Gold prices meander after ECB’s reluctant statement

In the Lead: “PGMs = Potentially Great Movers”

Amid further, but by now routine, delays and more negotiations among its political leaders, the situation in Greece showed no concrete signs of coming to a conclusion just yet, despite the optimism manifest in certain currency, equity and commodity markets on Tuesday. To wit, the euro traded near $1.329 (a two-month high) while European stocks posted gains despite some unsettling economic metrics coming out of Germany.

Gold and crude oil enjoyed a very good trading session on Tuesday as speculators threw money at both markets with an amount of generosity that was clearly lacking on, say, last Friday. This morning, however, the going got a bit tougher after the euro exhibited a bit of “fade” in the wake of a reluctant-to-dole-out-money kind of statement coming from the European Central Bank.

A package intended to untie the complicated knots that Greece is tangled in has been on the working tables in Athens since July but the past five days have really been cliff-hanger ones when it comes to the country securing its second round of bailout funds and/or its prospects of remaining in the eurozone altogether. Whether Greece secures the money or heads into bankruptcy does not alter the fact that its denizens face inevitable hardships ahead, complete with wage and pension cuts as well as even more joblessness.

Greek labor unions staged another walkout yesterday and indicated that their members are not keen on more austerity measures being imposed upon them and that the bailout is being rammed down their throats by foreign creditors. Greek Finance Minister Venizelos calls the unfolding saga a “dramatic and acute dilemma.” However, it is clear that despite dramatic statements being made by politicians who are up of election/reelection come April, the real power in the situation resides in the hands of the so-called “troika” of the IMF, the ECB, and the European Commission at this juncture.

Gold prices meandered on either side of the ‘unchanged’ marker this morning and orbited around the $1,745 area as the US dollar did not appear to pierce the 78.50 level on the trade-weighted index following yesterday’s euro-centric optimism-induced sell-off it was subjected to. At least one school of thought sees a potential sell signal in the recent advances made by the yellow metal, while another such school envisions more volatility as the defining feature of bullion in coming months. Crude oil, on the other hand, made further progress to the upside, gaining another $1.25 this morning. Developments in Iran and Nigeria continue to bolster black gold and the lower dollar did not hurt it either.

Speaking of the greenback, the “Arab Street” has been turning toward it in droves following the spreading malaise that has ensued in the wake of the “Arab Spring.” Folks in Egypt, Libya, Tunisia, Iraq, and Syria have been seeking shelter in the American currency have watched their own colorful banknotes taking a hit in value and they have thus sought out the relative safety of the buck in unprecedented numbers. Bloomberg News reports that, for example, “In Syria, where an uprising against President Bashar al- Assad’s rule is still raging, demand for dollars is so high that Mudher Salih, the deputy central bank governor of neighboring Iraq, said Jan. 10 that traders were buying dollars in his country to sell them illegally next door.”

Silver climbed by 19 cents to the $34.34 mark on the bid-side but appeared confined in the $34 to $34.50 channel for the time being. Platinum gained $3 to rise to the $1,650 level and palladium moved up by $1 to the $709 per ounce figure. The former has now halved its previous near-$200 discount to gold in a matter of not too many trading sessions. There are a couple of fresh news items on the subject of the noble metals that merit our attention: they come from Norilsk, Lonmin, and South Africa. Read on:

The world’s top palladium producer, Norilsk Nickel said on Tuesday that “PGMs have investment potential comparable or even greater than gold.” Platinum has moved 16% higher thus far this year, while palladium has advanced by 24% from its October lows. Existing platinum above-ground supplies might last no more than 7 months if production of the metal were to be halted. A Norilsk official puts the price of palladium at $2,100 in five years’ time, while he also sees a 50% gain (to $2,500) as possible in platinum. Gold would have to touch $5,100 to mirror the kind of performance that Norilsk envisions in palladium.

Another PGM producer, Lonmin, told attendees at the Africa Mining Conference in Cape Town that the risk of platinum supply disruptions is growing. The firm’s CEO, Ian Farmer pointed to “government safety stoppages, labour management difficulties, skills shortages, transformation and equity ownership challenges, rising community expectations, resource nationalism and high electricity prices” – all of which are making operating in South Africa increasingly difficult.

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