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Kitcommentary: "Questions of Rhetoric. And, Lotsa Money. "

Wed, 08 Sep 2010 14:03:00 GMT

Good Morning,

The successful bond auction conducted by Portugal this morning helped engender a mild (but transitory) gain in risk appetite which was reflected in a small decline in the US dollar and a firming in US equity futures. Gold prices however bucked the emergent trend and continued to approach the $1,265.00 June high as uniformly exuberant hedge fund managers and market timers were betting on nothing but clear skies in the bullion weather forecast.

Today’s forecast: clear skies with temperatures at or above 1,264.00 degrees. High humidity will linger, brought on by the sweaty palms of shorts. Strong, hot, rhetorical winds from the direction of the PR machines at hedge funds, bullion websites, and hard-money newsletter editorial desks.

Yesterday’s contrarian snapshot by Marketwatch’s Mark Hulbert found that the rhetoric of bullish sentiment (at 52.1%) surpassed levels seen over the past three years and was expected to only rise, following the close at a new high in the active December futures contract on Tuesday. Last week, Mr. Hulbert alluded to such a ‘slope of hope’ when defining gold’s climb; a process that would be more sustainable (historically speaking) if it were being carried out on another…surface: a wall of worry.

Worry did morph into alarm, over in Japan this morning. Local officials once again raised rhetorical ‘what if’ questions and pointed to the fresh, 15-year high recorded by the yen against the US dollar as the potential catalyst for unpleasant outcomes in the nation’s economy and made references to various fiscal measures but did not manage to make the difference that outright currency market intervention would.

Rhetoric that shows similar signs of failing was heard in China as well, where government attempts to deflate the hugely dangerous property bubble with anything short of a sharp policy pin is being disregarded by greedy speculators. To wit, despite what was the intention of Beijing officials, housing deals in Shanghai for example, rose last month. Like, by 149% from last year’s levels (read: lotsa money thrown at buildings). “Curb your enthusiasm,” says the government. “Curb this! “say the profiteers.

New York spot metals dealings opened with solid gains for the midweek session this morning. Gold showed a $5.20 per ounce advance, quoted at $1,260.40 on the bid side as against a small slippage in the greenback on the index (at 82.77). The effects or the dollar’s decline made for a $2 gain in values, whereas physical buying added a similar-sized premium to prices, resulting in the $5 net rise.

Tracking reports from China indicate that local gold production took a (rather unusual) step backwards in July, with a 2.6% fall in output from the record 31.897 tonnes the country dug up in June. The annualized tally for the first seven months of 2010 shows Chinese gold output way ahead of 2009, with a larger than 10% gain, at 190.298 metric tonnes. Silver outpaced the yellow metal by a factor of more than three – in percentage terms- rising 34 cents and advancing to one full dime above the $20.00 mark per ounce.

Six dollars were added to values in both platinum and palladium this morning. On-going labour difficulties in South Africa continued to support values, albeit there has been no discernable impact on overall supplies. The National Union of Mineworkers turned up its militant rhetoric a notch further, and gave hints that its strike over at producer Northam could go on for ‘several months’ or, at least for so long as the firm does not meet its wage demands. The firm is reportedly losing about 1,000 ounces of platinum output per day as a result of the strike.

ETFs in the noble metals continue to receive attention (read: lotsa money) from spec funds apparently gunning for $1,600 (make that, $1,601 according to yesterday’s prediction by one firm) for the former, and/or $600 for the latter. This morning’s tally showed platinum at $1,559.00 and palladium at $524.00 with little in the way of signs of market fatigue apparent.

Today’s market focus will orbit around the release and digestion of the Fed’s Beige Book; however, 2 p.m. is still a long ways down the road for these markets. There is still a $21 billion ten-year note auction and its results for players to factor in, as well as how the Dow will behave on the day.

This, following the 200+ point slippage in the Nikkei average overnight and the subsequent improvement in European markets after the Portuguese bond auction and better demand for similar instruments offered by Poland. In early dealings, Dow futures were indicative of a possible gain on the day as debt concerns dissipated a tad.

Gold spot values fell back to unchanged (near $1,255.00) and then into negative territory, following a probing maneuver to touch $1,264.10 on the offer side by the aforementioned speculative fund faction. Profit-taking became manifest at the near-record figure, though it was milder than certain dish soaps.

Meanwhile, Down Under, it appears that despite the fireworks of the recent elections (an event largely precipitated by the very core issue at hand), the proposed “Henry Tax” will likely go ahead. Oz Treasurer Wayne Swan revived the recent tax-oriented rhetoric said this morning that the tax on mining co. profits is ‘critical’ in order to fund spending on infrastructure and pension plans (read: lotsa money needed, lotsa money available from certain well-to-do-these-days firms).

The Labour Party drew one step closer to a potential victory yesterday and the tax talk is gaining traction yet again. Mining firms staged heavy opposition (read: lotsa money) to avert such a toll on revenues. To be continued. Surely.

Back on the ranch, the Central Bank of Canada raised its key interest rate this morning, even while the rhetoric coming from Ottawa underscored expectations of a more ‘gradual’ (read: less robust than anticipated) recovery in the nation’s economy. The Loonie took flight on the news, and the US dollar fell to C$1.044 against it at last check. Gradual, or not, the rate rhetoric spells: e x i t. This, while market players assure us of anything but (read: lotsa money to be made that way).

Until tomorrow,

Jon Nadler

Senior Analyst, Kitco Metals Inc.North America

US & Canada Toll Free: 1 (877) 839-8036

Websites: www.kitco.com and www.kitco.cn

Blog: http://www.kitco.com/ind/index.html#nadler

Kitcommentary: " Back To The Future(s) "

Tue, 07 Sep 2010 14:25:00 GMT

Good Morning,

Whatever selling pressure the stronger US dollar and a $1.60+ drop in crude oil had exerted upon gold prior to, and just after the opening of, the New York session this morning, dissipated along with the arrival to work in full force of the hedge fund crowd. More momentum money making for momentous mornings.

In the absence of any fundamentals-oriented news or any other significant news or statistics for that matter, the most visible of gold’s recent heavy bettors made their presence felt once again and accounted for a quick, $11 gain in the metal within the first 20 minutes of trading this morning.

Few participants question whether the June high will be revisited today, tomorrow, or in the next hour – so long as it is visited. Many question what happens next, however. Today’s plays are being explained within the context of some kind of imminent European banking system collapse – a fear that was somehow shelved for the duration of most of the summer vacation period.

Such plays appeared to be very much on the minds of strategists at DailyFX when they observed that: “it appears gold’s appreciation has become the impetus for demand, the precise opposite of how an asset is normally expected to behave. Indeed, linear regression studies suggest that a whopping 89 percent of the variance in the spot gold price is explained by variance in the holdings of the SPDR Goldshares ETF (GLD), the leading exchange-traded fund tracking the metal.”

Tuesday’s opening bell showed a $1.40 gain in spot gold prices with a quote on the bid side at $1248.00 an ounce. The roughly $8.30 drop in values attributable to the strengthening of the greenback (up 0.30 on the index to 82.61) was more than offset by the flurry of physical offtake from the spec fund sector; giving the metal a $9.70 boost at the start of the session and accounting for the aforementioned net gain.

Silver fell 15 cents as the starting gate opened this morning, with a spot bid quote at $19.70 the ounce. As with gold, it did not take very long for the market to receive a fresh boost of speculative interest and soon, the white metal was showing a $19.97 bid price –also in the absence of any impactful news. The $20 mark is a virtual no-brainer today, but questions surround what might happen as the metal might draw near to putative heavy-duty resistance levels thought to be located around $21.25 per ounce.

Platinum was unchanged at opening time this morning, quoted at $1551.00 per troy ounce. Meanwhile, some profit-taking emerged in palladium initially, as the metal fell $9 to $519.00 the ounce. A very time and price-specific prediction was on offer by Commerzbank technical analysts this morning, for platinum. In so many words, you can bet on platinum achieving a price tick at $1601.00 in three weeks. No suggestions were on tap as to what might happen with the platinum price on the …29^th of September, however.

None of these initial fluctuations turned out to be trend-indicative for the noble metals either, as the typical post-Labor Day betting spree turned the complex higher as well and changed the price equation at warp speed, and the bullish decibels gained even faster. Platinum was up $6.00 (at $1559.00) and palladium showed a $1 gain (at $529.00) at last check.

If you prefer your [gold-oriented] decibels at a more moderate, but still quite ‘loud and clear’ level you have no further to look than Amazon.com. Or, Wiley & Sons for that matter. They both carry the newly published book by Jim Gibbons entitled “The Golden Rule.” The book is a compendium of two dozen essays about gold. Jim’s book answers many questions, including: How do you purchase gold and in what form? Why gold now? When should you buy? And, most importantly, from whom? Throughout the book, Gibbons puts gold in perspective and shows you why it belongs in every investor's portfolio.

The trade we spoke to in NY was still searching for headlines to account for the U-turn, but it was quick to remark that gold was the likely force of gravity here, pulling everything else up. Anti-gravity, is more like it. In the case of rhodium, it was more like the ‘steady-state’ universe this morning, as the metal started at the same $2,080.00 bid level at which it spent the entire previous week. A strike at Northam helped underpin pgms.

On the automotive front, the market still looks to Asia to fill the gap being created by sluggish-at-best auto demand in the US and parts of western Europe. India’s Maruti Suzuki Ltd. (that country’s largest auto manufacturer) announced that it will augment its output capacity by 46% in order to meet rising car demand in what is Asia’s third biggest auto market. Future factoid of import: A Nissan Leaf electric vehicle uses nine pounds of lithium for each car. Lithium ETF, anyone?

Australia and Japan left key interest rates unchanged overnight, as perceptions that uncertainty still rules global economic conditions convinced the countries’ respective central bankers that tinkering with them is probably unwise, for the moment. Australia’s Labour Party, led by PM Julia Gillard secured enough seats to form a minority government, sources in Sydney report. No consensus on what the impact of the development will mean for the on-going impasse over mining company profits taxation.

Greece, on the other hand, reshuffled its cabinet ahead of November elections that are likely to be met with rising anger amid voters. The country is in its second year of a recession and prices are rising at a rate that has voters grumbling quite loudly.

US inflation, on the other hand, (though you would not know it from the apparent gold bet explanations being offered by 105% of the players being quoted these days) remains hard to detect. In fact, quite the opposite. Daily FX analyst Ilyia Spivak on the thorny topic of potentially misplaced expectations, that no one seems to wants to mention, even in passing:

“[This] inflationary fear appears to be unfounded. Looking at the US as an example, the amount of money actually created by the Federal Reserve’s liquidity injections is a function of the money multiplier, a ratio measuring the total impact of a deposit into the banking system after it expands through lending and borrowing while cycling through the banking system. Data compiled by the Fed’s St. Louis branch reveals that currently the money multiplier is hovering near 0.8, the lowest level in more than 25 years.

This means that for every dollar created via quantitative easing, only 80 cents actually makes it into circulation. Furthermore, a Fed measure of the velocity of money - the speed with which it changes hands - has also fallen to a multi-decade low. On balance, this means that despite the Fed’s artificial creation of liquidity, a catastrophic period of inflation is unlikely because the mechanisms of monetary policy transmission are not operating as they should.”

Meanwhile, over in the US, President Obama offered a non deficit-boosting, fully paid-for $50 plan intended to revamp the USA’s fast-crumbling network of roads, railways and airport runways. This, however, was only a part of the larger plan to revive the American economy, to be announced tomorrow in Cleveland, Ohio. Also on the US President’s agenda, is a tax break for businesses by virtue of which such entities will be able to deduct 100% of the cost of investment in plants and equipment. The plan would slash some $200 billion in business taxes over the next couple of years.

Happy Trading,

Jon Nadler

Senior Analyst, Kitco Metals Inc.North America

US & Canada Toll Free: 1 (877) 839-8036

Websites: www.kitco.com and www.kitco.cn

Blog: http://www.kitco.com/ind/index.html#nadler

The ISRI Friday Report: September 3rd, 2010

Fri, 03 Sep 2010 17:14:00 GMT

This morning's LME trading was quiet but prices were firm early ahead of this three day Labor Day Holiday weekend...London gold was last indicated at $1,250-$1,251/to and termed "steady"...yesterday, Dec Comex gold rose to $1,253.40, nearly matching its June 28th record ($1,256.60). In New York this morning, traders are looking for Comex copper to open a bit weaker as London prices drift...yesterday, the December contract ended the day higher @ $3.4955/lb.

Kitcommentary: " ¡ Tres Amigos Seguros ! "

Fri, 03 Sep 2010 17:05:00 GMT

Good Morning,

Some of the sardine can-like conditions in the gold trade were relieved this morning when news that US nonfarm payrolls dipped only by 54,000 positions prompted some latecomers to unwind their own positions in the yellow metal. In fact, US firms added more jobs (some 67,000 of them) than the 40,000 or so figure that was previously forecasted by analysts. Result: some fear/doom/gloom cocktails are no longer served today. Good news, however, is not so, when it comes to gold.

Minutes after opening on a hesitant footing at $1,248.50 (and after having once again tried to vault above $1,255.00 per ounce) bullion values sank to the $1,237.00 mark (just below one pivotal support point) as the key employment statistic came in at a level much less worrisome than economists had anticipated.

This, despite the fact that the US economy’s recovery can still only be described as reassuring in only selected niches. At any rate, when anticipatory tallies talk about a loss of 105,000 jobs and you get a real-world figure of half of that number, safe-haven bids take a bit of a hit as a consequence.

Again, this, despite the fact that overall unemployment in the US edged on tenth of a percent higher in August. Market participants appear to have shed some of the uber-gloomy attitude they exhibited for most of the week and chose instead, to focus on the upward revision in June and July payrolls that also accompanied this morning’s long-awaited and much speculated-about set of numbers.

Silver was not nearly as much affected by the US Labour Department’s statistical news release. The white metal had opened with a six cent loss at $19.59 and dipped only an initial two additional pennies on the news, while it fell another nickel later in the session. Gold was showing a 1% loss at 9 AM while silver’s slip was on the order of 0.51% at the same time.

No frightening platinum and palladium speculators with employment data however; they continued to bid the two noble metals higher still, as the former opened with a $13 gain at $1,556.00 the ounce and the latter climbed $3 to $525.00 at the start of the session. Once again, rhodium price checks revealed no change in that noble metal.

In the background, crude oil was trading marginally higher (near $75.30 per barrel) following the data, while the US dollar lost a tiny amount of ground on the index, slipping to 82.41 at last check. Stock bulls appeared jubilant over the US jobs data, pushing Dow futures up by more than 100 points in its wake. The actual Dow gained 125 points within the first half-hour of trading this morning.

The markets have now been waiting for an intervention by the Bank of Japan for about a couple of weeks. It seems that one possible reason they did not yet get such a move on the part of that central bank is that it finds itself unable to rally the support of the US and Europe. The BoJ was expected to do that which the Swiss National Bank has done back in June and sell its currency to truncate unwelcome gains.

Mind you, the SNB’s gamble did not exactly pay off; speculators still pocketed hefty profits on the move that was largely seen as ineffective. For Japan, the situation is a bit more serious however, as much of its exports are affected and will continue to be so, in the event the yen does not lose some value. The question here is: what is it about the yen, and the ‘Swissy’ as well as the buck that makes them the belles of the ball these days?

