more articles by

Jon Nadler

Click to enlarge Click to enlarge


There Will be...Deals

By Jon Nadler       Printer Friendly Version
Sep 26 2008 4:27PM

Good Afternoon,

We start with one piece of good news, and one that should allay many baseless apprehensions:

The Royal Canadian Mint is not suspending sales of its gold bullion coins and is able to meet rising investor demand for the precious metal, a spokeswoman said on Friday.

"Although we are facing growing demand, we can keep producing the coins to meet the demand as best we can," said spokeswoman Christine Aquino.

Investors are increasingly interested in gold products as the crisis ripping through financial markets makes them appear as the safest haven. Coin dealers from the United States and Canada have reported a surge in buying of coins and other gold products. On Thursday, the U.S. Mint was forced to temporarily suspend sales of its American Buffalo 24-karat gold one-ounce bullion coins because strong demand depleted its inventory. There had been market talk that Canada might make a similar move. But Canada's mint is less reliant on external suppliers than its U.S. counterpart.

"The mint controls the gold bullion manufacturing process from start to finish: we refine our own gold, roll our own strip, make our own blanks and strike our own coins," Aquino said.

Now, for the market action. Except there really that much of it to talk about. The indecision and infighting on Capitol Hill continued to keep a frozen lid over investors and traders alike. No one was willing to do a whole lot today, and for good reason; the potential outcomes from a concrete decision by US lawmakers on the rescue package are either quite wide-ranging, or unknown for now. Pure speculation in the truest sense of the word.

The Financial Times offers a different take on the safe-haven status of gold at this juncture and offers some clues as to why despite busy gold dealerships, many would-be bullion buyers are still sidelined and may remain so:

The volatility of the gold price is deterring some risk-averse investors, in spite of forecasts of further short-term price rises. ETF Securities, the exchange traded fund (ETF) provider, said it had seen inflows of $50m into its gold exchange traded commodity last week – but this compared with inflows of $200m in previous weeks.

Investment managers suggest this caution towards a traditional “safe? asset is due to the recent price moves in the metal. Gold has fluctuated from a high of $930 at the end of July to a low of $741 this month. It then went back up above $900 this week, gaining ground on fears that the credit crisis could worsen further.

“We believe there’s better value in cash than gold, as gold is too volatile. The reason you have cash in a portfolio is to limit volatility and that is the name of the game at the moment,? said Fredrik Nerbrand, head of global strategy at HSBC Private Bank.

The gold price is expected to rise again – analysts at UBS this week upgraded their three-month price forecast to $975. But any gains could be short-lived. “We would expect inflation to start falling quite rapidly in 2009 so, on that basis, I don’t think the case for gold is very strong – but on a risk aversion basis, if the crisis continues, there’s further room for appreciation of gold,? said Guy Foster, analyst at Brewin Dolphin.

Gold ETFs are backed by physical metal in a vault. So they are not affected by exposure to counterparties, such as AIG, which prevented some commodity ETFs from trading last week."

Friday saw an altered financial landscape taking shape in America. JP Morgan suddenly rules the US banking world, having become its largest institution by deposits. The $17 billion outflow of depositors' monies might come to halt now that the venerable name is affixed to its branch signage. Not that WaMu -founded in 1889- was not an august firm. It's just that when confidence evaporates...stuff happens. Mr. Dimon is now laughing all the way to...his office, having picked up the WaMu carcass for less than $2 billion. Who knows what the average man might soon buy for $1 million? Dick Fuld's wife is selling [some of] her $20 million art collection. Perhaps she needs the money, after her husband netted only $500K by selling his Lehman shares that would have fetched a quarter billion 18 months ago.

Next, a mini Op-Ed from a writer who is normally not leaning in any particular direction, politically speaking:

Chaos. Disaster. Panic. No, not the situation on Wall Street. We will get to that in a moment. The preceding were just some of the words used to describe the White House meeting originally designed to get the $700 billion financial system parachute deployed last night. A Republican revolt derailed the best-laid plans of Ben and Hank, and the meeting looked more like a rescue plan for the McCain campaign. It appears that the October surprise that was supposed to come in the form of some pre-emptive action on -say, Iran- has now take the shape of the internecine warfare on the US political scene. If ever there was a time to resort to the "Fiddling While Rome Burns" phrase, this might just be it. And burn it did. While the bickering went on in Washington, another Washington fell. Washington Mutual, that is. America's largest-ever bank failure unfolded right at the feet of the impotent men who were supposed to address the situation. This is not good. Not good at all. The lipstick has worn off the US administration and the GOP.

