Friday appears to be shaping up as an oil-driven kind of day in the precious metals pits. Gains of from half to three-quarters of a dollar in black gold were seen sustaining incremental speculative buying of gold as well as silver. The greenback offered a bit of encouragement to metals players as well, as it briefly breached the 78-mark on the index ahead of the NY opening.
Gold started the final session of the week on a positive note, showing a $5.30 gain and a quote of $953.50 on the spot bid ticker. Silver added 24 cents to open at $14.53 per ounce. There was no change reported in platinum (at $1241) while palladium rose $2 to start off at $287 an ounce. Spreading South African labour action against platinum miners continues to be on traders' minds, as are worrisome statements from South African power supplier Eskom. The utility firm finds itself having to double electricity rates in order to stay alive. Not what users would like to hear, exactly.
While another run to the mid $960s could blossom if the current post options-expiration trend remains intact, market participants are eager to learn about fresh bullish news for gold. They are hoping to hear that India imported something-anything this month, in order to gear up for upcoming festivals, and/or that the largest gold ETF bought something-anything since it went into a state of suspended animation in early June. Lacking such developments, the gold market could extend the seasonal 'summer' doldrums to the point where they become the 'fall' ones.
Overnight markets saw another fall in China, where liquidity-related apprehensions pushed the Shanghai Composite Index down by nearly 3.5% for its Friday session. Investors threw in the figurative towel after learning that bank lending shrank again this month. Banks and steelmakers were among those hit in the session's selling spree. The growing sense that the house is no longer willing to supply gambling chips has had players in the Chinese market fretting about investing for several weeks now, notwithstanding the large stack they managed to pile up since the year started.
The Japanese yen tripped and fell pretty hard overnight as well, undermined by troubling economic data (deflation and unemployment at record levels) and election-related maneuvering by traders. The same was not the case with the sterling; it lifted to higher ground following evidence that the UK economy is also catching the recovery bug and has shrunk less than expected of late. In the Old World, economic confidence rose significantly more than expected, reaching a 10-month high. Looking forward is one thing, but the current reality shows the German economy, for example, contracting at a 5 to 6 percent rate for the current year, despite the Q2 reversal of fortune it enjoyed.
This spring's 'green shoots' are evidently maturing quite nicely, and are doing so globally. Hope is manifest that no early frost will damage this pattern of growth. Except, of course, among radical extremist dollar morticians, who still expect many another shoe to drop and derail everything while only helping gold and silver, somehow. Last year, it was the crisis to pin such hopes on. This year, it's the recovery. Except for the possible glitch that such an honest-to-goodness recovery might contain for the metal (see the GMFS opinion below).
While nobody really expects low-hanging fruit within the coming year, most central bankers and individual investors will take whatever they can get, following the brush fire that has swept the global economy since late 2007. Thus far, the recovery in equities since March has been anything but anemic as participants keep tabs on broad signs of emerging growth. The St. Louis Fed' Mr. Bullard sees positive numbers for the growth rate of the US economy for the current half of the year.
The latest batch of statistical data shows a US economy that contains unchanged personal incomes, a slight increase in consumer spending (for July), while inflation remained flat. Consumer prices did however fall 0.8% over the past year. The morning was -as we mentioned at the start-shaping up as being defined by the gains in oil and the dollar's woes of the moment against the euro. In so many words, another nice play for some, but nothing in here to break the well-established summer range. We still need surprise news or larger fundamental developments for such an achievement.
GFMS CEO Paul Walker predicates gold's rise to a potential 1200-1300 dollars per ounce on the tangible manifestation of inflation in the global economy. Concerns about inflation are insufficient to drive the metal to those levels. If the [economic] 'green shoots' prove the be genuine - says Paul- and the markets start to stabilise and interest rates begin to rise - then the investment case for gold becomes far more difficult to justify and investment flows may drop off - adding that: My personal view is I don't see inflation taking off. Neither do we, Paul. And, like you, we also see a very interesting journey for gold over the next six to twelve months.