Kitco Market Nuggets

Market Nuggets: Silver May Benefit From Germany’s Phase-Out Of Nuclear Plants - HBSC

31 May 2011, 4:51 p.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- News Tuesday that Germany may phase out its nuclear power plants and increase the amount of power it receives from renewable sources could support silver prices, says HSBC. Following the problems at the Fukushima Daiichi nuclear power plant in Japan caused by the March earthquake and tsunami, German Chancellor Angela Merkel said the country will shutter its 17 nuclear power plants by 2022. She also committed the country to doubling the amount of electricity from renewable sources to 35% this decade. “One of the many beneficiaries may be solar panels. Silver use in photovoltaic cells for solar power is among the fastest growing components of industrial silver demand. Solar power is an expensive way to generate electricity, however, and the industry remains dependent on government subsidies. This notwithstanding the German decision is likely to create more demand for silver for solar panels than would otherwise be the case and enhances silver’s status among investors as an environmentally friendly metal. These developments however may not materially impact physical demand this year,” says HSBC.

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

Market Nuggets: Palladium Rises On Russian News – HSBC

31 May 2011, 4:51 p.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- News out of Russia regarding its palladium stocks sent prices higher on Tuesday. Russian news agency, Interfax, reported an unidentified source at the finance ministry saying that Gokhran, the Russian state metal repository, has sufficient stocks to continue exports through 2012. The story said Gokhran plans to melt down some lower-grade reserves acquired during the Soviet era to improve their quality. The official would not guarantee palladium exports beyond 2012. HSBC notes that the Interfax story contrasts with comments made by Norilsk Nickel, the world's largest palladium producer, who said Russian state stocks were being depleted rapidly and may not be maintained after 2011. HSBC says there isn’t any way to know the full story, but the general view is that stocks are being depleted. “The Interfax story is interesting because Finance Ministry officials usually do not comment on palladium stocks or exports. We find the fact that an official even spoke to Interfax on the subject interesting and at
the very least is recognition by the Finance Ministry that the market believes state stocks of palladium are dwindling. This supports our view that palladium prices are likely to rise further,” the banks says. On the other hand, if U.S. auto sales are lower than expected, PGM prices could dip temporarily, “but we remain positive on both platinum and palladium prices going forward,” they say.

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

Market Nuggets: Credit Agricole CIB Sees Safe-Haven Bid For Gold But Wary Of More Silver Liquidation

31 May 2011, 12:32 p.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Worries about sovereign debt, and Greece’s crisis in particular, have led to a pick-up in holdings of physically-backed exchange-traded funds, reversing the steady outflows that were a marked feature of the gold market for much of this year, says Credit Agricole CIB. “Gold’s safe-haven bid seems pretty solid for the time being as investors see it as an alternative, if not the ultimate, currency and a hedge against systemic financial risk,” says Credit Agricole CIB. However, the bank says: “We remain extremely wary of silver with rallies likely to be heavily sold into as investors take the opportunity to exit from their long positions, mindful of its extreme volatility.” The bank is forecasting an average gold price of $1,500 for the second quarter and $1,450 for the year. In silver, Credit Agricole forecast an average of $38 for the second quarter and $34 for the full year. It lists year-to-date averages so far of $1,426 and $34.60.

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

Market Nuggets: MF Global: Concerns Persist For Base Metals Despite Recent Gains

31 May 2011, 9:53 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- While the tone in the base-metals complex has picked up over the past week, MF Global questions whether the supportive catalysts have staying power. Support came from an OECD assessment that the global recovery was becoming self-sustaining, as well as strength in the euro, boosted by a Wall Street Journal report that Germany is considering dropping its push for an early rescheduling of Greek bonds and a Bloomberg report that European Union leaders may decide on an aid package for Greece by the end of next month. “Although the tone in the metal markets has clearly improved this past week, none of the variables we have cited has the ‘staying power’ to keep metal prices on a higher trajectory,” MF Global says. “Most critically, one variable remains a key weakness in the bullish argument, and that is the fact that despite the OECD’s somewhat surprising growth assessment, more recent data is pointing to a clear deceleration in economic growth across a number of regions, particularly in China.” Meanwhile, the country’s inflation persists, meaning further monetary tightening has to be discounted by the markets, MF Global says. The situation could be aggravated by expected power shortages over the summer months, expected to be the worst in seven years, MF Global says.

