The Gold and Silver Report - "What's That Smell?"

Friday's precious metals markets opened amid attempts to repair the heavy damage that had been inflicted by the throngs of panicked speculators stampeding over each other in front of the markets' exit doors. A potentially volatile day was in the making in New York as investors awaited US jobs statistics to be released by the Labor Department. Dow futures were still as jittery as a bowl of Jell-O while crude oil lost a bit of additional ground. The US dollar fell a tad as well, retreating to just under the 75 level on the trade-weighted index.

Spot gold dealings opened at $1,657.80 the ounce, showing a $9 gain in New York while silver started the final session of the week up by 20 cents at a few pennies above the $39 mark per ounce. The white metal continues to exhibit most of the behavior of a freshly caught fish on a boat's deck; just when you think it has calmed down, it will jump in your face. Some very painful lessons were once again learned by (no surprise) late-comer silver speculators whose $42+ silver suddenly became 7% less valuable inside of one and the same trading day.

Platinum and palladium continued to lose ground this morning; no 'repair' attempts were visible in that niche. The former sank $23 to finally breach the $1,700 support figure and the latter drifted $2 lower to the $742.00 per ounce level. Rhodium escaped yesterday's massacre and remained at $1.975.00 on the bid-side this morning as well. Major auto firms such as Chrysler and General Motors Co are grappling with the impact of the feeble levels of US consumer spending. Some auto executives note that "the U.S. market is tougher than a cheap steak" at this moment.

Nevertheless, analyses indicate that the next potentially sizeable gains are still likely to come from the PGM sector, as opposed to from gold and silver. Standard Bank ( SA ) and its commodity research desk note that "wage negotiations at platinum mines are ongoing in SA, with mines like Impala improving wage offers. Should unions decide to strike, we expect an announcement about such strikes towards second half of August."

The team goes on to opine that "independent of potential strikes, our view stands: buy platinum on approach of $1,700 and palladium on approach of $700 (see our note Platinum and palladium - we still see a deficit in 2011 dated 16 March 2011). Our view is further supported by a platinum/gold spread which is fast approaching zero. We have little doubt that the relative cost of platinum to gold would benefit platinum jewellery demand."

Well, the US Labor Dept. noted that America's non-farm payrolls grew by 117.000 jobs in July and that the private sector added 154,000 positions in the same month. A tenth-of-a-percent decline was achieved in the overall unemployment level; it eased to 9.1% on the month, but it did so mainly on account of the 193,000 souls who dropped out of the labor market. Nevertheless, economists had only expected 75,000 jobs to have been created in July and they had also anticipated that the unemployment rate would remain at 9.2%.

What a difference a tenth makes....Hello, relief rally (stock futures popped 140 points higher right away) in the Dow! The dollar fell in the minutes that followed the release of the data as yesterday's fear lost some of its dire character and buyers began eyeing some bargains in equities. Then again, so did gold, silver and the rest of the metals' complex as sellers -according to sage friend George Gero over at RBC- investors "remain unconvinced about economic recovery despite the better jobs figures." Book-squaring and then some...Canada's jobless rate fell to 7.2% from 7.4% in the meantime.

Shades and scents of 2008 were manifest in the actions of most of yesterday's markets and once again global investors ran to the safety of...the dollar ; go figure. A massive, 2% gain in the greenback on the trade-weighted index reflected the panicked exodus from practically everything they held by market participants. The string of eight losing sessions in equities and in commodities resulted in both of the sectors giving up their 2011 gains and retreating to the proverbial starting square.

The market carnage was widespread; the headline was, of course the 512-point crater that the Dow left in its wake as it crashed to the ground at the closing bell. However, few wanted to glance at the closing tally in crude oil either, as it was certainly wince-inducing. The S&P GSCI Spot Index of 24 commodities turned in its lousiest performance since...2008; it lost more than 2.5% and was seen as heading for a loss of more than 6.5% on the week as position after bullish position was swiftly unwound, JP Morgan's 'comfy' commodity 'memo' -issued just hours before- notwithstanding.

The difference, this time, is that the saving agent for the global recession that China proved to be back in 2009 is not only out of 'ammo' but is actively looking to slow down as it battles 6.4% domestic inflation and is attempting to leak air slowly from sundry bubbles floating all over its market skies. None of that is stopping the ever-optimistic Chin-dia preaching teams from continuing to disseminate the gospel of the "insatiable."

This kind of pontificating is taking place even as several key indicators in certain emerging markets are flashing shades of crimson. India's and Brazil's yield curves have just gone upside-down and some keep wearing blinders in order to not notice the obvious. The inversion of the yield curve has (reliably, since the 50s) been a precursor to an official economic contraction. Emerging markets might soon turn to emerg-ency markets but the American drama is keeping investors too distracted to actually notice and run.

Yes, but markets eventually notice. More to the point, they call the shots. Spotted in Dylan Ratigan's "Why The Market Gods Are Angry" yesterday: the quote of the week (in terms of certain explanations, anyway):

"Ben Bernanke stopped QE2 and has convinced people that he has their back. Now, they've got a gun to his head and the markets are saying 'give us more QE3 or we'll melt the markets down by [the] Wednesday [after the FOMC meeting]. The markets are going to force the politicians to deal with these problems... we have to admit these things and solve these things."

Economists speak loudly against any such QE3 but market tantrums may yet rule the day. An addict is an addict for life.

Have a peaceful weekend,

Jon NadlerSenior Metals Analyst

Kitco Metals Inc.North America

US & Canada Toll Free: 1 (877) 839-8036 Blog:

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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