Well, NYU’s Dr. Roubini says that the quest is on for safe havens in a world riddled with risk aversion. When push comes to shove –and, it might again- investors want a liquid, secure umbrella with which to dodge various falling assets out there.

Thus far, and in the foreseeable future, Dr. Roubini argues, the dollar-yen-swissy trio fits the bill, and it does so better than gold. This would especially be the case if the world economy moves into the second V of the W that so many economists keep discerning at this time. Not so, at least one ECB member, Ewald Nowotny, who opined that he sees no signs of the US heading for the double-dip event. In any case,

“I believe that gold is going to trade around current levels. There are two extreme events that lead to a spike in gold. One is inflation, but we have no inflation in advanced economies. If anything, there is a risk of deflation. The other event in which gold prices go up is the risk of a global financial meltdown, and that tail risk has been reduced because we backstopped the financial system.” Dr. Doom –as he is also known- said, in an interview with Bloomberg.

Note that Dr. Roubini does not exclude gold (and neither should you) from core holdings designed to weather such possible storms; it is just that he sees the three currencies as offering more upside under such circumstances, due to their superior liquidity (the size of their respective markets and several other factors come to mind).

As far as China’s portfolio to weather whatever is in the cards is concerned, it also appears to be following the Roubini model. The country holds 65% of its reserves in the greenback, 26% in euros, 5% in British pounds, 3% in yen and near 2% in gold. No mention is made of Swiss franc holdings, if any, however. At least one popular urban myth should be laid to rest in the wake of such Chinese asset allocation disclosure: that of the school of thought that believes that all of China’s reserves are in dollars and that it will soon dump most of those greenbacks and replace them with gold bars.

Another sad myth that needs to now be euthanized is the one being propagated about the lack of ammunition at the Fed’s disposal in fighting crisis conditions. No sooner had the concept that the Fed is somehow aiding and abetting the bankers and maintaining a financial system that is already dead and gone been floated that it was summarily dismissed by these little gems full of warnings from the mouth of Mr. Bernanke himself:

“Tougher rules and market pressures will lead huge firms to voluntarily shrink themselves. Executives can no longer count on the government to bail them out if they veer toward failure, they said. Bernanke said that bailing out these institutions is not a healthy solution and great improvement will come from the new law. Too-big-to-fail financial institutions were both a source ... of the crisis and among the primary impediments to policymakers' efforts to contain it. We should not imagine ... that it is possible to prevent all crises." Translation: “Let them (teetering banks which pose a risk to the system) fail, we will.” Ammo that was only utilized in the Lehman case on the last go-round, might well be the carpet bombing projectile of tomorrow’s potential meltdowns.

But, not everyone wants to believe the man, or, another Fed person, Mr., Lockhart who said this morning that the Fed asset purchase decision made in August does not signal the launch of QE2, that the economic sluggishness is temporary, and that there appears to be excessive pessimism about the matter out there in market-land. Believe what you will. Believe who you will.

We on the other hand, believe you will have a terrific, long weekend. This summer holiday period has passed, too. The world is still spinning, the sky is still in place. The only serious bloodletting is to be found at the movies: “Machete.”

Until Tuesday,

Jon Nadler

Senior Analyst, Kitco Metals Inc.North America

US & Canada Toll Free: 1 (877) 839-8036

Websites: www.kitco.com and www.kitco.cn

Blog: http://www.kitco.com/ind/index.html#nadler

Kitcommentary: "Autos Stall, Jobless Fall, Home Sales Crawl "

Thu, 02 Sep 2010 16:55:00 GMT

Good Morning,

Jobs and homes; the pivotal focus items by which many solely continue to gauge the state of the States’ economy, remained at the centre of this morning’s preoccupation among investors as well. Yesterday’s ISM data offered a bright spot and markets responded in kind.

The Dow had its best day in months (254 points were added to its value), and the US dollar sold off as some safe-haven seekers opted for riskier havens. Gold prices backed away from the $1,255.00 area to ease towards the $1,244.00 level, where they ended up closing last night’s session.

Such changes in sentiment however lasted but overnight, as investors greeted markets with another, double serving of doubt and gloom this morning. Jobs and homes. Having a job, buying or keeping a home. These are the metrics by which today’s judgments will be made and which will move markets. However, in essence, the chances of the USA skirting the double-dip event are actually fairly decent.

Why, you ask?

Part of the reason, at least according to the tea leaf readers at BofA Merrill Lynch, is that the string of data that has unnerved everyone from the Fed to John Q. Public has already proven to be so dismal that there is largely no more room to the downside (for such numbers to go). Thus, BA/Merrill places the odds for a DD at 25% for the next 12 months, at the moment. In addition, with the markets so emphatically pricing in the inverse of such odds, any surprise to the upside could be pretty nasty for the doomsayers.

At any rate, the odds of a DD were summarily dismissed by ECB head Jean-Claude Trichet this morning, even as he left interest rates unchanged at 1% -just-in-case, until year’s end. Mr. Trichet also opined that he is not distressed with economic reports coming from the US inasmuch as the ECB at least did not expect to learn about ‘extraordinarily dynamic growth’ taking place there at this time.

Another central banker, Mr. Benrnanke, on the other hand, offered a different kind of hindsight today: he said that the single most important lesson he (and presumably the Fed and other authorities) have learned from the crisis is the need to do away with the ‘too big to fail’ mentality.

None of the above stopped gold from opening with a fresh, $5 gain this morning. The spot price was bid at $1,249.40 on account of predominant physical buying by funds (and a small, $0.20 contribution to the price gain, courtesy of a further 0.11 drop on the index in the greenback).

Later in the session, gold drew nearer to yesterday’s $1,255 area but once again retreated to the $1,250.00 level. Judging by both gold and the Dow, the waiting game is all about Friday’s figures on the jobs front at this point. That number, plus pre-long-weekend book-squaring jousts will likely make for a fun Friday for some markets.

Sorties by shoppers to souks in the Middle East were rather scarce in August, as the observation of Ramadan took place. Sales of gold in Dubai and Abu Dhabi fell by 15% for the month. General gold demand in the region during the second quarter was a mixed bag, with Saudi Arabia showing a 5% percent gain, whilst the UAE’s gold sales dropped by 15%.

The same, pre-data-fueled rise was evident in the rest of the metals complex as well. Silver added 14 cents, rallying to but one penny short of $19.50 the ounce. Platinum (go figure) gained $19 the ounce and opened at $1,550.00 following the revelation that US auto sales careened towards a ditch, in their worst August in 27 years.

Toyota and Honda’s US outlets posted sales declines in excess of 30% last month, while both GM and Ford saw an 11% drop in sales. Not so, the case for GM Canada; its sales were up 8% in what amounted to the best August level in two decades. Automaker Chrysler…dodged a bullet in the US, posting a 7% gain in August sales.

Experts attribute much of the contraction in US auto sales to the absence of C-4-C car buying stimulus schemes from the scene. Palladium rose $3 to start at $520.00 per ounce. If one needed more evidence of speculative fund-type footprints in this sector, well, there it was in oodles this morning.

While US consumers clearly kept a distance from automobile showrooms last month, they still went shopping. With the calendar evidently continuing to march forward, school time almost knocked on the door and throngs of docile parents headed to Costco, Hot Topic, Zumiez, The Limited, Wet Seal, and at least another six retail chains and made for better-than-anticipated beep counts at cash registers last month.

US initial jobless claims filings fell by a relatively modest 6,000 in the latest reporting period, bringing the total to 472,000. Meanwhile, the four week average of initial filings (normally thought to be a better metric of labour market conditions than the weekly figure) also declined. This decline was not exactly what the safe-haven flavoured markets expected this morning. Remember, they thrive on terrible, horrible, no good, very bad kind of news.

These days however, with nerves, greed, fear, and other such impact factors being at extremes, even modestly negative news can do the trick. To wit, the downward revision in US second quarter productivity. It (and the fact that the drop in jobless claims was not seen as ‘good enough’) was probably enough of a catalyst to shove the jobless claims figures out of the way and reignite the quest for certain assets (metals) but not others (stocks) while the dollar just treaded water.

It (the fear/greed combo) was also the reason why things turned the other way after the release of pending home sales figures (up 5.2% in July) and US factory data. Every nuance of every little number is enough for exaggerated moves in this environment of ‘unusual uncertainty’ (even if not everything in the world –not even remotely- hinges on the slightest sneeze or sigh coming from the US economy).

Consider for a moment that the entire continuing unemployed segment in the US totals 4.4 million souls. That number is only half a million higher than that currently seen in Spain; a country for which, the 3.9 million figure amounts to an unemployment level of 20%. “Bad” is –at best-a relative notion.

Then again, so are ‘slow’ and ‘sufficient’ and any other adjective being used to characterize anything to do with the economy and the recovery. Instant gratification wants things ‘now’ and ‘fast’ and ‘big.’ One of the reasons that this last recession was, and is, still, ‘unacceptable’ to markets and to investors. And also one of the reasons the Fed had, to and is still expected to, do ‘whatever it takes.’ There is no room for pain among today’s entitlement-imbued investors.

Until tomorrow,

Jon Nadler

Senior Analyst, Kitco Metals Inc.North America

US & Canada Toll Free: 1 (877) 839-8036

Websites: www.kitco.com and www.kitco.cn

Blog: http://www.kitco.com/ind/index.html#nadler

World's 30 Largest Steel Producers

Wed, 01 Sep 2010 15:44:00 GMT

Here is a list of the TOP 30 largest steel producing companies from around the world.

1- ArcelorMittal - Country: Luxembourg - Crude Steel Output per year: 103,300,000 MT

2- Nippon Steel - Country: Japan - Crude Steel Output per year: 37,500,000 MT

3- Baosteel - Country: China - Crude Steel Output per year: 35,400,000 MT

4- Posco - Country: South Korea - Crude Steel Output per year: 34,700,000 MT

5- Hebei Iron & Steel Group - Country: China - Crude Steel Output per year: 33,300,000 MT

6- JFE Holdings - Country: Japan - Crude Steep Output per year: 33,000,000 MT

7- Wuhan Steel Group (Wisco) - Country: China - Crude Steel Output per year: 27,700,000 MT

8- Tata Steel - Country: India - Crude Steel Output per year: 24,400,000 MT

9- Jiangsu Shagang Group - Country: China - Crude Steel Output per year: 23,300,000 MT

10- U.S. Steel - Country: USA - Crude Steel Output per year: 23,200,000 MT

11- Shandong Iron & Steel Group - Country: China - Crude Steel Output per year: 21,800,000 MT

12- Nucor - Country: USA - Crude Steel Output per year: 20,500,000 MT

13- Gerdau - Country: Brazil - Crude Steel Output per year: 20,400,000 MT

14- Severstal - Country: Russia - Crude Steel Output per year: 19,200,000 MT

15- Evraz Group - Country: Russia - Crude Steel Output per year: 17,700,000 MT

16- Gruppo Riva - Country: Italy - Crude Steel Output per year: 16,900,000 MT

17- Anshan Iron & Steel Group - Country: China - Crude Steel Output per year: 16,000,000 MT

18- Thyssenkrupp - Country: Germany - Crude Steel Output per year: 15,900,000 MT

19- Maanshan Iron & Steel Company - Country: China - Crude Steel Output per year: 15,000,000 MT

20- Sumitomo Metal Industries - Country: Japan - Crude Steel Output per year: 14,100,000 MT

21- Steel Authority of India (SAIL) - Country: India - Crude Steel Output per year: 13,700,000 MT

22- Shougang Group - Country: China - Crude Steel Output per year: 12,200,000 MT

23- Magnitogorsk Iron and Steel Works (MMK) - Country: Russia - Crude Steel Output per year: 12,000,000 MT

24- Novolipetsk Steel (NLMK) - Country: Russia - Crude Steel Output per year: 11,300,000 MT

25- Hunan Valin Steel Group - Country: China - Crude Steel Output per year: 11,200,000 MT

26- China Steel Corporation - Country: Taiwan - Crude Steel Output per year: 11,000,000 MT

27- Techint (Tenaris) - Country: Luxembourg - Crude Steel Output per year: 10,400,000 MT

28- Iranian Mines & mining Industries (IMIDRO) - Country: Iran - Crude Steel Output per year: 10,000,000 MT

29- Industrial Union of Donbass (ISD) - Country: Ukraine - Crude Steel Output per year: 9,900,000 MT

30- Hyundai Steel (HSC) - Country: South Korea - Crude Steel Output per year: 9,800,000 MT

Source: Steelads.com

Metals and Mining Review - Sept. 2010

Wed, 01 Sep 2010 15:36:00 GMT

Aug 31, 2010 (Zacks.com via COMTEX) -- Overview

The Metals & Mining Industry encompasses the extraction (mining), as well as the primary and secondary processing of metals and minerals such as aluminum, gold, precious metals, coal and steel. The industry is oligarchic in structure, with a few producers accounting for the lion's share of the output. The largest segment of the global metals market is iron and steel, followed by aluminum.

The iron and steel segment comprises more than half the industry in terms of volume. This industry includes metal ore exploration and mining services, iron and steel foundries for smelting, rolling, forging, spinning, recycling, stamping, polishing and plating of iron and steel products such as pipes, tubes, wire, spring, rolls and bars. Luxembourg-based ArcelorMittal (MT), the world's largest steel producing company, produced 73.2 million tons in 2009, representing 6% of the world's steel output.

The precious metal and mineral industry consists of companies engaged in the extraction and primary processing of gold, silver, platinum, diamond, semi-precious stones, uranium and other rare minerals and ores, along with the cultivation of pearls. Anglo American Plc., the largest gold producer by market capitalization, dominates the gold industry.

Historically, the automotive and construction markets have been the largest consumers of metals, accounting for more than 50% of total demand. Other metal consumers include energy, electrical equipment, agricultural, domestic and commercial equipment and industrial machinery. Large automakers such as General Motors Corporation (GM), Ford Motor Company (F), Toyota Motor Corporation (TM) and Honda Motor Company (HMC) are big consumers of metals, chiefly steel and aluminum.

Outlook

The global metal industry is cyclical, highly competitive and has historically been characterized by overcapacity (excess of supply over demand). Metal producers are subject to cyclical fluctuations in London Metal Exchange prices, general economic conditions and end-use markets. Individual company profitability depends on volume and operating efficiency. Large producers with huge resources are able to discover, develop new deposits and boost reserves, while smaller ones own few mines and concentrate on them.

Mergers and acquisitions (M&A) has historically been a critically important growth strategy for metal companies. While the slow economic recovery is a significant factor in short-term decisions regarding M&A activity, mining companies expect to make acquisitions over the next three years. The M&A activity is also supported by higher metal prices that have strengthened the financial positions of many mining giants.

Geographically, the Asia-Pacific region is witnessing higher production and consumption of metals, especially China and India. Per capita consumption levels in both these countries are calibrating to U.S./European levels, which could -- theoretically, at least -- double metal demand in the longer term. In recent years, capacity growth in China has significantly exceeded the growth in market demand. A continuation of this unbalanced growth trend or a significant decrease in China's rate of economic expansion could result in the country increasing its metal exports.

Yet, we expect global metal demand to improve in the long term with the recovery of user industries. Developed regions such as the US and Europe are showing signs of recovery. Despite some concerns about its sustainability, China is expected to remain the largest consumer of metals in the future.

