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Trading Places: Coins for Condos

By Jon Nadler       Printer Friendly Version Bookmark and Share
May 13 2010 10:00AM

Good Morning,

Amid declarations that virtually ‘unlimited’ demand for gold is possibly in the cards, amid a 97% level of bullishness, amid visions of $15,000 (not a misprint) per ounce gold, and amid written guarantees of a ‘new paradigm’ having arrived, gold (and its current price) continued to receive a sufficiently high level of media attention to generate some 14,000 headlines over the past week.

A simple Google News search will confirm as much. Not to mention the uber-ominous news item about a gold ATM making its debut at the Emirates Palace Hotel in Abu Dhabi (the perfect place to make a quick ‘withdrawal’ in gold while the world around you flames out). Then again, if you just spent $10K on a night’s lodging, perhaps the world flaming out is the least of your concerns (for now).

Overnight markets, albeit a tad quiet-to-lower, showed little in the way of a major directional change being in the making. The euro did not manage to make any headway to the upside and sellers thus pushed it to just under $1.26 once again. The US dollar continued to bask in its safe-haven glow near the 85 level on the index, and gold meandered within the $1230-$1240 channel after having put it another full week’s worth of work on Wednesday, with a $1243.10 print for June gold.

The major focus among traders remains the temperature level of the European ‘situation’ and the degree to which the testing of the political will by speculators shows any indications of running into a wall of resistance. Continuing on yesterday’s emerging trend, another one of the PIIGS jumped aboard the eurozone austerity bandwagon this morning.

The P in the porcine acronym, Portugal, offered to take a 2 billion euro prime cut of budget bacon off its national spreadsheet. Half of that figure will come from tax hikes, the other half from spending cuts. Staying out of this conga line of budget cuts might prove hazardous to one’s national image, it now appears. As to when the other countries on the hit parade list will report that they are doing their share to share the pain, could that be more than just days away?

Bullion markets opened with some minor (gold, silver) and other not-so-minor (platinum, palladium) losses this morning. Spot gold showed only a $1.20 drop at the open, quoted at $1235.90 on the bid side. Silver fell 4 cents to start at $19.48 the ounce. Gold spot turned positive shortly after the open, albeit the June contract was still off by some $6 per ounce.

Physical demand in India was once again near invisible as the “G? day approaches – May 16 is Akshaya Tritiya- and global bullion prices remain higher than the Himalayas. At 18,400 rupees per ten grams, the ‘auspicious’ aspect of buying gold for this day that brings good luck and success may yet come into question this year among the locals.

Platinum gave back $16 to ease to $1721.00 but palladium lost only $2 to open at $539.00 the troy ounce. Once again, rhodium prices showed no change, at $2780.00 on the bid. Gold shadowed the euro inversely as it has for days and as the latter struggled to regain the $1.26 level. Only a minor change was reported in crude oil which fell to $75.05 per barrel.

Unemployment claims in the US fell for a fourth straight week –albeit by only 4,000 filings (to 444,000 in the week ending on the 8th of this month). The dollar and Treasurys gained in the wake of the statistical release. So did an apparently tireless gold (spot) trade (rising to $1238.50) that is once again taking on the most of the attributes of a Tokyo subway car at circa 6:00 PM on any given workday.

For further proof of the above, look no further than the news bit about China’s Wenzhou denizens who ‘used to be keen’ on real estate ‘investing’ –they are now flocking to…you-know-what. News travels fast. Several groups of profit-hungry locals have recently plunked ten million Yuan each on bullion. While a local investment firm’s representative was unable to provide exact figures for how much money has flowed from buildings into bars of late, the number remains relatively small as ‘gold prices are high.’

The lure of land and the captivation offered by condos still rules in China. However, the trend –if it has legs- should give some food for thought about the degree to which gold might either become the next bubble, or already is. Gold for ‘profit/return’ is not exactly what the classic mantra of buying it has been all about.
Gold as a savings and insurance vehicle is what it used to be all about (and, in that sense, we will stick with the sentiment in India where folks are sitting on millions of ounces of the stuff but have been letting go of some of it while other parts of the world feel the urge to pile in). Go tell that to the spec funds crowding this market. Fear them leaving it for greener pastures.

One more plane to catch now. Until tomorrow,

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.