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Jon Nadler


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Please, Cover Up. No Nudity Allowed Here

By Jon Nadler       Printer Friendly Version Bookmark and Share
Jul 27 2009 4:31PM

www.kitco.com

Good Afternoon,

As the new market week got underway, global investors were met with roughly the same conditions as those they closed the books upon last Friday. A steady (but later slowing) erosion in the US dollar on the index, continuing higher (but later more tempered) values in crude oil, and further gains in global equity markets (but not so much in NY today).

In turn, the above conditions added to the mini-exodus from the dollar and the yen, and bolstered perceptions that the worldwide crunch is drawing to a close. In a nutshell, the operative words remain 'take on more risk' and thus the developing picture in the commodities niche is also more of the same: firm prices, disregard for fundamentals, infectious optimism, and damn the potential profit-taking torpedoes!

Gold prices hit a six and a half week pinnacle of $960.60 per ounce overnight, mainly focusing on the lost points in the dollar on the trade-weighted index. The latter sank another 0.40 to reach 78.47 and was seen trading at 1.4283 against the euro early this morning. Despite the US dollar making a quick run towards its lowest level of 2009, gold was unable to make a convincing breach above $960 per ounce.

On Monday, gold bullion was still seen as mired in the congestive pattern that has persisted since roughly one week ago in this market. The break, when/if it comes, might now well point the metal lower, following all of these failed attempts to leap to higher levels. In turn, the dollar could turn up from oversold levels and repair some of the recently sustained damage.

On the news roster today, June US new home sales levels showed an 11% jump from those seen in May. Analysts wasted no time in characterizing the sales spike as more evidence that the housing crisis could be erasing the ‘crisis’ adjective from its word associations, and replacing it with something like ‘situation’ at this point.

The other item making news (and probably helping the dollar recover a bit) was the decent demand for the roughly $6 billion in TIPS offered up by the Treasury today. More of the same and associated levels of sales success will be in the cards for tomorrow, through Thursday.

New York spot gold dealings started the last week of July with a $3.80 gain this morning, quoted at $955.40 bid, after the aforementioned overnight peak - one not seen since June 11th. Market watchers remain somewhat divided in their views as to whether gold will next try for $975 and/or $990 again, or sink back towards the $930s in a somewhat overdue correction. Let's keep an eye on oil, the euro, and dollar news again this morning. The usual recipe ingredients, that is. The afternoon session had gold ahead by only $2.80, at $954.40 per ounce.

Much, of course, depends on the path that risk appetite vs. risk aversion will take next, but we can be reasonably sure that some eyes will be focused not only on Eurozone earnings this week, but also on talks that take place today between Tim Geithner and Chinese officials. The dollar cannot help but be somewhere near the centre of such talks. Gold's immediate task is to convincingly take out overhead resistance at this $960 area, and proceed without hesitation to at least the $975 level. Absent that feat, the $930s lie in wait.

How the metal might pull that first feat off, remains to be seen, especially as accumulation by the gold-oriented ETFs remains elusive to most observers. Our friends at GoldEssential.com offered up a picture for the week that ended on Friday for these funds, which shows a net 7.6 tonne loss, led by the 8.24 tonne outflow from the biggest one- the SPDR Gold Trust. Fabrication demand remains on ice for the hot summer months, and retail investment demand has calmed considerably at most of our surveyed bullion dealers.

Silver was showing a 14-cent rise out of the market's starting gate this morning, quoted at $14.01 per ounce, and was apparently frozen at the same level this afternoon. Well, at least it hung on to $14 for now. The neighboring base metals complex was witnessing gains of from 1.21% (nickel) to 2.59% (lead) as copper led the parade with a rise to 10-month highs.

The major fireworks in the metals pits today occurred in platinum, which added $33 to Friday's closing values, surging to the $1219.00 figure. After practically free-falling to $774 from last year’s spectacular $2300 price pinnacle, the noble metal has seen a $400 recovery since last November. Merrill Lynch issued a projection for $1500 platinum today, citing production difficulties in South Africa, and recovering automotive-flavoured demand. We need more convincing for that last 22% profit-laden road potentially ahead of this market. Palladium was ahead by $1 at $260.00 per ounce.

Mr. Bernanke shared some thoughts about the financial mess with PBS's Jim Lehrer last night. In so many words, the Fed chief summed up his and his central bank's actions as having been aimed at averting a second Great Depression. He also opined that we will once again see a strong dollar when we (in the US) will be tracking a strong(er) economy. Mr. Bernanke offered a projection for a 1% US economic growth rate for the second half of 2009.

In a separate analysis, Goldman Sachs concurred with the head of the Fed and projected continuing dollar weakness until the cycle shifts and the balance tilts in favor of US economic growth of a larger order of magnitude than what is being observed at the present time. A repeat of a US dollar vs. the euro target of 1.45 was also on the Goldman report that Bloomberg got a hold of yesterday.

On the other hand, Marketwatch got a hold of a regulatory piece of news that will make for mandatory reading, as it constitutes one of the pieces of the puzzle that is now falling into place following the orgy of speculation that (some say) got markets and entire economies into the Big Mess:

“The Securities and Exchange Commission on Monday said it would no longer require hedge funds and other institutional investors to provide short-sale position data to the agency regularly, and that the ban on "naked" shorting would be made permanent.

"Naked" short selling happens when an investor sells shares short without first having borrowed them. The regulator also said it was taking other steps to increase the public availability of information related to short sales, including an effort that would make public short-sale volume and transaction data. "These actions should provide a wealth of information to the commission, other regulators, investors, analysts, academics and the media," the SEC said in a statement.

The regulator introduced a rule last year to limit "naked" shorting by requiring broker-dealers to promptly purchase or borrow securities to deliver on a short sale. That was set to expire July 31 and the SEC said Monday it made the rule permanent.

Short sales, or bets against securities, are a common tool used by hedge funds and the proprietary trading desks of investment banks. When the stock market swooned last year in the middle of the mortgage-fueled financial crisis, the SEC temporarily banned short selling of roughly 1,000 financial-services stocks.

In October, the agency introduced an emergency measure requiring institutional investors to disclose short sale positions on a weekly, confidential basis. That provision, Rule 10a-3T, is set to expire on Aug. 1. Instead of renewing the rule, the SEC said it's working on other ways to increase public disclosure of information on short selling.

In the next few weeks, the SEC said it expects self-regulatory organizations such as stock exchanges to start publishing aggregate short-selling volume in individual equity securities daily on their Web sites.

SROs also will begin publishing one-month delayed information on their Web sites about individual short-sale transactions on all equity securities that are listed on exchanges, the regulator added.?

Short away, cowboy. Just make sure to wear some serious chaps, this time around. Oh, and try not to make anything of this as regards to putative ‘concentrated shorts’ in silver. They are nowhere near nekkid.

Jon Nadler
Senior Analyst
Kitco Bullion Dealers Montreal

 

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