Gold trades lower as risk heats up in Europe

In the Lead: “Domino Theory In Action”

Spot bullion dealings opened with a loss of $18.40 per ounce in New York this morning and gold was quoted at $1,743.50 the ounce after having touched lows near $1,739 overnight. Prices then fell as low as the $1,724 (down $38+) level in hectic mid-morning trade in New York. Gold continues to behave more and more like a risk asset and it is unfortunately not exhibiting the attributes for which it is traditionally sought out by worried investors. Gold also continues to do the euro-tango and one must ask themselves what the projected (by BNP Paribas) mid-$1.20 euro/dollar rate might portend for it by the end of the first trimester of 2012.

The precious metal’s safe-haven status is also once again under scrutiny and perhaps in question, despite ETF managers’ pleas that we all ‘keep the faith’ and despite positive spins being placed on supply/demand statistics that would normally argue for relatively poor market fundamentals (a 5% increase in mine production, the continued over-dependence on investment demand, a 26% slump in Indian physical demand, a 10% drop in already moribund jewelry off-take, and the incipient signs of mine hedging).

Silver fell 172 cents (5.1%) to the $31.86 bid level after having broken the $32.00 even figure this morning. Albeit its recent triangle pattern could have implied the advent of another rally towards the $37 to $39 per ounce area, a convincing breach of the $32.00 mark could well obviate such a push to higher ground and instead usher in a slippage towards the mid (initially) and then the low $20s. The white metal remains in a bear market by most definitions. Its own fundamentals are rather similar to those seen in gold at the moment; i.e., a surplus of supply over demand, growing mine output and a dangerous addiction to investment demand while core traditional demand areas (as in: industrial) are floundering.

Platinum and palladium both traded lower by double-digits this morning; the former lost $35 to touch $1,582 and the latter dropped $35 to reach $613 the ounce. Recent Johnson Matthey-supplied data indicates that platinum supplies are set to rise 6% this year and that the market could end the year with a small (relative to the total market’s size) surplus of 195,000 ounces. JM continues to project “solid” demand for the noble metal and it envisions a floor under the market near the $1,450 area while it allows for an average price of $1,650 and a potential spike to $1,800 over the next six months.

Bolstering the case for such positive near-to-medium-term projections on platinum is this morning’s report that covers the difficulties over at major producer Implats. South Africa’s second largest platinum mining firm saw its production of the noble metal decline 12% in Q3, while its refined output fell 27% to only 388,000 ounces troy. Meanwhile, the cost of production on that ounce of platinum rose by 10.8% on the quarter, due in large part to wage renegotiations and on-going electrical power supply issues (in this case, tariff hikes on electricity). Palladium production at Implats dropped 12% as well but rhodium output was slightly less affected; it only declined by 7%. The issues of majority ownership transition processes (still unresolved) and the loss of lives (three in the past quarter) in accidents (which also resulted in lost production) continue to present challenges for the firm.

Closing out today’s roundup: The Dow remained virtually flat, the jobless claims figures came in at their lowest level in April, U.S. housing starts were showing signs of life, $600 million or so are still ‘missing’ from MF Global, and Freddie Mac ‘consultant’ Newt Gingrich, who [this week anyway] leads the GOP polls, was accused of corruption by someone who…should know the meaning of that word: Jack Abramoff.

Until tomorrow, spectators to all of this we shall be….

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

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