Metals in Detail:

Steel

As the major shareholder (about 60%) in the metals market, the steel industry was strongly affected by the global economic downturn. Massive over-capacity is one of the major headwinds for steel, which continues to weigh on prices. Moreover, the industry has witnessed a number of trade disputes involving the U.S., in particular, the imposition of tariffs of up to 30% on imported steel. Rising raw material prices -- iron ore and coal (metallurgical) -- are also a major concern for the steel industry. AK Steel Holding Corporation (AKS), for instance, expects a 65% rise in benchmark iron ore prices in the near term.

Demand in key metal consuming industries such as autos, shipbuilding and construction, continues to remain weak, forcing global metal producers to slacken output levels. While utilization levels have improved recently, steel makers were operating at less than 50% capacity last year. U.S. Steel Corporation (X) -- the eighth largest steel producer in the world, the largest integrated steel producer headquartered in North America and one of the largest integrated flat-rolled producers in Central Europe -- slashed production by almost 37% in 2009, while Korean steel maker POSCO (PKX) had to scale down output by about 10.9%.

Steel demand is reviving slowly, with improving end-markets on the back of a recovering global economy. Steel giant ArcelorMittal and U.S. Steel are restarting furnaces or are planning to in the near future. Industry steel mill utilization rates have increased to above 70%. The current high in steel demand helped reverse losses for the third largest steel maker Steel Dynamics Inc. (STLD) and the largest recycler of steel scrap in the U.S., Nucor Corporation (NUE).

Steel Dynamics' second-quarter earnings of 22 cents reversed losses of 8 cents recorded in the year-ago quarter. Similarly, Nucor reported a profit of 29 cents per share in the second quarter of 2010, in contrast to a net loss of 43 cents per share in the same quarter of 2009. The World Steel Association expects a 10.7% increase in global steel demand this year and a further 5.3% gain in 2011 compared to 2010 level. The impetus is mostly expected from a surge in Chinese steel demand, which is likely to grow 6.7% to 579 million tons in 2010.

But despite these improving trends, average selling prices are still struggling, as the pace of recovery in the U.S. and global markets is slow at best. The ongoing slowdown has marred prospects in the housing and construction sectors in the near term. AK Steel Holding Corporation (AKS), Nucor and Steel Dynamics have provided a bleak overall near-term price outlook, although they expect end-markets to stabilize.

Collectively, AK Steel, Nucor and ArcelorMittal have a Zacks #4 Rank (Sell) for the short-term (1 to 3 months), while we maintain our Neutral recommendation in the long term for all three, given the outlook for steel. However, Steel Dynamics holds a Zacks #5 Rank (Strong Sell) and has a long-term Underperform recommendation driven by a very weak earnings outlook.

Gold

The outlook for investment is positive overall, with absolute levels of demand likely to remain well supported by continued economic and currency uncertainty, inflation concerns and the search for diversification. In 2009, global gold supply exceeded demand by 15%, reflecting favorable gold prices. However, based on the marginal improvement in the economic environment in 2010, the World Gold Council expects an increase in demand for jewelry, which in turn will help global gold demand. A potential shot in the arm for the precious metal is the expected increase in central bank gold holdings, primarily as a diversification play.

The value and wealth preservation attributes of gold continue to attract investors and consumers. Jewelry and investment demand in non-western markets continues to rebound from the low levels in 2009, while industrial demand has started to recover in response to an improvement in economic conditions. India, which alone consumes nearly 45%−50% of the world gold production, should drive demand for gold along with China in the next half of 2010. Chinese gold demand is expected to double in 10 years. Concerns over the recent European debt crisis have also led to strong buying of gold coins, bars and gold exchange traded funds in particular.

We saw gold demand and prices strengthen in the first six months of 2010, a trend that is likely to remain in place in the rest of the year. Higher prices bode well for gold producers, which should benefit giants such as Barrick Gold (ABX), Agnico-Eagle (AEM) and Goldcorp Inc. (GG). However, gold producers Newmont Mining (NEM) and Kinross Gold Corporation (KGC) suffer from lower ore grades that subdue production levels, increase mining costs and offset the benefits of rising gold prices. Overall, the stock prices of gold producers are not expected to benefit much from this overall favorable commodity-price backdrop. This is reflected in our overall neutral view on the space.

Aluminum

The aluminum industry is highly cyclical, with prices subject to worldwide supply and demand forces along with other influences. Aluminum prices at the LME have plunged around 20% from their April highs to $1,969 per ton. The greatest risk for aluminum producers would be a further decline in aluminum prices.

However, we expect aluminum demand to increase in the long term, outstripping supply growth with the improving end-markets. Leading aluminum producers such as Alcoa Inc. (AA), Paramount Gold and Silver Corporation (PZG) and Aluminum Corporation of China (ACH) should benefit from the improving demand outlook.

In the medium to long term, Alcoa expects aluminum consumption to improve globally with improving automotive and packaging industries, one of the key consumer markets. Aluminum is widely used for packaging, beverage cans, food containers and foil products. The automobile market is also becoming increasingly aluminum intensive, benefiting from the recyclability and the light weight of the metal.

Alcoa now expects demand to grow about 10% to 12% in 2010. The aluminum giant predicts Chinese aluminum consumption to jump 21% and about 6.5% globally (excluding China) in 2010. Currently, Alcoa, Paramount Gold and Silver and Aluminum Corporation of China hold a Zacks #3 Rank (Hold) supported by a long-term Neutral recommendation.

Copper

Copper prices started on a downtrend in early July 2010 and are expected to remain volatile in the near term, which could be a major headwind for copper companies. Revenues and margins for copper producers like Freeport-McMoRan Copper & Gold Inc. (FCX) and Southern Copper Corporation (SCCO) were affected by the recent fall in copper prices and volumes, primarily driven by the slowing economic activities in China.

However, the long-term view is favorable. Market conditions are expected to be positive for copper in the next couple of years due to higher consumption of the metal in the developing nations. Copper companies that have a high leverage to copper prices will benefit immensely from the potential demand in copper in the developing markets.

The near-term headwinds led to the short-term Zacks #4 Rank (Sell) and Zacks #3 Rank (Hold) on Freeport and Southern Copper, respectively. However, both companies have a Neutral recommendation on a positive long-term outlook.

News Source: Zacks Equity Research

Kitcommentary: " FOMC: Fully at Odds Monetary Consensus? "

Wed, 01 Sep 2010 14:58:00 GMT

Good Morning,

Overnight gains in precious metals prices brought gold within striking distance of its June highs as the yellow metal entered its 50^th week spent at above $1,000 an ounce. Some media reports assigned the climb to the $1,255.00 level as due mainly to concerns about economic growth. Virtually at the same time during the night, we were treated to headline announcing that stock futures rose due to an easing of economic concerns. Stop us if you too are befuddled by some of the things you run across in your morning reading.

At any rate, the malaise about global economic growth took a breather overnight as news of a rebound in Chinese manufacturing activity –following a multi-month slippage- and of a surge in Aussie economic growth prompted investors to once again consider risk assets. And now, for the hard(er) part: upcoming US data and what it might do to such budding positive sentiment.

ADP’s private sector employment figures were on tap this morning, and they revealed a decline of 10,000 positions in the month of August. The addition of 30,000 jobs in the service sector was offset by a 40,000 position fall in the manufacturing sector. While the net number may appear small, at the end of the day it represents the first such drop after a six-month string of gains. The news release failed to dent apparent bullishness in stock index futures, but the markets were still awaiting ISM manufacturing and construction spending data, as well as auto sales figures.

Gold opened the midweek session with a $5.70 per ounce gain, quoted at $1,253.40 per troy ounce basis spot bid. The rise in gold took place as against a sizeable, safe-haven-position-unwinding-based slippage in the US dollar (down 0.63 to 82.47 on the index) which accounted for a true increase of $10.30 per ounce in the metal at opening time.

The differential and net gain was accounted for by predominant selling in the physical market (to the tune of a $4.60 decline) noted at the same time. In other gold-related news, Indian buying remained muted overnight as near-record prices made for scarce shoppers in local bazaars according to our sources, Russian (central bank) buying largely offset IMF selling for the month of July (16.2 tonnes versus 16.85 tonnes), and ETF holdings grew by almost 4 tonnes amid the latest rally in prices.

Some will, of course, not at all fail to notice this other bit of news, which, according to the Street.com announces that “JPMorgan (JPM) will close its commodity proprietary trading desk to meet with the recent financial reform law. Its prop desk is in London and it's unclear as to how its absence in the market will affect the gold futures market.” Manipulation forums-it is reported-are despondent about the fact that fingers will no longer be able to point to JPM and its sinister, putative ‘interventions’ into the gold market (at the behest of Uncle Sam, no less).

A fresh, gold-cautionary comment from a PBOC researcher brought up the prospect of central bank selling (including that of the United States, said he) of the metal. The tiny news item was buried amid what appears to be uniformly bullish posturing among gold market times. Something that actually worries Marketwatch’s Marc Hulbert, more than a bit –even if only in the short-term. Walls of worry, slopes of hope. What would the markets do without them? Don’t know, really, but at least one analyst was quoted to say this morning that this market really needs to turn up the ETF gold-buying spigot if it is to make advances past $1,265.00 an ounce. Like we said on previous occasions; a market addicted to fund funds, this has become.

At market opening time, silver was ahead by 2 pennies, quoted at $19.42 per ounce. Substantial gains were noted in platinum and palladium on the open, with the former rising $10.00 to start at $1531.00 and the latter climbing $8.00 to the $520.00 mark. Rhodium was flat at $2,080.00 the ounce. In the background, stock index futures were still looking robust, while crude oil advanced about eight-tenths of a dollar to the $72.75 level.

Noble metals added value on the back of news that South Africa’s NUM is about to strike at Northam Platinum and on fresh data indicating that auto sales –at least those in Asia- are looking robust. While the markets still await North American auto sales figures, the fact that Chinese dealers moved nearly one million units off their lots in August, and that those in Japan witnessed the third biggest monthly sales gain ever, encouraged funds to bid the complex higher this morning.

Add in figures from India, which shows a 35 percent growth in its automotive market for the first four months of its current fiscal year, and the news for the pgm group metals could not have been better at this time, although some analysts doubt that such momentum is sustainable, as –for example- Japan’s figures were largely attributed to the imminent expiration of government subsidies designed to stimulate sales. We ran across at least one article that projects a hefty slide (okay, a ‘collapse’) in Japanese car sales, to be led by the best-selling Prius model from Toyota.

Something else that may yet slide is the level of certainty about ‘imminent Fed asset buying sprees.’ The Fed’s own members were shown as being at odds with signaling easier monetary policy following its latest August meeting. “A few members worried” the move “could send an inappropriate signal to investors about the committee’s readiness to resume large-scale asset purchases.” is how this was described in the release of the FOMC minutes yesterday.

According to Bloomberg, “Michael Dueker, head economist at Russell Investments in Tacoma, Washington, said there is an “even chance” of further quantitative easing, or use of tools such as asset purchases, before year’s end. “Chances are very low that they take more action in September,” said Dueker, a former member of the St. Louis Fed research staff. “Quantitative easing is a bigger step than a quarter- or half-point cut in the interest rate. This is going to require more evidence.”

In the interim, let’s wait for that evidence. There are three more days’ worth coming in the pipeline.

Happy reading.

Jon Nadler

Senior Analyst, Kitco Metals Inc.North America

US & Canada Toll Free: 1 (877) 839-8036

Websites: www.kitco.com and www.kitco.cn

Blog: http://www.kitco.com/ind/index.html#nadler

Kitcommentary: " Miracle-Gro: The Universal Solution? "

Tue, 31 Aug 2010 13:59:00 GMT

Good Morning,

Crisis-oriented mentality remains pervasive on this last day of August and it will be interesting to see how the gloomy emotional state of global investors will reflect in the markets when full participation resumes in them in about one week’s time following summer’s holidays.

More of the same was on tap during the overnight hours; more widespread nervousness regarding the global economic recovery, more gains in the gravity-defying yen, more weakness in crude oil prices, more declines in global equity markets, and more steadiness in gold. Albeit the yellow metal touched lows near $1,231.00 per ounce, it remained fairly well bid while speculative buyers duked it out with would-be physical buyers in India.

The latter turned away from buying the precious metal for the moment, as the perception that gold prices are too high and that they might correct soon dented festival-related shopping enthusiasm. Gold priced in rupees remains but one percent below its all-time highs. Meanwhile, cheaper gold than that which is imported was making its way onto India’s shopkeepers’ shelves as consumers are once again turning the spigots of scrap flow open a few more notches at current values.

The country’s denizens are thought to have a larger than 20,000 tonne gold stash; part of it at least, could be mobilized when owners decide the price is ‘right.’ The World Gold Council recently reported a 35% surge in scrap gold supplies as having taken place in the second quarter –coincidental with gold’s setting a fresh record during the Eurodebt crisis.

Precious metals opened to the downside in New York this morning, ahead of US consumer sentiment, car sales, and home price data; all of which were expected to underscore the slowing in the US economy recently acknowledged by the Fed with its ‘whatever it takes’ jawboning. Adding to the modest selling pressure at the open, the fact that a wide range of different assets was seen as being sold by global investors in the quest for cash following hefty equity market declines. The Dow was barely hanging on to the 10K level as of Monday while the Nikkei average shed 325 point overnight, free-falling to the 8824.00 level.

Eurozone inflation cooled this month, with results showing a 1.6% pace in price gains; still well below the ECB’s targeted two percent level. At the core of the falling number is the absence of wage pressures in the region, as the local economies are beset with high joblessness levels (like 10% for the fifth month in a row, with nearly 16 million people out of work). Over in Japan, talk (but nothing more) continued regarding intervention in the currency markets to halt the yen’s seemingly unstoppable rise. To be continued. The ‘talking about it’ part, anyway.

Gold started Tuesday’s session with yet another marginal drop in spot prices, down $1.20 to $1,235.20 per troy ounce. Silver fell 8 cents to open at $18.96 but more substantial declines were recorded in the noble metals complex.

Crude oil’s near $1 drop in the wake of soft stock index futures did not help matters much, either. We still look for fund activity to try to push gold values higher prior to month’s end (i.e. closing time tonight). Regardless, August could still finish with a better than 4% showing in the metal following intense attention from funds.

Uniformly bullish prognostications remain as abundant as a fall wheat harvest. Current “we will see” targets are clustered around $1,400 and $1,500 per ounce with the $1,280-$1,320 zone not even worth mentioning as a waypoint or rest stop. A few technicians might hold a…diverging opinion on the matter, however.

One of Kitco’s ‘classics’ –chartist Merv Burak- notes in his weekly take on matters technical (issued yesterday) that gold is exhibiting a negative divergence. Basically, he argues, gold’s ascent to new highs in June was not corroborated by corresponding highs in momentum. Momentum has in fact waned after having peaked almost a year ago when the $1226.00 pinnacle was etched into the record books in gold.

Such partings of the ways are not necessarily a flag for the end of the bull run, but rather, a ‘caution ahead’ signal. On the Elliott Wave side, analysts only see a negation of the current wave pattern underway if and when the $1,265.00 June peak is taken out on the charts. At this juncture, we are $20 short of that target, but someone is apparently gunning hard for it, still. First things first; $1,250.00 resistance is the next closing mile marker to have to pass by.

