DAILY COMMENTARYGENERAL COMMENTS:
The stars all lined up to pummel the precious metals this morning as
economic news and two reports by influential market participants pushed
gold down about $5.50 at one point. Silver dropped 11 cents while platinum
closed almost $9 lower. Palladium was only down fractionally.
The metals opened lower as the Bank of Japan unexpectedly intervened in the
market to push the yen from 108 to 112. The yen is widely watched as a
barometer to gauge precious metal demand in the Far East and a weaker yen
increases the prices of the metal thus lessening demand. This is most true
of platinum and palladium as Japan remains the largest consumer of these
metals. This massive movement in the yen should not be underestimated in
its importance to precious metal prices.
The decline of prices of the metals accelerated upon the release of a
report authored by Kevin Crisp of J.P. Morgan who forecast that gold would
trade at $265 by the end of the first quarter of this year. He stated that
gold would perform as it had in the recent past, ignoring economic,
political, and financial risk. This prestigious institution is a major
player in the gold market and this report forced prices lower.
The nail in the coffin for today was the report by Gold Fields Mineral
Services, the most authoritative consultant in the industry. This report
was very bearish and the highlights are noted below:
*Gold will trade between $270 and $310 in the first half of 1999
*Official (Central Bank) gold sales were up 8% over 1997 to 437 tons.
*Global gold demand to remain weak in first half of 1999
*World 1998 gold output at new record of 2,529 tons.
*Average production costs in the third quarter of 1998 was below $200
per ounce. *Average price during 1998 was $294.00, the lowest level in 20 years.
*Indian imports of gold were in excess of 800 tons, a rise of about 10%.
In their words, “The fact that gold performed so poorly was ascribed to the
fact that it was increasingly behaving like any other commodity, and that
its role as a hedge against inflation and uncertainty was diminishing.E
According to reports out of Russia, Yeltsin has signed the documents which
may allow the immediate export of platinum and palladium as soon as later
this week. Because of the amazing confusion in the bureaucracy of Russia,
no one is truly sure of what will transpire. And, more importantly, no one
believes a word these people say. Meanwhile, the platinum market was very
strong in the face of this news and palladium was unchanged. Lease rates in
these two metals are rising slightly indicating that the physical market is
getting tighter. Also, palladium sponge, the form which is demanded by the
industrial and commercial users, is now trading at a $7 premium to spot.GOLD
YESTERDAY'S RECOMMENDATION: Our option expired worthless last week and
our recommendation lost $70 per contract. Not a big deal.
Good thing we were not long this market. Funny thing is that it really
looked like it was going higher and everyone we talked to was looking for
gold to penetrate the $294 area and proceed to $297.50. But the confluence
of events caused a very negative day for gold. Although gold closed over
$288, it did trade under $288, a very negative sign. |
