By Jon Nadler
Gold prices first rebounded above the $1100 pivot point then slipped back towards the $1090 level as overnight dealing were somewhat more active than in previous sessions. Continuing US dollar strength was manifest with a tick above the 81.00 mark on the trade-weighted index and a further slip to the 1.35 level being visible in the euro. Tuesday’s spot market opening showed mild losses in the precious metals complex, with platinum once again pacing the group to the downside.
Gold started the New York session off with a $4.50 loss, quoted at $1098.10 the ounce as the European jitters kept things on the boil for the dollar (and against the euro) and pressured crude oil as well (although black gold held up reasonably well, losing only 43 cents to $81.17 per barrel). Silver was off by 14 cents at the start, opening at $16.82 per ounce. Platinum dropped $13 to the $1587.00 level, while palladium lost $7 to ease down to $448.00 per troy ounce.
The markets’ yo-yo action continued after the opening bell, and as the dollar slipped under to 81 mark on the index, the metals complex staged yet another comeback. Gold was able to recapture the $1100 level and traded several dollars above it for a while. Dealers we spoke to in New York attributed the mid-morning pop in values to poor US housing sales data which was seen as denting the dollar and thus helping bullion. Sure, it all makes sense. Poor data sparks an appetite for….risk taking.
No change was reported for rhodium at last check, where spot bid stood at $2310.00 per ounce. Market researchers at London-based GMFS opine that gold may decline to the $1030.00 per ounce area in coming weeks, not only as the dollar gains further traction from risk-averse investors, but as general demand for commodities shows signs of softening following India’s surprise interest rate hike last week.
Market analysts at Commerzbank, over in Frankfurt, feel that although gold may not remain under $1100 for an extended period, there appears to be some erosion taking place in the levels of private investor demand for the yellow metal (as in: this may well be a crisis, but we have already had the Mother of All Crises, and it seems to have passed). This echoes the findings of the Austrian Mint, which we reported just the other day. Holdings in the GLD remained static for an eighth session on Monday. More on that topic, further below.
The near-half-percent climb in the greenback against the euro followed comments by the ECB’s Mr. Trichet, who came out against offering the low-interest loans that Greece has been seeking. It now appears that the country may have to leave an upcoming summit without having obtained the rescue package it sorely needs. The IMF could then be next on the list of doors for Greece to knock upon, in its quest for assistance.
There is a clear divergence emerging between the approaches taken by Mr. Trichet versus his counterpart in the US, Mr. Bernanke. Bloomberg, in fact, opines that the fiscal crisis in Greece and the parting of the ways on interest rate hikes and stimuli withdrawals between the ECB and the Fed may yet push the euro down to lows last seen in 2006. We’re talking a $1.20 euro here as a possibility, folks.
Meanwhile, the folks at Fortis Bank Nederland’s VM Group recently asked this pointed question: Why is gold relatively strong, when ETF demand appears to have collapsed?
The answer the VM offers in its recent study highlights the very same “worry factor” that these columns have consistently been mentioning: i.e., the lack of growth in the gold-oriented ETFs. Says the VM Group: “Our estimate of the supply/demand balance for 2010 posited a chunky surplus, even with 700t of ETF demand (up slightly from 576t in 2009).
But inflows as of mid March in 2009 have not just been light; there were in fact net outflows of around 15t across the 17 ETFs we track. By this time last year there had been huge inflows, 105t in January 2009 and an enormous 221t in February 2009, while March 2009 also saw a large inflow.
VM continues, and warns that: “Unless investment in ETFs show significant increases soon, Q1 2010 will have seen an enormous shortfall [in purchases] of over 400t of gold. With fears over the euro still prevalent in financial markets, perhaps nervous European investors looking to preserve wealth might make some large ETF purchases; however there is no evidence of this yet”. VM concludes that: “even if we take the most negative view on supply and the most positive on demand these views are still not able to account for the shortfall in ETF demand.”
