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Jon Nadler

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Is There a Doctor in the House?

By Jon Nadler       Printer Friendly Version
Mar 9 2009 4:24PM

Good Afternoon,

Today's market tide turned against gold, bringing it down to the $910 area following a robust rise last Thursday and more gains on Friday. The dollar was today's standout performer, spending a major part of the session above the 89 mark on the index as currency traders opted to lighten up on the yen following the reporting of Japan's first trade deficit in over a dozen years. Taking more "traditional" cues from the greenback, gold prices headed lower, as little in the way of supportive offtake news surfaced in the precious metal's favor.

The current range for gold extends as low as the $900 support, and it reaches to near $950 on the upper end. The action in gold remains closely tied to the ebb and flow of confidence in other markets and appears to be on a positive correlation track with stock market goings-on. For the moment, anyway.

Otherwise, Indian gold buying remains invisible for a third month, Abu Dhabi's retail gold sales once again collapsed in February (by 70% - same as in January), and the two-day long rebound in bullion values last week, failed to add fresh balances to the gold ETF. In fact, a small contraction was noted in the amount of gold under management by the same. Scrap metal supplies continue to flow heavily into global refiners' collection bins as gold has seen only one sub-$900 London Fix since January 30th.

New York spot prices opened and remained under liquidation pressure for most of this Monday session. Bullion touched a low of $910.60 (off by some $27) as players observed the nearly 1.00 point spike in the dollar. A decent gain in crude oil prices brought black gold up to the $47 area. Some seasoned ratio players are now favoring a long oil/short gold trade, as expectations of OPEC production cuts taking prices higher (by about 10%) for black gold, and a slowing of momentum in the yellow one materialize.

Silver dropped 42 cents to finish at $12.91 per ounce. Cheerful mining company executives trotted out more bullish news on the stuff they produce today and reassuringly filled radio airtime with projections of silver prices in the high teens for "later" this year. However, they based such advances on expected investment demand only, since they could not offer good news from the industrial offtake side for the metal.

In the interim, even traders & analysts who agree with higher silver prices being in the pipeline cannot see the shares of such firms making significant advances in an environment where credit is harder to find than a rich vein of precious metals these days. Couple that with the extremely cash-intensive nature of exploration and mining, and you may conclude that you'd be best off considering only the creme de la creme of miners, at least for the time being. When/if the overall equity market makes a significant comeback, it will float other little boats higher as well.

Platinum and palladium also gave up ground today. The former fell $13 to $1057 per ounce, while the latter dipped $9 to settle at $195 basis spot. "No news" from the automotive world does not necessarily make for 'good news' for the noble metals. But, hey, buy a car - any car - and get a deduction for the full amount of sales tax paid. That Lamborghini you always lusted for? Why, it might give you a $20K write-off.

On the other hand, the Roller in the showroom could result in a near-$50K deduction - the maximum allowed. All you need is some spare cash. Then again, Jim Rogers believes (probably correctly) that as far as new, cash-rich Lamborghini drivers go, we ought to look for them among the world's farmers, and not the financial wizards who helped get us to this dark age in the global economy. Mr. Rogers also feels that China will free itself from the shackles of the current crisis and emerge from it ahead of the US. Hmmm...

World economic conditions remained tenuous and were underscored by slipping markets once again, as the new week got off to a start. Japan's Nikkei index fell to a 26-year low, finishing only 86 points above the 7,000 mark. The Japanese current account deficit soared to a record. European stocks followed on a similar path, shedding points in the wake of comments by Warren Buffett.

It is Mr. Buffett's considered opinion that the US economy can now be classified as having 'fallen off a cliff.' Mind you, the government takeover of Lloyds Banking Group Plc (the UK's leading mortgage lender) certainly did not help matters for the overseas stock markets. Adding to the gloom, a record 24% fall in the share price of HSBC over in Hong Kong this morning. Loan losses in its US unit were largely responsible for the slump.

Well, Mr. Buffett also expressed concerns about inflation making a comeback worldwide. Worse than that we've experienced in the late 70's, to boot. For the moment however, the focus is plainly on the root system of the opposite phenomenon, and it is spreading faster than that of a newly planted bamboo. Economist Dennis Gartman opined that lightening up on some portion of gold holdings in the absence of fresh ETF inflows and buying from India, appeared to be 'reasonably wise.'

No survey of notable pundits would be complete without a chiming-in by Dr. Doom, Boom & Gloom himself; Marc Faber. Mr. Faber titled his report of a week ago "In Gold I Trust! But With Some Reservations." Today, he told Bloomberg television that:

"Government spending will spur gains in the Standard & Poor’s 500 Index after it fell 56 percent from an October 2007 record, investor Marc Faber said.

“Equities could rally between here and the end of April,? Faber said in an interview with Bloomberg Television. “The government’s efforts will fail to boost economic activity. They can boost stocks. Stocks have adjusted meaningfully.?

Faber said that although the S&P 500 may drop 27 percent to below 500 before the bear market ends, investors will make money over the next 10 years. Congress last month enacted President Barack Obama’s $787 billion package of tax cuts and spending on roads, bridges and public buildings. His 2010 budget indicated the government may devote another $750 billion to a financial rescue after an initial $700 billion.

The S&P 500 dropped 56 percent from an Oct. 9, 2007, record, dragged down by $1.2 trillion in losses at financial firms worldwide from the collapse of the subprime mortgage market. The benchmark for American equities lost 38 percent last year, its biggest annual decline since 1937.

Industrial commodities are more attractive than gold, Faber said, after bullion rallied 6.3 percent this year, compared with a 9.1 percent decline for the Reuters/Jefferies CRB Index of 19 materials. Faber, the publisher of the Gloom, Boom & Doom report, advised buying gold at the start of its eight-year rally, when it traded for less than $300 an ounce. The metal topped $1,000 last year and traded at $932.78 an ounce today. He also told investors to bail out of U.S. stocks a week before the so-called Black Monday crash in 1987, according to his Web site."

That's it for today's file of news from "the other side of the coin."

At least you know what some others are thinking/doing, at this juncture in the game. A game which shows a growing gap between emotional gold drivers and core drivers. Naturally, such conditions will begin to yield contrasting views. On which note (if you assign validity to same) you might wish to start dividing an ounce of gold into a barrel of oil before you start each morning. You never know...

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.