Platinum shed $12 from Monday’s closing values, dropping to $1,511.00 the ounce, while palladium slipped a more by a more-modest-but-still-largest-in-percentage-terms $4 (0.81%) to start at $489.00 per troy ounce. Automobile sales data in the US for the month that is drawing to a close tonight is expected to be quite disappointing, when it is released tomorrow.

The numbers might in fact turn out to reflect to slowest August at car dealers’ lots in some 28 years. Annualized car sales could have fallen to under the 12 million unit level, about 2.6 million shy of last year’s sales pace. Noble metals staged recent rallies mainly on the back of spec fund and ETF oriented demand and observers opine that it will still take a near-full revival in US and western European auto sales levels to better underpin the values in the pgm (platinum-group metals) complex. The only steady metal remained rhodium, which did not budge from Monday’s $2,080.00 bid closing quote.

Closing out today’s roundup, a fresh take on matters Chinese. Marketwatch’s Andy Xie, pulls out the magnifying glass and discovers that China’s phenomenal growth may in fact contain the seeds of some no-so-pleasant unwinds in the making. Andy’s article focuses on the chicken-egg conundrum between Chinese growth and US dollar weakness but contains one globally valid insight we thought we would mention here as it is as time-tested as can be, and as predictable as a Shinkansen train’s arrival at Tokyo Station. Or, make that the Maglev train’s arrival at Pudong airport:

“A crisis always seems to follow a period of high growth in emerging economies. People tend to blame the crisis on slow growth. It actually gets the causality wrong. The problems that are allowed to accumulate during the high growth period cause both the slow growth and crisis. Nothing hides problems like high growth. Hence, there is a tendency among policy makers to prolong high growth as long as possible, hoping to grow out of all the problems. The problems that China's economy faces today and the policy recommendations that many recommend bear resemblance to what had been observed during high growth in other emerging economies. History teaches us that one couldn't grow out of all the problems. The longer the growth lasts, the more intractable the problems are. Trying to grow out of one's problems inevitably leads to monetary excess. The weak dollar makes monetary excess supportable in the short term, as the external pressure restricting money printing is weak. It leads to bubbles. The asset appreciation then becomes the source of profit that justifies investment. A collapse is inevitable.”

Jon Nadler

Senior Analyst, Kitco Metals Inc.North America

US & Canada Toll Free: 1 (877) 839-8036

Websites: www.kitco.com and www.kitco.cn

Blog: http://www.kitco.com/ind/index.html#nadler

The ISRI August Broadsheet

Mon, 30 Aug 2010 18:57:00 GMT

Economic releases in the month of August continue to be a mixed bag causing an uneasy market sentiment reflected in the 500 points the Dow has lost throughout the month. The 2nd quarter GDP was revised downward to 1.6 percent (from 2.4) and sales of existing homes fell 27.2 percent from June, their lowest since tracking began in 1999. The bulk of those home sales, single-family, are at their lowest since 1995 (Chart 1). Durable Orders (ex-transportation) declined 3.8 percent and the four-week average of Initial Claims for the week of August 21st was 473K. They have not been below 400K since July of 2008 and their 10 year median is 358K. Amid all of this, there have been bright spots. Industrial production advanced in July (1 percent), and industrial capacity increased...

Kitcommentary: " Dude, Where's My Ship? Hint: Not Coming In "

Mon, 30 Aug 2010 15:37:00 GMT

Good Morning,

Marginal declines were noted in gold prices as the new trading week got underway overseas last night. Mild profit-taking and an emerging modicum of risk appetite for equity assets arose in the wake of the Bernanke pledge on Friday to “do whatever it takes” to ensure continued US economic progress.”

Normally, such “whatever it takes” posturing has emboldened the carry traders and has had them pouring large sums of the nearly free cash available to them into the commodities complex. Not this time around, it appears. Not yet, anyway.

Gold opened with a minor $1.90 per ounce loss this morning in New York, the result of an approximately $3 negative pressure being applied by the rising US dollar and only about one dollar’s worth of gains offsetting it from buyers of the yellow metal (according to the Kitco Gold Index).

The precious metal is currently confined to the fairly broad $1,210.00-$1,250.00 range, but at least one school of technical thought –the one over at Forexhound.com- sees a “reversal top” as having been put into place in December gold, on Thursday of last week. Silver continued its recent rise, gaining 6 cents at the market’s opening, with a bid quoted at $19.17 the ounce.

If you are still convinced that “peak gold” is upon us, look no further than the figures recently released by the World Gold Council in its quarterly demand trends report. Or, for that matter, this morning’s revelation that Australia’s gold output (the country occupies the number two spot in global gold production) rose by 20 (twenty) percent in June. That’s the highest level in six years, and it amounted to 67 tonnes of yellow metal. Year-on-year gold output in Oz climbed 11% to reach 245 metric tonnes. Following the yellow brick road indeed, leads to Oz.

Platinum also climbed higher, posting a $4 rise to $1,535.00 per ounce. Palladium fell $1 to the $502.00 level and rhodium was unchanged at $2,080.00 per troy ounce. No signs of improvement in crude oil, which fell 40 cents to draw closer to the $74.75 level. The gainer of the morning-thus far-was the greenback, which rose to just a few ticks shy of the 83.00 mark on the trade-weighted index.

While the customary carry-based plays may still become manifest, for the moment, the choice (in certain assets anyway) is to take a breather, at least until fresh US data –due this week- might show that the Fed might have to do more than “whatever it takes” to keep the economic engine of the US purring along.

Look for Friday’s jobs report to be at dead-centre for this week’s market obsessions. Stronger than anticipated job creation figures might sap some of gold’s recent strength, while poor conditions in the labour market could extend the same back towards resistance levels above $1,25.00 the ounce.

Meanwhile, look for July consumer income and spending figures to be revealed today and for US consumer confidence numbers on tap tomorrow. Most economists believe that July’s consumer spending will show a gain, largely on the back of better automobile sales, but that most buyers are out there buying only that which is a ‘must-buy’ and not much more. Even so, improving conditions in any niche of the US economy could alter the flows of funds towards safe-haven assets such as bullion.

However, even the boldest of speculators who have been living off the Fed’s largesse with no-cost dollars realize that –at least on the monetary front-the Fed may be done with the ‘but wait, there’s more!’ type of offers seen on late-night infomercials. The public at large (and some of the carry-trade junkies), on the other hand, keeps perceiving the credit easing offered by the Fed just a couple of weeks ago, as “quantitative” easing and won’t let go of that idea.

This time, the US central bank is seen as ratcheting up the pressure on the US administration to do something on the fiscal front, say, by taking a long, hard look (and more) at entitlement programs, taxation, and other such little details. It is Uncle Sam’s turn to do something in the fundamental front of readjusting the revenue/expense situation in the US, the Fed is effectively signaling.

Most economists (like about 75% of those in the NABE – who were polled on what might need to be done) believe that the top priority of the Obama administration ought to be to grow the economy. However, the same majority also believe that QE2, or whatever you might like to call it, is not a prerequisite to ensure the same.

Nearly half of the 84 poll participants also see deflation as the principal danger in the US economy at this time. And, just like the Fed, only a little more than a third of these economic experts see that everything is just right with US fiscal policy. Another case of ‘tax and spend’ being seen as having to turn into ‘tax more and spend less’ lest the next such poll reveals total skepticism.

Meanwhile, overseas, more bubble-fighting was underway this morning. This time, it was the Singapore government’s turn to impose new curbs aimed at the speculators who have driven the city-state’s property values to levels higher than the dizzying height of the Republic Plaza skyscraper in its Downtown Core area. Or, any of the other 4,299 sky-scraping edifices to be found on the tiny sliver of land that amounts to 274 square miles. Some folks have been cashing in ‘large’ on that trend and now the government feels it is time to pull the plug –just a tad.

Cashing in on rare coins from sunken treasure ships might sound like a sexy idea, at least if one

watches those alluring commercials on television. Slick ads, lots of exciting history thrown in for good measure, and the mantra of ‘rare beyond comprehension’ make for a convincing argument, especially when every other word is ‘gold’ as well in these ads.

However, Marketwatch’s Chuck Jaffe concludes that when it comes to ‘stupid investment of the week’ you might just put sunken ship ‘treasures’ at the top of your list. Just another case of opportunists jumping aboard the gold bandwagon and flogging certain products in an environment where the mere mention of ‘gold’ is enough to set hearts aflutter. Never mind coin supply, grading, and- most of all- liquidity issues.

The powerful allure of holding something that comes from a sunken vessel is…powerful enough to part you and your money – especially when you think you are investing in gold and not a story. That, at least until the next sunken ship is found, and the value of your coin goes…down while gold actually rises. Chips ahoy!

Happy Hunting (for illusory profits).

Jon Nadler

Senior Analyst, Kitco Metals Inc.North America

US & Canada Toll Free: 1 (877) 839-8036

Websites: www.kitco.com and www.kitco.cn

Blog: http://www.kitco.com/ind/index.html#nadler

Kitcommentary: " Holed Up Leaders Hold Markets Up"

Fri, 27 Aug 2010 14:48:00 GMT

Good Morning,

Most market remained at a virtual standstill overnight as participants showed no interest in taking on large bets ahead of what promised to be an eventful session today. Revised US GDP data and speeches by Ben Bernanke and Jean-Claude Trichet remained at the centre of global investor focus during the wee hours as well as at the start of this morning’s action in New York.

Everyone wants some clues about the state of the US economy and everyone wants to hear what central bankers might have to say about the global one’s condition as well. The last month of the third trimester dawns on Tuesday and throngs of participants will begin returning to their posts over the next ten days or so, hoping to outguess and outperform in the few remaining months of 2010.

After an overnight period during which the trading range was confined to less than seven dollars, gold prices opened steady-to-higher in New York. Gold’s initial $1.80 gain had the yellow metal trading at $1,238.10 on the bid side, while silver drew ten cents closer to the label of ‘not-so-poor-man’s-gold’ with fresh advance to just above the $19.00 per ounce mark.

Platinum and palladium opened essentially flat this morning, with a one-dollar advance in palladium (to $497) and no gain or drop in platinum; quoted at $1,529.00 the ounce. Rhodium’s last price check indicated a $10 rise from yesterday’s $2,070 bid quote. All quiet on the automotive front (save for fresh Toyota recalls) as regards noble metals, but not so quiet on the S Africa labour front where National Union of Mineworkers members stopped working at Richards Bay Minerals today. To be continued.

Well, US Q2 GDP was indeed revised lower. A lot lower. To but 1.6% on the economic speedometer, from the 3.7% annualized rate that was recorded in Q1. Not quite as low as some polled economists had expected (figures from 0.9 to 1.3 percent had been mentioned), but low, nevertheless. Much of the downward revision was attributed to a staggering surge in US imports (up 32.4%, the largest such gain in a quarter-century).

There were however some bright spots in the Commerce Department’s report as well. Final sales rose by 4.3% while business fixed investment gained $17.6% on the quarter. Some observers have concluded that the strong import figures underscore a still present species on the economic scene; the American consumer.

Gold prices initially dropped following the release of the US GDP data and the US dollar gained in the wake of the figures. However, some twenty minutes after the news was made public, the precious metals complex resumed its ascent as funds once again threw money at it –albeit with a bit of caution, to be sure. Gold touched the $1,242.00 price mark, silver doubled its initial gains, and palladium was ahead by $4 the ounce.

The initial hesitation and divergent behaviour in the US currency, oil, base metals and gold revealed some uncertainties in how to interpret the data among players. Later on, the emerging consensus among investors appeared to be that the US GDP data was a case of ‘less worser’ in the making. At least that was what the Dow clawing back to above the 10K mark was trying to intimate…maybe.

In essence, the likelihood of surpassing of the putative resistance level at around $1, 247.00 was all but baked into the golden cake this morning –at least according to some in the trade who saw the GDP figure as the obvious catalyst for at least such an advance, and probably more.

We did not get our cake, thus far today, and the jury is out as to whether this implies a parallel bout of profit-taking by other spec players, a pre-weekend book-squaring jamboree, or the ‘I-will-still-wait-and-see-what the Fed Chief has to say’ attitude taking over.

Pre-Fed Chief-like words were already flowing in the pipeline but went largely unnoticed in the markets. St. Louis Fed President Bullard opined that while the US economy is clearly not rolling on a firm patch at the moment, he does not see a fall-off into a double-dip as very likely either. “Reasonable” growth is what Mr. Bullard anticipates for the American economy in the year’s second half.

Of course, don’t tell that to PIMCO’s CEO, Mr. El-Erian. He sees ‘alarming’ signs of momentum loss in the world’s largest economy. The $14.5 trillion US economic powerhouse is…losing power-and fast-according to Mr. El-Erian. Solutions to this problem? Well, they are not to be found in more stimulus effort, opines the PIMCO executive. How about “tax reform, housing-finance reform, infrastructure investment, support for education, job retraining, removal of barriers to interstate competition and stronger social safety nets” proposes he, apparently lifting an entire passage from Mr. Obama’s campaign playbook of not so long ago.

Let’s see to what degree Mr. Bernanke of Mr. Trichet come off as ‘alarmed’ in their upcoming speeches today. It could well be that the brothers-in-arms that the two men have become following their combat against the worst worldwide slump since the ‘other’ global combat ended in 1945, might be parting ways. At least as regards their take on what’s next and how to navigate the narrows we are all in. At the end of the day, the two men are still fighting the D –day (make that the “D” word) battle and are trying to avoid a Japanese-style ‘capitulation.’

Previous of possible coming attractions were offered early this month, when the former indicated that the Fed will offer a sugar-free version of QE with a Treasury purchase plan and a new/improved $2.05 trillion balance sheet, while the latter feels that heading for the ‘exit’ door is up on the turntable, cued and ready to play. Perhaps in Q1 of 2011 if all goes well (and, apparently, it is going well if EU economic indicators are any…indication). Guess we will have to wait what they really have to say.

Not much GDP-type of guessing to be done over in the UK this morning; the actual figure is now out. The British economic engine also appeared to be idling along, firing on as many cylinders as allowed for a growth rate of 1.2% (starting to sound familiar). The number however – in Britain’s case-was actually better than had been expected. In fact, that pace of economic advance is the best quarter-on-quarter gain for the country’s GDP since 2001. Jolly good.

Guessing when rather than if, on the other hand, remains the name of the game in Japan. The ‘game’ is of course related to figuring out precisely when words such as the latest ones from PM Kan –who indicated that he is ready to take ‘decisive’ action on the yen in currency markets- turn into…decisive action. For the past week now, we have only heard jawboning from Japanese officials. Hint: it is not doing the trick, gentlemen. Try something over the weekend, shall we?

We shall try something else over the weekend; ‘intervention’ (probably not successful) in the fishing grounds of the waters off Victoria BC.

Happy weekend. Chant: ‘No Rain.’ Thanks.

Jon Nadler

Senior Analyst, Kitco Metals Inc.North America

US & Canada Toll Free: 1 (877) 839-8036

Websites: www.kitco.com and www.kitco.cn

Blog: http://www.kitco.com/ind/index.html#nadler

Kitcommentary: " Herd It Through The [Market] Grapevine "

Thu, 26 Aug 2010 16:01:00 GMT

Good Morning,

Investors were seen awaiting the arrival of fresh economic news and data while remaining largely on hold overnight. Mild recovery rallies took place in crude oil (up for a second day, and trading just above $73 per barrel) and the euro (last seen trading at $1.267) as the former ignored record US inventory levels and the latter benefited from a gain in global equities following a small rise in risk appetite. The overriding tenor of the markets is still firmly of the anxious variety. Such vibes engender holding back and/or selecting mainly those assets that appear safe for the conditions.

