There's Gold (& Platinum Galore) in Them Thar...Stars!

If it’s Wednesday, it must be…Fedsday. The markets opened flatter than a griddle cake this morning as everyone opted to remain in suspended animation ahead of the non-event that the Fed’s statement will likely turn out to be in the opinion of many. Spot gold treaded water at the $1,640 mark while spot silver tried to cling to the $31 level per ounce.

Gold’s last/best chance to try for the $1,650 target ahead of the Fed today comes from a lower-than-expected US durable goods orders figure and the flicker of a QE3 hope that such a metric might give rise to among speculators. The only decent advance was noted in platinum, which added $13 to rise to the $1,554 bid level. While the gain cannot be attributed to today’s lead story, the noble metal (along with palladium) has come quite close to the level which many believe to be make-or-break, production-costs-wise. Palladium climbed $4 to $667 the ounce.

In the background, thus US dollar also drifted in anticipation of the FOMC utterance while crude oil added 80 cents to rise to the $104.38 per barrel mark. Copper was a stand-out gainer this morning; it advanced by 1.23%. Meanwhile, the Street was getting ready to celebrate Apple’s stunning results (earnings up 93% on the quarter just passed) with not only a 10% boost to that firm’s share price but with a plethora of …apple-polishing articles by various market pundits. This has become a Red Delicious market, Siri.

Reuters reported that trading volume on Tuesday was below average for a third consecutive day, as some gold investors reduced their bullish positions ahead of the outcome of the two-day Fed Open Market Committee meeting today. A brighter US economic outlook and fading US easing hopes have weighed heavily on gold speculators’ and retail investors’ minds recently. However, “price volatility could still spike ahead of today's May Comex options expiry, as both call and put options investors look to profit from their heavy bets at the $1,650 strike price. There are currently around 10,000 lots in calls and around 30,000 contracts in puts at the popular price, traders said.”

Over in India, the second most auspicious Hindu calendar date on which to buy gold this year came and went without the expected surge in physical demand that one might normally have anticipated (not that one ought to seek a gold market redemption in one exclusive niche). Andrey Kryuchenkov, a London-based market analyst at VTB Capital, notes that “India’s jewelry demand or physical interest from the world’s top buyer is very slack in spite of the Akshaya Tritiya festival [this week], which is a concern. Investor interest is limited.” And, don’t look now, but there is a shift in the way Indians are buying gold; one that hard-core gold bugs will disapprove of. Reuters India reports that “trading in gold ETFs jumped on Tuesday, because people have started presenting the paper instruments as gifts rather than the metal itself.”

Mr. Kryuchenkov’s assertions about low physical sales were corroborated by a local source: “Sales are nil… there are no customers at shops. Otherwise sales for Akshaya Tritiya used to start two days in advance,” said Harshad Ajmera, proprietor of JJ Gold House, a wholesaler in Kolkata. There are reports of “lucrative discounts and special offers on the purchase of gold and silver” all across the country. India Post is said to be offering a 6% rebate on the purchase of gold coins while certain banks will shave up to Rupees 15 per gram of gold bought.

The physical silver market is suffering from a somewhat similar problem; lack of investor interest and perhaps more worryingly, an increase in liquidations by same. The amount of white metal held by ETFs that specialize in it fell by the most in more than four years on Monday just as silver prices scraped floors not seen since late January. Silver ETF demand had already experienced at 4.5% drop-off in the past year. The level of global demand for silver declined for the first time in four years, owing to lackluster conditions in key application niches such as solar panels and, of course, photography.

However, as is the case with most commodities, we must also factor in China when trying to dissect the headwinds that silver is currently facing. The analytical team over at Standard Bank (SA) has found that China’s published silver import and export numbers March showed net silver imports of 179 tonnes. The figure was up marginally from 171 tonnes that the country imported in February, and much higher than the 27 tonnes it took in last year in December.

However, the team notes that “while higher Chinese silver imports may appear bullish, we believe that the imports will only add to domestic stockpiles for as long as fabrication demand in China remains lackluster. And we believe that yesterday’s Flash PMI manufacturing data for China is an indication that fabrication demand indeed remains lacklustre. Therefore, rising stockpiles in China may cap rallies in silver until industrial demand regains full strength.”

Normally, if silver stockpiles were actually low in China, then the rising level of net imports would have been a bullish development. But the Standard Bank analysts believe that warehouse stockpiles in that country are quite high, comparatively speaking. They estimate that since 2009, China has probably amassed silver stockpiles that amount to around 15 months’ worth of fabrication demand, up from only four months’ worth at the beginning of 2009. 

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