Gold, and rest of metals, climb higher still

The G-7 ministers will come together on Friday in Washington as a sideshow to the IMF’s meeting that will take place in the US capital. Presumably, currency “issues” will be one of the featured items on the various ministers’ agendas. Translation: the markets are factoring in a currency war and a race to the bottom in rates. What is to be done about that?

With the IMF having warned that the ‘green shoots’ in several advanced economies are showing signs of being in danger of succumbing to the early frost of continuing high unemployment and sluggish growth statistics, the “TBD” list of the G-7 is suddenly an awfully short one. Ease some more, or grin and bear it in the hopes that the first round of accommodations might eventually do the trick? As shown in yesterday’s article, the global economic growth map is actually not looking as horrible as it would seem to appear, judging by either some more recent headlines or by the statements coming from certain central bankers.

However, the growing shortfall between the IMF’s previous global growth target of about 3.75% and on-the-ground reality in various nations is apparently strong enough on its own to have spooked a host of central bankers whose about-to-be-enacted or already-under-way exit processes were the former priority. This summer’s European debt crisis was the likeliest suspect among the chief causes of such a departure from the intended itinerary by central banks. However, there could be other impact agents at work, most of which remain unidentified, for the moment.

Despite not having fallen into contraction mode, the stare/blink contest of the day is clearly between the US and Japan. Both countries are loathe to let their economies slip into a renewed dip, both countries are deflation-averse, both countries have political leaders under scrutiny as they attempt to keep things afloat. As for the efficacy of the easing race that is apparently in progress, well, Columbia U Nobel-laureate professor Joseph Stiglitz offered a ‘mini-lecture’ for the two central banks in question. Said Mr. Stiglitz: “It [the conclusion that to ease is to survive] is doing nothing for [at least] the US economy and causing chaos for the rest of the world.”

MarketWatch’s Mark Hulbert ‘dared’ to publish a cautionary gold tale this very morning. Jim Cramer’s red-hot clarion call (prediction?) for $2,000 gold (hmmm…what sound effect might one use for that forecast?) had not yet reached room temperature when Mr. Hulbert warned – at one minute past midnight last night – that on a historical basis, October can bring some ‘corrective’ phases that countervail typically surging September patterns in gold prices.

Seasonality or not, one really does have to ask themselves if – Fed second-guessing aside – the greenback can continue to add to the roughly 12% in losses it has sustained since June, or the 7% in losses it has shown since the start of September. One has to ask themselves if gold can continue to show a curve – such as the one seen below [courtesy of our friends at Standard Bank SA] –whereby it is gaining at a pace far ahead of the increases in liquidity in the markets.

That answer might well be positive – given the type of players that have invaded these markets – but it comes along with a growing number of conditional words.

The BoJ rate move (and implied speculation that the Fed takes the next bungee jump to the bottom of the rate canyon) was identified as the sole mover of the gold market yesterday, by one observer. Commodity analysts have also identified the presence of a typically late-in-showing-up/early-to-exit species of investor on the gold scene: the small, retail investor.

Based on such an appearance on the retail prairie scene and on recent fund ‘allocation’ (AKA ‘pile-‘em high’) patterns, at least one Indian commodity strategist feels that a roughly $150 pullback could be in the cards in gold over the next 45 to 60 days. Technicals might appear to dominate, but sentiment still rules here, in the opinion of one bullion bank trader we spoke with. He pointed to yesterday’s better-than-forecast ISM numbers and noted the complete absence of attention being paid to it for the rest of the trading day by the gold specs. At least one school of thought assesses the path to $1,375+ as relatively ‘clear’ now that the $1,320 and $1,350 markers have been overcome.

Focus on those specifics-oriented musings if price and/or performance are the object. Focus on the broader picture and consider the catalysts for potential change (dollar behavior near pivotal support points, the Fed’s vocabulary, or the sheer number of ebullient talking heads on financial channels) if there is anything you consider to be at risk in the ‘gone bonkers’ markets. Finally, simply be (content) if you are not a trader whose adrenalin is pumping hard these days. They sleep with one eye open, the smart-phone on, and a finger taped to the nearest pointing device.

Until tomorrow,

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

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