Gold regained nearly half of Wednesday's $60 loss in value overnight as overseas traders tentatively entered the market in the hope that short-term gains were in the cards. The overall mood developing in the markets- as well as among central bankers apparently - is one where waiting is taking precedence over aggressive action.

Spot New York dealings opened with a rise of $32 in gold and with a 70-cent gain in silver. The former was bid at the $1,850.00 level while the latter was quoted at $42.25 the ounce. Speculation continues unabated in the gold market as to whether or not there were/are 'major' players in the market, doing their 'thing' behind the scenes and creating the type of nauseating roller-coaster rides we have (almost) become accustomed to over recent weeks.

The only concrete evidence of a central bank seller (thus far) has been the one related to Libya's central bank disposing of 29 tonnes of bullion earlier this spring (at you-know-who's direction). However, the $100 sell-off in the earlier part of this week has also been pegged by some as an event that was precipitated by a governmental sale of some gold.

Yet to be determined, is which entity (if any) did the selling (fingers have been pointed at the IMF and/or the Swiss National Bank thus far). On the other side of the argument table we find the imagined goings-on by putative buyers of bullion on price dips. China's name (once again, of course) keeps popping up as some see that (in their mind) the country just does not have enough of the yellow metal in its vaults. Much of such (pure) speculation is apparently intended to stoke small retail buyers into...buying on the back of a What's good for the goose... proposition. Let the speculative debates rage on. Facts will come later, as they usually do.

The verbal posturing on the subject of central banks and gold is really no different than the one being noted on the topic of the gold bubble. Does it or does it not exist? Many people will quickly dismiss the very question with the proposition that This time, it's different. Were that only to be the case. Well, if such questions do preoccupy you, then you might be well-advised to take a closer look at the chart that Minyanville's Todd Harrison dug up in his latest piece on the market. A colorful, graph that one is, to be sure; but also quite full of certain peaks that resemble the rocky ranges of Tibet. Peaks with names such as Japan and NASDAQ and China and Crude make an obvious appearance. And, yes so does gold's summit - to virtually the same altitude as all the other preceding ones.

Platinum also recovered at good chunk of its losses from yesterday, climbing $23 to the $1,845 mark. Palladium rose $9 to start the session at $758.00 per troy ounce. No changes were noted in rhodium this morning; it was bid at $1,850.00. A rare, triple parity between gold-platinum-rhodium was on display on Kitco's price tickers early this morning at the $1,850 mark. What to buy? What to sell?

Well, there is a school of thought (bolstered by facts) that would argue that platinum-group metals ought to be the logical choice at this juncture. Analysts at Standard Bank (SA) reported this morning that the production of such metals remains very much at risk at the moment. A major producer (Zimplats) could lose its mining license after having failed to come up with ownership transfer plans as the August 31st deadline came and went.

Impala's Zimbabwe operation might thus not produce 350,000 ounces of platinum and 280,000 ounces of palladium (plus 30,000 ounces of rhodium) in the coming year. Such figures represent respectively 6%, 5% and 4% of the global supply of these three vital metals. Ponder that. Countervailing such a potential disruption in supply (for platinum at least) is the specter of the US and EU economies going into another dip. In that case, the current small deficit of 76,000 ounces seen in the platinum market could turn into a surplus; but not if an operation such as the one mentioned above ceases to supply the metal to the market.

The platinum and rhodium markets would then remain undersupplied and palladium even more so. At the present time, the Standard Bank team sees value in platinum near $1,700 and in palladium under $750. They also note that while rhodium may still remain under $2,000 for a while longer, on a relative basis, this may be the [platinum-group] metal which proves most attractive on a risk/return basis from current price levels into 2012.

In other economic news this morning, the initial jobless claims filings rose by 2,000 from last week's 412,000 figure while the US' trade gap shrank by a not insignificant 13% in July. That would be the largest such contraction in the trade deficit since February of 2009. The US experienced a $6.2 billion jump in exports, led by the largest-ever level of exports in automotive items and by a quite robust rise in the export of capital goods, and industrial materials and supplies. So much for the argument that the only thing the US produces anymore is lousy beer.

With the global inflation bogey now having shrunk to the size of an average scarecrow, the focus has once again shifted to pondering the risk of softer prices and what they might imply. Along with such wondering, the global monetary policy agenda is also apparently shifting; towards supporting what has apparently turned into fragile growth as opposed to preventing price spirals from getting out of hand.

Well, don't ask that question of inflation/deflation of the gold speculators however. Their overriding betting pattern would still apparently imply Zimbabwe-like price conditions knocking on the door in many places. This is still the case, despite projections that indicate inflation not to be a cause for (any) concern for the next five years. Economist Ed Yardeni notes that We are getting a reprieve from inflation.

And so, the scene is set for the G-7's meeting slated to commence in Marseille on Friday. The gathering will come amid a fresh warning from the OECD that the US and the EU (parts of it at least) might stop growing and possibly go into 'reverse' by year's end if current conditions aggravate. Even so, the OECD does not envision a replay of 2008/2009 coming onto the scene. The question is: what might central bankers choose to do? Wait and see? Or Wait no more?

As aforementioned waiting and seeing unfolded we learned this morning that the Bank of England stood pat on interest rates, that the ECB did the same, and that four Asian central banks also opted to hold off on rate adjustments. With speeches in the pipeline by Mr. Bernanke and by President Obama, one may perhaps expect a similar wait-and-listen attitude to dominate the trading action in New York today. Just don't hold your breath on that as a certainty, as we have learned repeatedly over the past several weeks.

Until tomorrow,

Jon Nadler Senior Metals Analyst 
Kitco Metals Inc. North America
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