We had greenlighted gold to go to the $900-$925 level this morning based on any further legislative stalling in Washington. We got as far as $912 but book-squaring pressure brought the metal back to under $880. Nobody would want to go into the weekend with a cloud of doubt this big hovering over DC and Manhattan. This is the stuff that thriller movies will be made about. Hopefully, as is often the case in films, someone will take hold of those pliers and with trembling hands, cut the red wire before the digital display changes to 00:00 - and the blinding flash of light dissolves the screen into pure white.

New York gold prices opened firm, then tried for a real strong rally, up to $912 but found themselves even lower than the $885 opening level by the afternoon hours. Spot dealings were quoted at $877.70, up only $1.90 an ounce, at last check. Silver advanced 11 cents to $13.30 per ounce. Platinum fell $75 to $1127 and palladium dropped $12 to $223 an ounce. The noble metals stayed on the downside all day, as fears of a global slowdown dominated investor psychology. The dollar gained a little more strength and remained at 77 on the index while oil fell to $107 on growth fears. As for gold, few advisors recommend over-weighting it, as inflation fears have given way to growth and/or deflation ones. The $100 it has picked up recently are a reflection of anxiety as opposed to fears of price increases in various economies. We stand by the wisdom of having and leaving a core (10-15 percent) holding at the foundation of one's asset basket. Simple insurance.

To say that traders are still nervous and effectively paralyzed, is to state the obvious. The Capitol Hill situation regarding the bailout plan did not clear up today. Traders are trying to avert their peripheral vision from names such as Wachovia and Citi but are having a tough time doing so. Now there is something to give the candidates "red meat" for their debate. The best suggestion one could heed today is to stay glued to the news outlets. Investing one's money in any market is right out. Sitting on a pile of cash yields a warm and fuzzy feeling.

To make this difficult time pass, you might start by doing something very useful and examine a fascinating website that focuses on the staggering variety of shapes, sizes, and designs that gold has been worked into, when it come to bars. A good friend of this writer has created what may well be the ultimate "go-to" site for all things gold. Whether for aesthetic pleasure or investment research, we believe you will find the trip to this site well worth it.

It is called Gold Bars Worldwide. Kitco is very proud to be a media partner to Grendon International Research Pty. Ltd, in this most valuable addition to the knowledge base of the gold industry and that of the gold investor.

The website offers those who have an interest in the international gold market, a wealth of well-researched and updated information on gold bullion bars, their manufacturers and related aspects. If, for example, you wish to know more about so-called London "good delivery bars" accredited bar manufacturers, gold conversion weights and bar types, this unique website offers a service that is not available anywhere else on the Internet.

The GBW website, relies on industry sponsorship, is also supported by the World Gold Council as the major sponsor, as well as by leading international gold bar manufacturers and dealers. The website is managed by Grendon International Research, a well-known consultancy and publishing company that focuses on the gold industry. We invite you to explore this most interesting and highly educational website. Simply click:

Here is a teaser:

London Good Delivery Bars The Industry Collection of Gold Bars Worldwide is a worldwide effort to create a unique collection of standard, innovative and unusual gold bars to support the promotion of gold. Since 1993, manufacturers from across the globe have supported this international project by making their bars available. The Founder was N M Rothschild & Sons (Australia) Limited, associated with N M Rothschild & Sons Limited, London. The Custodian and Official Location is The Perth Mint, wholly owned by the Government of Western Australia. The Curator is Grendon International Research Pty Ltd (GIR). Apart from acting as a consultant within the gold industry, GIR has published several reference books on gold, including The Industry Catalogue of Gold Bars Worldwide.

(Almost) Everything hinges on "the package." When, and in what form it is "delivered" will determine many an asset's value. You can count on volatile dealings for so long as the issue stays unresolved.

Newsflash at the last moment: Citi and Wachovia are 'talking' McCain & Obama will debate. Not foreign policy.

Happy Suspenseful Weekend.

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.