Gold treading at $1,700 despite bullish expectations

In the Lead: “Banks, Japan: Take My Gold, Please…”

While the World Gold Council for example, might prefer to gloss over such findings and focus instead on Borat’s homeland having recently bought a little gold tonnage, you might just want to consider why it is that an entire generation of investors who bought gold at roughly $300-$500 is letting go of (at least some) of its stash. Hint: it has to do with a) record prices and b) the rising need for cash (in so many words, the very reasons the gold was purchased for, in the first place: potential profit and the liquidity it provides in times of trouble).

Platinum opened unchanged at $1,523 per ounce and continued to trade at the largest discount vis a vis gold since circa 1985. The gap is now about $230 versus a historical premium ranging from $200 to $400 against the yellow metal. Palladium rose $1 and opened at $678 the ounce. The noble metal is bumping up against chart resistance around the $680 area after having put it a marathon run from the $563 level seen on the 25th of last month. Palladium has advanced nearly 21% in just over eight trading sessions; about as much as gold has risen all year. Perspective, check.

The ECB rate cut was totally unsurprising and it takes a back seat to the fretting about what the EU meeting might result in. In the background, S&P fired off another round of ‘depth charges’ with the announcement that it has placed large eurozone banks on ‘review’ and that it might cut the EU’s AAA rating soon. That twin announcement certainly did not make for any new European fans for the ratings firm and the feeling is that a veritable war (at least of words) is developing between the agencies and the targets of their reviews and ratings downgrades.

France and Germany remain hard at work on a “Marseille Plan” - one that harks back to a similarly sounding European Recovery Program back in 1948. However, the critical funding support, this time, needs to come largely from within the region, and not America. The fact that the plan’s unfolding might just last as long as the last one (four years or so) is not openly being talked about even though Chancellor Merkel has clearly warned markets well in advance about the fact that this will be a process and not a pen-stroke solution.

Nevertheless, market players are acting as if they expect radical measures to materialize and be implemented in literally days. Fat chance, say we. Disappointment of major proportions might follow any short-lived euphoria that could become manifest post-Marseille. When the realization surfaces that the “debt devil” is ultimately in the plan’s details, the reaction might just be wholly different than what we could witness late this week and early next week. You have just had a preview of that kind of reaction in this morning’s sell-off while Mr. Draghi spoke.

And so, we await Friday along with the rest of the world. Will it bring EUphoria or EUthanasia for the euro? Time will tell.

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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