Interest rate decision day brought no news of policy changes from the Bank of England and it brought the expected rate hike from the ECB. The former’s rate committee decided to stand pat as the British economy struggles to recover while the latter’s team of policymakers bumped the central bank’s key lending rate up to the 1.5% level.
Over in China, government advisors were quoted as saying that the PBOC will need to tighten monetary policy even further and that Wednesday’s rate hike was “still not enough.” The China Securities Journal contained a report that concluded that “curbing inflation should remain the top agenda for the government. It's better to raise interest rates sooner than later to stabilize expectations."
China-oriented commodity bulls are grappling with a plethora of “issues” coming from that country; ones that make for a rather difficult to maintain perma-bullish posture at this juncture. The intense anti-inflation combat the Premier Wen has openly embraced, the string of interest rate hikes by the PBOC, and the on-going social problems (read: wealth-gap) in the country are all factors that should be unnerving those who bank on China as the de facto “Miracle-Gro” for commodity prices, from here to eternity.
The euro however traded slightly lower in the wake of the ECB’s Thursday morning rate move as selling pressure issuing from the most recent Moody’s downgrade (that of Portugal) continued to be manifest in that currency. Meanwhile, the US dollar added 0.37 on the trade-weighted index and was last seen trading at the 75.32 level. Later in the session, the greenback gave back some of those gains and drifted to under the 75 mark on the index. Oil, on the other hand, managed a $1.70 gain and fast-approached the $98.50 level.
Mr. Trichet’s monthly news conference was, as expected, dominated not so much by questions about inflation and interest rates as about the European debt situation’s current state of disarray. The ECB President said that his institution would temporarily suspend its minimum rating requirement for the acceptance of Portuguese collateral. Take that, Moody’s…
Meanwhile, hedge fund vigilantes are piling on bets that would be paying off in the event that the sovereign debt crisis spreads from Greece to Portugal, Spain, Italy and to Ireland. Some of these gamblers expect certain European countries to eventually nationalize certain banks as well as sell assets when the borrowing binge unwinds. Wagering on Armageddon: What a noble enterprise….
Speaking of noble enterprises, the Washington-based debt ceiling “talks” (make that game of semantics) resumed today under close scrutiny by everyone. Someone who is watching all of the wrangling in DC unfolding is not only not amused/impressed, but he appears annoyed. Warren Buffett told CNBC that the US Congress is playing a “silly game of Russian Roulette” with the default issue. Mr. Buffett echoed President Obama’s words uttered the other day when he noted that the country should not be making such crucial decisions “at the point of a gun.” He offered to pre-pay $3 billion in Berkshire quarterly taxes to the US Treasury in order to show that he is doing his patriotic part. Hello, Mr. Boehner & Co.?
June’s ADP private employment report showed US-based jobs gains on the order of 157,000 positions; a figure that handily surpassed even the most optimistic analysts’ expectations (they had clustered around the 70,000 level). America’s service sector added a hefty 130,000 positions on the month. The news release helped lift Dow futures early this morning. It also added a few notches to the greenback’s aforementioned early gains on the index.
Against this background, New York spot precious metals dealings opened a bit on the mixed side this morning. Gold bullion showed a $3.20 per ounce loss on the open and it was quoted at $1,526.20 while silver gained 15 cents to open at $36.05 the ounce. Late Wednesday updates from Elliott Wave note that if the white metal is successful in overcoming the $38.80 resistance level then it might possibly target the $39.00 area subsequently.
Gold, on the other hand, would need to overcome the $1,558.00 mark to turn the bearish case into more of a bovine-looking one. Curiously, despite writings to the contrary in the hard money newsletter niche, US gold coin sales….fell on the first half of 2011. The US Mint’s gold coin sales declined by 14.4% mainly on account of ultra-high gold prices seen during the period.
The US Mint moved 576,000 ounces of gold in the form of assorted Eagle coins into the retail market. On the other hand, as has been the case historically, chasing the rising-to-the-sky silver price target proved very tempting (make that: irresistible) to small retail silver Eagle buyers; they snapped up 22.3 million ounces of such coins in the first six months of 2011. Shades of the pre Y2K silver coin rush…
Platinum started today’s session with a $4 per ounce loss and it was quoted at $1,723.00 while palladium gained an equal amount to rise to the $770.00 level. No changes were noted in rhodium. Yesterday, analysts at Commerzbank warned that the rhodium market is likely to experience increased volatility levels in coming months as the recent launch of a Deutsche Bank ETF that specializes in that noble metal begins to affect prices and trading patterns.
Rhodium gained 20% inside of one week recently, only to lose most of that gain over the ensuing fortnight. Separately, the CME reported that open interest in NYMEX platinum options set a new record two days ago. Quite the contrast vis a vis the gold and silver markets where open interest levels have RBC’s George Gero labeling them as “disquieting.”
Given the current situation in the US and in Europe, California-based MoKa Investors LLC favors the presence of a precious metals component in portfolios –but not quite at current prices. The reason for MoKa’s reluctance to “go all-in” is due to the fact that “recent economic numbers indicate the potential for a continued sell-off in stocks through the summer — a sell-off that could spark margin calls and raise liquidity issues among large investors who also hold positions in precious metals and commodities. That, in turn, would prompt a sell-off in gold as well.”
While not actually expecting a dramatic drop in gold this summer, the firm’s founders note that “the trick is in gauging where ultimate support will be found. Initially, we would look at the 40-week moving average, equivalent to a 200-day moving average on a daily chart, as a potential support level for the yellow metal. Right now, that puts near-term support at $1,450 an ounce — but this projection must be watched carefully. In 2008, gold backed all the way down to the $700 level, right on top of a prior consolidation area. A similar 30% pullback this time around would take gold down to the $1,000 level – the top of the major consolidation zone from which gold broke out in late 2009.”
Until tomorrow,
Jon Nadler
Senior Metals Analyst – Kitco Metals
