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Tight Club

By Jon Nadler       Printer Friendly Version Bookmark and Share
Jan 12 2010 9:53AM

Good Morning to Our Chinese Audiences,

Gold prices enjoyed a pretty strong performance on Monday in the USA, after news was released that China imported a large amount of commodities during the month of December. The US dollar lost about 0.50 points on the trade-weighted index, in part because of additional speculative selling left over from Friday, and also because the news from China reawakened speculative risk appetite.

Such speculation was definitely visible in Monday’s rises in the prices of copper, aluminium, zinc, lead, and nickel as well. Base metals appear to be in high demand in China, as the country hopes to maintain strong economic growth in 2010. For example, the website reports that: “China imported 369,368 metric tons of copper, copper alloy and semi finished products in December, up 29% on 2008 and 27% on November, preliminary data provided Sunday by the General Administration of Customs showed. For the full year 2009, imports rose 62.7% to 4.29 million tons, customs said."

New York spot bullion trading opened with solid gains across the precious metals board, as the participating crowd observed a continuation of dollar softness (last seen at 76.94 on the index, and at 1.453 against the euro), and commodities on the rise. Gold spot rose $21.40 per ounce, to reach $1159.10 on the bid side, while silver gained 36 cents to start at $18.84 per troy ounce. Good gains were seen in platinum (which added another $15 to $1589 an ounce) and palladium (rising $2 to $428). Rhodium was steady at $2600 per ounce.

By the close of trading in New York, gold was still higher, but was showing only $13 per ounce gain, quoted at $1150.70 per ounce. Silver narrowed its earlier gains to a rise of only 7 cents by 5:15 PM New York time on Monday. Platinum still maintained a $13 gain to $1587 and palladium moved even higher, showing a $5 gain at $431 per ounce. Most of the narrowing of the morning’s price rises was due to a small recovery in the US dollar, which was down only 0.45 at last count, quoted at 77.05 on the index. The precious metals also slowed down their advances as the price of crude oil turned lower on the day, and showed a 75 cent loss by the afternoon hours, quoted at exactly $72.00 per barrel.

News that China’s car market overtook the USA’s in 2009 has boosted speculative plays last night in the noble metals complex in New York. Nearly 14 million vehicles were snapped up in China in the past year, while the US auto market suffered a very difficult year, one which saw the only bright time in sales levels only because of cash-for-clunker-style stimulus programs. This is not to say that the Chinese car sales took place without any government-sponsored stimuli, either. But, the figures speak for themselves. The first waves of platinum and palladium ETF buyers must be a happy group, thus far.

Given that the spike in gold prices has come during some extraordinarily thin weekend market conditions makes us a bit cautious, but, for now, it seems to be holding up just fine at above the $1142 area. If it can hold to gains above $1,148-$1,148.40 an ounce into the Tuesday markets, then there’s a good chance that the new move in gold will eventually attract some more, fresh fund inflows that may take this rally towards $1,170-$1174 an ounce.?

Resistance at around the $1170 level could bring on a fierce battle, and, for now, support will be assumed to emerge at the $1140 area from which the current rally emerged. The latest round of gains in gold is however, (once again) unfolding against a background picture which show that physical investor interest is still somewhat lagging gold prices, based on the statistics which reveal that gold-oriented ETF vehicles actually lost 4.52 tonnes via redemptions, just last Friday.

Such outflows have thus far amounted to just over 15 tonnes during the month of January.  On the other hand, over in the futures market, the speculative party continues to roll on, as reflected by the nearly 780 tonnes of net speculative long positions (which is still quite a mountain, despite a recent 4 point drop in percentage terms as a portion of the overall open interest), and some 507,000 contracts’ worth of open interest.

So, we close today, with the word of the day, once again, being: China. A huge emphasis is being placed by speculative market players on practically everything that the country does economically at any given moment, or on what its various officials say, now and then. To a certain extent, this is as it ought to be; China is, after all, aiming for a very high rank in the list of the important countries of the global economy, especially during a period when the US and Europe are looking a little shaky.

Keep watching for more attempts to push gold towards the $1170 level, ($1174 remains the most important target to have to touch, but it seems a little remote) as well as for potential emergence of profit-taking around $1162 or higher. The precious and base metals markets are making a habit of depending on only a few (and the same) factors. Namely, that the dollar will continue to fall indefinitely, that interest rates will stay low for a long time to come, and that demand for commodities will continue to be very strong.

Speculators have the feeling that if the strategy worked for them in 2009, then it must work again this year, or so the thinking goes. Market bears remain in asleep in their caves, market bulls are roaming the market floor in great numbers, and a certain…Tiger waits around the calendar’s corner by February 14…This one, a Metal Tiger (the same as we had in 1950), to be sure. But, will it be ferocious for the precious metals as well? Time will tell.

The Chinese horoscope says about The Year of The Tiger: “Tigers depend on luck. They like to spend money, and also to share it. They can be quite impulsive spenders because they know they can always make more. Somehow, as luck would have it, they discover the end of the rainbow just before complete bankruptcy. They are willing to lose a fortune in their lifetime, if it means they will wind up with two.?

Happy Trading,

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.