Gold, silver trade lower after European elections

In The Lead: “Aux Armes, Citoyens!”

The electoral ouster of French President Sarkozy sent the euro into quite a tailspin on Sunday evening and that development helped the US dollar push aggressively towards the 80.00 mark on the trade-weighted index. The breach of the $1.30 level against the greenback by the sliding (to a three-month low) euro made the opening quotes in precious metals fall into the red column fairly swiftly. Declining metals prices were accompanied by a near 3% fall in the Nikkei Average, a slide in crude oil to four-month lows, and by a generalized retreat in risk-taking sentiment.

Spot gold bullion traded at lows near the $1,635 level in Sunday night trading, while the news from Paris also engendered bid-side quotes at near $29.90 for silver. Considering the fact that the second largest economy in the EU has just been handed over to Socialist control (for the first time in 17 years), and that the advent of Mr. Hollande’s tenure is likely to give rise to deeper rifts with previously stated German economic and budget deficit policies, the damage to the euro was relatively contained.

Albeit somewhat more stable, the metals markets opened to the downside in gold and in silver and with modest advances in platinum and palladium on Monday morning in New York. The action reflected a decline in the US dollar after last night’s surge to the round resistance level and the return by the euro to a level just above the $1.30 pivot point.

Spot gold lost $5 on the open to start the new week with a bid at $1,637 the ounce. Silver fell 20 cents to the $30.14 mark per ounce. Platinum climbed $5 to $1,528 while palladium rose $2 to $651 the ounce. No changes were noted in rhodium at $1,350 per ounce. In the background, crude oil was hovering under the $98 level per barrel down about 0.75%.

The most recently available CFTC positioning reports indicate that net speculative length in the yellow metal remains feeble amid lacking bullish confidence. In silver, the longs shed some more tonnage but so did the shorts, which could at first blush appear positive. However, the substantially large short position of nearly 1,600 tonnes continues to reflect a similar lack of confidence in the white metal’s ability to stage a serious recovery and is, in the words of analysts at Standard Banks (SA) “a cause for concern.”

Platinum speculators built up hefty new long positions, but their move was still being countervailed by a relatively sizeable short position being held by similar players who hold opposite convictions. Palladium positioning continued to improve, but the longs still have some way to go before they can convince more players that there is cause of favoring platinum’s close relative in terms of a short-to-medium term play.

Most analysts concur with that view as certain car markets, despite being slower than they were last year, continue to consume robust amounts of the noble metal. Consider for a moment, the fact that a new car hits the road in China every 2.3 seconds (!) on average. Palladium is indispensable in that process.

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