Gold vaults higher as central banks open spigot

In the Lead: “Concerted Grosso”

Meanwhile, on the other side of a troubled planet, China’s central bank (effective Dec. 5) cut its reserve requirements on domestic banks by 50 basis points from the record 21.5% it had demanded up to this point in a bid to countervail the contraction the nation had begun to experience in the wake of the European debt debacle. Thus goes the concerted ‘give’ we observe this November morning across the planet. Consider it an early holiday gift courtesy of the official sector.

Add the Chinese central bank’s “solo” to the above overture, and you have a complete picture of today’s market programme; a soothing concert intended to bring stability, avert contractions, and lull worried investment audiences into at least a temporary calm. The beneficiaries of Wednesday’s “concerto grosso” (read: concerted, large-scale largesse) were not difficult to spot this morning: Commodities, and equities applauded the performance and gave it a “standing” ovation as they rose to their feet in rapture.

The US dollar was sent to the backstage area for the time being as its recent turn on the stage was really more about generalized fear than a recognition of its innate ‘talents.’ It fell more than 1.1% on the trade-weighted index as a result of the official program change. Crude oil, on the other hand, gained 1.6% and vaulted firmly above the century mark, while base metals – copper leading the charge – gained hefty percentage amid instant euphoria that the central bank action will stimulate growth and related demand. The orange metal rose 3.7% on the CCBA news.

This brings us to precious metals; they wasted no time in gaining value ground this morning either. The “Buy Everything!” syndrome is, today, clearly on display. As gold has been trading along the lines of what a risk asset normally displays as opposed to what a safe-haven one does, the spike seen today is unsurprising. Spot gold opened with a $15 sprint to the $1,730 per ounce level, while silver lagged significantly but still opened four cents higher and was quoted at the $31.96 bid. Ironically, the reading of the CFTC market positioning reports had shown that specs had substantially reduced their net-long bets in gold and silver just before this (CCBA) gift was sent to the commodities’ markets today. Confidence in the ability of most metals and oil had shown signs of being absent in the latest reporting period.

Platinum and palladium – especially the latter – also benefited from the crunch-averting central bank offering and gained in values. The former rose $16 to the $1,551 mark while the latter vaulted $30 higher (5.13%!) besting the performance of the entire precious metals’ complex and most other assets this morning. What a solo!

If you think that that was a performance worth recording, then consider the one being heard in the US labor sector today. ADP reported a 206,000 private sector payrolls increase this month. That, dear critics, would make the addition to the ranks of the employed the best one since last December. Friday’s Labor Department statistics are now thought to possibly show a nonfarm payrolls gain on the order of 125,000 positions. Unemployment is not however expected to show much, if any, of a departure from the 9 percent level.

Ah, yes. As we go to print, we find that the Dow is up 329 points (3.26%). Want any further evidence of the contagiousness of “Buy Everything!” among speculators? You do not need any. Marketwatch titles it: “Central Bank Action Ignites Stocks.”

Faites Vos Jeux!

Until tomorrow,

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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