Precious Metal Commentary

June 9, 2008

Gold Rose $900 again:
Gold Rose $24.20 Friday to over $900 again, while the Dow fell by 395 points. Friday marked gold's biggest one-day rise since February, fueled by a sharp rise in unemployment, a rapid oil price rise to nearly $140 per barrel and a collapsing dollar. The sharp rise in unemployment (from 5.0% to 5.5%) was the largest one-month gain in 33 years, sending the dollar down and gold up. Platinum rose $63 an ounce on Friday (+3.1%) in spot trading, rising $76 overnight in London. Previously, on Thursday, gold was at $868 and platinum $1,950, their weakest levels in 5 weeks.

Gold 52 weeks ago (June 8, 2007):
$655.25

Gold's low for 2008:
$840.75 on January 2

Gold's average price for 2008 so far:
$913.27

Gold's high for 2008:
$1023.50 on March 17

Monday morning, gold opened up $2 an ounce higher:
On Monday morning, gold opened up $2 an ounce higher on the futures market, while other key commodities slipped a little: July silver dropped 11-cents to $17.32 an ounce, and oil is down about $2 a barrel, but those are small retracements, considering the huge leaps up last Friday. So far this year, gold is a mirror image of the U.S. dollar, with the dollar down 8% and gold up 8%. Meanwhile, oil is up much more (44% so far this year) and platinum us up 34%, based on threats of shortages and production disruptions, but gold seems to be more of a referendum on the dollar.

U.S. Dollar rallied early last week:
The U.S. Dollar rallied early last week when Fed Chairman Ben Bernanke vowed to defend the dollar, but the dollar soon lost all its gains, and then some, when Europe's Central Bank (ECB) President Jean-Claude Trichet said he would likely raise the euro's interest rates in July, causing currency investors, savers and speculators to switch from the lower-yielding dollar to the higher-yielding euro. The euro rose rapidly from $1.54 Thursday to $1.58 (+2.6%) over the weekend.

Oil's Rise on Friday was the Greatest One-Day:
Oil's Rise on Friday was the Greatest One-Day Rise Ever, in dollar terms. In two days, oil rose 13.3%. That much rise in gold would send it up from $900 to $1,020 an ounce in two days. Gold is a fairly thin market, compared with oil, so a 13% rise in oil goes well beyond theories of "peak oil" or rising demand. In fact, supply and demand are in near-term equilibrium, so we must look to a more dramatic threat of disruption. Sure enough: The proximate cause of oil's meteoric rise was fear of war in a major oil-producing nation, Iran. Last Thursday, Israel shocked the world by openly saying that it was contemplating a strike to disable Iran's nuclear facilities. (War rumors are common, but Israel is usually circumspect about broadcasting its attack options.)

Lost Jobs Fuel Recession Fears:
May's unemployment rate, announced Friday, jumped 10%, from 5% to 5.5%, thereby wiping out the dollar's previous gains, as investors feared that a U.S. recession is coming, if not here. There will be more layoffs this summer. Last Tuesday, Ford reported a 16% drop in May sales, while GM reported a huge 27.5% drop in May. (GM's truck sales dropped 36.9%.) As a result, GM said it is closing four truck assembly plants. At Ford, SUVs, pickups and van sales fell 44%, 31% and 29%. Chrysler reported a 25% drop in sales.

Gold in History This Week: Bryan's "Cross of Gold" Speech

"You shall not press down upon the brow of labor this crown of thorns; you shall not crucify mankind upon a cross of gold!" - William Jennings Bryan, June 8, 1896.

William Jennings Bryan propelled himself into the 1896 presidential race in June, 1896, when he gave his "Cross of Gold" speech at the Democratic National Convention. It's hard to believe today, but the major issue of this Presidential campaign was the Gold Standard. The Democrats, farmers and Westerners in general favored "bi-metallism," or a silver and gold standard, while Republicans and easterners, in general, said this would ravage a fragile post-1894 Panic economy. ... Maybe Bryan was right, but his timing was a bit premature: Within two months, on August 12, 1896, gold was discovered on the Klondike and Gold Fever replaced Gold Phobia. By 1900, when McKinley beat Bryan a second time, nearly 60 nations backed their currency with gold.