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

Market Nuggets: Barclays Looks For Continued Investor Interest In Gold

31 May 2011, 9:36 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Analysts with Barclays Capital, in the focus section of their daily newsletter, say they are optimistic about future investment demand for gold. During the first quarter, investment demand other than exchange-traded products offset weakness for ETPs themselves, Barclays says, in particular citing bar and coin demand in China due to inflationary fears and limited investment channels there. The bank notes a World Gold Council quarterly report earlier this month showed a market deficit in the first quarter, noting central banks were net purchasers rather than sellers. “It bodes well for gold prices that physical demand has continued to emerge upon dips and, more importantly, ETP flows have turned positive in contrast to silver,” Barclays says. “Despite the weak start to May, inflows were positive for the past six consecutive sessions, following a net inflow of 40 (metric) tons in April, the strongest month since June last year…Longer-term concerns, ranging from sovereign debt to inflationary pressures, have retained investor interest, and in our view, are likely to support further price gains over the forthcoming months.”

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

Market Nuggets: Barclays: Chinese Power Price Hikes Supportive For Aluminum

31 May 2011, 9:17 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Aluminum is being supported by news that China will raise electricity prices for non-residential users for the first time since November 2009, say analysts with Barclays Capital. China is facing power shortages this summer due to squeezed power-plant margins, low water levels and strong domestic demand. Barclays says the shortages should affect aluminum the most among the base metals, which is also true for power price increases, given the power intensity of aluminum smelting. Nickel pig iron producers are also likely to suffer as this is a comparatively power-intensive process. Out of the nine provinces that have aluminum-smelting production, seven have some capacity that purchases power from the grid and therefore will see their costs rise, and at least 28% of Chinese aluminum production that will be affected by the increase in power tariffs, Barclays says.”This increase in power prices will put further upward pressure on the production costs of an industry and a country where marginal production costs are already at a record high,” Barclays says. Additionally, tightness in power availability will affect the South African aluminum industry, Barclays adds.

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

Market Nuggets: Platinum, Palladium Sharply Higher As Euro Strengthens

31 May 2011, 9:12 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- A platinum/palladium trader is linking the strength in these metals so far Tuesday largely to weakness in the U.S. dollar. “I would pin it on the weaker dollar and strong euro at the moment,” he says. “When I came in, the euro was over $1.44 and platinum and palladium were at their highs...It seems to be a monetary play at the moment.” George Gero, vice president and precious-metals strategist with RBC Capital Markets Global Futures, also cites optimism about economic recovery that means demand for industrial metals. He also describes the rollover from June to September palladium as uneventful. Around 8:39 a.m. EDT, July platinum was $32.40 higher at $1,832.40 an ounce, while September palladium was up $15.10 to $777.

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

Market Nuggets: BNP: Euro Sentiment Improves As Germans Reportedly Relent On Greek Debt

31 May 2011, 8:31 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Sentiment in the euro has improved after a Wall Street Journal report suggesting that Germany is dropping its push for an early rescheduling of Greek debt, says BNP Paribas. This means new loans appear likely, analysts say.”It looks as though the German political elite have been persuaded by the ECB of the dangers inherent in any form of debt rescheduling and, if so, then we would expect them to succeed in pressuring other core euro-zone nations (Finland, Netherlands) to fall in line,” BNP says. “The topping formation in EURUSD that had developed since late March could be violated should we manage a close above $1.4375 level.” BNP adds that support for the break higher also comes from comments incoming ECB President Mario Draghi saying that sovereign risk issues won't detract the ECB from price stability and that monetary policy remains accommodating, keep July tightening expectations very much alive. Metals traders tend to watch major currency moves closely since these can affect base and precious metals alike.   

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

Market Nuggets: Gartman: Gold Is Consolidating In Euro Terms

31 May 2011, 8:23 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Newsletter writer Dennis Gartman says gold is consolidating in euro terms but he is optimistic of an eventual push higher. “Each correction or consolidation has been at progressively higher prices in terms of euros, and we can make the same case in terms of sterling, or yen ... relative to the U.S. dollar,” he says in his daily The Gartman Letter. The metal broke up through 1,060 euros nine trading sessions ago and is putting that to a test this morning, trading at 1,068 as he wrote his newsletter.

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