Kitco Market Nuggets

Market Nuggets: Triland Metals: Gold Attracting Investment In Uncertain Climate

08 August 2011, 2:08 p.m.
By Kitco News
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Kitco News) -- Gold gapped up in Far East trading and continued higher in reaction to Standard & Poor’s downgrade of U.S. debt, says Triland Metals. “Gold is attracting money in a growing climate of uncertainty and fear,” Triland says. “Equity markets remains under pressure and this continues to put a bid into gold.” Any dips have been aggressively bought, Triland adds. The Comex December futures hit a record high of $1,721.90. As of 1:43 p.m. EDT, were up $67.80, or 4.1%, to $1,719.60 an ounce. Gold fixed above $1,700 in London for the first time ever this morning at $1,709.75, although it fell back to around $1,693 as of the afternoon fixing.  Silver was dragged higher by gold but has since run into industrial-based selling, which is having a significant impact on the base metals, Triland says. September silver was up $1.259 to $39.470 but down from the high of $40.40.

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

Market Nuggets: RBC: LME Base Metals Weaker On Debt Fears, Risk Reduction

08 August 2011, 2:06 p.m.
By Kitco News
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Kitco News) -- LME base metals finished lower on a heavy-volume day as debt concerns remain a priority and markets continue to reduce risk, says RBC Capital Markets. “With the technical community now well into building a short position, it’s not surprising to see consumer interest in the market, but the waves of selling seem to catch the market off guard at times, forcing day-trade longs to capitulate,” RBC says. “We still think the end of the year will see higher prices for the base metals, but the short term picture continues to look cloudy.” Aluminum, which earlier firmed but turned lower with the rest of the complex, is now “within spitting distance” of its marginal cost of production, RBC says. The metal traded down to $2,382 per metric ton a one point. “Our analyst’s estimate of the marginal cost of production for the light metal is $2,221 on a cash cost basis and $2,316 on a total cost basis, RBC says. “These are the key levels to watch for production closures (China anticipates production stoppages later in the year anyway as electricity remains in short supply).” LME copper lost 2.9% to $8,781 at the kerb close, while aluminum fell 0.7% to $2,385.50.

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

Market Nuggets: CME Clearing : No Plans to Adjust Haircuts Due To S&P Rating Change On U.S.

08 August 2011, 11:06 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- CME Group's clearing department says it has evaluated the market situation involving the downgrade of the U.S.’s AAA credit rating and decided there is no current need for changes to collateral haircuts or policies for accepting U.S. Treasurys as margin collateral on trades. “We will continue to monitor the liquidity environment and advise market participants if the environment changes,” says Kim Taylor, president of CME Clearing.

By Terry Wooten of Kitco News; twooten@kitco.com

Market Nuggets: Dow Jones Indexes, UBS Investment Bank Launch New Index to Mitigate Contango Effect

08 August 2011, 11:02 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Dow Jones Indexes and UBS Investment Bank announced the launch of the Dow Jones-UBS Roll Select Commodity Index which will ease the negative effects of contango on Index performance. “With an enhancement that attempts to address the problematic effects of contango on index performance, the new index is designed to roll into contracts that result in the highest annualized roll yield relative to the current contract,” said Michael A. Petronella, President, Dow Jones Indexes. A market is considered to be in contango when the prices for exchange-traded futures contracts are higher in the distant delivery months than in the nearer delivery months. The new index, which currently includes 19 commodity futures in 7 sectors, will be composed of futures contracts on physical commodities. The commodities will be weighted based on the proportion of each commodities significance within the market. The Dow Jones-UBS Roll Select Commodity Index will be reweighted and rebalanced on a price-percentage basis yearly.

By Alex Létourneau of Kitco News; aletourneau@kitco.com

Market Nuggets: Goldman Sachs Remains Constructive On Commodities

08 August 2011, 10:21 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Goldman Sachs is maintaining an “overweight” recommendation on commodities relative to other assets, although it concedes that risks to commodities have increased. Economic and debt worries have resulted in weakness for most commodities in recent days.  “However, several factors are leading us to keep our constructive commodity views over the next year intact, including still-high expectations of global GDP growth sufficient to tighten key commodity markets, expected strong growth in EM (emerging markets)–especially given the ability to reverse or ease tightening policy to buoy growth–and commodity supply disappointments that have substantially offset if not dominated demand disappointments in key markets,” Goldman says. Goldman says it maintains its recommended long positions in key cyclical commodities, including Brent crude oil, copper and soybeans. However, Goldman says, “Rising risk of a negative global event increases the risk to our constructive views and reinforces our conviction in long gold.”

