Monday evening’s spot metals prices closed with solid losses across the complex. Gold fell to $1,334.50 after hours, losing $7.90 per ounce. Silver dropped 58 cents to end at the $26.95 level on the spot bid price scale. Platinum lost $13 to finish at $1,813.00 while palladium ended down $11 at $810.00 the ounce. Rhodium finished at the round figure ($2,400.00) after being static for the day. All of the above unfolded despite a slightly lower US dollar (down 0.10 on the index, at 78.02) but the 108-point surge in the Dow may have contributed to the on-going long liquidation in metals.
Tuesday morning’s start to the market action brought…more of the same. Gold fell $7.50 out of the starting gate, trading at $1,327.00 per ounce, after first having slumped to a fresh three-month low near $1,321.70 on the bid side overnight. Silver dropped 22 cents to open at the $26.73 mark per ounce, it too, having first visited the lower end of the price scale at $26.55 during the wee hours. The “round” figures ($1,300 and $25) are being mentioned a bit more often now as potential to-be-visited support levels. However, before that happens (if it does) we are told to brace for more volatile action in the markets.
Platinum was off by $32 this morning, showing a bid-side quote at $1,781.00 the ounce, while palladium lost a hefty $29 to open at the $781.00 level per ounce. No change was reported in rhodium prices from our New York sources. In the background, the US dollar continued to make progress to the upside, rising 0.32 to the 78.34 mark on the trade-weighted index.
Crude oil fell by $1.20 per barrel (last quote: $86.68 pbbl) as technical selling signals offered some participants a chance to do just that; sell. Sell they did; bringing black gold down to an eight-week low as fears that OPEC will bump output up and that US inventories gained roiled the market for that commodity. As for copper, expectations of $11K/tonne orange metal have also been…scaled back just a tad, with technical analysts now projecting a possible dip to the $9K/tonne level before any resumption of the upward trend that has been fueled by perceptions of net deficits in the metal.
The outflow of fund money has shown that it can take a toll on previously overheated markets, to be sure. Just as gold undergoes its worst slump in value (-6.0%) for the start of a market year since 1997 (!), the data supplied by the CFTC shows that hedge funds (our favorite finger-pointing target for the past three years) are still bailing out of bullish gold positions, and at quite a clip. What clip is that? How about a 21% decline in net-long gold and a 24% drop in net-long silver positions since the end of December? That kind of “clip” (not on the menu at Supercuts).
Friday’s glimmer of hope – offered by a sizeable inflow into gold ETFs – unraveled rather quickly on Monday, when the same investment vehicles ended up shedding some eleven tonnes of the yellow metal. This is not holding up very well as a continuing argument for “profit-taking” and/or “asset re-weighting” any longer, even if the “correction” has not yet reached the (rather small) ten percent level (as yet).
Surprising it is to hear that Goldman Sachs now believes (as this author has already opined) that the decade-long gold bull cycle could now top out in the current year, as opposed to the next one. The scaled-back forecast (time-wise) is largely due to…you guessed it: the rising US interest rate environment. More on that “little” topic of potential…interest (groan), further below.
Apparently, it is not just the visible part of the speculative crowd (yeah, those pesky funds) that is cutting exposure to gold as a safe-haven. Said havens appear to be safe enough for the average investor to have commenced thinking about just how much protection a portfolio is in need of, absent the failure of the skies over Europe or America to have fallen to the ground.
Bloomberg reports that “global investors are becoming more confident about the economic outlook, according to a quarterly poll of Bloomberg subscribers, with almost twice as many saying they will cut gold holdings in the next six months as increase them. More than half said the gold market is a bubble, according to the poll of 1,000 investors, analysts and traders, which was conducted January 20-24.” Someone is not having much success in convincing said group(s) that we are “nowhere near in a bubble” in gold and that $5K gold must happen before we can talk such silliness.
However, it is not just gold that is being seen as less attractive to a global investor than it has been, say, during the 2007-2010 turmoil period. The Bloomberg-polled respondents also believe that “some of the enthusiasm about investing in China has also been tempered. One in five investors say the world’s most populous country will offer the worst returns over the next year. That’s up from about one in 10 who felt that way in November.”
Meanwhile, aside from the rising confidence being exhibited by investors in polls such as the above, it also turns out that fed funds futures traders are once again showing an increase in the number of bets that the Federal Reserve might start raising benchmark interest rates prior to the end of this year. The shift in betting strategy comes on the heels of US economic data that now points to sustainable recovery and good prospects for employment growth. One bit of data that might not “lean” in that same, optimistic direction was this morning’s Case-Shiller Index; it revealed a 1% drop in US home prices in November.
The Fed – for now – is rather unlikely to hint at such rate hikes following its first meeting of 2011, taking place tomorrow. Japan, in turn, left rates unchanged overnight, as it does not yet “read” a sufficient amount of “green economic shoots” in the country’s brew. On the other hand, other central banks are not only hinting at higher rates in the offing (see: China), but are actually raising them. India’s RBI hiked its benchmark interest rate by a quarter point this morning (for the seventh time in a year) saying that “inflation is clearly the dominant concern.”
President Obama is sure to cover the “delicate” topics of the US economy and the jobs situation in his State of the Union speech tonight. When it comes to the world as a whole, the IMF feels confident enough to have just projected that the global economy will grow at a pace of 4.4% this year, and 4.5% the next. Germany and the US are seen as the locomotives for such an improvement in global growth, while China and India (albeit slated to slow somewhat) continue to lead the way among emerging nations.
Growth is nice, growth is good; but not when it comes to the “growth” one finds taking place in the sticker prices of various commodities. So says French President Sarkozy, anyway. Yesterday, he called for “commodities to be regulated just as any other financial market to curb speculation that is hurting global economic growth and bringing people out into the streets in the poorest countries. If we don't do anything we run the risk of food riots in the poorest countries and a very unfavourable effect on global economic growth.”
Mr. Sarkozy is not alone in sounding the alarm on commodity prices – especially food-related ones. The head of the UN’s World Food Program, Josette Sheeran, noted that “we’re in an era where the world and nations ignore the food issue at their peril.” Clearly, when it comes to food, the idea of “demand destruction” is not applicable, for once. Everyone. Must. Eat. “Destruction” of another kind, on the other hand, (as in: that of various government edifices by hungry rioters) very much could be applicable. Hope not.
In closing, a mini-footnote. Many apologies to the organizers of the Vancouver Resource Investment Conference for having been a “no-show.” Falling on a patch of ice was not part of the plan for this past weekend; travel to Van City, of course, was. But, alas, the best-laid plans became…laid up…on ice. Let the healing begin. Yes, this was written “under the influence” of pain meds. No, I am not Rush Limbaugh.
Jon Nadler is a Senior Analyst at Kitco Metals Inc. North America