Gold unimpressed with Europe’s “grand solution”

In the Lead: “Yawn”

Spot gold dealings had lost nearly $38 on Thursday and closed near their lows for the day, threatening to breach the $1,700 price support. This morning’s near $10 opening advance to $1,715 per ounce represented perhaps in part a response (and a small one at that) to the EU’s fiscal accord but more likely a minor corrective bounce in a market that still has the euro trading at $1.33 and the US dollar unwilling to roll over and fall on a sword. One would have expected a truly grand celebration ($75 or more) in the yellow metal’s trading space on the back of the “be-all end-all” agreement that was cobbled together in Marseille.

Once again, it might be safer to say: “Dude, where’s my rally?” this morning. By the 9 o’clock hour in New York, gold was seen as struggling to remain above $1,710 the ounce, instead. Once again, those who have little in the way of clues as to the market will come out of the woodwork and blame ‘sinister’ intervention on the part of certain entities as the cause for such price behavior. Sorry, but there are no crop circles to be found and/or interpreted in this market. Yesterday the blame for the wallop in gold was laid at the conspiratorial feet of the BIS, the ECB, the IMF, and…the Fed (!). “Whacking” gold is not the Fed’s business, we remind. The US Treasury in fact is in charge of the US stash of the shiny stuff.

Kitco News’ Allen Sykora reports that “A background factor pressuring gold Thursday was apparent significant lending of the metal by institutions looking to raise U.S. dollars, says HSBC. Gold fell with the euro after the European Central Bank president nixed speculation that the ECB would support the currency by stepping up its sovereign bond-buying program. There was investor disappointment in a broad range of markets, with equities and commodities falling. “The gold price declines were so rapid and extensive that some investors theorized that central banks – including the Federal Reserve – were actively selling gold,” HSBC says.

HSBC tried to further clear the air and noted that “Unlike most central banks, the Fed does not have access to U.S. gold reserves, which are held by the Treasury and can be sold only on the instructions of the Treasury secretary. Rather, we believe it is more likely that gold lending by European commercial banks was interpreted as central-bank selling. This is in keeping with persistently negative gold lease rates, which indicate substantial lending of gold by banks in return for USDs. Gold leases are at their lowest levels since 1998, when gold reserves were being mobilized by South Korea at the height of the Asian financial crisis. Until funding difficulties at European banks are resolved, it is difficult for us to see any near-term halt in gold lending. This may help keep gold prices on the defensive.”

Silver gained 31 cents to open at three pennies under the $32 mark but its early rise did not appear to be imbued with a lot of energy either. We had mixed openings in the noble metals space; platinum rose $5 to the $1,498 level while palladium fell $2 to the $669 figure per ounce. Rhodium remained at $1,500 after having shed $50 in the most recent session. The greenback traded at 78.77 on the index this morning while crude oil was in suspended animation at $98.45 per barrel. About the only notable advance in values this morning was in copper, which climbed 1.5% on account of news that China’s inflation showed a dip and that its copper output fell 4.5% in November.

The $200+ discount in palladium versus gold continues to draw attention from certain ratio-based traders who do not anticipate the now historic price inversion to last for very much longer. In fact, one asset manager, Jess Gaspar (he of Commonfund Asset Mgmt.), speaking at the Inside Commodities Conference in NYC said that platinum could be poised to rise on the back of improving sentiment and the ebbing of the supply chain disruptions that was caused by the Sendai quake in Japan back in March.

At this point, the best thing that can be said is that we can shut the box marked ‘anticipation’ for a while and concentrate on the one labeled “realization” in coming weeks.

Have a pleasant – if still uncertain – weekend,

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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