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

Market Nuggets: Goldman Sachs Increases Gold Forecasts On Expectations For Low Interest Rates

08 August 2011, 9:47 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Goldman Sachs hiked its gold-price forecasts on an expectation that U.S. interest rates will remain lower than previously thought, along with intensifying sovereign-debt issues in the U.S. and Europe. Goldman’s economics team lowered its outlook for U.S. economic growth to 1.7% in 2011 and 2.1% in 2012. The bank has hiked its gold forecasts to $1,645, $1,730 and $1,860 per ounce on a three-, six- and 12-month horizon, up from its prior forecasts of $1,565, $1,635 and $1,730, respectively. “Net, this revision in effect pulls forward the higher prices we expected on a six- and 12-month horizon--as U.S. economic growth has been slower, and U.S. real interest rates lower, than previously anticipated--and extends the upward trajectory for gold prices through 2012.”

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

Market Nuggets: Goldman Says Risk Skewed To Upside For Its Gold Forecasts

08 August 2011, 9:45 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Goldman Sachs has not only upped its gold forecasts but suggests the risk would seem to be for even higher prices than analysts already expect. “While we view the level of U.S. real interest rates as the primary driver of gold prices over the medium term, continued strong monetary demand for gold from both gold ETFs and central banks should further support gold prices and creates upside risk to our gold-price forecasts,” Goldman says. Already, gold ETF positioning has surged to record highs over the past month, Goldman notes. Meanwhile, through the first five months of the year, central banks collectively bought almost 1 million ounces of gold per month, driven by emerging-market nations, Goldman says.

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

Market Nuggets: RBC's Gero: Funds Moving Into Gold As Safe Haven

08 August 2011, 8:59 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Funds are moving into gold as a safe haven, says George Gero, vice president and precious-metals strategist with RBC Capital Markets Global Futures. The big weekend news was the downgrade of long-term U.S. debt by Standard & Poor’s. Gero says fears of further economic weakness by markets such as equities are leading to buying of gold as an alternative asset. “The downgrade, which did not increase yields in Treasurys, pointed to low interest rates for the foreseeable future, which is very good for gold holders,” Gero says. Shortly after the Comex pit session opened, December gold was $50.70 higher at $1,702.50 an ounce, although down from an overnight peak of $1,718.20 that is a record for a Comex most-active contract.

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

Market Nuggets: Stock, Commodity Markets Have Not Factored In A Chinese Recession – Shawn Hackett

08 August 2011, 8:52 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Stock and most commodity markets around the world have fully reflected a U.S. recession, European recession and Japanese recession, says Shawn Hackett, president of Hackett Financial Advisors. “What the markets have not yet fully factored in is a recession in China. When looking at the recent numbers it is very clear that the Chinese economy is in fact contracting as we speak especially when adjusted for inflation,” he says. As evidence, Hackett points to the Chinese purchasing managers index falling under 50, which means manufacturing is contracting; a drop in the Chinese small and medium enterprise index, which means liquidity strains; falling car sales; rising copper inventories on the London Metal Exchange; and rising bankruptcies. It may take another two months for markets to factor in a Chinese recession, which will lead to further market weakness.

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

Market Nuggets: Commodity Market Correction Could Last Until Oct – Shawn Hackett

08 August 2011, 8:49 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- The commodity markets as a whole – as measured by the Continuous Commodity Index – have been declining since March and Shawn Hackett, president of Hackett Financial Advisors, notes that corrections in commodities usually last around seven months, making October “the ideal month for a bottom in commodities.” He says since the commodities correction has been more of a rolling type with different groups correcting at different times, bottoms in individual commodities will also come at different times. “Some bottoms will occur before the final correction low in overall commodities and some will occur after. This places the next two months as the prime breeding ground for long side investments for what will likely be the next great buying opportunity seen since the spring of 2010 for overall commodities,” he says.

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

Market Nuggets: Get Ready To Accumulate Commodities – Shawn Hackett

08 August 2011, 8:49 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- For investors who are sidelines, this is the time to get ready to invest in commodities, says Shawn Hackett, president of Hackett Financial Advisors. “If you have been placing money aside or have been thinking about increasing your allocation to commodities, then this would be the time to do it. The next several months will not be a time to make a lot of money. It will be a time to accumulate prized commodity assets and position ahead of the next big reflation cycle. It is quite conceivable that this current opportunity to buy hard assets might be your last, as I can foresee the next reflation cycle leading to the final fiat paper currency devaluation event that replaces 100 dollars with 10 dollars for those in cash. All other hard assets will reprice and hold their value while cash will simply buy you very little. You do not want to be asset poor when that time comes,” he says. His favorite commodity market picks are agricultural-related: corn, wheat, rice and lumber.

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

Market Nuggets: MF Global Looks For Macro Concerns To Pressure Base Metals

08 August 2011, 8:34 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- MF Global is bearish on base metals and other industrial commodities in the months ahead. Analysts cite their concern that investors seemed to have bid up commodities largely on the back of a weaker dollar, while ignoring “clear deterioration” in the macro data from a number of countries, including China. “This ‘weak dollar/high commodity price’ relationship finally seems to have broken down this past week, and we think it will be some time before it is revised,” MF Global says. “Instead, if markets are to now focus more on macro readings in the weeks ahead (as we suspect they may) while relegating the dollar to a secondary role, commodity prices will likely struggle over the second half of the year. In energy's case, we would not be surprised to see a drift down to the $70-$75 range basis the WTI contract by October. Base metals will also be under pressure, as we think increasingly sluggish macro news out of China will weigh on them later in the year. In fact, after last week’s correction, base metals are now all down year-to-date, although most have yet to retest their 2011 lows.”

