Metals report for June 1

The holiday-shortened trading week opened on a firmer footing for precious metals last night, as a confluence of several economic and geopolitical factors kept safe-haven interest on the boil among global investors.

The sudden resignation of Germany’s President Horst Kohler (over certain remarks he made about German military deployments overseas), the (not-so-sudden) loss of an “A” in its Fitch’s ratings received by Spain, and the tragic results of the commando attack on the aid/protest flotilla by Israel, all combined to keep the nervousness level among investors at a higher than normal level as the trading week got underway.

As of the writing of this article late last night, gold prices maintained a $3-$4 opening gain that brought them up to the low $1220’s per ounce levels. Nothing much had changed in the background picture as regarding the US dollar (last seen higher, and still gunning for the 86.75 level on the trade-weighted index) or the euro (managing to maintain the 1.22 level, but not making much progress to the upside). The Nikkei Index was off by less than 100 points, while crude oil made marginal advances towards the mid-$74 value zone.

As this post will have been written well ahead of the up-to-the-minute news that will shape the price action as Tuesday’s trading gets underway, we thought we would bring you a short list of other items of interest to be on the lookout for as well, as said action unfolds. First out of the proverbial gate, the “China Slowdown.” No, not a misprint. A Chinese government crackdown on hitherto white-hot private and commercial property speculation has finally resulted in a mild cooling of the country’s economy.

To wit, the Chinese Purchasing Managers’ Index fell to 53.9 in May from 55.7 in April, as seasonally adjusted. That number was lower than the median of 54.5 estimated by a number of economists, and it brings the Chinese ‘Miracle-Gro’ rate for the economy dangerously close to…non-expansion. Blunt quote of the day: “The [PMI] figure is delivering direct evidence that the economy is slowing down,” said Li Jun, a strategist at Central China Securities Holdings Co. in Shanghai. “The [Chinese stock] market may fall further.”

Further complicating matters for the Chinese economic machine, is the fact that the recent European sovereign-debt crisis is now cutting into the demand for Chinese exports, a factor that might aggravate the government-‘planned’ slowdown. Double-trouble.

Or, make that triple-trouble as Mr. Nouriel Roubini, the New York University professor who predicted the global financial crisis, said on Monday that the Chinese (as well as the Brazilian and Indian) economy may be ‘overheating’ and developing asset bubbles. China did, after all, grow at a blistering 11.9% rate in Q1.

However, it is not just the Chinese economy that is being questioned by global investors as we round the corner into the upcoming second half of 2010. Certainly not, if judged by the utter collapse of the commodities’ sector of late. In fact, the biggest slump in commodities prices since the time of the Lehman Brothers Holdings Inc. implosion is fast making mincemeat out of bullish forecasts not only for accelerating economic growth but also for higher prices for ‘stuff’ – basically, everything from copper to crude oil.

While the OECD (as we reported here) raised its global growth forecasts for 2010, worried investors who loaded up on oil heavily and drove copper prices to a doubling in values in 2009 are now bailing out of their commodities’ positions at the fastest clip in recent memory. Shades of the summer of 2008 being replayed in the (soon to come) summer of 2010 are unmistakable.

Bloomberg reports that “Commodities last fell into a bear market in 2008, when the CRB plunged 56 percent in five months as the U.S. suffered the worst financial crisis since the Great Depression, growth contracted on a global basis for the first time since 1981, and the Journal of Commerce index was below zero.”

This is why it is conceivable that across-the-board asset liquidations may soon be making a return engagement at a market theatre near you. Hope not. However, John Kinsey, who helps manage nearly $1 billion in assets at Caldwell Investment Management Ltd. in Toronto frets that: “Commodities are being attacked with these concerns about the debt situation in Europe and the steps that China has taken to tighten.”

Finally this morning, what would the world do without a good conspiracy theory? (Probably be bored beyond belief) It has often been posited that we need a good conspiracy story to keep making sense of otherwise odd goings-on (which turn out not nearly as odd, after all). The latest such aluminium-clad story is about the near-death experience of the euro over recent weeks. Bah! But of course, you already knew it was nothing but an Anglo-Saxon conspiracy to destroy it! What???

"One should be wary of any conspiracy theories," ECB head Jean-Claude Trichet said today. "I simply believe that some international investors struggle to understand Europe and its decision-making mechanisms. They have difficulty in gauging the historical size of the European construction and in anticipating the capacity of Europeans to take decisions that are just as important as those taken a few days ago." Well said, Mr. Trichet. Alas, his words will only give ammo to the newly hatched Internet debates about the “intimate details of the sinister A-S plot to euthanize the euro.”

We leave you now with your own “Conspiracy-O-Matic” – a handy device with which you can construct your own ‘they did it’ theory. It could even be about gold prices, if you like. Simply insert various acronyms, major trading firms, various whistle-blower pseudonyms and you have a ready-made story capable of drawing thousands of forum hits. Thank you, WIRED magazine, for providing the building blocks we needed. Voila:

“Are you kidding me? [The curious market event] was a total sham! Think about it! Everyone knows that [appeal to precedent]. And have you noticed that [the sinister ruling elite/ or a major trading firm] has started to act very strangely? They obviously don’t want this story getting out. I mean, what would happen if people began asking [disturbing question]? Well, they may be able to fool “the sheeple” but the members of [a dedicated group of truth-seekers, usually only identified by an acronym] aren’t swallowing their story. Look, don’t take it from me; [expert endorsement full of gravitas] is convinced as well. But we have to act fast, because [suggestion of imminent threat]. I just wanted you to be aware of this, in case I disappear.”

Until tomorrow,

Happy Trading. Or as RBC’s Olivia Burwood-Taylor brilliantly advises: “Live Long and Break Even”

Jon Nadler is a Senior Analyst at Kitco Metals Inc. North America

About the Author
Jon Nadler Jon Nadler is a Senior Analyst at Kitco Metals Inc. North America
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