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The Other Side of the Mountain

By Jon Nadler       Printer Friendly Version
Apr 2 2008 9:13AM

Good Morning,

Overnight gold trading saw prices stabilize near $880 and the metal enjoyed some mild bargain-hunting from physical demand channels whose patience has been rewarded with prices almost 10% lower than one month ago. Indian buyers remained on the cautious side, awaiting still lower values before they set out shopping for the upcoming April/May auspicious wedding period. In the interim, Turkish demand practically fell through the floor of Istanbul's bazaars as the country imported its lowest ever amount of bullion last month. Six hundred and seventy five kilos. More than five thousand kilos of scrap made it into the market year-to-date, on the other hand. Says something about price perceptions, yes?

New York spot gold opened with only a $4.00 gain after five days of losses and was quoted at $888.80 per ounce as players remained on dollar-watch but also as they awaited to learn the contents of Mr. Bernanke's testimony before the US Congress later this morning. Just a few minutes prior to the open, the gains had been more on the order of $10 per ounce. Overnight tests of $895 were -thus far- just that: recon flares. A raft of economic data was also slated to come into the picture over the next 48 hours and depending on what the numbers reveal, the bulls may attempt a push back to higher levels as the week closes out. There are no guarantees however, as sentiment has been shaken and stirred across the board in commodities. A quick glance at the Kitco one-year gold chart starts to reveal an image of Mount Everest that is now drawing the right side of the summit. However, just like a Rorschach test, some see only an alpine valley in the picture.

The spectre of deleveraging still looms large above the markets despite bugle calls for the commodity supercycle to continue indefinitely. Thus, the resumption of the trend towards a possible repeat trip to the $845 previous all-time high should not be shelved as "improbable." Silver did not fare as well, showing a 10 cent loss to $16.76 (what shortage?) while platinum rose $24 to $1946 after GM and Toyota expressed confidence in an auto sales rebound on the heels of a double-digit drop in same during March. Good time to buy that hybrid and ditch the SUV. Palladium  was quoted at $439.00 per ounce, unchanged. As we went to 'press' (the send button) the US dollar was mixed and was indicated at 72.54 on the index (a small gain), while crude oil gained 38 cents to $101.36 per barrel.

In other news, the Sydney Morning Herald reports that:

"The International Monetary Fund cut its forecast for global growth this year and said there's a 25% chance of a world recession, citing the worst financial crisis in the US since the Great Depression.

The world economy will expand 3.7% in 2008, the slowest pace since 2002, according to a document titled "IMF Background Paper on the Update of the Global and Regional Outlook." In January, the fund projected growth of 4.1%. The IMF gave a 25% chance that global growth will drop to 3% or less in 2008 and 2009, a pace the fund described as equivalent to a world recession.

The fund lowered its forecast for US economic growth to 0.5% this year, according to the document, below a 1.5% prediction made in January. The world's biggest economy will expand 0.6% in 2009, it said. The euro region will expand 1.3% in 2008, the document said, down from the fund's 1.6% projection in January.

"Growth in the US and Europe is slowing sharply," the IMF document said. "The ECB can now afford some easing of the policy stance."

The notable conclusions that such slow growth equates a recession and that the Old World could cut interest rates in a replay of the "Bernanke Slash" should have commodity traders think long and hard about future demand for 'stuff' as well as the prospects of a stronger dollar against a euro that is 'managed' to lower levels. All of this, is still unfolding against less than comfortable levels of inflation in the global system. Tough set of conditions. The G-12 will have their agenda quite full when they meet later this month.

Stay tuned for the Ben Bernanke show and watch the economic statistics in the pipeline. Defensive posturing is still the safest course of short-term action.

Happy Trading.

PS - Kitco's Online Store reports that in addition to ample supplies of silver pool account ounces, Perth Mint Certificates, and GoldMoney silver ounces, physical silver bars in 1, 10, 100, and 1000 ounce form are also available for immediate sale, as are Silver Eagle coins (but not many). Silver Maple Leaf coins can be ordered with a price lock guarantee (as can US Eagles should they run out) and delivery will be effected as soon as the two mints strike fresh batches of them. There is a deficit of coin blanks at source, but work is in progress to alleviate the situation. Expect a two to four week delay, but do not feel you cannot take advantage of the current lower silver price.

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.