Heresy! Again! This Time, from... The Bishop!


By Jon Nadler

May 12 2009 4:11PM


Good Afternoon,

A pullback in the US dollar prompted some fresh gold buying on Tuesday and brought the metal back towards the low $920s area. Yesterday's profit-taking stock market sell-off and this morning's expectations of a widening US trade deficit combined in gold's favor, but the metal appears to still be confined within its recent range and could draw its own batch of sellers as values might approach $925-$930.

New York bullion maintained this morning's near-1% gains and was last seen at $922.00 per ounce, stimulated by a 0.44 fall in the greenback (to 82.35 on the index) and was probably held back by a waning gain in crude oil (showing a only $0.30 gain at $58.80 per barrel at last check).

Stocks were trading mixed, and the tug-of-war between the "recovery-is-here versus" the "sucker's rally" teams continued unabated on The Street. Silver rose 29 cents to $14.23, while platinum gained $12 to claw back to $1127 per ounce. Palladium was off by $2 at $232 an ounce.

For the moment, the 'time-to-trim-the-green-shoots' squad appears to have the upper hand out there. Arm wrestling or not, you could have bought Citi stock on March 5th at $1.02 and sold it last Friday for $4.02 a share. Forty-six trading days, quadruple your money.

Commodity guru Jim Rogers now says it's time for a dollar crisis, now that we have had an 'artificial' rally in the currency. Rogers still prefers silver and possibly the noble metals complex to gold, should his expected economic scenario materialize in the future. Others see a stock market that has gotten ahead of itself during the last surge (one that restored nearly $9 trillion to market values) and are betting on a summer pullback.

Or, worse. Some have been heard to still be calling for a 4K Dow before this is all over. On the macro scene, economic news of the sluggish variety continued to dominate. China's exports fell more sharply than anticipated last month, while the Nikkei wilted by over 150 points overnight, in a virtual replay of Monday's Dow action.

And now, from the belly of the beast, the New York Hard Assets Show, a shocking (but not at all surprising to us) report. Our esteemed friends over at GFMS London found that the gold market is...gasp!..disarray. Fundamentally. Go ahead and knock the research coming out of CPM or GFMS. The former, advised a famous US investor when he made a 138-million ounce silver play in recent years. The latter supplies the World Gold Council with the majority of its research. We are not talking bullion dealer hype here. We are talking facts and figures. And trends. And sea-change.

Call them heretics, isolate only their previously bullish quotes to build your ultra-bullish, perma-bullish case for gold. But, at the end of the day, you are still left with the same stark reality: Things do not look good on a fundamentals based level. And, were it not for lingering investment demand (and even that has now come into question), things might look even less attractive. That is, if you have built your entire investment basket (as some have) on lofty expectations of soaring bullion, and, the persistent TEOTWAWKI scenarios being promulgated by bullion dealers disguised as book writers, by bored myopic people looking for explanations to what needs no explanation, and by so-called analysts whose real day job is to run a mining enterprise. What do you think they will tell you? Something scary, to be sure.

Take it away, Mineweb:

Despite the New York Hard Assets convention normally being a haven for gold bugs, the first keynote speaker on the first day was not particularly taken with the near term prospects for precious metals.  The convention floor, though, was largely dominated by gold and silver miners who obviously feel otherwise, as do many of the newsletter writers attending the event.

The keynote speaker Philip Klapwijk, Executive Chairman of GFMS, offered a highly analytical presentation covering gold and silver that almost grudgingly conceded that despite highly adverse fundamentals, gold could still rise a little over the remainder of the year, but not by as much as many analysts believe because fundamentals are currently so adverse.

Silver's fundamentals were also seen as sufficiently poor to keep prices back, despite its traditional volatility which has tended to see it outperforming gold on the way up, and underperforming on the way down. Klapwijk's address was titled 'Is it game over for gold and silver, or has the bull market in these metals still got legs?' As noted above his feelings on gold were mixed, but purely on fundamental grounds, which have put supply into a substantial surplus, largely through a plunge in jewellery fabrication demand coupled with an inordinate amount of scrap coming on to the market.

He suggested the current supply/demand balance should not support even the current gold price.  The fact that the gold price is as high as it is is thus down to investment demand, but if the stock market in general continues to climb, making people less risk averse, then money could start flowing out of investment gold (where the appetite seems already to be waning) back into general equities.

Klapwijk painted an even gloomier picture on silver with rising mine supply and falling industrial demand moving the market to a substantial surplus.  But, he pointed out--while investment demand for gold has reached nearly one-third of the offtake as much of the world sees gold as money-- investment demand for silver lags far behind with only the diehards seeing silver as a monetary metal nowadays.

Perhaps in favour of price rises, though, short term interest rates are at or near zero, government budget deficits are exploding and monetary supply growth is extremely rapid and inflation is likely to pick up strongly at some stage. Under normal circumstances, Klapwijk averred, we might have already seen peaks in price for both gold and silver, but central bank and governmental policies could prolong the bull market a little longer, but the adverse fundamentals will bring prices down eventually.

Other points in favour of precious metals price rises could be that Central Banks are moving back to a stage where they seem to have less appetite for the selling off gold reserves; some are even beginning to buy which could continue to support gold, despite the adverse basic fundamentals.  Even so, he would not predict more than an $1100 peak for gold and a return to $20 silver as possible medium term high points for the metals.

In a Q and A session, in response to a question as to whether he would debate Bill Murphy of GATA on the latter's view that there is a global banking conspiracy to keep the gold price down, Klapwijk replied with a very definite "NO!" He quoted Margaret Thatcher on the IRA in that he would not wish to give the GATA views the publicity that such a debate might generate. This strong statement was greeted with a round of applause from the audience, perhaps demonstrating that the New York Hard Assets conference is not quite such a venue for gold bugs after all."

If we recall correctly, Philip made a remark circa one year ago that the 'end game' was in sight. With confirmations such as Indian demand becoming non-demand, and scrap supplies inundating the markets, there is hardly anything else left to point to. Of course, Philip did not dignify the desperate calls for a manipulation debate. No one will. This is not a debate about the possible outcome of FACTS. It is a debate about the EXISTENCE of the very facts. Which, is not a debate AT ALL. It is simply an automatic gainsaying of the statements made by the opposing party. Kind of like the "Argument Clinic" in Monty Python.

Between that, and the evaporation of Armageddon-ish headlines, the near and medium term prospects for price performance (if that is what you are after) are not enchanting. Never mind the price, we have always repeated. Mind the percentage of gold you hold on to. Do not let it slip below 10% at this juncture. Pray that it does not perform. You could no wish for a better outcome. The rest of your assets will thank you.

PS - Bob Prechter said, at the same show, that some 35 best –selling books on oil were on the bookshelves at the very top of the oil market.

We went out into Times Square, and right now, you can go out and find gold Krugerrand advertisements in Road & Track (!) featuring a half-naked woman in the ad.  Hmmm, sure, we see the obvious connection. And, yes, everyone and their cousin is writing books on investing in gold. Including one version in the series "For Dummies." We hope you are not one of them. We know you are not one of them.

Until tomorrow,

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.