Gold hurt as downside momentum accelerates

In the Lead: “Momentous Momentum Moment”

HSBC recently revised not only its gold price forecast but the weighting of the metal in its strategic and tactical portfolios. Marketwatch reports that “HSBC’s Fredrik Nerbrand, the firm’s global head of asset allocation, believes the global recession risk is much smaller now, with reduced fears of a euro meltdown and/or apocalyptic U.S. fiscal situation.” The result of such a view is rather obvious, if you read the following content with care and an objective, open mind.

Over in the U.S., speculative hedge funds and assorted money managers augmented their net-long positions in gold and in silver futures and option last week, according to CFTC data that was released on Friday. Oops. What timing. As it turned out, according to Reuters’ Metals Insider, the funds and big players who had bet on a gold rally for last week ended up on “the wrong side of the market …after they pumped more than $1 billion into New York-traded gold futures.” And now, the only other pillar of support for gold (aside from much-vaunted purchases by Borat’s homeland), gold-based ETFs, appear to be showing some disconcerting “cracks” as well.

The billion dollar betting took place after a previous week of rising prices but it came just “ahead of strong economic data that dimmed the safe-haven allure of the metal.”  But, hey, not all was lost, so to speak. Commodity specs, noted Reuters, “had better results with soybeans, a market where they also committed over $1 billion in fresh net long money and which rose nearly 1% on the week.” Tofu, anyone?

The noble metals presented a mixed price performance picture on Monday. Platinum dropped by $33 to $1,659 per ounce after news reports indicated that miner Amplats might postpone putting into motion a restructuring program announced on January 15th that might result in the loss of perhaps as many as 14,000 jobs as well as a sizeable amount of platinum output (7% of global output). The firm reported an 8% loss of refined platinum production for 2012, owing to the effects of labor actions by its workers. Despite Monday’s setback, platinum has risen dramatically since last summer and is still likely to extend price gains if Amplats’ intended course of action comes to fruition.

Palladium, on the other hand, despite being under a bit of selling pressure as well, fared much better on the trading day. The noble metal recorded a spot price high at $754 (a 16-month peak) but finished with a loss of $4 at $742 on the offered side. Major metals refiner Johnson Matthey estimated on Friday that Russia’s state-owned inventories of palladium may be all but gone.

JM projects official Russian palladium sales to amount to perhaps as little as 96,000 ounces this year. Such sales already witnessed a 68% contraction from 2011 levels last year. The result, according to JM, was last year’s 915,000 ounce shortfall in palladium supply versus demand –the largest in a dozen years. These columns have been alerting you to palladium’s intrinsic “shine” for many moons now, folks.

Until next time, may the momentum be with you.

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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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