Gold and Silver Report - The Hole Story

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Gold continued its stormy gyrations overnight, pretty much in concert with something that goes by the name of Irene; weakening, then strengthening, then weakening again, but still heading towards an as yet unknown final destination for the week. The yellow metal lost most of Thursday's gains overnight only to recapture those losses ahead of the opening of the week's final trading session in New York and ahead, of course, of the much-anticipated Jackson Hole speech by the Fed Chairman himself. Then again, by market opening time, gold as well as the rest of its teammates in the precious metals' complex were seen headed towards lower price thresholds.

Spot metals dealings opened with a drop of $5.60 in gold at the $1765.70 mark per ounce on the bid-side, as against a tad weaker US dollar (down 0.11 at 74.09 on the index) and the trade was not very mindful of the larger than 1.5% sell-off in crude oil at this juncture. Most of the trading interest was centered on the upcoming Bernanke speech and the speculation surrounding what he might or might not have on offer for the markets.

To what extent the roughly 12% drop in bullion's value this week will be mitigated by the day's end remains to be seen, but surveys contemplating that which might happen to gold next week might have to be taken with a spoonful of salt as the majority of them got it wrong for this week. The latest Bloomberg survey of traders and analysts at least is basically split on its projections for the coming week. Jackson Hole still preoccupies many and will shape some book-squaring decisions to come, despite the fact that Mr. Hoenig said Basta! the Fed has done all that it can, and that monetary policy can only go so far.

Signals (make that: flares) from certain charts indicate that -as based on gold futures-conditions prior to Wednesday's drop in gold showed the daily chart of the October contract exceeding the so-called Stoller Average Range Channel (STARC) bands (not to be confused with Bollinger bands) for three sessions. According to such analysis the more important support in gold resides at $1,620 and down to the $1,550 area, with $1,480 representing the previous 'lift-off' launch pad in the yellow metal. Resistance is currently seen up near the $1800/1825/1850 mileposts.

Silver lost 30 cents at opening time in New York and fell to $40.82 per ounce on the bid. The white metal appears stuck at the round figure for now, about equally far from the must-hold $37 area as the $43 one where presumably the bulls might get emboldened somewhat. Platinum and palladium each fell by about $5 to ease to the $1,813 and the $746 levels respectively. Only rhodium remained static with a bid at $1,875.00 the ounce.

While the Jackson Hole story remains pretty much the...whole story for this Fearsome Friday, the rest of the world isn't exactly being...idle. China, for example, has been busy with its previous and on-going tightening agenda; it has ordered its banks to now include their margin deposits in required reserves in order to further curtail excessive levels of liquidity. We are talking about funds totaling roughly two-thirds of a trillion dollars (say QE2-size money). The PBOC has raised bank reserve requirements nine (!) times since last November.

Switzerland, on the other hand, is grappling with the deleterious effects of the huge gains in the Swiss franc on the country's economy. That which the SNB previously feared, has now apparently materialized; the index of leading economic indicators has fallen by more than had been anticipated by economists. In the wake of such findings, it might be logical to assume that the SNB will take further measures to restrain the franc.

Currency traders appear to be betting on as much; the franc fell against all 16 of its currency counterparts and is now on track for a third week of losses against the euro. It has already climbed 12% year-to-date and is the best performer among ten other developed-nation currencies. The SNB says that's more than enough, and perhaps, way too much.

The recent spectacular rise and fall in gold has only intensified the battle for the hearts and minds of retail investors being waged by the ever-ready-to-fleece throngs of opportunists who lurk in the waters of the financial world. The Financial Industry Regulatory Authority has found it necessary to come out and warn about gold-related scams/cons/come-ons in a bold statement the other day. Interestingly, FINRA found that gold is being promoted based on a couple of premises that might be all too familiar to readers of many a so-called respectable and popular hard money publication.

Namely, FINRA cautions would-be gold buyers not to fall for the gold sales pitch that employs the scare of hyperinflation and/or the one related to an imminent economic meltdown. Ha. That would leave about 2.5 publications that correctly frame gold as a necessary insurance asset that (in small doses) might be good for most portfolios. At the present time, gold bullion -oriented and gold stocks-oriented investments are on the top 10 most popular products being pitched at hapless and unwary buyers. But, the herd mentality syndrome remains alive and well, apparently.

To wit, guess what has replaced real estate (and to a certain extent equities) as the must-have investment of the day? Well, you already know that answer (and it make for a perfect contrarian mania signal all of its own). A recent Gallup Poll shows that gold is thought to be the best long-term investment; a belief shared by no less than 34% of Americans. This, despite the fact that-if you consider long-term as 30 years, the yellow metal has been unable to offer a break-even to those who bought it at $875 the ounce back in 1980.

Real estate (that's so...2006 now!) has fallen to second place, with only 19% believing in it any longer. You do however recall how real estate and real estate investing was being promoted/positioned/hallowed just a few short years ago...As for savings accounts and bonds, well, don't even go there. Americans sure aren't.

Andrew Miligan, the Head of Global Strategy at Standard Life Investments notes that the [recent] sharp increases in the gold price must be treated with caution. Bubbles can form in any asset, so note that the SPDR Gold Shares ETF just passed its S&P 500 equivalent to become the largest ETF measured by net assets. Large price declines would not be a surprise, as and when investors reappraise the outlook. And so the week draws to a close. Will he? Won't he (give us our daily QE)? Only The Shadow (and a few select Fed insiders and Wall Street types) knows...The nagging question at the end of this turbulent week still remains: What the heck was The Colonel doing with a stack of Condi Rice photos???

Have a nice weekend,

Jon Nadler Senior Metals 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

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