Ad Men & the Indian Gold Market

Gold started the new trading week with a relatively choppy session in New York yesterday. Friday’s declines narrowed the yellow metal’s first weekly gain in nearly two months to but about one-third of a percent. Ironically, Friday’s weakness in gold prices was attributed to the same country that boosted sentiment just hours before: China. Whereas China’s rise in reported December exports buoyed the gold bulls, the country’s latest inflation reading unnerved the bullion bulls as it could portend the curbing of existing stimulus by government officials.

There were, in fact, some reservations about the reliability of the Chinese export figures that stoked the commodity bulls in the middle of last week. According to recent analysis tendered by Goldman Sachs, by UBS AG, and by the ANZ Banking Group, the reported 14.1% surge in December Chinese goods exports was not corroborated by physical movements through various ports. Unreliable statistical data coming from China is not a surprising development, to be sure.

A Goldman Sachs analyst opined that “It is possible that local governments may have tried to boost exports data by either making round trips in special trade zones” or by exporting “earlier than otherwise in an attempt to improve the annual exports data,” while another analyst theorized that “rushed shipments and even faked exports to secure tax refunds may have contributed to the stronger growth data.”

Bullion’s  advance  to near $1,675 per ounce during the morning hours on Monday was largely being attributed to somewhat dovish comments (we would not so far as to label them as a “stimulus signal”) that were made by Chicago Fed President Charles Evans with regard to the Fed’s maintenance of an accommodative stance while the US economy recovers and while US lawmakers try to address the country’s deficit issues.

Spot bullion traded between $1,661 and $1,676 per ounce and settled at $ $1,667.80 with a $5 gain on Monday. Gold’s recent BFF, the euro, continued to rise against the British pound and the Swiss franc yesterday as global investors continued to be seduced by the prospect that the worst of the eurozone crisis may be behind us. At a quote near $1.336 the common currency also traded at a near ten-month peak against the greenback.

Some have opined that the fact that the ECB stood pat on interest rates last week implies that financial officials over in Europe are all but declaring the crisis that has roiled the Old World for several years now is over. Perhaps conditions are not as “intense” now that we have seen Spanish bonds touch to under 5% and that Greece remains above the water-line and is still part of the EU. However, this morning, the German Federal Statistics Office projected that the country’s economy may have contracted by perhaps as much as half-percent in the final quarter of 2012.

Dr. Nouriel “Doom” Roubini opines that while conditions in the eurozone have shown significant improvement since last summer and that risks have ebbed notably, the structural problems that the EU faces remain very much on the scene. Dr. Roubini notes that “While there is a much lower likelihood of disorderly events in the euro zone, there are still significant obstacles to deeper integration, as well as country-specific economic and political vulnerabilities. The biggest obstacle to the formation of a banking, fiscal, economic and political union is that Germany is pushing back against the time line for action, with the initial skirmish on ECB supervision of euro zone banks.”

Meanwhile, platinum’s $27 surge that took place at about the same time on Monday, nearly wiped out the hitherto existing discount of the noble metal vis a vis gold. UBS analyst Dominic Schnider noted that when “You have a metal which is more expensive to produce than gold, whose supply is not growing and whose market is expected to be in a deficit, such metal should trade at a premium to gold.” While Mr. Schnider does not expect a $100 platinum-to-gold premium to occur just yet, he did allow for a $50 higher-than-gold platinum price should current strength in the noble metal continue to remain manifest. The last occurrence of such a positive differential in platinum versus gold took place in March of last year.

Speaking of platinum, well, we can now finally discount at least one potential application for the noble metal: its use in the much-discussed $1 trillion US platinum “debt solution” coin. R.I.P. The Washington Post reports that the Obama administration finally put the kibosh on the idea of minting such a coin. “Neither the Treasury Department nor the Federal Reserve believes that the law can or should be used to facilitate the production of platinum coins for the purpose of avoiding an increase in the debt limit.”  Back to Plan “A” -which involves actually doing something about the revenue/spending gap and doing so before Valentine’s Day. This is why.

The latest CFTC market positioning COT reports indicate that platinum’s net longs are up nearly 60% from their 2012 average level. In the week ended January 8 nearly 87,000 ounces were added to long positions by specs. On the other hand, gold net-long positions slid by 13% (losing 32.2 tonnes) to a little over 92,000 contracts – the lowest level since mid-August. Silver net-long positions fell by almost 8% (a loss of about 165 tonnes) to roughly 21,000 contracts.

While they believe that the recent gold sell-off may have been “overdone” analysts at Standard Bank (SA) do acknowledge the fact that “the latest CFTC data revealed that net speculative length for COMEX gold fell as investor confidence was rattled by indications in the FOMC minutes release of 3 January (the CFTC data covers the week ended 8 January) that the Fed might end quantitative easing sooner than markets had been expecting.”

Overall, and largely on account of such Fed policy-related jitters, the spec fund niche slashed its bullish commodity bets to its lowest level since the middle of last year in the latest CFTC reporting period. According to Marketwatch, the “minutes of the December meeting released earlier this month reveal that some Fed officials want to end the bond-buying by mid-year. Not one of the Fed’s senior policy makers saw the program lasting until 2014.” Hawks in flight are not a friendly sight for commodity bulls.

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