Kitco Market Nuggets
Market Nuggets: Prognosticating Gold’s Path Impossible – Citigroup

04 October 2010, 5:13 p.m.
By Debbie Carlson
Of Kitco News
http://www.kitco.com/

(Kitco News) - With gold making new highs, investors are looking for forecasts for gold prices following actions of gold miners, central bankers or chartists. None of them have been right in the past 40 years, said Citigroup Global Markets. “When gold miners had to buy back massive hedges, they proved we should not look to them for gold-price forecasting. The same applies to central banks, which sold right at the bottom. Bankers don’t get it right, either. Many famous forecasters (high-profile academics and high-profile chartists), after gold had fallen from a high of $875/oz to $600/oz in 1981, forecast it would soon shoot above $1000. Instead, it entered a 20-year slumber party,” the bank wrote. “We now have popular forecasters (popular because they called sub-prime right) forecasting that gold is on its way to $4000/oz. It may well be. The history of unsuccessful forecasting shows it also may be on its way to $800/oz. And yet these high forecasts are no less popular than they were in 1981. As the famous saying goes, ‘Its deja vu all over again’.”

By Debbie Carlson of Kitco News; dcarlson@kitco.com

04 October 2010, 5:13 p.m.
By Debbie Carlson
Market Nuggets:Gold Follows Dollar More Than Acts Alone – Citigroup

Gold is being bought in part as a hedge against uncertainty, but analysts at Citigroup Global Markets said gold was more likely to follow whatever the dollar did than to forge its own path. “Even though it is a common perception that gold acts as ‘insurance’ in times such as the credit crisis and the euro sovereign-debt crisis, … gold did not follow the crisis tension at all (represented by the VIX index) but dutifully did whatever the dollar did in response to the crisis. Given that the dollar is a safe haven in a crisis, the dollar strength that emerged from the credit crisis damaged gold, in spite of the support it should have got from the VIX. Now that credit crisis fears have abated and the VIX has abated, gold has not abated along with it, but once again ore has chosen to be primarily led along by the dollar,” the bank said. Gold’s action during this time underscores the view that the yellow metal is being “held to ransom by currency trends” rather than underlying fundamental trends.

By Debbie Carlson of Kitco News; dcarlson@kitco.com

04 October 2010, 12:32 p.m.
By Allen Sykora
Market Nuggets: BNP Paribas: Silver Outperforms Gold During Recent Rally

(Kitco News) -- While palladium has been the strongest precious metal year to date, silver has posted the most impressive performance during its recent updraft, says BNP Paribas. Silver rose from $18.90 an ounce in late August to as high as $22.20 in early September. Silver has been largely driven by investment demand despite its extensive industrial uses, BNP says. “Generally, it is perceived as a cheaper alternative to gold for investment purposes.” Silver often moves more than gold either way, BNP says, although commenting that the correlation between the two metals sometimes breaks down during times of “extreme” risk aversion, such as the European debt crisis this spring. For now, however, the outlook for silver-investment demand and thus price is closely linked to market sentiment for gold, BNP says. “So far, sentiment is positive, but any correction in the gold price would likely have a disproportionate negative impact on silver.” Meanwhile, BNP says, silver fabrication demand was strong in the first half of 2010 on the back of pent-up demand and restocking, particularly in the electronics sector. However, BNP’s economists look for global GDP growth to slow to 3.7% in 2011 from 4.6% in 2010. Thus, BNP expects silver demand for industrial applications to rise 15% year on year in 2010, but for this pace to slow to 8% in 2011.

