New York spot gold continued within last week's mildly corrective pattern and spent a good part of the day near the mid $960.00's, as the US dollar held just above 73 on the index. Some of the losses were later minimized (gold was off $2.40 at last check - $970.00 bid). While tomorrow's session presents little in the way of added opportunity to trade off of the figures on the economic calendar, there could still be news items being written that could precipitate action among participants. The latest such items are briefly described below. Silver lost about 2% to $19.70 and the noble metals presented a mixed picture, with platinum first dropping $90.00 to $1963.00 and then recovering to the plus side (to $2040, up $15) and palladium slipping $14.00 to $473.00 per ounce, respectively.
Confined to a fairly narrow ten dollar range, gold prices remained rather subdued after last week's roller-coaster pattern and as little fresh data emerged on the news front. Despite rising expectations of the odds that the Fed might need to cut by as much as 75 basis points, there are trading houses which see a gold market that is dominated by longs and as yet unable to penetrate the $1,000 mark and are therefore not ruling out further profit-taking and/or testing of lower levels. Opinion that this is a consolidation phase prior to a further assault on the 1K mark (still) dominates the background talk.
Support in gold (at this juncture) is still seen near $950, whilst resistance appears to have a cap on the metal at the $990/$995 area. Some talk of yen intervention emerged over the weekend, although Japanese business appears not very keen on the idea. Crude oil first eased to near $104 per barrel, as the show of machismo by Venezuela's ended in handshakes and a photo opportunity instead of a brawl. Subsequently, renewed attention by speculative interests pushed black gold to $107.61 - a $2.5 gain on the day. Analysts see a strong disconnect between the fundamentals in oil and its current price. The commodity has gained some 79% over the past year (gold's gain was 'only' 49%) leading to the word 'bubble' emerging in more and more commodity commentaries.
Other market reports over the weekend suggest that the situation that drove platinum group metals to recent stratospheric levels may be slowly stabilizing, albeit it has not gone away yet and may not do so for some time to come. Nevertheless, the amelioration in the background picture has definitely taken some of the energy out of the speculative fever we have witnessed of late. Funds will be funds. Couple this with the drumbeat of a recession growing louder, and you have the makings of a scaling-back in aggressively pushing certain commodities beyond their logical values. Of course, logic and commodities do not often hold hands...Some prices (like cotton's for instance) yielded conditions where users were simply unwilling to pay for the material. The tipping point was followed by three sessions of limit-down trading in a row.
Mineweb reports that: Production at large gold and platinum mines will benefit significantly from the South African government's commitment to increase power at key mines to 95%. The increase means less damage to production at mines using 50-70% of available power for maintenance.
Frans Baker, spokesperson for the SA Chamber of Mines, told Mineweb today it was indeed the major gold and platinum mines and some others that would see increased power supply from an additional 260MW allocated to mines in the country. He said the approved 5% increase in power supply would have a significant impact on production at these mines as many gold and platinum mines used a large percentage of power for maintenance activities, such as ventilation, cooling and pumping.
The fact that some mines use between 50-70% of power for maintenance activities implies that a 10% percent cut has a very damaging effect on production.
If one only needs to make a 5% overall cut in power supply, it means that supply to production is cut by 10% instead of 20%, he said.
Baker said it was difficult to quantify the expected increase in gold and platinum ounces at this stage, but tens of thousands of jobs would be saved as a result of the power increase. It would also boost commodity exports.
One of the results of these developments? Bloomberg reported overnight that:
Platinum futures in Tokyo dropped by the limit for a second day as the dollar fell against the yen and investors bet the surge to record highs for precious metals, soybeans and other commodities had gone too far. Platinum and other commodities are sharply lower because investors think the gains have just been too big, Kazuhiko Saito, a commodity strategist at Interes Capital Management, said today in Tokyo by telephone. Investment funds are shifting money from commodities to cash.
With only one week to go before the Fed gets together for a decision on rates, the action could get wild and woolly over then next several sessions. Don't look for predictable patterns here. There is a lot a stake here. Mostly, other people's money. Look for news releases and watch the reaction - counterintuitive as it may be.
***A footnote on an important release of another kind: The CPM Group is releasing its 2008 Gold Yearbook Tuesday morning. As many insiders know, this is one of the two Bibles of the trade when it comes to the facts and figures related to supply, demand, central bank activity, investor trading patterns, and other relevant data. You now have an opportunity to secure one of these coveted books for yourself, at a bargain pre-release price of only $60 a copy. We will be attending the launch event in New York and will report on the essentials later during the week.
If you are interested, (and, as a gold bug, you ought to be) simply go to : http://store.cpmgroup.com/ and secure your own copy. You will be glad you did.