As mentioned yesterday, until market players directly (via hard numbers) or indirectly (via soothing words from officialdom) sense that they can begin wading into market waters as they did following the ebbing of the euro crisis in July, the current pattern of ultra-cautiousness will dominate.

Only bargain hunting will prevent oversold assets (traders say that such was apparently the case with oil over the past 24 hours) from becoming more so. Now, with the imminent release of more US statistical data and the Jackson Hole gathering of the Fed, plenty of participants will be likely to take a wait-and-see attitude before making any large commitments to markets.

This morning’s New York precious metals trading sessions showed an extension of the three-day rally in the complex. At opening time, gold recorded small gains, but the rest of the group moved significantly higher as momentum funds continued to pile in. Spot gold was $1.90 per ounce higher, with a quote of $1,241.90 on the bid side, as against the US dollar showing a quote at 83.00 on the index.

Gold prices slipped into negative territory (closer to $1,235.00) rather fast, as a larger than anticipated drop in initial jobless claims brought back a modicum of confidence about labour market conditions in the US. The sharp decline in jobless claims filings underscored the current high degree of correlation between the precious metal and the ebb and flow of jitteriness related to the economic recovery.

The jobless claims news also served to pull a small safe-haven rug out from underneath the US dollar (it retreated to 82.76 later in the morning) as market players ‘suddenly’ discovered that they still had a bit of a lingering appetite for more risky assets. The first reported drop in weekly filings (31,000 fewer filed applications) in 30 days clearly elicited some relief amid an all-too-gloomy-of-late investor crowd.

Some profit-taking ahead of the weekend was also noted in New York gold following the recent rally and the yellow metal’s inability to take out resistance at the $1247.00 area (one oft-cited by EW analysts). The US dollar picked up 0.15 on the trade-weighted index following the data.

The collective gaze now shifts over to tomorrow’s GDP revision figure and, of course, all ears are already aimed in the direction of Wyoming’s scenic Jackson Hole. Parsing Bernanke-speak following the man’s address at the gathering will be significantly more intense an activity than has been the case in recent months.

Silver added 17 cents on the open, trading at $19.11 and further narrowing the gold/silver ratio in the process. Platinum showed a sharp, $21 per ounce gain at the start of the session, quoted at $1,534.00 the ounce, while palladium was no slouch either, posting an $8 advance to $502.00 per troy ounce. Still no change to report in rhodium; the noble metal remains stalled at $2,070.00 bid per ounce. The white and noble metals narrowed their gains following the US jobless claims figures, but remained in positive territory for the moment. Spec fund money has clearly been the lubricant for recent upswings in the niche.

Something that may not remain at quite such positive levels however, are Chinese bank earnings. Two of the country’s largest lenders (ICBC and Bank of China) posted some very impressive numbers for the past quarter but such stellar reports my become an endangered species if analysts prove correct (a staggering 9.5 trillion yuan’s worth of loans were made by Chinese lenders last year). You know what those loans fueled. Drive around any major Chinese city and count the cranes (not the winged variety).

That figure was twice as large as 2008’s loan volume. The question on most experts’ minds is not when the downward ‘knee-jerk, official policy-induced adjustment’ in loan volume and corresponding revenues begins (it may already have started) but how severe it might become. For the moment, the lenders are seen as strong enough to weather such upcoming challenges, even though domestic bank stress-test results have not been made public.

Meanwhile, over in the US, the tiniest bit of positive news appeared to make no impact this morning, as the consensus still seems to be a uniform vision of a total impending collapse in the American real estate market. Nevertheless: the percentage of homes somewhere in the foreclosure process fell in the second quarter, the first drop since 2006 and the largest quarter-to-quarter drop since 2005, the Mortgage Bankers Association reported on Thursday.

Something that has been made public is a partial list of assets most recently being accumulated by billionaire investors such as Warren Buffett, George Soros, and Carl Icahn. Yes, Virginia, there is optimism among these folks with regard to,…surprise, US equities. $400 million worth of such optimism being exhibited by Mr. Buffett for Johnson & Johnson shares (baby boomers to soon use up the visible supplies of adult diapers and baby powder?).

Huge optimism for Well Fargo shown by Stanley Druckenmiller (Mr. Soros’ former British pound-breaking collaborator). Total confidence in Akamai shares shown by Mr. Soros’ purchases of same. “Me worry about the economy?” is not in these gents’ vocab at the moment, or else they are astute bargain hunters at a time when the average Joe is sobbing on the sidelines, paralyzed with fear.

To be fair, there is one investor’s buying pattern that has some folks up at night. It is Mr. Icahn and his large-ish bet on…gun maker Smith & Wesson. Perhaps he’s been watching Ms. Murkowski’s cliffhanger in Alaska and pondering what the Tea Party might bring about in America. Or, perhaps it was too many doses of Rush Limbaugh dissertations on “Imam Obama” that did the trick.

More than likely, Mr. Icahn, noting the rise of certain patterns of madness out there, simply paid homage to the time-tested observations of one Charles Mackay – a Scottish historian who once opined that: “Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one.”

Keep movin', movin', movin'

Though they're disapprovin'

Keep them doggies movin'

Rawhide!

Don't try to understand 'em

Just rope, throw, and brand 'em…

Jon Nadler

Senior Analyst, Kitco Metals Inc.North America

US & Canada Toll Free: 1 (877) 839-8036

Websites: www.kitco.com and www.kitco.cn

Blog: http://www.kitco.com/ind/index.html#nadler

Kitcommentary: " Crunchy Numbers Crunched "

Wed, 25 Aug 2010 15:06:00 GMT

Good Morning,

Global investors geared up for the release of US new home sales and durable good orders data with the by now ‘normal’ amount of apprehension that they have been exhibiting since the last Fed meeting. The mood in question has not only been as nervous as that which was on display during the forgettable days of the summer of 2008, but it continues to indicate a conviction that the economic comeback of the US isn’t on track; if anything it is on the wrong track, towards Stallville.

Yesterday’s cratering in the numbers related to existing home sales (down 27%) only served to reinforce such convictions. The Dow briefly cracked the 10K level during another session full of gloom.

That investors may be reading too much into what the Fed actually stated after its last meeting (something from which it has more or less publicly distanced itself from since then) is rather obvious. This morning’s lower-than-anticipated gain of 0.3% in the durable goods orders figure extended the week’s familiar pattern of declining stock index futures, a rising US dollar and more bids being placed on gold.

The yellow metal opened with a $3.10 per ounce gain just ahead of the aforementioned economic statistic, with a quote of $1,233.50 on the bid side. Second quarter Indian jewellery demand fell 1.8% to 123 tonnes while local investment demand was up 6.7% to 41.5 tonnes. Market observers hope that 2010 comes in with a better showing in Indian gold imports than the numbers tallied in 2009; the lowest in more than a decade. Festival season is underway now, but offtake in June was dulled by record gold prices.

At market opening time, the spot silver price was up by 18 cents, trading at $18.56 per ounce. Word is that yesterday’s reversal and eventual climb towards $1,235 in gold was sparked by a sizeable silver order hitting the market floor. What particular hedge fund sees robust industrial demand for silver remains unknown at this time, but the purchase made for a happy day un the silver camp.

Platinum and palladium also rose at the start of the midweek session this morning; the former added $4 to open at $1,515.00 and the latter gained $3 to start at $486.00 the ounce. At the same time, the US dollar was seen climbing 0.10 on the trade-weighted index (last quoted at 83.42), crude oil was struggling to hold $71.50 per barrel, and the euro was stalled near $1.26 vis a vis the greenback. Dow futures indicated a 50+ point potential loss in the making.

Second quarter gold demand numbers are in, and –no surprise- they show a gain in certain areas as well as slippage in other sectors. The European financial crisis was clearly at the front and centre of the region’s investors’ radar last quarter. What was largely seen as the near-unravel of the EU and the common currency it operates on, was good enough for an 11% gain in regional retail investment demand.

More than 84 tonnes of bullion was demanded in Q2 by the very worried denizens of Europe amid the debt crisis that spread like a brush fire. Such demand was more than overshadowed by spec funds piling in to gold ETF (Stateside, as well as overseas) vehicles and mopping up more than 291 tonnes of the yellow metal.

Investment related demand continues to largely define the current gold fundamentals equation and it remains the one upon which the market has become hugely dependent. Not necessarily a good thing, at all. A quick glance at the latest WGC graphs shows a sharp spike in investment demand for gold in Q2, following four trimesters’ worth of steady, near 700 tonne/quarter demand. The most significant spike in such demand was noted in the first quarter of last year, when huge ETF offtake helped bring the tally to just above 1,300 tonnes.

A 5% drop was noted in Q2 demand for jewellery (down 64.9 tonnes), which continued its three-quarters’ long decline that started in the third quarter of last year –coinciding with gold’s ascent to, and maintenance above the $1K level. While industrial applications demand for the metal was lifted by a 24% recovery in the electronics sector, dental gold use fell to an all-time low of just above 12 tonnes.

The supply of gold is on the rise. No “if,” no “but.” The past three months have seen an 18% gain in the flow of gold bullion into the market, resulting in an 1,131.6 tonne tally. Still convinced the world is running out of the metal? Then, tally the following: a 6% gain in mine output (from a combination of production and ebbing de-hedging) and a substantial (and once again, price-driven) 35% rise in scrap gold flows.

Nearly 500 tonnes of existing gold holdings were let go of, in the wake of headline-making gold prices last quarter. In other words, it is worth holding up that very number, against the 534.4 tonnes of what is labeled as ‘identifiable investment demand.’ Let’s just call it ‘identifiable disinvestment’ for lack of a better word. Oh, and very little talk about central banks buying a net of only 7.7 tonnes of gold on the quarter; at a time when expectations of continuing replays of India’s late 2009 purchase were the norm in hard money commentaries. The IMF sold 47 tonnes during the period.

Not taking anything away anything from the reality of the crisis-driven investor purchases of gold in the second quarter, we still need to put the overall numbers into perspective on a year-on-year basis. While monthly or quarterly fluctuations are certainly noteworthy, and they do make for currently very attractive headlines, so might be the larger trends evidently afoot since the epic crisis period in 2008 in America came and went.

Here is how that broader picture (the tallies of the twelve months ending June 30 versus the same period last year) shapes up in key gold demand areas, based on the World Gold Council’s very own statistical tables:

1) Jewellery demand, down 5%. 2) Net retail investment, down 12%. 3) Bar hoarding, up 26%. 4) Official coins, down 13%. 5) Medals & imitation coins, up 21% 5) “Other” identified retail investment, down 50%. 6) ETF demand, down 49%. 7) Total identifiable demand, down 14%. – Clearly, the figures combine to yield a slightly different situation. One, that, absent mega-crises, or fresh waves of spec fund sprints to the gold well, continues to be unsettling. If you do care about fundamentals, that is. At all.

The question, at this juncture, is still what, if any, particular economic data set will offer market participants a modicum of peace of mind any time soon. Simply relaying a headline that notes a gain in durable goods orders- the first such increase in a trimester- is, at this time, apparently insufficient. The mood is somber. New home sales falling to a record low pace this morning will not serve as a mood elevator.

There appears to be a desire among those in the investment community to hear from a Fed that remains convinced that despite bumps in the road and assorted potholes, the journey to economic daylight remains in progress. Well, maybe some such words could be on offer on Friday, when Mr. Bernanke makes his keynote speech at the annual gathering of the who’s who of the world of economists and US central banker. Maybe. Still the operative word, at this juncture.

Until tomorrow’s tallies,

Jon Nadler

Senior Analyst, Kitco Metals Inc.North America

US & Canada Toll Free: 1 (877) 839-8036

Websites: www.kitco.com and www.kitco.cn

Blog: http://www.kitco.com/ind/index.html#nadle

Kitcommentary: " T E O T W A W K I - Again. Film at Eleven. "

Tue, 24 Aug 2010 14:07:00 GMT

Good Morning,

A fresh surge in the value of the yen brought the Japanese currency nearer to the 84 mark against the US dollar (a fifteen-year high of 84.17 was recorded overnight) and a further step closer to direct currency market intervention. The operative words used to jawbone against these gains were no longer “undesirable” or “worrisome” but more like “grave concern.” Guess what happens next, when such words are uttered at ‘emergency’ press conferences while the backroom shop talks to the G-7 nations on the hotline…

Naturally, the Nikkei average fell overnight, losing over 120 point as the nation’s currency was soaring. The rest of the global equity markets did not fare much better as Tuesday’s trading sessions unfolded in various locations. Worries continued to linger about the fate of the global economic recovery as players awaited a slew of US reports ranging from home sales to durable goods orders, and from consumer confidence to revised GDP numbers. As the week wears on, so will any number of nerves belonging to apprehensive investors the world over.

Gold prices fell for the third day in a row, and to well under the $1,220 mark during the overnight and early Tuesday overseas trading sessions. Spot New York dealing opened with a $12.80 per ounce loss in the precious metal, which was quoted at $1213.10 as against a 0.19 gain in the greenback on the trade-weighted index (to the 83.54 mark) and as against a freshly slipping euro (down to 1.258).

Once again, the headlines relating to gold’s slippage served to underscore its recent positive correlation to equities (and certain currencies); assets against which it normally moves against, but ones that the entrée of speculative hedge funds into the bullion market has now morphed into the current paradigm. The yellow metal traded at one-week lows near the $1,215.00 level in the wake of the ‘generalized selling.’ It was-once again-the dollar’s turn to grab ‘safe-haven’ related headlines this morning.

Thus, this morning, there were more than a few news outlets citing ‘everything is falling and being sold off’ as the reason for gold not doing what it is actually supposed to do under such circumstances. “We will continue to see lower gold prices.” said Wallace Ng, Hong Kong-based executive director with ABN Amro Securities Asia Ltd. “It is following the weakness of general markets, like stocks, commodities and energy.”

Crude oil was also on the defensive, for a fifth straight session this morning, losing yet another $1+ to drop to near the $72.25 per barrel price marker – a fresh seven-week nadir. “Investors in crude futures are now at a crossroads.” according to Olivier Jakob, an analyst at Petromatrix.

“Traders who previously built long positions when oil futures were at these prices, among the lowest of the year so far, must now choose either "to add to their long hedges and support a bottoming of the price collapse or start to be exposed to margin calls if the oil market continues to slide down," Mr. Jakob said, according to the Wall Street Journal.

Silver prices opened weak as well, with the white metal losing 14 cents to start at the $17.85 per ounce level on the back of industrial demand-related jitters. Platinum and palladium continued to feel the impacts of continued fund profit-taking and slipped lower as well. The former dropped $16 to the $1,490.00 mark, while the latter declined $10.00 to start at the $472.00 per ounce figure. Primary demand from the automotive users appears to run into difficulties above $1,500 and $500 respectively, for the two noble metals. Spec funds, on the other hand, (not unlike in gold) continue their high-wire act in the niche.

There were a few scattered bright spots in the financial news flows this morning, however. Germany’s Q2 growth picked up the pace, driven by a surge in exports and a notable increase in consumer spending levels. A 2.2% gain in the country’s GDP qualified for the label of ‘strongest/fastest” quarterly growth rate since the country was reunified.

