Gold drops following positive jobs report

For the time being, any such monetary policy change continues to be held up against the reality on the “ground” – the ground of the housing and labor situations in the US. The latter has been the principal item of concern among economists as well as the Obama administration during the entire rolling financial crisis period. Many analysts see the Fed pulling the interest rate trigger once it is convinced that the labor (and to some extent the housing) market is indeed on a firmer footing and improving trend. The Fed may have just received that confirmation in this morning’s Labor Department report card.

However, now, it appears that the agenda has shifted to placing certain other worries at the top of the “to watch” list. Namely, the fact that the “Arab Spring” has sprung crude oil prices to a level which could in and of itself take the nascent economic recovery off-track. Just below that headliner of a line item of worry is the one that is attempting to evaluate the potential impact of the “Great Eastern Japan Earthquake” on factory activity in that country, and elsewhere in the world.

Speaking of manufacturing, we now turn to an area of constant interest to our readers (the platinum-group metals) once again, and we take a look at the latest reports from the auto sector and from our analyst friends at Standard Bank (SA). Japanese auto sales unfortunately (but understandably) fell by the largest percentage (37%) in as many years last month following the natural disaster that took place in that country. Standard Bank’s most recent projection, however, offers a bullish angle for the noble metals:

“The decline in Japanese vehicle sales was expected, and, we believe, possibly still better than many had expected. We worked on a set of much more bearish assumptions for auto sales for Japan following the quake and we still believe that the platinum market will be in deficit this year despite the fall in demand. While the dent in Japanese manufacturing is bearish for PGMs in the short term (given that Japan accounts for approximately 17% and 20% of global platinum and palladium demand, respectively), we feel that the longer-term impact is perhaps being overestimated.”

On a short-term basis, the speculative crowd (oh, those sharky funds) appears to be cooling off on the sector, as corroborated by net outflows from palladium ETFs during the past month. More than 177,000 ounces flowed out of palladium ETFs in March, resulting in a net negative figure of 18,000 ounces for the year-to-date. That, however, was not the case for platinum-based ETFs. They added 29,000 ounces on the month and have brought the Q1 tally up to a positive total figure of net additions totaling 151,000 ounces. Standard Banks also noted that:

“Ultimately, damaged vehicles need to be replaced. While some of the auto catalysts in damaged vehicles will be recycled, recycling is likely to lag demand once it picks up in Japan. Strategically, we still target $1,900 and $950 for platinum and palladium respectively. We expect these levels to be reached towards Q4:11 (refer to Platinum and palladium — we still foresee a deficit in 2011 published on 16 March 2011).”

As well, US auto sales are expected to reveal a sales pace of 1.24 million vehicles in March – a gain of 16.5% from the level seen one year ago, and a 25.1% jump from February’s sales activity. Despite stratospheric crude oil prices, it appears US auto buyers may have rushed to their local dealerships in the quest to secure a vehicle in the wake of uncertainties about auto supplies that arose as a result of the events in Japan.

Have a pleasant weekend, the “snow joke” in the Eastern US notwithstanding.

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

Websites: www.kitco.com and www.kitco.cn

About the Author
Jon Nadler

Jon Nadler is senior metals analyst with Kitco Metals Inc. in Montreal.

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