The countdown to the end of a tumultuous market week (haven't they all been that lately?) commenced with this morning's opening in New York. Precious metals headed lower (all but platinum) as the US dollar picked up a tad of energy and the euro ran into a wall of overhead resistance amid the still (!) on-going crisis. Market participants have plenty to keep an eye on today but are exhibiting fatigue syndrome from what has been a roller-coaster of a string of trading sessions. Spot gold opened $10.20 lower at $1,754 per ounce and albeit it has not pierced the $1,750 support level it has also not managed to vault above the $1,775 mark yet.

Silver traded 42 cents lower at the start of the Friday session in New York and it was quoted at $34.20 the ounce on the bid-side. The white metal's support levels are thought to reside at the $33.82 and the $32.75 figures while overhead resistance could emerge at $35.42 and $36.95 per ounce. Platinum fell $3 on the open and was indicated at $1,630 per ounce. Palladium lost $5 to open at $651 the ounce. Standard Bank (SA) observes that simply parsing the total level of auto sales in certain global markets may not be an accurate indicator of total palladium demand. Let's focus on these metrics for a moment, as palladium remains one of our favorite metals that merit investors' attention.

Standard Bank's Walter de Wet first notes that there is weakness in the European auto sector with auto sales in Europe stagnating on y/y basis during the first 9 months of 2011. This does not come as much of a shock, given the events we have seen unfolding in the Old World all year long. Then, Mr. de Wet remarks that Japanese auto sales, due largely to the earthquake, are down 23% for the same period and that auto sales in China are still growing, but are only 4% higher in the first 9 months of this year compared to the same period in 2010. Again, little in the way of surprises here, as the March quake and the actively-sought slowdown by China are both playing a role in such developments on the automotive scene. The good news is that in the US, data released earlier this week, indicates that auto sales have grown 10% y/y during the first 9 months of 2011.

The SB analysis then shifts to a proper calculation method of palladium demand in order to ascertain the current market situation. Mr. de Wet notes that while an aggregate number of auto sales in the four big auto markets might prove informative, total auto sales are not necessarily reflective of total palladium demand. To correct for the skewed usage of palladium in different auto markets, we weight auto sales per region by the amount of palladium consumed in auto catalytic converters in that specific market. This provides us with our palladium-adjusted auto sales numbers.

Using the above-mentioned methodology, the Standard Bank team concludes that the palladium-adjusted auto sales numbers 2010 auto sales were still low, but were steadily improving. For 2011, the team expects palladium-adjusted auto sales match levels seen in 2010 while it also envisions a seasonal pick-up in auto sales towards year-end. Finally, using the palladium-weighted calculations as the basis, it appears that auto sales look more supportive of palladium than for platinum.

 

The analysis concludes with the observations that tactically, we see value in platinum below $1,550 and on approach of $1,500. Palladium, we believe, provides value below $600. Levels for both metals depend on a ZAR around 8.00 to the dollar. Given the current macroeconomic environment, we believe that platinum above $1,700 and palladium above $700 offers little upside (also at ZAR8.00/USD).

Well, instead of counting the votes from the proposed referendum on the EU debt deal, Greek PM Papandreou might soon be counting the number of no-confidence votes he will receive today; votes which might send him to the office where he would draft his resignation letter. One day after dropping the controversial call for a popular vote on Greece's future within the EU, Mr. Papandreou still faces the ire of his own Socialist Party and that of the Greek government's opposition leaders. Conclusions from this week's Greek odyssey might boil down to perhaps two: a) ultimatums work because they are...ultimatums, and b) miscalculating the mood of others has a price. In essence, in might now be a matter of only certain graceful formalities to be carried out before Mr. Papandreou waves goodbye to his fellow Greek politicians.

Another government that threatens to collapse-the one in Italy-also remains in focus today as the G-20 leaders gather in Cannes to tackle some of the pressing issues at hand. Mr. Berlusconi may have shown up with empty hands to this summit, but he is leaving with his hands full; full of new, unpleasant tasks. Italy's EU teammates, apparently fed up with Mr. Berlusconi's stretching out the timetable for reforms in the country to the same extent he stretches his singing talents have given him marching orders.

Mr. B and his government will now have to march to a new tune: that of being monitored by the IMF as the implementation of restructuring is carried out. Italy's revamping of its pension plans, labour markets and privatization processes will be now scrutinized the IMF and European Commission, complete with monthly progress reports. The lack of Berlusconi's (and Italy's) credibility that the imposition of such disciplinary measure implies is obvious and quite sizeable. The only promises made by Mr. B that might now be believable any longer will be limited to the ones he routinely makes to nubile females at his so-called bunga bunga parties. Ms. Merkel clearly believes no such Berlusconi claptrap. She might just ask him to powder his face, put on his costume and Laugh, Clown (Ridi Pagliaccio). Who's laughing now?

This is looking like a day for collapses, near-collapses, resignations and near-resignations by now. Thus, unsurprisingly, we note the now formal announcement of the departure from MF Global of its recently taciturn leader, Mr. Corzine. The recently collapsed securities firm will lose its Chairman and CEO and he will not take with him a severance package worth $12 million- certainly not while Michael Moore and the OWS crowd are both not very far away from the firm's offices and are out there protesting the very behaviour that has brought about such spectacular implosions.

MF is still under FBI investigation, and it is being targeted by numerous lawsuits, some of them involving monies from people who ran Ponzi schemes. Mr. Corzine expressed great sadness for what took place at his firm. While this was no Lehman Bros., Mr. Geithner must be squirming in the wake of his September 15th declaration that there will be no more Lehmans. This is, at the end of this day, a $40 billion (give or take, but mostly take) bankruptcy; the 8th largest one in US business history- bigger than the Chrysler fiasco of 2009. Heckuva job, John, heckuva job. Still to be determined is what/how many positions in commodities MF holds and what might have to come to be liquidated. This story is far from being over.

Finally this morning, jobs figures. USA job additions amounted to 80,000 positions in the latest reporting week. Albeit hiring was occurring at a more robust pace than in late summer, the addition of less than 100K jobs leaves markets on the cold side. However, overall unemployment did tick 0.10% lower, to an even 9%. On the home front however, we did not do so well in Canada last month. More than 54.000 full-time jobs were lost (the most since 2009) and overall unemployment climbed two notches to 7.3 percent.

Enjoy your weekend. It is certain to be more fun than the one in Cannes for some- caviar and blinis, champagne and truffles notwithstanding. Don't forget to set your clocks back an hour; this will give you more time to parse the wacky news of a wacky world on Sunday. Not much to laugh about (see the 1:48 mark)...

Jon Nadler Senior Metals Analyst 
Kitco Metals Inc. North America
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