Such a robust bounce-back as seen in Germany did not appear to faze Joseph Stiglitz- the Nobel Prize laureate in whose opinion the eurozone region is still at risk of falling into recession once again, in a classic case of double-dip. Mr. Stiglitz dismissed the EU’s efforts to cut deficits to below the 3% of GDP ‘target’ rate and is concerned that underneath the rosy statistics lurks a weakening regional recovery.

Amid such on-going concerns, the news that European banks may be ‘stress-tested’ more frequently comes as relatively encouraging news. In fact, testing the soundness of the region’s lenders may now turn into a periodic ritual (period as yet unknown) following the less-than-confident welcome (by investors) that the last such round of examinations was met with. In fact, the numbers were openly challenged by skeptics as ‘not credible.’

Nevertheless, the procedures have resulted in the publication of the balance sheets of the institutions in question and they are thought to be reason enough to bolster confidence levels among members of the investing public. Aha. The ‘investing’ public has been burned by so much hot soup over the past several years that they are now seen blowing on ice cream…just in case.

Someone else exhibiting signs of caution: at least seven of the Fed’s 17 officials. Most of them either opposed or were uncertain about the US central bank’s decision to continue to stimulate and not yet head for the ‘exit’ door of the ‘accommodations room.’ Mr. Bernanke prevailed, at the end of the day. His obsession with not falling into a replay of you-know-what-year is famed. Yet, at this juncture, he finds himself at odds with Messrs. Hoenig, Warsh, and Fisher. An August meeting to remember could morph into a series of final three such 2010 get-togethers full of open dissent.

No dissent over in California Attorney General Jerry Brown’s office; it sued TV tax ‘resolution’ guru Roni Lynn Deutch for $34 million for allegedly swindling thousands of her clients. How do you spell relief? T A K E from those who come to you for help. Ouch. First, Dr. Laura quits radio over the “you-know-what-letter-that comes-before-O” word. Now, the tax help star might vanish from TV. What will the audience be left with? Apparently, only bar and cub tips from Snooki.

However, well before we are faced with that kind of an infernal reality – Paul B. Farrell assures us- we will actually have WWIII on our hands; before 2020 rolls around. Mr. Farrell envisions all-out warfare over food, water, and essential energy supplies. Forget gold. Trading a gallon of H20 for a cup of wheat will be the new ‘it’ trade, according to Mr. Farrell.

Sounding every bit the standard hard-money newsletter oracle, Mr. Farrell blames the human genetic predilection for war – that, and a liberal dose of greed, arrogance, and…the Righteous Right, for what is sure to come (in his playbook). As dark and foreboding a piece as was ever written for Marketwatch. Forget 2012. The new watch-out-for number is the double twenty. That, and Newt Gingrich’s poll numbers.

Happy Bunker Building.

Jon Nadler

Senior Analyst, Kitco Metals Inc.North America

US & Canada Toll Free: 1 (877) 839-8036

Websites: www.kitco.com and www.kitco.cn

Blog: http://www.kitco.com/ind/index.html#nadler

Kitcommentary: " House of Blues "

Mon, 23 Aug 2010 14:42:00 GMT

Good Morning,

Precious metals trading opened on a mixed note this morning, with minor advances noted in the noble metals complex, while gold and silver retreated slightly. Amid a rather slow start in the flow of financial news and with little or no major economic data due today, market participants continued to focus on the after-effects of last week’s global developments.

Mergers and acquisitions activity supported stock index futures (think Potash looking for new suitors after rebuffing BHP Billiton) this morning. Meanwhile, over in the currency markets the euro retreated closer to $1.27 as news that the eurozone recovery stalled somewhat in July as well as this month.

Black gold rose from the lowest levels it traded at in more than six weeks but indications are that it could continue to slide in coming days if the US economic recovery shows further signs of faltering.

Stockpiles of certain petroleum products are at their highest level in two decades. In the interim, only a third of polled investors by MoneyShow.com believe that the label of ‘bull’ applies to them when it comes to stocks. That’s a far more dismal reading than was recorded prior to the market’s bottoming, in February of 2009.

Spot gold dealings started with a half-dollar per ounce loss, with the yellow metal quoted at $1227.50 as against a small drop in the US dollar on the trade-weighted index (to 82.95 at last check). Bullion maintained the $1225-$1230 range following Friday’s $4+ drop in spot values but weekend demand in India was rather anemic according to local sources. Festival-related demand might offer some support to gold in the coming week but continuing high prices are making life difficult (to say the least) for local stockists who are trying to entice would-be buyers to take the plunge.

Silver prices fell a nickel at the start of Monday’s trading session. The bid-side quote on the white metal was indicated at $17.97 the ounce, as uncertainties over the tenor of the economic recovery came with similar apprehensions about industrial demand for the metal. Platinum added $1 to open at $1509.00 while palladium gained $4 to start at $478.00 the troy ounce. No change thus far in rhodium, with a quote this morning at $2,070.00 per ounce.

Gold shows signs of having become rather “costly” compared to its ‘noble’ cousins (the PGM group of metals), reports Reuters this morning. A quick snapshot of spot values indicates that the gold/platinum and gold/silver ratios have risen to their highest levels since the end of May. Nevertheless, CFTC data reveals that speculative net long positions (hello, hedge funds!) have risen for a fourth week in the period ending on the 17^th of the month. How sustainable is this?

"The current rally in gold could well be unsustainable, with the bubble set to burst at the first sign of weakness," opined analysts at UK-based FXCM Holdings- a major foreign exchange brokerage. Why the skittishness? Stop us if you’ve heard this one before:

"With real supply and demand conditions for gold pressuring prices lower, continued interest in investing in the metal is the only way for prices to continue to advance – but the truth is that the rally has become self-fulfilling with its appeal to investors dependent almost entirely upon its continued gains."

Others, such as S&P, Barings Holdings, LGT, Union Investment, and Legal & General have also grown less bullish on the yellow metal in recent months. For example, Andrew Cole, manager at the Barings Multi Asset fund, says that he has invested in gold since 2007 but also says the reasons for its appreciation have changed.

“More recently the rise in gold has been spurred by increasing nervousness about the willingness of central banks in the West to maintain the purchasing power of their currencies. Our purchases of gold in 2007 were driven by the desire to find a genuine risk-diversifier, but more recently it has not fulfilled that objective. Its performance has been [positively] correlated with that of other risk assets and this has prompted us to reduce exposure.”

Meanwhile, Legal & General analysts have said that: “gold’s [recent] appreciation has been supported by an environment of low interest rates and ample liquidity and if these factors faded and demand subsided, weakness could follow.”

Such “free lunches” as those still being offered by virtually zero interest rates have been fanning various asset bubbles [see above] and have prompted the IMF’s former chief economist –Mr. Raghuram Rajan- to warn that the pressures soon to be felt by central banks to reverse the expansionary monetary policies with which they had hoped to rekindle growth are ‘inadequately’ appreciated by carry-traders. Politely said.

Mr. Rajan is not alone in ringing the asset bubble bell. We heard about the same scenario (and continue to hear the same) from Dr. Nouriel Roubini and from the Fed’s own Mr. Hoenig. The gentlemen now also have company in William White, former head of the monetary and economic department of the BIS.

Mr. White’s advice? Following the conclusion of the European debt situation (translation: any minute now) the Fed should raise benchmark rates by 2 (that’s two) percentage points and draw away from negative real interest rates. Messrs. Rajan and White will be heard from this very week, over at the Fed’s annual Jackson Hole Wyoming jamboree.

One of the questions still on the table (in Wyoming, as well as at other Fed get-togethers) remains the one about US housing. Seven out of the past eight recessions were housing recovery-driven. This time around, it may be the same housing front that possibly morphs the recovery into a fresh recessionary dip.

Moody’s, for one, believes that US housing prices have another 20% to go (on the downside) over the next couple of years. The sooner the Fed acknowledges that there is in fact very little that it can do to stem such a process as is taking place in the housing market, the better-equipped it will be to deal with the other critical issue also on the front burner; job creation.

And, yes, housing will ultimately come back from the dead as well. However, the one change that everyone might have to learn to live with, going forward, is the one that points to the fact that home ownership might never again equate a nest-egg of wealth earmarked for the ‘golden years.’ The mantra that ‘housing is special’ so oft-recited by…realtors during the past 50 years, has now most likely become not only an agenda-driven slogan, but probably a big fat lie as well. One will be lucky if housing values will keep the pace up with inflation. And, for the moment, we are facing anything but that nuisance.

Happy (cautious) trading.

Jon Nadler

Senior Analyst, Kitco Metals Inc.North America

US & Canada Toll Free: 1 (877) 839-8036

Websites: www.kitco.com and www.kitco.cn

Blog: http://www.kitco.com/ind/index.html#nadler

Smoke from the copper and gold markets

Sun, 22 Aug 2010 22:03:00 GMT

By David and Eric Coffin

The dollar denominated copper price benefited from a Euro recovery beginning in mid July. Other base metals also gained from the falling Dollar. Traders had become more cautious about gold after its long uptick, but some greater comfort with the economy after Europe managed to push back from the brink also helped the brief move into base metals. However, internal fundamentals are also playing a role copper’s price move.

Warehouse stocks of copper listed at the LME [London Metals Exchange] have continued to decline from February highs. This decline did slow somewhat when the red metal’s price gain bumped up against the $7500/tonne ($3.40/lb) level in late July. In Shanghai the July turnover of copper was off by 40% from a year ago and by 7% relative to June, but warehoused copper listings had declined there earlier in the month and have staid at that lower level. An early August decline brought Comex listed warehouse stocks of copper below 100,000 tonnes. Since mid March when a surge of copper into the Shanghai listing peeked, the aggregate warehoused copper stocks in the three markets has declined by over 20%. This was despite projections for a small surplus of new supply.

The consolidation in copper’s price after it touched $3.40/pound in July leaves it well below the $3.60 post-Crunch peak in April. Since this is very much a traders’ market there may be some further play in copper on a technical basis. Copper’s price does look strong compared to pre-Crunch pricing relative to warehouse stocks that were then significantly less than half their current levels. That still makes us cautious about chasing after the copper price at this level even though, or perhaps because, it is getting more popular in the general press. We certainly consider that optimism warranted for the medium term, but want to see further decline in its warehouse stocks before expecting copper to tack into the headwinds of a worried economy.

Copper’s recent popularity has contrasted with gold which seems to be finding more naysayers with each little price dip. It’s true that Indian retail buying of the yellow metal, which was fully a quarter of gold’s demand for decades, still looks very limp compared to past years. The current lack of inflation in many economies is also being pinned as a reason to avoid gold. There is irony in how these two currently tie to each other and to past cycles.

Gold has lost its retail allure in India partly because the price gains for it have been matched by high consumer inflation that has been acerbated by poor harvests on the subcontinent. A bout of disinflation could help gold demand in India by generating some spare Rupees that could be spent during traditional gold buying for festivals and weddings. It’s possible that India is simply less interested in the yellow metal as its economy strengthens. However, gold’s weak retail market has been buffered by a greater investment demand for it in India, and elsewhere.

In the industrialized world the low interest rate environment is being helped by weak consumer inflation. Inflation is weak because consumer demand has withered in large measure due to concerns about the economic system remaining whole (a far more potent check on inflation than adjusting money supply, as the Japanese could tell you). Gold investment has grown hugely over the past few years because it is durable, and neutral to the performance of specific economies. Weak consumer inflation and gold’s price gains due booming investment demand both result from the same pool of concern.

In a short run warehousing cycle the price of gold and consumer prices generally do rise in tandem, as the cycle matures. We are however in a secular cycle and gold is being bought as an alternate store of wealth / insurance policy in the industrialized world. It will take a lot more economic strengthening, and a lot less sovereign debt, before markets push away from the insurance role that gold is playing in wealthy economies. The yellow metal never stopped playing its insurance role in India and other places were the financial system historically isn't trusted, but the amount of gold taken up in these less wealthy economies is still very sensitive to price and domestic budgets. Day to day gold trading may be influenced by assumptions about an historic relationship to inflation, but history can’t be read as a guidebook during this rapid eastward shift of the global economy.

If you are trying to gauge global inflation we suggest you keep an eye on the red metal rather than the yellow at any rate. We are entering a long period in which individual supply/demand fundamentals rather than economic stats will focus metal pricing, but Dr. Copper’s price changes will still reflect the broader demand shifts that will have an impact on inflation. Copper’s supply side is tighter than most other commodities, and trading the metal is after all the origin of all the sophisticated strategies of our moneyed economy. Keeping on top of the copper market’s internal fundamentals will continue to be very useful to understanding the larger message copper’s price augers. (Courtesy: HRA Journal, August 2010)

Kitcommentary: " Believe It. Or, Not. "

Fri, 20 Aug 2010 13:54:00 GMT

Good Morning,

Gold trading opened with a small $1.50 loss on this, the last trading day of the week. Spot prices started off the session at the $1230.90 level, following an overnight dip to near $1227.00 the ounce. A hefty 0.50 gain in the greenback kept bullion’s persistent advance attempts to above the $1235.00 resistance zone in check for the moment.

So did mild profit-taking by funds, and a once again swooning Indian overnight demand for the yellow metal just ahead of what would normally amount to a quarter’s worth of festivals-related buying. Within the first half hour of trading, gold lost more ground, sinking to the $1223.50 bid level (some $15 lower than Thursday’s peak) as additional profit-taking bit into values.

Curiously –in the context of recent headlines- today’s slip in gold is being attributed to ‘jitters over the economic recovery as reflected in the drop in stock index futures.’ Wait; wasn’t the ‘jitters’ issue the same one that helped gold gain earlier in the week? Stay confused; we will too. Not.

The simplest formula is still likely to hold: economic contraction = asset liquidations = lower gold (but hopefully fewer percentage losses than other assets might sustain). Any time the word ‘hedge’ (or ‘reverse hedge’) can be used and appended to the word ‘gold’ the case for its core 10% presence in any prudent portfolio is an open and shut case.

Or, perhaps, some of the “profit-taking” came not only from the “usual suspects” – the Friday book-squaring squadrons- but from…well-to-do owners who decided to let go of at least some of their golden stacks following Goldman’s ‘sell gold now’ advice. Yes, the story sill has legs in the media and is adding to uncertainties despite this week’s 1%+ gain in the precious metal.

Silver dropped 13 cents at the session’s opening, and was quoted at $18.18 basis spot bid. The white metal later fell another 12 cents to draw closer to the $18.00 round figure. Platinum continued its downtrend, losing $8 at the start of the day; with a $1514.00 per ounce quote that later turned into a $1504.00 quote as the noble metal shed another $11 on top of its initial loss.

Palladium also fell today; losing $4 on the open, to ease to the $479.00 mark- it later saw that loss more than double and the bid quote turn into $474.00 per ounce. Meanwhile, once again, no change was seen in rhodium values – apparently stuck at $2,070.00 the troy ounce for the week.

The US dollar vaulted above the 83 mark on the trade-weighted index earlier this morning, after remarks by German central bank head Axel Weber convinced market participants that the ECB will keep emergency liquidity parachutes deployed until year-end. The euro fell more than a full penny to $1.27 in the wake of the comments. My, what strong beliefs (in never-ending zero rate policies) you have!

