Tuesday’s trading action opened under somewhat more subdued conditions as a slight easing in the level of apprehensions surrounding Japan and the MENA region induced global investors to seek profits in equity and risk markets just a tad more. Dollar selling did not abate too much however, as the US currency scraped the 75.28 level on the index and as it neared the “outer markers” of its trading channel against the euro, at $1.424, while trading at ¥80.925 vis a vis the Japanese yen.
The European common currency received support from yesterday’s assertion by ECB officials that they remain on course for an April interest rate hike, despite the question marks related to the global economy that the Japanese quake of March 11 has engendered. Similar types of interest rate “concerns” could soon be on display by British central bankers, as February's surprise rise in the UK’s inflation rate “will worry the Bank of England(BoE)” according to market watchers.
The BoE has been trying to bring domestic inflation back to its 2% target, but has been stymied by surging energy and food costs (a trend that is not limited to British price tags). Thus, the BoE will now likely see a sharpening of the debate over whether interest rates should rise sooner as opposed to later in order to mitigate emergent consumer price pressures.
Spot gold dealings opened with a $2.40 per ounce loss, quoted at the $1,424.70 bid level in New York as of 8:20 AM local time. The gold market still appears to be taking its trend leads (and remains in the broader $1,400 - $1,450 range) from crude oil and the US dollar’s gyrations – both of which, in turn, are very much intertwined with the fluid situations still manifest in Japan and the MENA region.
Morgan Stanley estimates that, based on a survey it has conducted with over 1,600 Indian middle-and-upper-income households, gold demand in the world’s premier bullion consuming country might fall by 16% in the current year. The survey found that India’s gold appetite appears to still be suffering from “sticker shock” and that Indian household heads still rank property at the top of their desirable list of investments, despite bullion’s recent performance.
The MS findings are somewhat in opposition to the projections made by the Bombay Bullion Association that India might import 800 tonnes of gold in 2011. The country imported 722 tonnes of gold in 2007, only 450 tonnes of the yellow metal in 2008, and about 559 tonnes in 2009. Based on the most recently available statistical data, if 2010’s figures come in at just above 800 tonnes, then the Morgan Stanley estimates would put 2011’s Indian gold import tally at nearer to 700 tonnes.
Overall, and with the exception of 2008, (which was at the lower end of the scale of ‘normal’ import levels), the 2011 MS projection remains broadly within the country’s traditional annual gold import range. However, much will still depend on what happens to gold between now and the end of the year, pricewise. The good news in the MS survey is the fact that the surveyed indicated a reluctance to sell their existing gold stash, unless dire conditions were to dictate otherwise.
At opening time, silver traded at the $35.90 mark on the bid side, losing 20 cents in the wake of mild selling. Monday night analysis by Elliott Wave opines that silver’s gains have lagged those in gold during the past couple of sessions and that the white metal remains under a key, $36.56 per ounce level. That said, there is potential for silver to still advance to the mid $38.00 price zone if the trading climate cooperates. However, a fall to under $33.55 is seen as “revitalizing” the short-to-medium term bearish wave pattern. To be continued.
Platinum and palladium fell by roughly equal amounts, with the former shedding $14 to ease to the $1,732.00 level and the latter dropping $13 to touch the $733.00 mark. Several Japanese automakers (Honda and Toyota among them) have delayed the restart of car production until at least March 27 as parts and steady electrical power are still in spotty supply. Sony actually shut five more of its domestic plants down as it has difficulties securing parts from its suppliers. For the time being, the noble metals group will continue to take its trading (and price) cues from the situation in Japan’s factories’ operational status.
Efforts to contain the radiation threat in Japan and the campaign to contain Col. Gaddafi and his dwindling forces continued on an on-and-off basis during the night, and they met with varying degrees of success. The damaged nuclear reactors at the Fukushima complex and the threat they pose to not only their proximal surroundings but to the rest of the world remained on the top of the to-do list of the Japanese authorities for yet another day. That said, regional and local markets staged overnight advances as some of the fears that the situation could deteriorate eased among investors. The Nikkei Stock Average index surged by 4.4% to finish the session above the 9600 level last night.
Word that some radiation may have had leaked into the seas near Fukushima has unnerved not only the residents of coastal Japan but also those as far away as China. Foreign Ministry spokespersons in Beijing stated that they were hopeful that Japan will be coming forth with “timely, accurate, and comprehensive information” about the status of radiation leaks in and around the damaged facility at Fukushima. Clearly, China is not among the calmer of Japan’s neighbors at this juncture, even as the latest word from Japanese authorities sought to calm fears about contaminated seawater.
Albeit, Japan possesses 54 nuclear plants, the shutdown of 11 of them has raised the odds that the country will be seeking to secure non-nuclear fuels with which to power what is still the third largest global economy. Estimates indicate that in order to offset the lost power being generated by the shuttered nuclear plants Japan might eventually need to avail itself of as much as 230,000 barrels of fossil fuel per day. Such projections, along with the unrest in the MENA region and the on-going Libyan campaign helped support crude oil near the $102.00 mark overnight.
Meanwhile, Japan’s currency may still be subject to concerted intervention by the Group of Seven, according to at least one unnamed Japanese official. While last week’s surge in the yen has been halted to a certain degree by such overt action, the currency was still ‘scraping’ along at near 81.1 against the US dollar and any signs that it might aim to breach under the pivotal 80-mark could trigger additional currency market sales by the G-7 in an effort to assist the country in its quest to stop an unwelcome rise in the yen at the most unwelcome of times.
Over in Tripoli, Misurata, and other Libyan locations, the allied sorties continued for a third night and their missiles struck various Gaddafi-related targets. Germany was seeking a complete embargo on Libyan oil and gas exports as the most effective way to undermine the Gaddafi regime. An F-15 US jet fighter was downed in the process albeit its pilots ejected prior to the crash and are believed to be safe. More African leaders stepped up their criticism of the UN-sanctioned intervention in Libya as nothing but a grab for the country’s oil resources and as displaying a “double-standard” (with reference to the recent civilian deaths in the Ivory Coast, about which the West has done nothing as yet).
Farther away, Yemeni leader Saleh warned about the rising threat of civil war but also offered to take an “early leave” as he took note of the…thinning ranks of senior army personnel that still remains loyal to him. Syrian protests continued to be on display in that country, spreading to the southern region while government forces were seen in retreat.
We will now take our own, one-day retreat, and remain on watch for further developments from the geopolitical, economic, and market scenes around the globe. Until tomorrow,
Jon Nadler is a Senior Metals Analyst at Kitco Metals Inc. North America