Gold Heading to 1% Decline after Turbulent Week

Turbulent trading conditions were once again manifest in Thursday’s markets as an amalgam of price-moving news from Europe, Asia, and the US buffeted commodities, equities, and currency values. Gold prices fell sharply after the open, then touched primary support near $1,630 only to rebound swiftly mid-morning, and then softened once again, to under $1,640 per ounce. In all, gold had a relatively difficult week and appeared set to close it out with a 1% loss despite several attempts not to do so.

Barclays Capital analysts find that the slow but steady leakage of metals tonnage from various ETs is underscoring the ebbing interest in precious metals at the present time. Gold balances in such vehicles have declined by six tonnes this month, while silver holdings have fallen by 100 tonnes. Last year, gold-based ETFs witnessed the lowest level of bullion intake since their inception in late 2004.

Platinum ETFs shed 15,000 ounces but palladium balances bumped higher by 6,000 ounces. Something or someone else is "leaking" gold onto the physical market at this time as well; a nation. There are reports that sanction-saddled Syria has been disposing of (at least) part of its 25.8 tonnes of central bank gold reserves.

Also on the physical front, we reported on Wednesday that the RBI had announced to tighten the management of gold loans by [non-bank] financial institutions. HSBC market analysts opine that “tighter standards for gold as collateral could dissuade some holders of bullion from borrowing on their gold and instead sell that bullion into the market. Thus gold that would normally be locked up as collateral for loans may instead be sold onto the market, (which) has negative implications for gold prices.”

India’s economy recorded a record trade deficit in Q1, owing mainly to imports of gold and black gold. The revelation prompted Indian Commerce Secretary Rahul Khullar to say that gold imports are expected to decline in the fiscal year 2012-2013 in the wake of freshly-introduced duties and taxes. There is a clear aim on the part of that country’s government to dampen the importation and consumption of the yellow metal.

Silver traded across a near-$1 range but was also unable to make significant progress to the upside. The picture was mixed in the PGMs as well; platinum declined but palladium advanced. Crude oil slipped slightly but copper climbed a tad, while the Dow was off half a percent and the US dollar traded on either side of the “unchanged” marker on the index.

Little in the way of real change was noted this morning as the final session of the week got underway in New York. Spot gold hovered around $1,645 while spot silver appeared stuck around the $31.75 area. Well, so as you do not say we do not bring you all sorts of opinion on the markets, here is the view on silver coming from…the stars. Literally.

The New York-based Astrologers Fund calls today as the official beginning of the cusp of silver’s demise. Silver is seen as being in the “late stage [of a] bubble” and is being seen as headed for a price target of between $21-$28 per ounce, or lower. It is written. In the stars. Ag, phone home. The AF has had a fairly good…call record up to this point. Keep gazing.

Yesterday, the Silver Institute released its GFMS-compiled World Silver Survey 2012. In the report – much like what was noted by GFMS and CPM when they launched similar gold reviews recently – it is evident that investment demand for silver is net-down, and that supply/demand fundamentals are not favorable for the white metal. To wit: implied net world investment demand fell 11% last year (to 164 million ounces). Global silver fabrication demand fell by 1.5% to 876.6 million ounces.

If one were to remove coin fabrication demand from the total, the decline would have been on the order of 4.1%. Finally, mine output of silver climbed for the ninth straight year and reached a record 761.6 million ounces. All of this also needs to be viewed within the context of a market year that witnessed a silver price volatility of over 34% in Q1 2011, and such gyrations are set to continue this year as well. In any case the relevant question for silver is clearly not “Is there a silver shortage?” but – in the words of GFMS analysts: “will the investment flows be sufficiently strong to absorb the surplus metal that will be on the market?”

As we have noted numerous times in recent articles here, the phenomenal margins in gold and/or silver that are available to those equipped with picks and shovels continue to boost production practically anywhere one cares to look. Like, say, Canada. There is an (excuse the pun) explosion of new mining and exploration projects in British Columbia, the NW Territory, the Yukon, and in Nunavut.

The common thread for all of this is the slogan “If you can make a buck, come on up.” The potential problems with such a boom-time are a) what happens if commodity prices drop significantly? and b) what happens after the lifespan of certain projects is up? For example, the $800 million (CAD) gold mine project in Kamloops will run “dry” of its estimated gold deposit within 23 years.

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