike that which is currently at play in either the gold or the silver markets.

A notable decline in mining output (down 5.4% on a year-on-year basis) coming from South Africa was heavily influenced by a shrinkage in the production of mined platinum-group metals. The ebb in pgm output was responsible for more than a third of the overall mine output decline. Meanwhile, Mining Weekly reports that palladium demand is expected to grow by 5.8% annually, from 2010 to 2020 and reach a level above 10 million ounces. A “significant” shortfall in supply might materialize in palladium before 2015 and the surplus that the market has tallied in the past six years could evaporate along with the inventory of Russian state-owned metal next year.

Speaking of mine production and its corporate sources, the “Reformed Broker” Joshua Brown remarks in a “note to David Einhorn” (he of a very bullish tilt on mining firm equities) that the sector that was supposed to offer great leverage to a rising gold price has done…anything but. This comes from a man who is long in this sector and who would like to see it finally “deliver.” Quote:

“Gold mining stocks used to be thought of as "leveraged plays on gold". If that were actually true, these stocks would have done their job for investors over the last few years as the price of gold has soared. But these stocks have been moribund and awful, an unforgivable sin. They've wrecked the opportunity for their shareholders through dilutive secondaries, insider sales and hedges. $GDX is up from 56 to 60 since the first quarter of 2008, an absolute joke when you consider that the metal itself (look at $GLD) has doubled in value. The failure of the large cap miners to capture that for holders is epic and should be a much bigger story.

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