Another (and perhaps more proper) way to interpret Mr. Weber’s remarks is to say that he actually said that the ECB should embark on its exit campaign no later than the first quarter of 2011. Mr. Weber also happened to say that he believes that the ECB will raise its growth projections for the unified region next month, following the Bundesbank’s lifting of its own expectations for the German economy (to 3% from 1.9%).

But, hey, many market players hear, see, and read into the news mainly that which they want to believe. Kind of like 20% of Americans who firmly believe that their President is actually a Muslim. Or, kind of like the Florida church that is planning to censor Islam by burning copies on the Koran on 9/11 in the belief that it makes an effective statement against…something its followers presumably believe in.

Or, kind of like the forced mass expulsions of the Roma (gypsies) from France by Mr. Sarkozy, who believes that the ethnic ‘cleansing; will boost his standing with the right wing in France. Perhaps Mr. S should concentrate on trying to explain to the right why he is cutting the country’s 2011 economic growth forecast to only 2%, down from the previous 2.5% projection (must be those pesky Roma biting into the recovery…). France’s President evidently does not believe that the Roma come back. They do, every time they are deported. Go figure. Hello, Good-Bye, Hello again.

Or, kind of like US administration officials who believe the oil that spilled into the Gulf of Mexico is all gone, and that the Gulf’s seafood is safe to consume, when researchers spot a 22-mile long by 1.2-mile wide plume of hydrocarbon sunken at about 500 fathoms in the same Gulf.

Speaking of sinking black gold, the commodity dove by $1.18 and more, to a six-week low near $73.60 earlier this morning, in the aftermath of rising US jobless claims (reported on Thursday) and an apparent contraction in US manufacturing (also reported yesterday). Not helping matters was a reading that showed total US crude and distilled oil product inventories reaching their highest level in more than two decades (according to the US Energy Department).

Over in Asia, equity markets ended the trading week broadly lower after Chinese authorities turned the screws a few more degrees on speculators who are still gorging on property plays. The Beijing government announced (via its Ministry of Land and Resources) that it will bolster its efforts to crack down further on what it calls ‘land misuse.’ Developers found to be hoarding land will be barred from receiving loans and will face other sanctions as well.

Sanctions of another ilk may be facing Down Under’s election candidates Gillard and Abbott; the wrath of voters who either favour or oppose the recently proposed (then shelved for the time being) tax on mining company profits. Ms. Gillard (Labour Party) has toned down the amount and the scope of the proposed Harvey Tax to 30% and says it would apply only to coal and iron mines.

Mr. Abbott’s coalition enjoys strong support in the Aussie mining community and stands to win the additional 17 seats he is seeking in order to form a government. The race is now a draw at 50/50 going into the home stretch. Regardless of who wins, the core issue is unlikely to simply go away quietly.

Kind of like the idea that the US is facing Weimar Republic-style hyperinflation any minute now. Despite what the accompanying picture actually spells out in bold, squiggly, blue lines. The opposite.

Have a pleasant (inflation-free except where applicable, on account of birthday balloons) weekend.

Jon Nadler

Senior Analyst, Kitco Metals Inc.North America

US & Canada Toll Free: 1 (877) 839-8036

Websites: www.kitco.com and www.kitco.cn

Blog: http://www.kitco.com/ind/index.html#nadler

Copper at $10,000 Says Credit Suisse

Fri, 20 Aug 2010 01:54:00 GMT

A remarkably bullish view of metals prices in 2012 is being put forward by Michael Shillaker a metals and mining analyst at Credit Suisse and reported in a Financial Times article. Mr Shillaker feels the market is unduly focused on near term slowing in China and the rest of the world when in his opinion China has merely bottomed out from the government enforced cooling cycle and the economy will start to accelerate again from the end of this year and throughout 2011.

Looking as much at shares as metal prices, although obviously the two are linked, he says the Chinese economy will be the next catalyst for the out performance of mining shares, similar to those witnessed in 2001, 2005, 2007 and 2009. Not only will China increase demand through 2011 and into 2012 but demand “normalization” in the rest of the world will add fuel to the fire, “We still think that copper will reach $10,000 a ton by 2012 and relatively simple supply-demand analysis supports this.” Including iron ore and coal in his discussion, Mr Shillaker predicted share prices have considerable upside potential, “We believe there is 30% upside potential to current share prices for the miners into year-end and in some cases potentially more than 100% upside over the next two to three years,” he is quoted as saying.

We are not sure we are that bullish across all metals. Copper demand fundamentals appear quite sound on the face of it.

Copper inventory has been falling for much of this year as this Reuters graph shows, even though this is usually the cyclical summer re-stocking period. The same article looks at the recent trend of falling Comex stocks in the US market which suggested the trend has already caught the attention of investment bank analysts, many of whom are now advising clients to look through the broader “risk on-risk off” macro trading picture and take strategic long positions to capitalize on the improving micro dynamics of the copper market. Analyst speak for get over the short term worries and focus on the longer term – much as Mr Shillaker is suggesting.

Other metals do not share the same robust fundamentals as copper so although both equity and commodity markets are showing a lot of correlation this is likely to be a temporary alignment and given some months and a return of risk appetite, those metals with the better supply-demand fundamentals such as copper, nickel and dare we say even aluminum, looking further out, will reassert themselves.

–Stuart Burns

Kitcommentary: " What's Good For the Affluent Goose..."

Thu, 19 Aug 2010 16:05:00 GMT

Good Morning,

Gold prices opened with a $1.10 per ounce gain this morning, supported by uncertainty over the release of the weekly initial jobless claims figures. Spot bullion was quoted at $1,230.40 on the bid-side, trading near a seven-week high despite a still-resilient US dollar (last quote: 82.28 on the index). “Growth concerns” were cited among the factors responsible for gold’s attempt at overcoming chart resistance in and around the current value zone.

The unemployment claims filings data showed a gain on the latest week, rising to the highest level in nine months. The figure stood at 500,000 – up 12,000 for the week. The US dollar lost ground in the wake of the data release, and gold edged higher, eventually to near $1235.50 the ounce.

Buried in the statistics, or at least apparently ignored by the markets, was the fact that the four-week moving average of continuing unemployment claims fell- to 4.53 million, the lowest level since late 2008. Another case of headline figures making the headlines. What else is new?

Silver prices started Thursday’s session with a gain of one dime, quoted at $18.49 basis spot bid. As leading indicator figures came out later –showing a slowing in US economic growth- the white metal narrowed its gains to but a couple of pennies on the day, by mid-morning. Given the commodity component of silver’s current price equation, that is a logical development.

Platinum initially continued somewhat higher as well, adding $4 to open at $1,533.00 the ounce, but later fell into negative territory, losing about $6 on the session. Palladium on the other hand, dropped $1 to start at $487.00 per ounce, while rhodium was at a standstill for a third morning, with a quote of $2,070.00 on the bid per troy ounce.

Interestingly, the formulae being used by the spec fund gold bulls to justify further and substantial gains in gold prices has changed; diametrically, and quite suddenly, this summer. Last year’s ‘golden mantra’ was that economic recovery was going to be very good for commodities and that it was likely to bring inflation back in a big enough way to help propel gold and everything else tangible, to new heights. The US dollar was seen as ‘untouchable’ and fatally contaminated.

Now, the fear that the global recovery may be losing steam and that it will bring about a potential bout of deflation is what is being used as the putative catalyst for…higher bullion prices. Not everyone (see Goldman, below) agrees that such would be the case, in the event of the big “D” taking hold.

The last time that ‘growth concerns’ were permeating the markets and shaking them to their core was during the infamous “sell everything” summer/fall of 2008 (no need to remind what happened to most asset values during that period). Such concerns may have been aggravated by today’s US figures, but they were also countervailed by the Bundesbank lifting Germany’s growth target to 3% for the current year, and by an uptick in British retail sales.

Suffice it to say that –at the moment- the dollar is seen as quite “acceptable” for safe-haven purposes, but along with it, so is gold, in a classic case of strangers making (temporary) passionate bedfellows. Or, so say the funds. The economy going in either direction is now reason for bullishness. Sound suspect? Not at a time when mining company executives see nothing but blue skies above, and see no reason for hedging. Because, so say the funds. More on them, and what they wrought, now:

John Spence's Marketwatch article only serves to reinforce some current apprehensions about gold and how it is behaving. Enter the hedge fund players and observe that they have recently stripped away one of gold's long-standing attributes; that of being an effective portfolio diversifier. Add to this the potential volatility that the movement in or out of gold of such large players may bring about (sources in Switzerland warn not to be surprised by $100 down days- caused by the very same players- in coming months) and you have also just removed another one of gold's most historically reliable and desirable features: its rock-solid stability in the face of everything else behaving like a yo-yo.

The final potential risk factor for the average novice gold buyer looking at the metal as a portfolio “cure-all” may be the fact that the entree of such disloyal and highly speculative institutional players has potentially morphed gold into an asset that now moves in tandem with equities and other conventional assets. Ask yourself where gold might be today, were it a world where we did not have gold ETFs and hungry-hungry hedge funds which used to buy CDOs just a couple of years ago, now discovering a new, 'golden' toy to play with...

A couple of days ago we pointed out some parts of the presently bullish chatter which used a recent Goldman opinion that gold might rise to $1,300 as the reason why gold…will rise. That is the old “because they say so” argument (never to be employed when citing bearish projections, but always reliable if you are looking at the moon as the target).

Well, in the category of ‘news-that-hardly-anyone-apparently-wants-to-cover-but-still-makes-you-go- “Hmmm”…” it turns out this morning that [the same] Goldman Sachs did indeed recently opine that we might see $1,300 gold within six months’ time. So far, so good. But:

At the same time however (at least according to ZeroHedge.com and the NY Post) the same Goldman –via its GS Asset Management arm- is advising high net-worth clients to… ‘dump’ their gold holdings: "[We've] shifted our stance on gold after years of being long. We see gold as being vulnerable to central bank inactivity in the face of rising deflation risk." A classic case of what is good for the goose being good for…only the goose. Ever have that nagging suspicion that the rich live “differently?” Wonder no more. They may not, overall, but they sure are getting different advice from the rest of us.

It also turns out that such advice may, indeed, be the correct one for the times (not that we would ever recommend dipping under the 10% in gold allocation level in ANYone’s basket of wealth). There is, however, a very real case being made out there for general prices going in the opposite direction of that which they did in 1923, in Germany (for example):

“The risk of deflation is much more real than the risk of inflation,” said Christoph Kind, head of asset allocation at Frankfurt-Trust, which manages about $20 billion. “The move in yields is a clear reflection that we are moving toward a deflationary environment. Nobody would be buying if there was a risk of inflation picking up.”

Happy (Careful) Trading.

Jon Nadler

Senior Analyst, Kitco Metals Inc.North America

US & Canada Toll Free: 1 (877) 839-8036

Websites: www.kitco.com and www.kitco.cn

Blog: http://www.kitco.com/ind/index.html#nadler

Kitcommentary: " You Want Some...Rhodium With That? "

Wed, 18 Aug 2010 16:51:00 GMT

Good Morning,

Mild profit-taking became manifest this morning and thus gold prices and other precious metals prices turned slightly lower upon the New York session’s opening. Spot bullion opened unchanged-to-slightly-lower, very near the $1225.00 level it finished at, on Tuesday afternoon. Later in the session, the market sold off a bit further, drawing closer to the $1220.00 price level.

At this juncture, the Wednesday morning decline could end up representing the largest retracement in prices in about three weeks. Unless, of course, the spec funds make yet another valiant- and this time, successful- attempt to overcome the $1230.00 level later today, or in the week. Not a possibility to be dismissed, at all. Managing Director Pratik Sharma of Atyant Capital opined in a Street.com video segment that the gold trade is still rather ‘crowded’ (with the likes of Paulson and Mindich) despite a recent (Q2) small exit by billionaire investor George Soros.

Spot silver prices started the midweek session off by losing one dime per ounce, quoted at $18.43 bid. Platinum and palladium slipped a bit, with the former losing $4 to open at $1,535.00 and the latter dropping $8 to start at $486.00 the ounce. Once again, no change was reported in rhodium, trading at $2,070.00 per troy ounce on the bid-side. The Dow fell about 50 points this morning, pressured by rather underwhelming results posted by Target and by Deere.

In the background, crude oil was edging closer to $75.00 per barrel, following bearish stockpile statistics issued by the API. The US dollar was off marginally, losing 0.10 on the index, to trade at 82.13 at last check. The euro was slightly weaker but still trading above $1.28 amid once again resurfacing regional debt-related apprehensions, while the loonie was single-handedly helped higher by the $39 billion takeover bid by giant BHP Billiton for the Potash Corp. (which said ‘No, thanks’ for the moment).

Citing overbought conditions in the wake of the yellow metals’ recent surge, German research firm QCR as well as Commerzbank analysts opined that it might perhaps be time for a corrective pause in prices. As well, strongly rising inflows of scrap gold were mentioned as possible dampeners to gold’s recent upward thrust. No matter (unless you are of the contrarian ilk), pervasive enthusiasm for a continued gold parabola remains unabated, and at relatively quite high levels (perhaps not all that good of an omen).

Speaking of omens (and of reliance thereupon), there is a lot of chatter on the “Internets” about the “Hindenburg Omen” as applicable to the stock market. Without getting into too much technical detail, the principle it references basically gauges how many stocks are trading at either 52-week highs or lows and tries to extrapolate whether or not a new bear market might be upon us. In the words of Barron’s stock editor Bob O’Brien however, we must “keep in mind that the Hindenburg Omen has accurately predicted fourteen of the last three bear markets…” Nice little factoid, Bob.

A little factoid that –on the other hand- might bear notice amid all of the gold bullishness; the global hedge book rose in the second quarter. For the first time since early 2009. At the largest rate in eight years. Owing largely to a spike in fresh Aussie hedging activity. Naysayers will dismiss the event since on a graphical representation basis it amounts to but a blip, but such a small turn might yet portend a larger trend.

Meanwhile producer de-hedging did continue during the period in question (a phenomenon that has undeniably helped gold prices achieve higher levels than would otherwise been possible during the past five or so years), but the fact of the matter is that there is very little left to unwind. At what point the need for protection overrides confidence in ever-rising bullion prices, remains to be seen. That it will come about is probably not subject to speculation.

Agenda-driven speculation however, sadly, is still abundant in the hard-money newsletter and commentary universe. Unfounded, uneducated, but still pure, speculation. The type that offers you emphatic (as if verified) assurances that “China bought gold and silver assets” while reducing its US dollar holdings recently.

China did buy something indeed, within the scope of its asset reshuffle; it was South Korean debt. $3.4 billion worth of it. This concludes today’s installment of ‘not everything you read on the Internet is true.’ Not that too many are listening to the truth; 20% of US adolescents are hearing-impaired (likely, as the result of the long-term use of earbud listening devices) while an as yet unknown number of adults are evidently hearing and vision impaired- by such tainted sensationalism as noted above.

On the other hand, real headlines (as spectacular as any made-up ones) have once again resurfaced and they focus on the topic of automobile catalytic converter thefts. No fewer than nine exhaust-cleaning devices were cut away from parked vehicles in the Pittsfield Township in Michigan last week. Catalytic converters- along with GPS systems, tires, and in-car audio/video are among the top most stolen auto parts of late.

