Gold prices fall as Greek optimism proves fleeting

In the Lead: “Curbing Your Enthusiasm ”

Standard Bank (SA) analysts opine that the rise in net speculative length in PGMs indicates that perhaps players have “shrugged off their skepticism of January.” Albeit they see the current upside in these metals as relatively limited, the Standard Bank team members feel that $1,500 platinum and $600 palladium are both too low from the point of view of the cost of producing them. The PGM markets are still not witnessing very robust levels of demand from primary users, although such offtake could materialize in the second half of the year.

Something else that could also become manifest as the year rolls on is the realization by the Fed that it is perhaps being a tad too pessimistic on its economic outlook. Mr. Bernanke’s team projects US growth rates ranging from 2.2 to 2.7 percent this year. Economist Allen Sinai, on the other hand, envisions US growth rates near 3% and a jobless percentage of 7.7% toward the end of 2012. Among the positive US economic metrics being cited by various other economists are improving employment and related consumer confidence levels, a robust rise in automobile sales, applications for mortgage refinancing, and the gains visible in the equity markets. However the remaining threat of an external shock such as a spike in crude oil prices on the back of a potential Iranian ‘event’ (see Israel’s warning aimed at that country issued this very morning) might still present a potential watch-list item for the US economy.

Well, here is a metal we do not often cover, but one which generated quite a buzz this morning. Let’s not make ‘light of it’ as the saga might have some ‘legs.’ For once, we can bring you a semi-credible conspiracy theory, courtesy of the sharp team at RBC Capital Markets. It goes as follows: “Cancelled warrants, especially in aluminum, have captured the attention of many in the market (and the press) in recent weeks. While only a select few really know what is going on, we thought we'd add our two cents worth.

Slow load out rates (permitted by the LME) and rising cancelled warrants (up 574kt in aluminium so far this year) have helped support physical premiums for the light metal particularly in the US. The premium for Midwest P1020 hit 9.5 cents last year and currently stands at 7.9 cents (its averaged 5.8 cents over the past 8 years). While many think that the slow load out rates and rising cancelled warrants means you can't get your hands on material if needed for up to 12 months, this is not true. You can get metal out of LME warehouses immediately if it has never been on warrant (the load out cap only applies to metal that was once part of the LME stock).

You just have to be willing to pay for it. Add to that the fact that the warehouse operators are offering incentives to owners of metal (up to $150 per tonne in Detroit) to put metal on warrant and you can see why Midwest premiums are at their present levels. Whether owners of "off-warrant" material are helping to perpetuate the problem by buying exchange material and cancelling it, we don't know but it would certainly seem like an easy thing to do if you want to control the premiums at which you can sell metal. Just a conspiracy theory.” No ‘mystery trades’ here. Then again, no ‘shortages’ either.

Until tomorrow,

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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