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Jon Nadler

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Dude, Where's My Ship? Hint: Not Coming In

By Jon Nadler       Printer Friendly Version Bookmark and Share
Aug 30 2010 9:32AM

Good Morning,

Marginal declines were noted in gold prices as the new trading week got underway overseas last night. Mild profit-taking and an emerging modicum of risk appetite for equity assets arose in the wake of the Bernanke pledge on Friday to “do whatever it takes� to ensure continued US economic progress.� 

Normally, such “whatever it takes� posturing has emboldened the carry traders and has had them pouring large sums of the nearly free cash available to them into the commodities complex. Not this time around, it appears. Not yet, anyway.

Gold opened with a minor $1.90 per ounce loss this morning in New York, the result of an approximately $3 negative pressure being applied by the rising US dollar and only about one dollar’s worth of gains offsetting it from buyers of the yellow metal (according to the Kitco Gold Index).

The precious metal is currently confined to the fairly broad $1,210.00-$1,250.00 range, but at least one school of technical thought –the one over at sees a “reversal top� as having been put into place in December gold, on Thursday of last week. Silver continued its recent rise, gaining 6 cents at the market’s opening, with a bid quoted at $19.17 the ounce.

If you are still convinced that “peak gold� is upon us, look no further than the figures recently released by the World Gold Council in its quarterly demand trends report. Or, for that matter, this morning’s revelation that Australia’s gold output (the country occupies the number two spot in global gold production) rose by 20 (twenty) percent in June. That’s the highest level in six years, and it amounted to 67 tonnes of yellow metal. Year-on-year gold output in Oz climbed 11% to reach 245 metric tonnes. Following the yellow brick road indeed, leads to Oz.

Platinum also climbed higher, posting a $4 rise to $1,535.00 per ounce. Palladium fell $1 to the $502.00 level and rhodium was unchanged at $2,080.00 per troy ounce. No signs of improvement in crude oil, which fell 40 cents to draw closer to the $74.75 level. The gainer of the morning-thus far-was the greenback, which rose to just a few ticks shy of the 83.00 mark on the trade-weighted index.

While the customary carry-based plays may still become manifest, for the moment, the choice (in certain assets anyway) is to take a breather, at least until fresh US data –due this week- might show that the Fed might have to do more than “whatever it takes� to keep the economic engine of the US purring along.

Look for Friday’s jobs report to be at dead-centre for this week’s market obsessions. Stronger than anticipated job creation figures might sap some of gold’s recent strength, while poor conditions in the labour market could extend the same back towards resistance levels above $1,25.00 the ounce.

Meanwhile, look for July consumer income and spending figures to be revealed today and for US consumer confidence numbers on tap tomorrow. Most economists believe that July’s consumer spending will show a gain, largely on the back of better automobile sales, but that most buyers are out there buying only that which is a ‘must-buy’ and not much more. Even so, improving conditions in any niche of the US economy could alter the flows of funds towards safe-haven assets such as bullion.

However, even the boldest of speculators who have been living off the Fed’s largesse with no-cost dollars realize that –at least on the monetary front-the Fed may be done with the ‘but wait, there’s more!’ type of offers seen on late-night infomercials. The public at large (and some of the carry-trade junkies), on the other hand, keeps perceiving the credit easing offered by the Fed just a couple of weeks ago, as “quantitative� easing and won’t let go of that idea.

This time, the US central bank is seen as ratcheting up the pressure on the US administration to do something on the fiscal front, say, by taking a long, hard look (and more) at entitlement programs, taxation, and other such little details. It is Uncle Sam’s turn to do something in the fundamental front of readjusting the revenue/expense situation in the US, the Fed is effectively signaling.

Most economists (like about 75% of those in the NABE – who were polled on what might need to be done) believe that the top priority of the Obama administration ought to be to grow the economy. However, the same majority also believe that QE2, or whatever you might like to call it, is not a prerequisite to ensure the same.
Nearly half of the 84 poll participants also see deflation as the principal danger in the US economy at this time. And, just like the Fed, only a little more than a third of these economic experts see that everything is just right with US fiscal policy. Another case of ‘tax and spend’ being seen as having to turn into ‘tax more and spend less’ lest the next such poll reveals total skepticism.

Meanwhile, overseas, more bubble-fighting was underway this morning. This time, it was the Singapore government’s turn to impose new curbs aimed at the speculators who have driven the city-state’s property values to levels higher than the dizzying height of the Republic Plaza skyscraper in its Downtown Core area. Or, any of the other 4,299 sky-scraping edifices to be found on the tiny sliver of land that amounts to 274 square miles. Some folks have been cashing in ‘large’ on that trend and now the government feels it is time to pull the plug –just a tad.

Cashing in on rare coins from sunken treasure ships might sound like a sexy idea, at least if one watches those alluring commercials on television. Slick ads, lots of exciting history thrown in for good measure, and the mantra of ‘rare beyond comprehension’ make for a convincing argument, especially when every other word is ‘gold’ as well in these ads.

However, Marketwatch’s Chuck Jaffe concludes that when it comes to ‘stupid investment of the week’ you might just put sunken ship ‘treasures’ at the top of your list. Just another case of opportunists jumping aboard the gold bandwagon and flogging certain products in an environment where the mere mention of ‘gold’ is enough to set hearts aflutter. Never mind coin supply, grading, and- most of all- liquidity issues.

The powerful allure of holding something that comes from a sunken vessel is…powerful enough to part you and your money – especially when you think you are investing in gold and not a story. That, at least until the next sunken ship is found, and the value of your coin goes…down while gold actually rises. Chips ahoy!

Happy Hunting (for illusory profits).

Jon Nadler
Senior Analyst
Kitco Bullion Dealers Montreal

Editor’s Note: Meet the Kitco Team at the upcoming Kitco Metals eConference September 12-13, 2010. A not-to-be missed event featuring Ron Paul, Marc Faber and other industry heavyweights. The eConference is free with Pre- Registration



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.