The new trading week (and what a week it might yet be!) opened with mixed showings in the precious metals’ complex. Spot gold fell about $5 to the $1,730 bid area, while spot silver eased by 13 cents to near $33.55 per ounce. Standard Bank (SA) commodity analysts believe that gold is pricing in a Fed QE of as much as half a trillion dollars(!). Anything less than that figure is seen as having the potential to push gold prices lower late in the week.
No mention is being made of what happens if the Fed simply extends rate guidance or if it defers handing out free money until November, or even next year. Also not mentioned is how gold might add another 11% to reach last year’s high if in fact the $500 billion QE already is baked into this market cookie. We once again have a uni-dimensional gold (and silver) market on our hands; one that needs to be treated with the respect speculators should have acquired after several bouts of previous Fed-induced disappointment.
Veteran market analyst Ned Schmidt’s latest Gold Thoughts (Sep. 6) encapsulates the current market paradigm quite neatly. First, Mr. Schmidt cautions that, “The recent Gold rally, and the purely speculative run in Silver, have [both] been built on the expectation that an all-in, massive monetization of US government debt would occur. If that is not the case and the stealth approach is chosen (whereby the Fed sets small, open-ended regular bond purchases as the preferred course to an all-out QE3), part of the rally, perhaps a significant part, will be given up.”
So, what about the day after the Fed? Mr. Schmidt advises that, “Without an immediate ‘collapse’ of the dollar on 13 September, the current rally of Gold will be extremely vulnerable. As most of the Gold ‘bought’ in the past few months has been really Gold derivatives, not physical metal, the vulnerability is high. Buyers of those futures are not going to take delivery. Now is not the time to be chasing the fantasies of the Street. Was not Facebook enough of a lesson on that? Gold has been the ‘game of the month,’ and Silver has been the speculators’ play toy. Do not confuse a short-term game of fantasy speculation in the derivatives markets with investment.”
The New York opening this morning saw platinum advance by $5 to $1,593 and palladium gain an equal amount, to touch the $657 mark. Rhodium remained unchanged at $1,150.00 the ounce. The Standard Bank team notes, “While the platinum industry is waiting to see how many workers return to Lonmin for work, media reports indicate that Impala workers are now demanding another 10% wage hike following their deal negotiated just a few months ago. Impala’s workers embarked on a six-week long strike around March/April this year, which saw production halted at Impala Platinum during this time.”
Thus, the group says, “We reiterate our view on platinum and palladium — we do not believe that it is worth being short platinum and palladium at this time even though demand is weak and despite the strong rally witnessed over the past few weeks.” In the other, background markets, the US dollar was ahead by 0.12% on the index (at 80.34) while crude oil fell 0.27% and copper rose by almost one percent. Stock index futures pointed to a lower opening on account of Chinese economic developments.