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No Sales at Zale's

By Jon Nadler       Printer Friendly Version
Feb 26 2009 9:43AM

Good Morning,

A fourth day of price erosion kept gold as far away as $70 from the peak it reached just last Friday. Equities on the rise in Europe (despite record low confidence levels among its denizens) and a US dollar flirting with the 88 level on the index are keeping gold in check for the moment, but some players see every day that passes with gold spending time above $900 as a reason for messianic fervor.

Today's world still offers only sparse slivers of optimism, or signs that the time to collectively exhale may have come. Thus, the metal continues to be sought for the comforts it has historically been able to offer. That said, the deliverance the metal could offer in this widely labeled as "totally different" crisis is, as yet as uncertain as the outcome of the calamity itself. Surprises -by their very nature- come from unexpected directions. We see one such watch-list item quietly developing in the Iran-Israel nuke issue, while everyone is busy putting out the economic brushfires.

New York spot gold trading opened amid steepening losses, as the precious metal fell $12.20 to $939.90 per ounce. Backing away rather quickly from the four-digit price region while nothing fundamentally new has hit the news wires this week, has some technical observers theorizing the formation of a year-wide double-top. If nothing else, the latest gold spike is equal parts investor neurosis and speculative fund money up to old tricks. Not a comforting formula, to be sure.

The L.A. Times finds that "gold already has been widely labeled "the next bubble." Investors who jumped aboard other bubbles just before they burst -- say, tech stocks in 1999 or real estate in 2006 -- must be thinking, "You won’t fool me this time." The World Gold Council, the metal’s trade group, today further stoked bubble fears with a survey that declared gold (as we showed you in yesterday's article) has become the "most favored asset" of investment advisers this year.

"The survey, which covered only 31 European money managers, listed gold first, followed by investment-grade bonds, a basket of commodities, cash and "alternative" investments. Veteran commodities analyst Dennis Gartman, who has been bullish on gold, warned clients in his daily market e-mail on Tuesday that investor expectations for the metal had reached levels high enough to "cause us some concern" about the near-term price trend." said the Times in an article by Tom Petruno, yesterday.

Others, such as hedge-fund billionaire John Paulson see a cache of diamonds lying around in the global and especially US market debris. They are at the ready, eager to pounce on whatever seems to be the most distressed and underpriced asset out there. Plenty to choose from. Gold is not likely on the Paulson list. The metal was apparently not on the list of holiday shoppers recently, either.

Jewelry chain Zales will euthanize 115 of its poorly performing store over the next 16 months, in the wake of a near-20 percent drop in sales. The chain tried to sell baubles on a campaign designed to tug at the shopper's hearts. India's gold marketing pros have also turned to raw emotional appeal as the strategy to get buyers into showrooms. At this point, we suggest a new campaign; be crass, and appeal to the wallet - forget the heartstrings.

Alternatively, they could try to project gold prices and see bargains for shoppers down the road. A quick conversion of the following Assocham price objectives for gold yields a forecast high of $1050 per ounce, followed by a $740 price for same, come next year. Start sending them 'why are you a bear' e-mails, shall we?

"India’s Associated Chamber of Commerce and Industry (Assocham) has predicted that gold prices could zoom to Rs 17,000 per ten grams and silver prices will touch Rs 24,000 for one kilogram. The leading chamber of commerce and industry also pointed that gold and silver would plunge to realistic levels of Rs 12,000 per 10 gram and less than Rs 17,000 a kg by January 2010 onwards.

In a report, Assocham said the global economic downturn investments in gold and silver will surge as there are zero returns in stocks, mutual funds and bonds these days. The report titled 'Prospects of Bullion Trade' for the next six months, carried out by Assocham’s Bullion Trade Committee said that gold and silver will continue to lure investors for their surpluses.

Gold prices have been zooming in India in the last few months in the futures and spot bullion markets. Gold prices currently stands around Rs 15,600 per ten grams. The Assocham report said since property, stocks, mutual funds, government securities and bonds are hardly offering attractive returns to investors due to the meltdown in the economy, investments in gold and silver would continue to grow and restrict at Rs 17,000 per 10 grams and Rs 24,000 a kg, respectively by August 2009.

The report said the average gold price will go up to Rs 15,750 per 10 gram next month, while silver would stray at around Rs 23,000 a kg, it said. ?Investors have lost nearly 50 per cent of their investment values in securities, shares and even in mutual funds, while those who went for gold gained nearly 30 per cent on their investments,? said the Assocham report.

Assocham also said that as corrections start taking place in prices of bullion, gold and diamond will continue to drive jewellery growth in the domestic market and the demand is expected to reach around 30 billion dollars by 2015 and the sector would generate additional employment for three lakhs workers every year. Current estimates for jewellery market in India was around 15 billion dollars.

The report said globally gems and jewellery industry is currently estimated at over 150 billion dollars. In India, it accounts for nearly 20 per cent of the total exports and employs nearly 10 lakh people directly and indirectly. Assocham recommended that since gems and jewellery industry has its dependence on skilled labour, professional institutions need to be set up for further value addition which can competently absorb the demand factor as also enhance the exports."

Silver started the day with a 17 cent loss, quoted at $13.56 while platinum and palladium eked out insignificant gains of $1 each. Spot indications were $1048 and $197. The complex is as stalled as an old Chevy Nova. Bleeding cash profusely (nearly $10 billion in Q4), GM once again became the talk among nationalization-watching advance scouts. Anyone ever heard of euthanasia? Well, the Brits appear to have - their stake in de facto defunct RBS rose to 80%. What do we call that? Repeat after us: " N....A.....T...."

Pre-weekend book-squaring, the crossing of the 5 million jobless figure milestone, the Dow, durable goods orders falling off the cliff, and more scandals du jour are on the menu today.

As for us, travel is on the menu. Hello, Vancouver!

Thus, no afternoon update. You are on your own until tomorrow. Best of luck.

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.