Gold reaffirms recent correlation to euro

In the Lead: “Nothing Newt Under The Sun”

To wit, Marketwatch political watcher Jeff Bartash remarks that: “Returning to a gold standard now, however, is virtually impossible. Aside from Ron Paul, a gold advocate, few politicians in Washington support the idea. Nor do the vast majority of economists. There’s even less support overseas. Governments don’t want to be limited in the amount of money they print by a source of metal that’s in short supply. If the U.S. went back on a gold standard, the government probably would have to set the exchange rate at an extraordinarily high level, potentially damaging the economy in the short run. Otherwise other nations such as China would quickly exchange their excess dollars for gold and drain the bullion out of Fort Knox, where much of the nation’s yellow metal is stored.”

The latest in CFTC reports indicate that the positioning in the gold market’s speculative niche has improved a tad, but there remains some doubts about the precious metal’s near-term price prospects at this juncture. The reported situation is not quite the same in silver, where the ETFs have made a fresh buying sortie in the latest reporting period and loaded up on over 340 tonnes of the white metal. This, just in case anyone was still left wondering why the white metal managed a $1.50 pop ahead of last weekend, with no fresh news on the industrial demand side, or from China, or the EU.

Silver traded near the $32.50 resistance level early this morning in New York. Standard Bank (SA) analysts opined this morning that despite the sizeable additions by silver-based ETFs (best in 12 months) the general silver market spec positioning is still relatively weak when judged by the net longs as a percentage of open interest. That metric is running at 11.8% currently as against an average of 15.7% seen in 2011.

Thus, the remaining question is at what price target above current levels the silver specs will be mobilizing their computer-driven profit-taking forays. A better price outlook for platinum was also reflected by that metal’s increase in net long positions albeit the size of the total short ones remain considerably high at this point. The noble metal traded near $1,555 this morning (up about $15) and its discount to gold fell to about $120 an ounce.

Palladium advanced $2 to trade at $684 and it has now tallied gains on the order of 11% this month, almost as good as platinum’s 13% advance since recent lows at year-end 2011 were put into place. Rhodium was $75 higher on its bid quote this morning, with indications coming in at the $1,375 mark per ounce. You might wish to read the interesting article on the aging US vehicle fleet and how it relates to the PGM complex, written by Kitco’s Allen Sykora. There are a lot of 10-year old+ automobiles soon to be headed to the scrapyards and their replacements could bring smiles to the automotive industry in the US.

The initial price enthusiasm in the precious metals’ space was dealt a bit of a setback as the trading morning completed the first hour of action. Gold went into negative territory under the $1,667 level while silver fell 25 cents to the $31.96 mark. While platinum was still ahead by $7 an ounce, palladium declined a net $2 from its previous close. Following that short-lived swoon, the metals all regained their composure and posted once again solid gains but the volatility remained quite visible ahead of a slew of news yet to come from the Fed, Davos, and of course, Athens. PGMs continue to still benefit from news related to labor action at Impala Platinum’s South African facilities. The standout stalwart performer remained copper; it maintained a 1.51% advance for the morning.

The above brief retracement in values took place despite a still sizeable decline being manifest in the US dollar on the trade-weighted index (down .075% at 79.76) and was attributed to quick maneuvering by spec funds and the rising perception that perhaps ‘risk-on’ at “full speed” was a bit premature of an attitude to adopt this morning given that nothing concrete has yet come out of Athens in terms of news and that the Bundesbank now sees that country’ economy as moving “sideways” in the near-term. “Sideways” for Germany could equate “skids” for various other EU member nations…

Stay tuned…to any European station you choose.

Jon Nadler is senior metals analyst with Kitco Metals Inc. in Montreal.

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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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