“Not so fast,” said certain German officials over the weekend, as Greece awaited what was thought to be a sure thing; its rescue package full of euro bills. In fact, Berlin appears to actually be opposed to sending such a package (containing almost 8.5 billion from Germany) over to Athens without the presentation of a ‘credible debt-reduction program.’ Oops, looks like we picked the wrong day to use the word ‘resolution’ on Friday- at least as regards the Greek debt odyssey. Portuguese and Spanish credit default swaps hit records this morning, to no one’s surprise. The hoped-for financing life-extension package will, in any event, apparently only buy Greece another twelve months, at best.
The fear in Europe is that letting Greece go for the last red button (restructuring) on the options panel available to it as of now, would result in a quick contagion and start bringing into question the fate of other so-called PIIGs –at least the most vulnerable ones, to be sure. Evidently, that’s the last thing the stewards of the euro appear to want this morning. Nonetheless, based on such foot-dragging and continuing uncertainty, the euro did lose ground again and moved nearer the 1.33 level early on Monday. Meanwhile, the dollar picked up nearly 0.20 on the trade-weighted index, rising to 81.53 at last check.
Against this murky background for the Eurozone, and ahead of the upcoming Fed meeting, gold prices eased at the opening of the Monday New York session. After Friday’s healthy pop, bullion prices started the day with a $3.10 drop this morning, quoted at $1154.40 on the bid side. The yellow metal, however, appeared to be the exception that buckled under a combination of profit-taking and dollar strength; as the white and noble metals continued their recent ascents.
Resistance remains in place overhead for gold, from the $1160 to the $1165 band. A mild gain in crude oil prices could lend support later on in the session, but the tandem gold/dollar gains could also imply that a ‘give’ is in the offing for one, or the other. Gold, silver, and oil non-commercial speculative long positions did experience a decline last week
The longs (sitting once again on an 800+ tone mountain of positions) appear determined to try to push for higher ground and expect the Fed to stand pat not only on rates for the moment, but also on language focusing on the ‘extended period’ topic. Such continuing posturing is seen as the last/best chance to carry on with the carry-trade in risk assets.
Ask yourself-for just a moment-why, if the dollar carry presents such nice money-making opportunities, would institutional players be ‘fighting like hell’ to allegedly ‘whack’ gold prices (and only gold prices)? The fact is that the much-vaunted carry trade’s profits are fast evaporating these days. The reason for this can be found in the interest rate differentials between assorted global central banks. At this time, the lone currency to aim for (profiting in) by carry traders appears to have become the Aussie dollar.
Faced with the prospect of no longer pocketing 10 or 20% per year, speculators have begun to manifest a fall in their demand for such trades. This trend is seen as benefitting the US dollar – a hitherto darling of the carry-traders. The greenback has gained 11% against the euro since November, and has risen nearly 2% year-to-date as measured by the Bloomberg Correlation-Weighted Currency Index. We say, remain on your toes on account of such battleship turns. They may be somewhat imperceptible if you are on board, but things look a whole lot different when seen from a nearby vessel…
Silver gained 2¢ to open at $18.30 per ounce, while platinum added $7 to start the day at $1748.00 the ounce. Palladium rose $6 to the $567.00 level, while rhodium continued unchanged at $2900.00 bid per troy ounce. According to one major noble metals market-maker, China was conspicuous by its absence from the platinum trade overnight, raising some apprehensions that the ETF-fueled white-hot rally may be a bit too white-hot at this juncture…
Speaking of China, and PGMs, the first carmaker to enter the Chinese market, VW announced today that it will be upping its investment in the country by more than 25% (or 1.6 billion EUR) lending further credence to the perceived industry shift towards Asia. China’s auto sales exploded in 2009, gaining over 50% and the local market overtook the US in size. Expectations are that this particular market will continue to grow at about a ten percent annualized average rate.
Now, if you think automobile production and sales are something to brag about, consider the more than 6.5 million motorcycles that China produced in just Q1 of 2010. Good news for the noble metals group, as bike exhaust emissions are also subject to clean-up by their usage. On the other hand, some of the policies that were announced from Beijing over the weekend could temper runaway growth as they are geared towards curbing the nascent property bubble in the country. Expectations of transportation heaven must be considered against such a potential development. Nevertheless, analysts at Credit Suisse continue to favor platinum and palladium over gold and silver in the short-to-medium term at the moment.
In closing, one more threat was lobbed in the direction of ‘capitalist Mafia’ gold mining firms this morning. It came from Venezuela’s less-than-affable President Chavez. Taking a page right out of Karl Marx, the Venezuelan leader accused said Mafiosi of exploiting his country’s workers while raping the environment. Mr. Chavez has already nationalized portions of Venezuela’s cement, oil and utilities industries. Now, he has raised the prospect of doing the same with gold mining concessions. Muy macho...
However, before you run out and buy a slew of bars on the expectation that such an act will create supply problems, consider the fact that Mr. Chavez’ country does not produce a whole lot of gold. As of January of last year, we could really only count Crystallex’s roughly quarter million ounces (slated for a 2010 commencement) and Gold Reserve’s 460,000 ounce (with a 2012 commencement date) as output of significant size that might be affected by such a measure. Bear in mind that these are annual production capacities and not current output. Mr. Chavez, on the other hand, evidently, has different feelings about that tonnage of gold.
Jon Nadler Senior Analyst, Kitco Metals Inc. North America