Precious metals opened mixed on this, the last trading day of a truly stormy (in all regards) month. The first ten days of market action saw the Dow plunge and erase its 2011 gains and gold shoot up from $1620 to $1760 while the next ten sessions offered a rebound in the equity market that unfolded in concert with a yet stronger push in gold to new peaks above $1,900 the ounce.

And then, if that had not been enough, things got really wild. Bond yields fell off the map, the Swiss franc shot through the roof, and volatility indices scaled new heights. And we have not even gotten to cover the S&P and the damage its pronouncement inflicted in various places. Some say the effects would have been milder had the US in fact defaulted altogether.

Eventually, the Dow regained some more of its previously lost ground and clawed back to the break-even point for the year while the yellow metal went into a free-fall of a magnitude not seen since...who can remember? By the time Irene showed up on the horizon, the trading crowd in lower Manhattan was distressed enough to not give her too much in the way of attention. As per some participants we sounded out in New York, the end of this particular month and the upcoming long weekend cannot come soon enough...

Spot gold started the midweek trading session off with a drop of $12.40 per ounce; a decline that soon turned into a $25 give-back of Tuesday's $50 gains. Gold's continuing volatility in and around these levels in prices continues to be an unnerving factor for small retail investors. Some market observers have begun advocating the taking of (at least) some profits on the heels of a near 50% gain over the past year.

In the wake of last week's sizeable declines, and ensuing unsettling and choppy behavior, not only has the talk of gold being in a potential bubble resurfaced, but some of the metal's long-standing safe-haven attributes have come into question. Bubble-hunting is a difficult sport however. Bring a pellet gun.

For example, Yale University's Prof. Robert Shiller argues that bubbles are born when (most) people buy into the next great thing and they accept that this [insert your favorite here] is a game-changing asset (like housing and the Internet) that cannot fail. The Internet and the media are singled out by Prof. Shiller as integral drivers of such recent feeding frenzies:

If you watch cable television, it would certainly appear that gold is in a bubble. Commercials abound for buying gold. Commentators on CNBC talk about gold hitting $2,400 an ounce, which would be a genuine record (the previous high of $850 in 1980 would be about $2,300 today, adjusted for inflation). In fairness, other CNBC commentators have said this is foolish and that gold prices are too high. Still, the marketing of gold to the masses is an ominous sign. Gold ATMs, anyone?

Meanwhile, AWD Chase de Vere's Patrick Connolly suggests that if you are invested in gold you have to be aware that something that has risen so sharply could fall just as sharply. We've been limiting the amount we advise our clients to hold and where we think exposure is too high we've been advising that now is a good time to take profits. No one recommends giving up the core insurance position that is so essential to maintain in the precious metal, but it does make sense to note that profit is not a four-letter word, whereas loss...well, you know...

It would appear that (at least) Turkish investors have been...delighted with gold's recent gains and have begun heeding just such timely, level-headed advice. Recent patterns from that country would indicate that locals with savings in foreign currencies and gold are cashing in their profits with car purchases. Customers who feel they have earned enough thanks to those currencies' [the dollar and euro] rise against the lira and the recent hike in gold prices are deciding to realize their profits by buying new cars. While the wisdom of buying a Beemer or a Jag with gold-derived profits may be questionable, the strategy of buying them before their prices vault higher along with certain foreign currencies against the Turkish lira is certainly not. Consider it another type of 'hedging' and recognition of the aforementioned letter-count of the word profit.

Meanwhile, the buying and selling of bullion by assorted central banks continued last month, as the process of reserve management rolled on. Colombia bought 2.3 tonnes of yellow metal and Russia added 4.4 tonnes to its stash, while Kazakhstan cut it holdings by 3.11 tonnes. Also seen selling were Mexico and Tajikistan. Large-scale additions or disposals among official sector players still have not been noted for this most turbulent year.

Silver opened with a loss of two pennies and a quote at $41.33 per ounce in New York. Not much to report in that niche, other than the maintenance of the same, roughly $40-42 range that has been in place for some time now. The white metal largely refused to (once again) join the rally in gold on Tuesday. Platinum dropped and palladium gained as the New York trading day commenced.

The former declined $4 to the $1,847 level and the latter climbed to $780 with a $7 pop. No changes were noted in rhodium. Swedish Carmaker Volvo (Chinese-owned at the moment) joined forces with Germany's industrial giant Siemens to develop plug-in hybrid and electric vehicle technology further. In other automotive-world news, it has been projected that US car sales probably stalled in August not only as buyers slow down ahead of new model-year arrivals into showrooms, but on account of dimming levels of consumer confidence.

If automotive industry analysts prove to be correct, the annualized sales pace of cars in the USA will show a run-rate of 12.1 million units. That's 600K units better than August 2010's pace but is 400K units short of the sales trend noted in the first half of 2011. With any luck, the final tally for this year may come in at just under 13 million units moved off dealers' lots and it may climb to nearly 14 million next year; a trend that platinum-group metals investors would certainly cheer and welcome. At least on the [Japanese] production side of the equation, things are apparently returning to normal after the supply chain disruptions precipitated by the Sendai quake took their toll this spring and summer.

The platinum-group metals are also -in the analysis of Standard Bank (SA)- receiving some support from political developments in South Africa, that have once again got people talking about the issue of mine nationalisation. One of the leading proponents of mine nationalisation has been called to a disciplinary hearing (on charges unrelated to his views on nationalisation) by the country's ruling party. While the hearing has no direct bearing on the ruling party's stance on mine nationalisation, it has once again given a voice to those calling for such a policy.

Over in China, Premier Wen remained in (inflation) combat mode and said that his Job #1 remains the capping of runaway prices. In official parlance, that is translated as: Stabilizing general price levels still is the most important mission of macro-controls and the orientation of macro-controls cannot change.'' Actively trying to slow such threats has been carried out with several interest rate hikes and bank reserve requirement 'adjustments' by the PBOC. Still, China's economy expanded by 9.5 percent in the April-June quarter and inflation rose to a 37-month high of 6.5 percent in July.

Today's final bit of news is of a relatively positive kind. Challenger Gray & Christmas -an outplacement consulting firm- reports that after three long, hot months of job losses, the number of positions being planned for a cut in the US has declined by 23% in August. Meanwhile, the much-awaited Automatic Data Processing (ADP) report issued this morning revealed that US private-sector payrolls increased by 91,000 this month.

While both reports are somewhat short of hoped-for levels among economists, please recall that the Challenger and ADP reports typically set the scene for what is to come on Friday from the US Labor Department. As projections would currently indicate, that report could show an economy that added 80,000 jobs on the month and an unemployment level that remained static at 9.1%; not good enough to perhaps start sending colorful postcards to relatives, but also probably not bad enough to prompt a speedy QE package to be launched by Uncle Ben just yet.

Until tomorrow,

Jon Nadler Senior Metals Analyst 
Kitco Metals Inc. North America
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