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Children at Work

Thursday January 19, 2012 10:35 AM

The IMF’s quest for another $500 billion in lending resources managed to boost the euro for a second day this morning and lifted gold prices to five-week highs around the $1,670 resistance area before momentum waned and the yellow metal stalled out and then retreated to near the $1,660 level. The gold-euro correlation remains fairly strong and, for the latter, much is currently being pinned on possible future developments as opposed to current reality, so the (market) jury remains out on how sustainable the common currency’s rise to the $1.29 mark will prove to be.

Do note that the US and the UK have not lined up behind the IMF to support the idea of raising such funds. At any rate, a bit of success was noted in Spanish and French debt auctions this week following the orgy of ratings downgrades that were thrown at nine EU nations last week and this is still reverberating in the euro at the moment. On the other hand, the common currency has once again reached levels at which the Swiss National Bank’s intervention trigger finger is getting mighty itchy…

At any rate, the European debt debacle has thrown a few wrenches into the global economic machinery, prompting the World Bank to project that global growth might not be as robust as formerly envisaged by economists. The WB said that world economic growth might only come in at the 2.5% level this year and that the crisis in the Old World could aggravate already in-progress slowdowns in places such as Mexico and India, not to mention China.

Okay, we will mention China anyway; the WB noted that foreign direct investment in that country fell by the largest amount last December and reached levels not seen since 2009. The institution warned that developing economies should “prepare for the worst.” The World Bank, according to Bloomberg News, also said that Emerging markets are more vulnerable than in 2008 to a renewed global crisis because rich nations wouldn’t have the fiscal resources they had back then to support their economies.

 Developing countries, whose deficits have also widened, should engage in contingency planning to have the necessary fiscal leeway if need be.”

Spot gold dealings started the Thursday session with a modest $2.50 gain near $1,661 per ounce and then fell about $6.50 to $1,652 after the US released initial jobless claims and December inflation figures. The yellow metal remains in orbit around the 50% retracement level of the decline that began at $1,803 in early November and while $1,700 still remains a viable target in this corrective move, the momentum in the metal is apparently stalling.

Speculative fervor in gold has apparently been tempered somewhat, as seen in the most recent CFTC market positioning data. Gross gold positions are presently at their lowest levels since April of 2009. The yellow metal’s recent volatility-laden period has also prompted a few academics to reassess the certainty levels (to so-called “sure thing factor”) that some have attached to investing in it.

Meanwhile, physical demand remains a bit of a question mark as, despite decent Asian offtake levels this week, the Chinese buyers will (after tomorrow) embark on celebratory New Year activities and Indian ones still appear to remain not too eager to load up on the metal at current or soon to be duty-inflated prices. Standard Bank (SA) analyst summed it up thusly this morning: However, with today the last day of work for many Chinese, this support cannot be relied on over the coming weeks. Unless Indian buying fills the gap, which is unlikely given the relatively lacklustre activity we’ve seen over the past few days, we could see gold tracking the dollar even more closely as we move into next week.”

US unemployment benefit filings fell substantially last week, with 50,000 fewer applications tallied and they reached a near-four-year low at 352,000. US wholesale inflation was down 0.1% while America’s core inflation rate was up 2.2% over the past year. Consumer prices remained flat in December. Apparently, hyperinflation remains a bogey that is still largely confined to the pages of alarmist financial publications which have been waiting for it to ravage your wallet for half a decade now. They are still waiting.

Spot silver opened with a gain of 26 cents at $30.75 and then fell to $30.44 showing a loss of eight pennies by the time the Dow opened for action in New York. Morgan Stanley recently cuts its 2012 silver forecast by 29% to an annualized average of $35.48 and Credit Suisse trimmed its own silver projections to $32.80 for this year.

None of that kind of level-headed forecasting has stopped the calls/promises for triple-digit silver “just around the corner” coming from quarters that ignore the reality that at least 55% of silver’s demand is industrial in nature and that the white metal-judging by perhaps only four central banks owning any-has lost its former monetary attributes. Platinum advanced by $4 to $1,527 while palladium rose by $8 to reach $674 per ounce. Rhodium remained bid at $1,300 the ounce. The best gain (aside from palladium) this morning was noted in crude oil values, which climbed 1.15% to the $101.75 per barrel.

The US dollar narrowed its earlier losses on the trade-weighted index and was quoted at 80.33 (down 0.20%) at last check. Technicians opine that the maintenance of the 80.23 level is fairly important for the moment and that a breach thereof could extend the greenback’s corrective pullback from the 81.50 level that it touched on the 9th of the month. Recall that the US currency reached lows near 72.70 last spring and near 74.72 last fall amid firm declarations that its days were numbered and its fate totally sealed.

We close today with not the most pleasant of topics, but with one that merits your attention provided you wish to know more than the superficial facts extant in the gold market. We have all heard of “blood diamonds” and now even of “blood gold” when it comes to certain African countries (Congo). However, now, another side of the price equation of gold has been brought to the attention of Marketwatch’s readers by award-winning broadcast journalist Jeanette Pavini.

Ms. Pavini would like us all to be aware of the sources of our shiny stash of bullion. She recommends that bullion buyers can support “fair trade” jewelers and bullion dealers when opting to purchase gold. This, because the UN estimates that about 20% of the world’s gold might be coming from so-called ASMs (artisanal and small-scale mining) which entail child slave labor and human trafficking. For example, in Mali, it is estimated that some 20,000 children work in gold mining. As many as 50.000 kids might be digging for gold in Peru. Sadly, some ill-informed commenters on the Marketwatch site have summed up such tragedies as “Well, at least they have a job…”

Small steps are however being taken to rectify the situation in this niche. Marketwatch reports that Beginning this year, under the California Transparency in Supply Chains Act, major companies — not only those based in the state, but also many that do business there — are required to post information on their websites regarding their policies and some of the steps they’re taking to address human trafficking within their supply chains. Currently some companies only monitor labor issues at their first- or second-tier suppliers.

As well, “The Dodd-Frank Act includes a provision that companies that have gold or one of three other minerals in their products are required to tell the Securities and Exchange Commission in their annual filings whether those minerals — known as “conflict minerals” — came from eastern Congo. If they did, the companies must explain the acquisition process to ensure there was no illegal or abusive armed groups profiting from the mining. This provision of the act will go into effect after the SEC issues clarification on the regulations, which have been delayed. Enforcement details are expected sometime in the coming weeks.”

Until tomorrow,

Jon Nadler
Senior Metals Analyst – Kitco Metals

*****

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

Week of January 16, 2012

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