Gold pivoting around $1,600 on low volume

In the Lead: “Going with the Flow”

That time is not now, has not been this year, and 2012 offers little in the way of much-improved prospects along this front. Gold may be money, but money is also cash. When values begin to be perceived in hitherto battered asset classes, that “cash” comes in handy for purchases and gold no longer equates the solo “go-to” option for some. Ignoring such a potential sea-change in this all-important sector could be detrimental to one’s financial health. To be continued…

Much propaganda has also been written this year about the growing interest and participation by Chinese investors in gold. Some see those local investors as representing the biggest news for the yellow metal since…India. Well, not all is well on the gold trading front in China, it turns out. Reuters reports that the mushrooming of gold exchanges in the country has been an out-of-control phenomenon and that speculation has reached worrisome levels that can only be compared to the country’s other bubbles (see: real estate).

As a result, the Chinese authorities have outright banned all gold exchanges aside from two in Shanghai. The edict was posted on the website of China’s central bank (www.pbc.gov.cn) and it refers to a plethora of illegal, irregular, and unmanaged activities in the gold trading space in the country. The PBOC also stated that some folks will be placed under criminal police investigation as part of the crackdown. Note to over-optimistic newsletter vendors: if this is where you see the ‘salvation’ for the gold market coming from (China’s gold bucket shops), please rethink the matter.

Europe’s situation remains nebulous as the final hours of 2011 tick away, but indications are that there is a growing amount of liquidity in the system in the wake of the extension by the ECB of some 500 billion euros’ worth of long-term loans recently. The recipient banks have been opting to park some of the money they are sitting on with the ECB as reflected in the rise to an all-time high of the central bank’s overnight deposit facility. Despite the liquidity overhang there are still trading room perceptions that gold leasing is alive and well in Europe. Lease rates have not budged very much at all from their negative levels over the past couple of weeks.

Liquidation in gold was also partially attributed to declines in Asian stock markets, most notably the one in Shanghai, where the Composite Index fell to a fresh 33-month nadir with a loss of 1.1% on the session. Local investors continue to be apprehensive about the manifest slowing in the Chinese economy and its fast-declining (but still localized) urban real estate market. As well, they remain anxiety-ridden about Europe’s gloomy prospects for robust growth until it deals with its debt crisis.

To be sure, progress to the upside in Asia’s regional equity markets has been stymied not only by such perceptions but it has not been helped by statements such as the most recent one coming from the IMF’s Christine Lagarde either. Ms. Lagarde remarked on Sunday that “the world economy is in a dangerous situation” and that one might not expect growth rates near the previously projected 4% for the global economy in 2012. Ms. Lagarde believes that certain countries (three out of the four BRICs, at least) might suffer from “instability factors” in the coming year.

Meanwhile, over in the USA, conditions are still improving but they remain at risk from a European “event” that many still expect to unfold in the not so distant future. America’s unemployment levels are expected to shrink only marginally next year but the country’s growth rate could rise to near 2.5% following a rather anemic, sub-2%, expansion that was seen this year. 2012 brings Presidential elections to the forefront and along with them, the turning up of the decibel level in the rhetoric regarding who has been or who might be a better manager of the USA’s economy and labor conditions.

Despite pre-emptive but empty GOP criticism of the Obama administration’s performance in this area, the American economy is set to finish 2011 on an upbeat note. More than 100.000 jobs have been created for nearly six months in a row now, and that would be the best such metric since 2006. Economists now anticipate that some 177.000 position will be added to America’s payroll rosters on a monthly basis, through election time in November. Hopefully, Europe will not derail the projected trends.

Until tomorrow,

Jon Nadler is a Senior Metals Analyst at Kitco Metals

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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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