Mr. Bernanke, while sounding considerably more upbeat about the US economy than he did, say, in August of last year, still did not give any clues as to what he might be inclined to do (or not to do) after the Fed’s bond purchase program expires in June. Although the evidence is mounting that the US recovery has ‘legs’ and is no longer crawling like a toddler, the Fed Chief does tend to hold his card(s) very close to his vest.
However, the same cannot be said about his body language (make that: verbal…language) when it comes to the next step in the monetary policy process: the drainage and sterilization part. Quote: “It bears emphasizing that we have the necessary tools to smoothly and effectively exit from the asset purchase program at the appropriate time.” The ‘smoothly’ and ‘effectively’ part of that short sentence is what the universe of current commodity investment bets is orbiting around, and is the subject of all but fist-fights (and maybe even some of those) among opposing factions in certain markets.
While on the subject of Fed-talk, here is a strongly (for these times) ‘hawkish’ string of words from its Dallas President, Mr. Fisher. The man is unlikely to support more QE and has been on record as a critic of QE2 when that money ship took to the US economic waters, back in November. For now, Mr. Fisher told Bloomberg Radio that “[While] you can never say never, but I cannot imagine a convincing argument for further quantitative easing after this round, given what is developing now in the economy.”
Developments on another front – that of the precious metals’ ETF world – have market observers expressing some degree of caution. While gold ETF outflows drained more than 53 tonnes from the largest such vehicle in January (the second-largest such loss in balances since 2004’s launch), the outflow of metal from silver ETFs presents a potentially bigger issue for that small market. The potential impact of the ebb and flow of ETF metal is a topic we have repeatedly attempted to bring to you and to highlight it as critical to keep a sharp eye upon.
It is an open secret that silver’s hyper-performance in the latter part of 2010 was because of hardly anything more than the 1,135 tonnes of the white metal that had been taken off the market and warehoused (in what amounts to off-exchange hoarding) by the largest silver ETF; the iShares Silver Trust. Do the math: a 42% gain in silver prices in QIV – taking place at the same time as the huge tonnage offtake. Last month, that same fund lost nearly half (495 tonnes) of the silver bars that had been stashed away in the final quarter of 2010. Silver prices fell by 9%. A coincidence you say? Use a different math book, we say.
Today’s report would not be complete without at least one mention of China. There are reports that the country has offered $3 billion to Zimbabwe for its extensive platinum reserves. Zimbabwe’s President Mugabe is ranked as the 7th worst dictator in the world (how do they come up with such lists?) and oversees a $6 billion economy, so you can see what an offer of that size might signify. It is no secret that China has connections to Mr. Mugabe’s ZANU-PF party, or that China remains commodity-hungry. Some have called Africa “China’s open pit mine.” On the other hand (there is always that) announcements such as this one, or the one made on Monday regarding another $10 billion in Chinese money being offered to boost the country’s mining and agriculture, are being viewed with some reservations elsewhere. The UK’s Guardian newspaper hints that they “could be aimed at trying to prod Western investors to sink more money into Zimbabwe out of fear they will lose ground to China.”
Fear, greed, perception, obfuscation, power, selective interpretation. Welcome to the global markets, as brought to you by…human nature. Lost in this week’s news flows, was the fact that a solar system quite similar to ours was discovered only 2K light-years away (complete with six planets in orbit). “We” are but run-of-the-mill when it comes to the Universe, apparently. The good news is that our radio and/or TV transmissions won’t reach that quadrant of space, anytime soon. Why, those folks might just ask to be ‘relocated’ somewhat further from us, if they get wind of what we’re up to.
Enjoy your weekend.
Jon Nadler is a Senior Analyst at Kitco Metals Inc. North America