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A Job for Jobe

By Jon Nadler       Printer Friendly Version
Feb 6 2009 9:07AM

"Due to Trade Show travel schedule we will return with the daily commentaries on Monday, February 9th"

Good Morning,

Good as the going may have been earlier in the week, gold bullion appeared headed for its first weekly drop in three, on Friday. Pre-weekend profit-taking was undermining what looked like a possible break to the upside of the congestion pattern which had developed of late. Still, not all was lost, and some participants felt that if gold could advance above the $930 area on the wake of employment statistics, then the path would be cleared for further gains in the coming week.

Thus, a waiting game developed. The dollar was idling near 86 on the index, while oil was drifting aimlessly near $40 per barrel. Speculators were mainly focused on upcoming jobs data and the fate of President Obama's stimulus plan on the floor of the US Senate. The President might need Jobe's patience and resolve in the face of the developing economic quagmire.

US and global background conditions showed little signs of improvement in the past 24 hours. Basically, any retailer not named "Wal-Mart' experienced declines in January. Toyota Motor was set to post its first loss (and not a small one, either) in 59 years. Inflation was found in a coma, in a dark alley, following a brutal attack by a suspect known as "Recession." Bullion-vending pundits were ringing a Weimar-size alarm on putative inflation - some three years henceforth.

New York precious metals trading opened on a positive note this morning, with gold showing a $3.90 per ounce gain, at $918.40 as participants awaited the January employment figures and its collateral effects on the US dollar. Oil prices showed further declines, breaching the $40 level as traders perceived OPEC supply cuts to have stalled. Silver advanced 11 cents, starting off at just above $13 per ounce, while platinum rose a robust $18 to $992.00 per ounce. Palladium climbed $8 to $208 per ounce.

US automakers are seen seeking some $25 billion from Uncle S., while he is reported to have retained bankruptcy lawyers in preparation for the "next stage" of the motoring morass.

Dow futures were on hold, pending the jobs data release. The greenback turned higher ahead of the numbers, rising to 86.10 on the index.

And, as of 8:30 Eastern, we are off! Not to the races, but off, as in 'down.' Gold's initial reaction to the data was to slip towards $915 per ounce. It turned to the minus side, shortly thereafter. Safe-haven buying could still make the final difference before Friday's recess bell rings.

"Minus" was also the story in the jobs numbers: 598,000 non-farm jobs was the tally for January. Worst such number since 1974. Factory jobs fell 206,000 - the most in 26 years. The expected 7.5% jobless rate for last month turned out to be one-tenth higher. If there is a recovery already underway, it is harder to see than Mini-Me on a basketball court.

Our friends at RBC issued their forecast for the yellow metal for '09 and it goes as follows:

"Gold prices will likely remain firm during the first three months of this year, held up by seasonal demand for physical gold and continued demand by investors looking for a safe haven, but could lose some ground in the middle of the year, before surging back again, analysts at RBC Capital markets predicted this week.

In a gold outlook report titled 'Beginning and ending 2009 with a bang...but risk is in mid-year," RBC forecasts that 2009 will prove a volatile year for the yellow metal. The analysts maintained their average gold price forecasts of $850/oz for 2009, $875/oz for 2010, and $900/oz long-term, but expect that the metal will trade in a range between $750/oz and $1,000/oz this year.

A combination of physical and investment demand would likely keep prices in a range of between $900/oz and $950/oz in the first quarter. On Thursday afternoon, gold was trading at around $912/oz. The metal has surged since the year began, buoyed by safe-haven buying amid a global financial crisis.

"However, by mid-year, our expectation of an extended global recession could result in significant economic pressures in the emerging market economies and we would expect gold to retreat and test $750/oz and gold equities to correct significantly," the RBC analysts predict.

"In our view, there is risk of a significant June-July period of weakness for gold demand and the potential for emerging market scrap sales in an extended global recession."

This expected destocking or sales of scrap gold could be similar to what happened in 1998 during the Asian Tiger crisis, when gold sales more than offset investment demand for gold, which led to lower gold prices.

However, if the expected mid-year correction does occur, investors would do well to use the pullback as a buying opportunity, as RBC expects that gold will return to the $1 000/oz level, as the global economy starts showing signs of recovery later this year or early in 2010.

"The extraordinary amount of fiscal and monetary stimuli is expected to result in a recovery of the global economy in 2010, and gold equities have traditionally rallied early in an economic recovery cycle."

The rebound in the gold price will also be accompanied by a corresponding recovery in gold shares, RBC predicts. Earlier this week, brokerage UBS upgraded its ratings for five North American gold producers, including Barrick Gold, saying investor and speculative demand are boosting gold prices. The brokerage raised its 2009 gold price target to $1 000 per ounce from its prior view of $700 per ounce.

While $850 as an average is about $40 higher than what we projected at the end of December last year, bear in mind that RBC analysts also believe that a recovery is set to begin about one year earlier than we feel it might.

Will return in the PM - with the final thoughts for the week - from sunny Orlando.

Jon Nadler
Senior Analyst
Kitco Bullion Dealers Montreal



Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco 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 Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.