Copper leading commodity charge with 15% gain

In the Lead: “Europe After Dark”

A key sign of tightening liquidity in China has been the steep fall-off in the accumulation of foreign-exchange reserves in Q3. The Societe Generale strategist pointed to a “previous soft patch in China’s forex reserves accumulation, which coincided with dollar strength. The drop helped foreshadow a large fall-off in commodity prices and emerging-market equities during the second half of 2008.”

Doctor Nouriel “Doom” Roubini said yesterday that "If China has a hard landing, for a period of time that's going to hurt growth and reduce commodity prices until China recovers and until the rest of the world recovers.” Without citing specific odds, Dr. Roubini quantifies the chances of a Chinese runway incident as being a “meaningful probability.” The timeline for said event commences roughly after 2013. Dr. “Doom” also envisions a 50-50 probability of a eurozone and US recession at the present time.

Marketwatch’s Jon Markman does not expect the advent of an EU deal to address the debt issues as the piece of the puzzle that will avert a recession in Europe. Markman opines that “No matter how much policy makers beam on the podium when a deal is ultimately announced, you should be aware that the combination of haircuts and recapitalizations will wreak havoc on the region’s economy.” We are advised to note that “The money doesn’t come from outer space. It comes from ordinary citizens — coal miners in Silesia and hairdressers in Slovenia.

“It means a lot less money is going to be available at banks for lending to legitimate businesses that want to expand and to people seeking mortgages.” Mr. Markman also feels that as a result of what might be coming out of Brussels “Banks scrambling for funds will need to shrink their lending books so much in the wake of these actions that when we look back it will seem that the Eurozone forced itself into recession in order to deleverage. That could be good over the long run, but extremely tough in the short-term.”

Yesterday, gold and silver surged to one-month highs amid explanations that their safe-haven status was reasserting itself; this, despite the fact that gold at least has basically been functioning as anything but a safe-haven of late and that it is acting more like a gauge of the shifting sentiment as regards global liquidity. In any case, the perception on Tuesday was that if some solution – even a makeshift one – is cobbled together by tonight in Europe, then some pressure on the region’s central banks to sell some bullion in order to fund various rescues will be relieved.

This morning, gold spot dealings opened at the $1,704 mark on the bid-side and follow-through buying by momentum players was expected to become manifest for at least the first half of the day’s session. Silver traded 7 pennies higher and was quoted at $33.34 the ounce. Current resistance in the white metal extends from $33.50 to $34 the ounce.

The noble metals advanced by $6 each in the case of platinum and palladium. The former reached $1,570 and the latter $647 per ounce. Copper added another 3.3% this morning-for good measure. Oil fell back by 50 cents and the US dollar traded 0.40% lower on the index, at just under the 76 level. The euro was quoted at $1.393 and traders were seen as marking time before the release of various statements from Europe rather than committing to sizeable plays.

While festival season in now in full swing in India, something that is not quite in ‘full’ swing mode is the buying up of bullion by locals. Estimated gold imports by the world’s largest consumer of the yellow metal could drop as much as 30% in the current month as lofty price tags keep would-be buyers entertaining other options. Peak gold demand season in the country occurs between August and late October. Last year, it is estimated by the Bombay Bullion Association that India took in roughly 100 tonnes of the metal in October. Price sensitivity of a different order of magnitude has since become visible among Indians.

Until tomorrow, stay tuned to that European news station…

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

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