The lure for the bad guys? The cocktail of platinum, palladium, and rhodium that is normally found in such converters. Replacing a stolen drum for your car? About $1,000. Perhaps metals recyclers and refiners ought to look for etched serial numbers on such items and verify that the vehicle in questions has in fact been taken out of service…

Meanwhile, over in India, the World Gold Council and local jewellery purveyors are trying to stem the “disquieting trend of youngsters being disillusioned with gold jewellery” by wrapping the yellow metal in…another metal; rhodium. Albeit selling for nearly twice the current price of gold, the unique and alluring noble metal –as a plating for relatively light-weight gold baubles- has managed to capture the attention of the hip young crowd that is slowly becoming estranged from gold. A spoonful of sugar…

“Industry players acknowledge the fact that there are significant shifts in buying patterns. “Earlier, gold sales accounted for 80% of our sales, while diamonds and other precious gems and metals accounted for the remaining 20%. The latter segments have grown 100% in recent times, bringing gold’s share down to 60%”, says John Alukkas, managing director of Kerala-based Jos Alukkas group.” reported the Economic Times of India.

Happy Bling.

Jon Nadler

Senior Analyst, Kitco Metals Inc.North America

US & Canada Toll Free: 1 (877) 839-8036

Websites: www.kitco.com and www.kitco.cn

Blog: http://www.kitco.com/ind/index.html#nadler

Kitcommentary: " Yen & Gold: Same-Sex Marriage at Work "

Tue, 17 Aug 2010 14:56:00 GMT

Good Morning,

Gold prices opened with mild gains this morning, after having touched overhead resistance at the $1,230.00 mark during the overnight hours. The yellow metal started the Tuesday session off with a $0.60 per ounce rise, quoted at $1226.10 as against a 0.19 drop in the US dollar on the trade-weighted index (last seen at 82.26). Gold later slipped into the red column, losing anywhere from $1 to $2 per ounce while the rest of the complex remained firm.

July US industrial output figures were expected to show a 0.5% rise, following a rather thin 0.1% improvement in June. The actual number was a full percent gain, with much of it being attributed to the fact that GM (for a change) did not idle its auto plants this summer, in order to stockpile inventory. Field reports indicate that more than one US auto dealer is parched when it comes to the inventory of iron it has available to move into consumers’ hands.

Meanwhile, decent earnings reports from Home Depot and Wal-Mart helped buoy stock index futures this morning, in a welcome respite from the recent gloominess. So, maybe, the US is not quite ready to fall into the double-dip abyss that was being envisioned all over the place last week. Let’s see what today’s bounce in sentiment does to safe-haven asset values as the day wears on. Thus far, the industrial output numbers were somewhat countervailed by a less than robust gain in July’s US housing starts. And thus, the ‘unusual uncertainties’ and ‘uneven recovery’ continue to yield hot/cold daily news…

In the background, crude oil was trading a tad higher than its five-week lows, and the greenback was trading at $1.286 against the European common currency, while the latest quote on the yen was showing a reading of 85.26 against it. Providing yen quotes as a matter of routine may yet become…routine when talking gold. Why? Read on.

It turns out that as alternatives as to where to place one’s money dwindle to a precious few for Asian investors, the Japanese yen and gold have become de facto (if strange) bedfellows of late. Both assets are trading near decade or decade-and-a-half highs against the US dollar. The latter has of course been undermined by the presence on the scene of something we have harping about quite frequently in these posts; the carry-trade.

With ultra-cheap dollars (still) available to burn, courtesy of the Fed, the ‘carry-oke‘ clubs of Asia have been courting (and more) assets such as the yen and gold. Simultaneously. For the moment, (in terms of performance) the yen is in the lead of the ‘most-requested safe-haven play’ list. Once again, a warning: recall what happened when the yen carry-trade expired. It is now wearing the label ‘the most recent global financial crisis.’ When the dollar-carry draws to a close (and it will), well, better not dwell on that now…

Silver added 16 cents at the market’s open this morning, and was quoted at $18.57 the ounce. EW analysis has raised the odds of a sharp, upward spike in the white metal (to at least above $20 per ounce) in the wake of certain chart/wave patterns observed by its resident analysts.

This, at a time when the same analysts see a topping out pattern in gold’s most recent ascent. Only a pole-vault to above the June $1,265 gold…bar would change that perspective. And, yes, there is still plenty to fret about as regards the lavish attention being paid to gold by speculative-minded funds. Like the one you’ve probably read about, just last night.

‘Quote of the day’ goes to ABN Amro’s VM Group snapshot comment on gold market conditions of late: “It’s evident that while all those investors who have joined the bull-run are reluctant to cut their long positions, the ranks of those seeking to join the party are thinning. August is traditionally a month when a lot of decisions get put on hold and that’s especially true this year, when the background drivers of the rally – signs of economic recovery v. those of a double-dip recession – are fighting for dominance.

Platinum rose a fairly hefty $10.00 on the open, with a quote on the bid side at $1540.00 per troy ounce. Palladium did not waste time either, rising $9.00 per ounce to start at the $490.00 level. This, despite findings by Kitco News’ own team that speculators have unloaded long positions in palladium futures and options recently, and that such unwinding has contributed to recent price weakness in the metal. In anyc case, with an $11 gain on the day, at least today, the noble metal is shining quite nicely. GM’s flexing of its production muscles is undoubtedly helping.

Well, yesterday’s news was still playing the lead billing in today’s markets, judging by specific asset values and certain statements coming from China as well as Japan. As you recall, the story of the day was China’s overtaking Japan for the second spot on the list of global economic powerhouses.

It turns out that the problems we identified in connection with such a flip in status are very much on the radar of those two countries’ governments. Epic shifts such as this one happen for a reason – in fact, for many, and often less than obvious reasons- and the underlying conditions appear to certainly be preoccupying Japanese and Chinese officials.

To wit, the Japanese government indicated today that it will now consider additional stimuli with which to regain some of its lost economic footing. This is not just an effort to recapture the number two position in the coming quarter (Japan still leads China on an annualized GDP raw numbers basis); it is more of an acknowledgment that the too-strong yen is hampering the country’s economic recovery.

However, Japan is also saddled with the highest debt/GDP ratio among developed nations. Whether next week’s BoJ meeting results in yen intervention or some other stimulus-like measures, remains to be seen. Fact is, something is likely to come out of Tokyo in the way of policy announcements. Time is not on Japan’s side.

Next up, Chinese reaction to its ascent in the world’s economic rankings. Far from simply boasting about the feat (albeit, quite a feat it is), Beijing officials said this morning that –as we warned on Monday-China undoubtedly remains a developing nation and that its government must improve the life of millions of still-poor Chinese individuals.

Such an assertion came from none other than a Chinese Commerce Ministry spokesman. When you’ve got more than 40 million of your denizens (at least that is what official estimates are) living under the critical ‘make-it-or-break-it’ line (which is another officially set figure), you clearly have other priorities than to extol the virtues of having surpassed your neighbor on a list of the world’s ‘who’s who.’

Okay, the awareness of current conditions is manifest in both Tokyo and Beijing. The remaining questions mainly revolve around what will actually be done to address such circumstances and make adjustments where necessary.

In the interim, we propose that the worrisome issues relating to China for example are the less than obvious ones; such as China’s military budget - also the world’s second largest. Or, the fact that the country is now at the top of the list of energy consumers in the world and that it will absolutely need to secure future supplies of same. Or, the fact that we could write tomes about the environmental impacts of its growth-both domestically as well as on the planet. A recent Frontline expose Western e-waste and where it ends up, should serve as an introductory course. But, topics for another day, those are.

Until at least tomorrow,

Happy Trading.

Jon Nadler

Senior Analyst, Kitco Metals Inc.North America

US & Canada Toll Free: 1 (877) 839-8036

Websites: www.kitco.com and www.kitco.cn

Blog: http://www.kitco.com/ind/index.html#nadler

Kitcommentary: " The Expendables? Beware the Sequel. "

Mon, 16 Aug 2010 18:37:00 GMT

Good Morning,

Something we have alluded to in previous posts became official overnight: China overtook Japan for the title of ‘world’s No. 2 economy.’ Following thirty years of relentless hard work and unwavering determination, the country can now boast that it is, in fact, on course to capture the top global economic spot as well –in about another two decades-and wrest it away from the United States.

This rosy future is, of course, something that will only come about provided that there are no social ‘bumps in the road’ such as the ones you will read about, further below. Suffice it to say that the head of China’s Bureau of Statistics cautioned earlier this year that we should all have a ‘sober understanding that China remains a developing nation.’ One saddled with a large segment of its population still in poverty. However, the ‘expendables’ should be viewed as anything but. More on that, at the end of this post.

Mind you, many an economist warns that using quarterly data to compare Chinese versus Japanese GDP has its own risks and that the two countries continue to overtake each other, depending on the season and the metrics used for such calculations (such as forex differentials, for example). At any rate, the news from China helped set into motion a set of market moves overnight, the echoes of which were still being felt this morning.

Specifically, the US dollar was mostly lower on the news, losing 0.54% on the trade-weighted index and reaching 82.44 at last check. Risk appetite was initially tempered by the news that China achieved such a feat mainly on a quite disappointing slowdown in Japan’s Q2 GDP. The Japanese economy is now slated to grow at only about 1.4% next year, as against earlier projections calling for a 1.7% rate of growth.

The euro, on the other hand, gained just a tad, rising to $1.280 against the greenback. Eurozone inflation picked up the pace, according to reports issues this morning. The region experienced a core price rise of 1% (with an overall reading of 1.7%- the highest in 20 months). Meanwhile, surprise! – net foreign purchases of US long-term debt instruments rose by about $9 billion in June, even as those same investors sold US equities and corporate bonds on a net basis.

One more forum-based urban myth was dealt a bit of a blow with this morning’s news. Recall that –for most of 2009- we were solemnly promised not only the demise of the US dollar, the US stock market, the US housing market, and assorted other markets, but also the advent of a tsunami of loan defaults. The dominoes entailed –in short succession after the mortgage delinquency debacle-auto loans and credit card loans.

Well, Capital One (yes, the one with those friendly barbarians at the gate) announced this morning that its credit card defaults fell for the fourth straight month. This is the third largest issuer of little bits of plastic bearing the VISA logo, folks. What else did Capital One have to report? That its auto loan charge-off rate was 2.6% in July – down from 2.72% in June. Charge-off rates and delinquency rates also fell at Capital’s international operations. Hello, hello.

US stock index futures indicated a lower opening, as the Japanese GDP data had market participants fretting about global economic conditions despite China’s advance in the race. The Dow finished its worst performance in a month-and-a-half last Friday following poor US economic data and a fretting Fed that appears to be out of ammo with which to stimulate growth.

On the back of such apprehensions, gold prices added nearly one additional percent to Friday’s closing values as the market opened for a new trading week. Spot prices came within striking distance of overhead resistance thought to be found just above the $1230 round figure. The yellow metal opened with a $9.40 per ounce gain this morning, and was quoted at $1224.80 on the bid side.

The most recently available CFTC data indicates that the speculative length for COMEX gold rose for the second week in a row. Gross long non-commercial gold positions on the exchange amount to 747 tonnes (the net long figure is 669 tonnes) as of last week, up 7 tonnes from the previous reporting period.

Analysts at Standard Bank (SA) note that: “While the rise in speculative longs is still marginal and well below 975 tonnes reached in May, non-commercial shorts continue to decline. This may indicate that short positions are now less confident of a gold price decline in coming weeks.” Over the weekend, some physical offtake ahead of a festival next week was noted in India, but not all that much, to be sure.

Once again, our local sources confirmed that at levels above $1,200 per ounce, local would-be buyers turn into willing sellers – the calendar, notwithstanding. Commerzbank metals analysts opine that sharp gains in gold could be truncated by the ebbing of physical demand from the all-important jewellery segment (as seen in Asia).

None of this has stemmed the flow of ultra-bullish news from permeating gold forums once again. Why, there is even a trend to quote (gasp!) Goldman Sachs (you know, the uber-evil perpetrators of gold price suppression/manipulation schemes) as the best evidence of an upcoming gold ‘moonshot’ (even if Goldman only sees $1,300 in six months’ time). Now that they have said that, they are credible, folks. Whatever suits the agenda…

Silver advanced a dime, opening at $18.24 per troy ounce. Meanwhile, platinum and palladium staged their own mini-recovery, with the former rising $8 to start at $1529.00 per ounce, and the latter climbing $2 to the $478.00 level. No change was reported in rhodium, with a quote of $2,070.00 on the bid. For the time being, news of GM’s impending IPO offering is lending support to the noble metals group.

At what point the weak Japanese GDP data and global slowdown worries might come to impact the industrial and noble metals complex, remains to be seen. For the moment, the markets awaited the release of NY Fed data relating to the Empire State’s manufacturing activity this morning. The figures showed a bit of an improvement in the region’s conditions and the findings helped stem losses in Dow futures.

And now, back to China. Number two on the global economic billboard; but, at what cost? One you may not care to think about, but might soon have to. A study recently conducted on behalf of Credit Suisse found that there is a pool of unreported income approaching $1.1 trillion being stashed by that country’s most wealthy citizens under –literally-countless mattresses.

That staggering stash of cash represents about a third of China’s GDP. Buried in that seemingly appetizing (to gold and other commodity bulls) statistic is the fact that such a cash pile actually underscores the huge and widening gap between China’s haves and have-nots. It is one of the reasons this writer takes reports of putative gold shopping sprees in China with a large grain of MSG.

They probably largely reflect the buying patterns of the same yuppies who are snapping up $4,000 snakeskin purses at the local Gucci franchise, and very little of that of the “man in the street.”

Back in 2005, the government of China was urged to focus on ameliorating the plight of migrant workers and farmers. Even back then, the yawning chasm between the country’s newly rich and the perennially poor was seen as a potential threat to the country’s ‘social harmony.’ Now, Bloomberg’s Will Pesek reports that something known as the “Gini coefficient” - a statistical measure of “wealth equality,” reached 0.47, a figure higher than the recognized “warning level” of 0.4. This was reported by the Economic Information Daily, a government-affiliated newspaper, this past May.

Mr. Pesek concludes that: “You can censor Google Inc.’s search engine. You can’t hide the fact that a handful of Chinese are getting very rich from the billion-plus workers being left behind. Anger will rise, tempers will flare and things could get out of control. Try stuffing that under a mattress.”

Food for thought. Hot sauce, not optional, in this case.

Jon Nadler

Senior Analyst, Kitco Metals Inc.North America

US & Canada Toll Free: 1 (877) 839-8036

Websites: www.kitco.com and www.kitco.cn

Blog: http://www.kitco.com/ind/index.html#nadler

The ISRI Monday Report: August 16th, 2010

Mon, 16 Aug 2010 13:42:00 GMT

This week's LME is off to firmer start reflecting the usual suspects in the absence of fresh macro news: dollar weakness, bargain hunting, short covering, and the latest LME inventory drawdowns. Overall market sentiment, however, remain cautious and conservative.

The ISRI Friday Report: August 13, 2010

Fri, 13 Aug 2010 16:42:00 GMT

Closing out the week, this morning's LME trading was mixed but with potential to rally (or not) based on today's U.S. economic indicators...London gold was last indicated at $1,215/to, trading at a month high...yesterday, Comex Dec gold closed @ $1,216.70/oz, its highest settlement since the end-June. Comex copper is expected to open slightly lower...yesterday, the Sept contract closed out the day at $3.2840/lb, 3 cents higher on what was described as a "technical bounce."