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

Market Nuggets: BBH, Nomura Doubt Federal Reserve Ready For QE3 Yet

08 August 2011, 8:29 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Brown Brothers Harriman and Nomura International question whether Federal Reserve policy-makers will undertake a third round of quantitative easing at this week’s meeting. We have argued that the bar to QE3 is high and we believe it remains high,” BBH says. Analysts look for the Fed to downgrade its assessment of the economy and anticipate the Fed will assure investors that rate changes will not be forthcoming. “The Fed is also likely to extend their securities portfolio from shorter maturities to longer maturities, with the intention of inducing a flatter yield curve.  It is possible that the Fed also announces an explicit yield target for specific maturities,” BBH says. “We do not expect the Fed to renew its Treasury buying operation (QEIII) or to buy non-government obligations (such as corporate bonds or equities), as some have suggested.” Nomura says while the sharp sell-off in equity prices could prompt policymakers to ease monetary conditions further, the Fed's preferred measure of inflation expectations has not yet crossed the threshold many believe would be required before it considers further easing. “Furthermore, some factors differ from 2010--notably a weakening USD, higher commodity prices and increased sovereign risk. How those affect monetary policy decisions is not clear yet and it is this uncertainty that makes us nervous about ascribing a high probability of QE3 as a risk-market saviour.”

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

Market Nuggets: Morgan Stanley 'Strongly' Recommends Investor Exposure To Gold

08 August 2011, 7:50 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Morgan Stanley continues to favor gold, which rose last week and overnight on safe-haven demand. Supportive influences last week included ongoing European debt worries, mostly softer U.S. economic data that added to expectations that monetary policy will remain accommodative, and worries about a potential U.S. debt downgrade. The latter occurred late Friday when Standard & Poor’s cut the U.S. long-term credit rating. “We continue to strongly recommend exposure to gold, not only as a consequence (of) the events of the past week, but also through next year, which reflects our conviction that heightened demand for safe-haven commodities will be sustained by lingering investor concern over sovereign debt and growth risks in the U.S. and Europe, all occurring amid historically low real interest rates,” Morgan Stanley says.

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

Market Nuggets: Commerzbank: Aluminum Bucks Weaker Trend Among Base Metals

08 August 2011, 7:41 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Aluminum has bucked the trend of weaker LME base metals after the S&P downgrade of long-term U.S. debt, says Commerzbank. Copper dipped dipped below $9,000 a metric ton for the first time in six weeks, nickel hit a six-week low, and lead and zinc hit their weakest levels since the middle and end of May, respectively. “Aluminum on the other hand has actually gained slightly,” Commerbank says. “The light metal is currently gaining support from news that China, the world's largest aluminum producer with a 39% share of the global market, could further tighten power supplies. The potential resulting production losses are met by lively demand at present.”

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

Market Nuggets: R.J. O'Brien: Gold Soars, Equities Tumble After S&P Downgrade Of U.S.

08 August 2011, 7:38 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Standard & Poor’s downgrade of long-term U.S. debt to AA+ from AAA has sent gold soaring while other equities weaken, says Janet Mirasola, managing director of R.J. O’Brien & Associates. “The Shiny One has taken the spotlight once again as the best haven from the storm and overnight leapt to a new all time high…,” she says. “De-risking will be the challenge of most investors today as they look to protect themselves from the momentum and follow-through that global liquidation can bring.” The MSCI Asia Pacific Index fell by 2.7%, the Nikkei index 2.18% and the Shanghai Composite 3.79%, and European bourses are lower so far. Around 7:10 a.m. EDT, the September S&P 500 futures are 30.20 points lower at 1,167.60 in overnight screen trading. Comex December gold was $56.70 higher at $1,708.50 an ounce and hit a peak of $1,718.20 overnight that is a record for a most-active contract. September silver climbed $1.634 to $39.845 an ounce.

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

Market Nuggets: Gartman: Gold Prices Likely To Become Volatile

08 August 2011, 7:36 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Gold could become especially volatile in the wake of Standard & Poor’s downgrade of long-term U.S. debt, says Dennis Gartman, publisher of The Gartman Letter. Gold is “soaring” and “panic is in the air,” he says. “We are now at that stage of a bull market where prices can and will go ‘parabolic.’ Can we imagine gold prices soaring by $100/ounce or more in the hours and days ahead? Yes, in fact we can. We can also imagine gold falling $50/ounce in the blink of an eye.” Thus, he offered caution for those traders who cannot afford $50-an-ounce swings.

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