Gold Moving Steadily Up
Doug Hornig
Gold continued its resurgence during the New York session on Friday, moving up steadily in the morning then holding firm in the afternoon, and finishing at $686.90/oz., up $5.10. For the week, gold was up 1.18%. Overnight, gold has been trending higher and, as we head into the new trading day here, is selling for $689.50.
Platinum also spiked early on, and leveled off to close at $1329/oz., up $23. Overnight, platinum has pushed substantially higher and, at the beginning of the new day here, is selling for $1342.
Silver proved to be the day's laggard, giving up most of its early gains and ending at $13.42/oz., up just 3 cents. For the week, silver was essentially unchanged. Overnight, silver has regained some momentum and, as the New York day begins, is selling for $13.51.
The Hightower Report wrote of gold: "While some bulls might have been disappointed with the inability to close right on the session's highs, the upward thrust in gold prices seems to have put the bear camp back on its heels. With the Press persistently reiterating the presence of fund buying and the outlook for the US economy seemingly coming in "just good enough" but not so strong that the Dollar was able to strengthen, it would seem like the gold trade ended the week in an infinitely better position than it was at the beginning of the week. With the market also seeing signs that a Peru gold mine would join the copper mines already striking, it is possible that the gold market is set to garner some support from the threat of lost physical supply."
With weak job numbers coming in, and the prospect that that will force the Fed to keep interest rates steady, gold becomes an increasingly attractive alternative to a dollar that seems set for further declines.
Despite its underperformance last week, Jon Nadler, of our own Kitco.com, advises, "Keep an eye on silver because it is an industrial metal as opposed to anxiety barometer or monetary metal ... It not only rises with gold in a big bull market, but usually outperforms it."
Agreeing, Lawrence Roulston, editor of Resource Opportunities reminds us that silver has been in a deficit for more than 15 years, with "considerably more silver ... used in industrial applications than is mined."
Roulston added that, "Government stocks of silver, which was once used as a currency reserve, are long gone [and] Privately-held stocks are now being depleted ... At some time in the not too distant future, above-ground stocks will run out."
When that happens, the result is completely predictable: "the speculators will pile on, driving the price through the roof, as happened in 1980, when silver passed $50 an ounce," Roulston said.
Julian Phillips, of SilverForecaster.com, is also on the bandwagon, noting the effect of iShares silver ETF: "As an industrial metal, [silver] is consumed so the imposition of an ETF or two or three of them devours stockpiles." In fact, iShares, which started with just 1.5 million ounces of silver on deposit, now has 136.5 million, tieing up nearly 15% of the world's supply.
"The ideal situation [for an investor] is to own a silver exploration or development company that is adding value aside from moves in the metal price," Roulston concluded. "A move in the silver price, when it finally comes, would be an added bonus."
In end-of-week currency trading, the dollar reversed course and slipped against the euro. Late Friday, the euro was trading at $1.3595 vs. $1.3551 on Thursday.
News of the day was the Labor Department's report showing nonfarm payrolls expanded by 88,000 in April, lower than the 100,000 expected by economists, but not as bad as some had been fearing.
"The employment report prompted a modest bout of dollar weakness as players remained cautious over the extent of the dollar's recent consolidation," said Michael Woolfolk, senior currency strategist at The Bank of New York.
"The real surprise in [Friday] morning's price action was not the relatively modest reaction to non-farm payrolls, but rather the dollar's negative tone," Woolfolk added. "While the dollar may still see further gains to its technical consolidation, it is obvious that the momentum has largely been lost."
The April jobs data was the last piece of key economic information to be released prior to the Federal Open Market Committee's interest-rate meeting on Wednesday, which is almost universally expected to be a non-event.
Traders were pricing in just a 4% chance that the Federal Reserve will lower its target for overnight rates to 5% from 5.25% by late June. However, sentiment in the futures market suggests a cut in overnight rates to 5% through the end of the year is a near certainty..
As Ashraf Laidi, chief foreign-exchange analyst at CMC Markets in New York, put it, with recent weak economic data, "the Federal Reserve will have no choice but to maintain its downgraded growth outlook, while softening its inflation preoccupation." And, "This should be a fresh recipe for further dollar declines as it opens the door for a 0.25 percentage point rate cut as early as August," he said.
In the energy market Friday, oil prices continued on a downward slope, with crude for June delivery closing at $61.96/barrel, down $1.26. June reformulated gasoline had a rare down day, too, dropping 3.12 cents to $2.2164/gallon.
Rising crude supplies are keeping a lid on prices. "This is a normal trend as the refineries complete their spring turnarounds and go back on line," said Charles Perry, chairman of energy-consulting firm Perry Management.
While the routine spring maintenance that has caused a shortage of refining capacity isn't done yet, "they are getting close to running full capacity again," Perry said.
The Energy Department last Wednesday backed him up, reporting that refinery utilization climbed to 88.3% of capacity during the week ended April 27, from 87.8% a week earlier.
That's still a low level, Perry said, "but these refineries will be completing maintenance and starting up soon."
Volatility in the gasoline market will likely continue, as falling stocks compete with the desire to take profits.
The retail price for a gallon of regular unleaded climbed to $3.012 Friday, according to the AAA's Daily Fuel Gauge Report, and Tom Kloza, chief oil analyst at the Oil Price Information Service, which provides AAA with the data, commented that, "I'd say it's still 50-50 whether we take out the all-time high of $3.057 a gallon"
The base metals were all well in the black on Friday. Copper traded through an 8-cent range before settling right in the middle, at $3.7625/lb., up a bit more than a half-cent. Nickel blasted straight up, closing near its intraday high at $23.9867/lb., up 66½ cents. Zinc had some wild price swings early, but settle down to end at $1.758/lb., up a penny. Aluminum sold off early but spiked in the late morning, finishing with a gain of more than a penny, at $1.2965/lb., while lead had a strong day, rising to $0.9479/lb., up a penny and three-quarters.
Nickel and lead reached record heights on Friday, with copper posting an 11-month high. Both lead and nickel were affected by perceived supply problems. There is speculation measures taken by the state government of Western Australia to detect pollution will disrupt nickel shipments, with the announcement that a 20,500 metric-ton shipment of nickel concentrate due to leave the port of Esperance will be monitored. Western Australia's Department of Environment and Conservation said today it will stop the ship loading should evidence of pollution be detected.
Meanwhile, lead shipments from Ivernia Inc.'s Magellan mine, which supplies about 3 percent of global output, have been halted since March because of an investigation into lead poisoning at Esperance.
As copper keeps moving steadily higher, "the way inventories are going, there is a real possibility that last year's peak price could be exceeded in 2007," said Eric Coffin, a co-editor of hraadvisory.com.
Coffin added that, "There are new mines on the way, but keep in mind that at current rates, the industry has to supply about 500,000 tonnes of new copper output per year to keep pace-that is not easy to do."
Additionally, demand from China shows no sign of slowing. Au contraire, the country imported a record 202,955 tons of refined copper in March, a surge of nearly 150 percent over March 2006, sources with the China Association of Nonferrous Metals Industry said.
China also imported 776,576 tons of unforged copper and copper products in the January-March period, up 58 percent from the year-earlier level.
Industry watchers estimate that China's annual copper consumption will continue to grow at around 7.5 percent per year in the next few years, to total 6.5 million tons, including five million tons of refined copper.
In company news, Brazilian giant CVRD reported a very strong first quarter, with net earnings rising to US$2.22 billion, up 86.9 percent from a year-ago, under U.S. Generally Accepted Accounting Principles.
That's what's happening . . . see you tomorrow!
By Doug Hornig
May 7, 2007