Half of Monday’s gains in gold and all of the advances in silver were given up in New York this morning by the two precious metals as the US dollar stopped declining and as crude oil fell back about half a dollar. Yesterday, the markets (most of them) surged on the back of renewed pledges by French and German leaders to support and to strengthen Europe’s banking sector.
Rising risk appetite lifted…everything once again, as investors wet out to buy stocks, commodities and even (!) the euro. However, this morning’s sentiment was tempered despite indications that Greece might receive its first tranche of funding soon. As well, rumors that the EFSF’s revamping plan might not make it past the Slovakian (!) parliament threw of a bit of cold water on Monday’s rising risk-taking temperatures.
The ECB’s Mr. Trichet warned that threats to the region’s financial fabric have reached “systemic dimensions” and that the problem must be tackled head-on. Thus, with the debate boiling down as to whether investors might have to take haircuts ranging from the original 21%, to 50% and now to 60% (or, likely, more) and the “Merkozy” plan to end the banking crisis not slated to roll around until the end of the month, we are back to jittery markets and the by-now-routine see-saw patterns in most assets.
Spot gold dealings opened with a loss of $18 per ounce and a bid-side quoted at $1,658 while silver dropped sixty cents to the $31.44 mark in early dealings in New York. Gold’s safe-haven attributes have once again been brought into question in the wake of such scary day-to-day “gyrations” as we have been witnessing all summer long. In any case, an 11x valuation on gold versus its 1977 price is certainly raising some eyebrows and has led to some interesting computations by this Seeking Alpha contributor.
Futures Techs technical analyst Clive Lambert illustrates the chipping away of gold’s historical safe-haven attributes based on the recent divergence of its weekly and daily price charts. While he does not identify the culprits (we say it’s the funds) for this development, he does bring several price points into focus; ones we might be well-advised to watch. Mr. Lambert also pointed to $1,200-$1,300 as potential downside targets for the yellow metal, should the supports at $1,585 and then at $1,535 be breached.
On the resistance side, the targets to demolish remain the $1,685 and, more importantly, the $1,705 number; the breach of which apparently resulted in the sell signal in gold and the double-top having been identified. Platinum and palladium drew closer to their respective round-figure pivot points at $1,500 and at $600 by sliding $12 and $16 respectively. The former was quoted at $1,511 and the latter at $599 the ounce. Japanese machine orders figures will be in the pipeline today and platinum-group market watchers will try to ascertain what the data reveals in terms of the progress of the recovery of that nation’s automotive industry.
Rhodium remained unchanged at $1,725 on the offer side. In the background, black gold was sitting at $84.91 per barrel and the greenback advances 0.15 on the trade-weighted index to rise to the 77.78 level while the euro attempted to hold on to the $1.36 quote against it. Remember the topic we brought you on Friday regarding the warehousing of metals and potential conflicts of interest by owners of such facilities?
Well, take a look at this most recent Reuters Insider video clip and see what conclusions you might draw…other than the fact that it makes no sense for prices of certain metals to be as high as they have become, especially in light of the fact that the world is-as Reuters puts it- “awash” in same. Perhaps, someone, somewhere, has some ‘splainin’ to do…
To be sure, someone else has to also do some accounting to do to investors; this time via a brave spokesperson. We are talking about John Paulson’s Advantage Plus fund – a fund that dropped by 19.35% in September and which is now off by 46.73% on the year and could well be called “Disadvantage Minus.” Said brave spokesperson has thus far not responded to media requests for explanations albeit Absolute Return Magazine did publish the bleak performance data on Friday. Mr. Paulson is slated to offer some insight into what went wrong, and perhaps why, when he conducts a conference call to investors.
The fund manager who was thought to be able to do no wrong and who reaped handsome rewards from his gold-based bet last year has seen one wager after another turn sour in the wake of recent market turmoil. Frequently, the mantra in the investment world is obsessed with not how one makes money in a bull market (thought be a piece of sweet cake) but how well one performs in the face of market adversity.
Reuters reports that Mr. Paulson’s bets on “big bank stocks like Bank of America turned against him, and now even his call on gold, which had paid off handsomely last year, appeared to be off. Paulson's gold fund, which includes the metal and mining companies, lost 16.35 percent last month and trimmed its year-to-date gain to 1.34 percent.” Mining shares and their inability to keep up with gold’s gains (despite incessant promises by various newsletter vendors that “we are turning the corner”) appear to be part of the problem.
Meanwhile, the Dennis Rodman-quality, near 9%, rebound in the S&P 500 from what had been termed as “bear market” territory has sent a few…bear species into early hibernation of late. Yesterday’s 330-point advance in the Dow was “postcard-from-the-Riviera” quality as well. As for the dollar, well, despite several assertions made yesterday that the US will not fall back into recession, there are currency strategists who expect it to commence declining from current levels on account of many investors having become “extraordinarily long” in the currency.
Some analysts envision a $1.34 euro-dollar and the American currency changing hands with the yen near 76.6 by year-end. That, too, remains to be seen as much depends on how quickly Europe gets its financial house into solid shape and looking less like it is made of playing cards. Setbacks in the Old World could reignite the safe-haven quest that vaulted the greenback to the top of the asset performance charts in September.
Meanwhile, guess who else is looking to “reshape” the banking space in order to avert a huge domino run? If you guessed China, you are spot-on. Beijing made a very public and publicized intervention into the teetering financial sector of the country by having the nation’s sovereign wealth fund (you know, the one that was supposed to buy thousands of tonnes of gold by now) boost stakes in the Bank of China, ICBC, the aptly named China Construction Bank, and the Agricultural Bank of China. In recent weeks, global investors appear to have turned less than lukewarm on China and commodity prices as well as Chinese financial shares have felt the brunt of their “walk-out.”
Until tomorrow, let’s try not to walk the...plank.
Senior Metals Analyst – Kitco Metals