By Allen Sykora of Kitco News; asykora@kitco.com

04 October 2010, 11:16 a.m.
By Allen Sykora
Market Nuggets:Credit Agricole CIB Ups Average Gold, Silver Forecasts

(Kitco News) -- Credit Agricole CIB has revised upward its gold and silver forecasts. Additional quantitative easing in the U.S. should be negative for the dollar but positive for gold, the bank says. “Gold prices are likely to move higher in this scenario as some investors would fear competitive debasement of fiat currencies, and we have adjusted out outlook accordingly.” Credit Agricole now looks for gold to average $1,216 an ounce in 2010, up from an earlier forecast of $1,200. The year-to-date average is $1,178. The bank looks for gold to average $1,305 in 2011, up from $1,175 earlier. Credit Agricole says gold remains a safe haven, plus low interest rates slash the “opportunity cost” of holding the metal since government bonds offer low yields. Also, declining mine output, weaker recycling, net purchases by central banks, producer de-hedging and geo-political tensions will underpin gold over the long term, Credit Agricole says. The bank now forecasts silver to average $19 in 2010 (year-to-date average is $18) and $22 in 2011. Silver will be helped by recovering demand as the industrial cycle strengthens, plus the metal is a cheaper alternative to gold. However, there may be increased by-product output of silver as idled base-metals operations are restarted. Credit Agricole’s platinum group metals forecasts changed little. The bank looks for platinum to average $1,680 this year ($1,580 for year to date) and $1,705 next. Palladium is forecast to average $489 this year ($475 for year to date) and $550 next year.

By Allen Sykora of Kitco News; asykora@kitco.com

04 October 2010, 10:24 a.m.
By Allen Sykora
Market Nuggets:CME Gartman Favorable Toward Copper

(Kitco News) -- Dennis Gartman, publisher of The Gartman Letter, says he is long in copper, with inventories of the red metal in China and London Metal Exchange warehouses “really quite low” and Chinese demand appearing to be on the rise. “Auto sales in China are rising; housing continues to strengthen; and inventories are quite low,” he says. He also cites a favorable chart picture.

By Allen Sykora of Kitco News; asykora@kitco.com

04 October 2010, 10:17 a.m.
By Allen Sykora
Market Nuggets:CME Group: Metals Volume Rises 28% In Third Quarter

(Kitco News) -- Metals volume on CME Group, which owns the Comex and Nymex exchanges, averaged 257,000 contracts a day during the third quarter, a gain of 28% compared with the prior year. For the month of September, metals volume averaged 246,000 contracts a day, up 10% from the year-ago period, CME Group reports. Compared to August, average daily volume is up 9.1%. In the breakdown for futures, platinum, palladium, silver and copper have seen gains in volume compared to last September, but gold futures volume was down slightly. Versus August, gold and platinum futures volume was up and palladium, silver and copper are down.

By Allen Sykora of Kitco News; asykora@kitco.com

04 October 2010, 10:05 a.m.
By Allen Sykora
Market Nuggets:Barclays: Indian, Thai Physical Demand For Gold Strong

(Kitco News) -- The strengthening dollar has exerted some pressure on gold so far Monday, but Barclays cites news reports suggesting Indian demand remains “robust” during a seasonally strong period and due to a strong rupee, while Thai demand is “strong” on concerns prices could rise further. Barclays describes coin sales as “healthy” so far this year. It notes U.S. Mint sales, in terms of ounces sold, through September are higher for the year to date, although they slowed in September. Meanwhile, Barclays cites news reports showing Perth Mint demand was up 25% on year in September.  

By Allen Sykora of Kitco News; asykora@kitco.com

04 October 2010, 9:26 a.m.
By Allen Sykora
Market Nuggets:Credit Agricole CIB: Copper, Tin Fundamentals Tightest Among Base Metals

(Kitco News) -- Copper and tin may be the two base metals markets with the tightest fundamental pictures, says Credit Agricole CIB. In the case of copper, end-user demand is higher and restocking is occurring. There are ongoing supply constraints at existing mines, with falling ore grades, aging mines and rising costs. The concentrate market remains tight, scrap is “relatively tight,” and global inventories low, the bank says. Credit Agricole looks for copper to average $7,400 per metric ton in 2010 ($7,175 year to date) and $8,325 in 2011. In the case of tin, the bank cites limited refined output growth due to lack of investment and declining production in China and Indonesia. The supply/demand balance is in deficit, with global inventories “not excessive.” The bank looks for tin to average $20,000 this year ($18,457 year to date) and $24,000 next year. Forecasts for other base metals (2010 averages followed by 2011 averages) include aluminum, $2,165 and $2,350; nickel, $21,500 and $23,500; zinc, $2,165 and $2,475; and lead, $2,180 and $2,500.

By Allen Sykora of Kitco News; asykora@kitco.com