In the afternoon the yellow metal experienced pressure from the weakening platinum, which made spot gradually retreat to the lows of $644 and settle there by the end of Far East hours. In Europe the precious metal lost further two dollars to then fix slightly higher, at $643 on the first London fix. Gold reserves of the euro zone central banks fell by 120 million euros in the week ending the 1st of December. According to the regular weekly consolidated financial statement by ECB the decrease in the reserves was due to the sales by two Euro system central banks and sales of coins by a third, which was consistent with the Central Bank Gold Agreement of 2004.

The metal gradually regained ground as the US dollar weakened to hit its lowest level against the euro since March 2005 and crude oil strengthened. Crude gained on the prospects of another production cut from OPEC at its 14th of December meeting and on the news that China imports for its strategic reserve were nearly double the expected amount in November. China imported about 8.2 million barrels of crude last month as it accelerated the inventory build due to lower prices. OPEC oil ministers said that they favor a further oil cut of 500,000 to 1 million barrels per day to bring high oil inventories down. After the opening of Comex the US worker productivity figures came out to be worse then anticipated in the third quarter. Productivity grew just 1.4 percent from the same quarter last year, representing the weakest year to year performance since the second quarter of 1997. The unit labor costs grew less than estimated pointing at moderating inflationary pressures.
The data should ease the central bank’s inflation concerns and make rate cut in the next year more likely in the face of weakening economy. Fed policy makers are to meet on the 12th of December to review interest rates and they are widely expected to leave them unchanged at least for this time. The US dollar softened after thenews and gave a further push to the yellow metal. Gold extended the high to$648.70, but once again the selling pressure was too heavy to sustain and the metal began its free fall on the PM London fix. The prices started trying at $648 with more sellers than buyers present, which brought us to fix as low as $645.90. The retreat was accompanied by a greater then projected fall in the US new factory orders in the month of October, representing the biggest drop in more than six years. The descent did not stop there, as spot subsequently collapsed down to $638.70. The decline was also supported by profit taking in crude, which was prompted by the predictions of a milder weather in United States next week and the cold snap being nearly over, offsetting the prospects of further OPEC cut. The prices bounced back above the $640 mark and remained within a three dollar range for the rest of the session.

We believe that gold has the possibility of trading higher as it tends to be strong seasonally ahead of the year end. The direction is likely to continue to be taken from the US dollar and crude oil movements. Meanwhile United States continues to urge Russia and China to agree quickly on the sanction plan against Tehran. “We’ve waited long enough. We’ve had hours and hours of discussions and we really do need the Russian and Chinese governments to shift into third or fourth gear … and to work more quickly to agree with us on the basis of a resolution” the US Undersecretary of State Nicholas Burns said today. Iranian president stated that if France, Britain and Germany tried to block the nuclear program development he would reconsider ties with them and would regard the action as an act of “enmity”. It was the first time in the Iranian nuclear row that Ahmadinejad threatened of a possible downgrade in ties with European countries. Russia says that Tehran’s program is not a proven threat to the world peace with China tending to follow Moscow’s lead on the Iran nuclear issue.

Silver was constantly offered on the electronic trading preventing it from going higher on Tocom. Following a heavy selling in platinum the white metal softened remaining in a narrow fifteen cents range. During our timezone it was following gold moves. The prices jumped to $14.19 during the Comex hours after fixing at $14.045 in London. The gains were short lived though and spot plunged down to $13.84 following a slight US dollar recovery and oil weakness. The metal made several fruitless attempts to recover back above $14 to finally settle below that level. We believe that silver will remain enclosed by the $13.70-14.20 range for the short term.

MKS Gold & Silver, Daily Report
by Lidia Nazarova

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