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Word that a U.S. ship had fired on the boats in the Persian Gulf raised concerns that a conflict between U.S. and Iranian forces could cut oil supplies from the region. Light, sweet crude for June delivery jumped as high as $119.50 on the news before retreating to trade up $2.70 at $118.76 a barrel on the New York Mercantile Exchange.
Prices were already up before the report on news of a pipeline attack in Nigeria and a looming refinery strike in Scotland. It shows how fragile the energy infrastructure is and how geopolitical surprises can really upset the "apple cart". For the past three days, gold, silver and platinum have been under intense selling pressure, and many investors were shocked how fast prices plunged. It wasn’t a bloodbath, but the cumulative effects of the past few days of downward-trending trading are fraying the nerves of those long the precious metals. Rumors and speculations persist that the correction in the precious metals isn't over yet.
Yesterday’s losses were undoubtedly exacerbated by a sharply strengthening dollar and easing oil prices, this according to a report from Casey Research (www.CaseyResearch.com). And with equities also enjoying a solid day, attracting money away from other sectors, a triple whammy was laid on gold and silver.
"While acknowledging the influence of the dollar and oil, Kitco’s Jon Nadler adds that, in his opinion, “Gold investors are also beginning to see several pivot points taking shape in currencies, the credit crisis, and the official sector's thus far only verbal commitment to stability, and they are lightening up on metals positions as a result.”
But the London-based precious metals consultancy GFMS offered its own bullish view, particularly with regard to platinum, which the company sees as soaring as high as $2400/oz.
GFMS said it expects considerable volatility in the prices of both platinum and palladium in 2008, and forecast a platinum trading range between $1,700 and $2,400.
“We would expect the higher end of these ranges to coincide either with further difficulties in South Africa or gold prices breaking strongly through the $1,000 level,” GFMS said in its Platinum and Palladium Survey yesterday.
“We remain positive for gold also and see this as a real possibility in 2008,” GFMS added, noting that that world platinum production fell 6% last year mainly due to production problems in South Africa. Production in the U.S. and Canada also fell last year, by 13% and 10% respectively." The upside bias for the dollar and the idea that the stock market might be the better short-term bet seems to indicate that the traders are not ready to return to gold or silver anytime soon. What platinum will do short-term is anyone's guess. As I write this gold has turned down again falling below $887 and silver is still below $17. Our best guess is that the downside testing of support is not over yet with gold and silver. One or two final tests will shake out the unconvicted and the Nervous Nellies and set the stage for some rewarding bottom fishing. Like Buffett says, be greedy when everyone is fearful, and fearful when everyone is greedy. Personally I don't believe in fear, just prudent discretion.
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