Good Day,

A second day of falling prices in gold was brought to you courtesy of a strengthening dollar. Initial support at $1048 was once again breached early this morning, precipitated by a gain of -.026 in the USD on the index (now at 75.70) and a slip in crude oil (off 50 cents near $77.10 pbbl). Gold spot prices have touched a low of $1043.50 in the minutes preceding the NY market's opening. The emergence of profit-taking is becoming a bit more visible, although Thursday's afternoon settlement at $1050 appeared to manifest continuing hardiness among the longs. The overriding component in this morning's near $6 drop was attributable to dollar strength, as seen on our newly-launched index, below.


New York spot gold prices commenced trading on a down note once again this morning, with the yellow metal showing a $5.40 loss in the first few moments of action, quoted at $1045.20 per ounce. Silver fell 13 cents at the open, and was quoted at $17.21 per ounce. Platinum lost $10 to start the session at $1339.00 an ounce, while palladium was flat, trading at $324.00 per troy ounce.

The break below the $1048 level might signal that a more meaningful correction has been set into motion. The current objective for such a move is near the $1,030 per ounce level. However, a U-turn to back above the $1,055 an ounce current resistance area could bring the $1065 figure back into discussion. The market requires a daily close at above the $1,065 mark in order to signal that the chances of a short-term correction are not a remaining threat. Nine out of the 16 traders, investors and analysts (56%) surveyed by Bloomberg’s London bureau overnight, said bullion would fall next week, as the record reached this week could prompt further profit-taking, and as fabrication demand shows signs of being in a crisis due to current high prices.

Economist Dennis Gartman summed up the situation as follows: “We are fearful that far, far too many people are involved with this market and that a correction of some consequence is now upon us. Those who had been hoping to see material Indian buying of gold ahead of and during the Diwali festival may find their hopes dashed.” But, do they listen, Dennis? Nah. What gold perma-bull pays any attention to the world’s largest gold consumer when an amount equal to the country’s annual imports (in a good year) has been piled into paper positions in NY? Party on.

Holdings in the SPDR Gold Trust, continue to remain static at 1,109.31 metric tons, and were unchanged for a sixth session. Commerzbank sources indicated that: Notably, the price gains of the past few days were not accompanied by meaningful inflows into gold ETFs. In view of the large amount of speculative net-long positions, the risk of a correction is increasing.

The Commerzbank reference was to the net long positions held by speculators on the Comex, which rose to a record high of 239,668 contracts (745 tonnes!) in the week ended Oct. 6, according to the latest weekly report by the Commodity Futures Trading Commission.

As of yesterday, Russia, which accounts for nearly half the global palladium supplies, does not appear to be in the mood to sell any of its stockpiles of the metal. No Russian palladium appears to yet have landed in the markets thus far in 2009. The head of Norilsk's market development unit was quoted as saying that even if the Russian government commenced selling now, the flow of the noble metal would not be seen in the market until early next year. He cited existing customs data to validate the ‘no sale’ situation seen this year. Possible explanations for the absence of Russian sales range from having simply run out of metal to sell, to holding off in anticipation of higher prices to come. We wish we knew. Russia’s Norilsk is (in Johnson Matthey’s estimation) thought to have mined 2.8 million ounces of palladium in 2008, or about 40 percent of the global supply
of the metal.

And now, for something completely different: Another sign that the End (of this phase in gold) is nigh? Or, is it the ‘democratization’ of gold that will warm the cockles of gold miners’ hearts? Who know? In any case, here is a veddy British take on the news of Harrods starting to sell gold bars. If only Monty Python were around to make this into a humorous vignette:

“Yesterday we warned you of the perils of flogging your unwanted gold off to shifty online nugget-buying nuggets. Today, the other end of the precious metal market has reared its proud head like an Ecstasy-fuelled ox – Harrods have started selling gold bars. Britain’s most glamorous corner-shop proprietor Big Mo Al Fayed has linked up with Produits Artistiques Metaux Precieux (whoever the hell they are) to pedal shiny gold bullion and coins over the counter. But the move comes just as gold prices reach a record high (£662 an ounce), thanks to a weak American dollar. No doubt there’ll still be hordes of rich idiots queuing up for a nugget of their own.”

Cheerio for now. Have an excellent weekend, everyone! We will report from the Money Show in Toronto next week.

Jon Nadler
Senior Analyst