Physical Buying Perks Up on European Turmoil
Precious metals pulled back last week and followed through with more selling this morning. Silver closed down $.41/oz at $32.23/oz and has dropped another $1.20 today. Gold fell $34 for the week, closing at $1,712/oz – with a $50 additional drop this morning. Both metals continue to trade range bound and need a good catalyst to move higher.
Palladium continued its recent rally this past week. Russian stockpiles of the metal, a major source of above-ground supply, appear to be greatly diminished. Prices rose approximately 20% over the past 2 weeks – rallying from $570/oz to $684/oz at the close (it's still holding above $660).
Fallout from MF Global Weighs on Futures Markets
A couple of big stories dominated financial news last week that have implications for the metals markets. Jon Corzine, CEO of bankrupt MF Global, testified before Congress on Thursday. The firm cannot account for approximately $1.2 billion in missing client funds. There was very little by way of new revelations in Mr. Corzine's testimony.
We think the real story, as it relates to MF Global, is still playing out. The impacts on the futures markets, including the (paper) price of gold and silver, could be significant. It's been just over 5 weeks since the failure of MF Global and thousands of people are still missing cash balances in supposedly sacrosanct segregated accounts. There is anecdotal evidence of small numbers of investors closing their trading accounts and wiring funds home.
Today, HSBC Bank brought suit to prevent an MF Global client from taking delivery of gold and silver bars the client had purchased on a futures contract. Apparently, more than one party is claiming ownership of the bars! This is a major vindication for futures market critics who have long warned about metals in exchange vaults being encumbered multiple times. Only time will tell how many investors ultimately lose confidence in these paper exchanges.
One thing is clear; the risks associated with speculating in the futures markets are now even higher. Investors must factor in the financial solvency of the firms handling their trades – not to mention the moral character of the people managing the firms. For that matter, paper assets of all kinds are even riskier than perceived a couple months ago. If you are buying precious metals for protection of your wealth (and you should be!), you must own physical bullion, not futures contracts, and not ETFs.
European Financial Turmoil Shows No Signs of Abating
Last week, European leaders completed their 10th summit for the year. As usual, there were high hopes by market participants that finance ministers would find the magic solution to the unsolvable debt problems plaguing the continent. And, as usual, they were unable to agree on any meaningful reforms. Yields on European sovereign debt remain at untenable levels for almost all member nations except Germany and France, and difficulties in interbank funding continue to signal big problems straight ahead.
Large Physical Buyers Emerge in Retail Bullion Market
We saw a significant jump in the volume of large orders this week as buyers spending at least six figures got more active. We had no large sellers this week. Overall activity levels for both buying and selling were moderate, though order volume was substantially higher than the week prior.
In dollar terms, Money Metals Exchange sold approximately equal quantities of gold and silver. This represents a shift from the first half of the year when almost 3/4 of our volume was in silver.
Platinum sales continue to pick up – increasing substantially over the past 6 weeks versus earlier in the year. With platinum trading at a near $200/oz discount to gold, investors continue trying to capitalize on the unique under-valuation. A relative discount of this magnitude to the gold price hasn't occurred since 1987!
We Buy Back Too! We want customers to know that Money Metals Exchange is here to buy back gold, silver, platinum, and palladium in the common bullion forms. We certainly don't advocate selling at this time, as we think the bull market in metals has years left to run. However, if you decide to sell for whatever reason, we can lock a price with you right over the phone, deliver a purchase order to confirm the transaction, and send your payment promptly – as soon as we receive the metal. You will find we are as easy to deal with when you sell as we are when you buy!