Not so Fast

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Good Afternoon,

Shortly after learning that South Africa intends to deliver 95% of full electricity supplies to struggling precious metals mines, the markets in gold, platinum, palladium, and silver all headed lower. This, despite a perfect background mix of a still sinking US dollar (breaking 73.00 on the index and nearer $1.54 against the euro), relatively firm oil (at $104.00 per barrel) and news of a possible 'fire-sale' of mortgage-backed securities by UBS ( the firm is apparently trying to aggressively clean up its books).

All things being equal, these are the very conditions that should have had gold reach the $1,000 mark even before the opening of the NY markets. Hard to believe that the market is on so shaky a foundation that the South Africa developments could derail it just when new records were to be established. Stocks fell hard after news that US household net wealth fell for the first time in five years. Shows you just how much of that was phantom wealth based on phantom equity, based on drive-by appraisals and stated-income loans. The only bright spot for equities was seen earlier in Wal-Mart same-store sales looking robust.

At last check, New York spot gold traded at $974.20 down $15.10 per ounce, after having dipped as low as $964.30 earlier this morning, in a virtual replay of the sell-off seen just 48 hours ago. Participants were seen digesting the US initial jobless claims numbers and pending home sales figures and they evidently gave priority to the rising foreclosures and evaporating household wealth as opposed to taking cues from the greenback they navigated through this on-going storm of March madness. Silver lost 63 cents at $20.16 while platinum dropped a whopping $73 to $2179 and palladium shed $42 to $512 per ounce. How quickly things change...and will continue to.

Not a head-scratcher for the noble metals, but certainly so for the yellow one. For now. A divergence in the jobless claims numbers, just reported by Marketwatch, contributed to today's indecision and thickened the plot: "Initial filings for state unemployment benefits fell to their lowest level since late January in the latest week, the Labor Department reported Thursday, even as continuing claims rose to their highest level in more than two years." Trade on that. If you dare.

And now, a validation of our previous view that the market should not ignore the undercurrent in the fundamentals. Bloomberg relays the story as follows:

"Gold prices may be too high for some buyers, analysts said. Imports by India, the world's biggest purchaser, plunged 81 percent to 10.2 metric tons in February from a year earlier, the Bombay Bullion Association Ltd. said.

``The buying from India is really a cautionary signal,'' said Tom Winmill managing director of Midas Management Corp. in New York. ``The question is whether the investment demand can pick up the slack.''

Thus, far, it has. Going forward, remains to be seen. Start sending the irate e-mails to Tom now (NOT!). Is he a bear, or is he a realist?

Bloomberg also explains the South African developments as follows: