Gold losing its luster day after intervention

In the Lead: “Dude, Where's My Rally?”

New York precious metals action opened with minor losses in gold and with mild advances in other metals, except for palladium, which continued it stunning two-day climb by adding 4% more to values in the spot price. Gold fell $2 to the $1,747 mark while silver advanced 44 cents to the $33.25 level on the bid-side. The yellow metal hit a two-week high yesterday, buoyed by the spreading ‘Buy Everything!’ syndrome – one that made for the Dow’s best day of 2011 and its best session since early 2009 at the same time. What’s wrong with that picture? Most everything that one has come to historically rely upon…

Platinum added $5 to rise to $1,561 and palladium vaulted $24 higher to reach $634 per ounce. Rhodium remained quoted at $1,650 on the bid level per ounce. In the background the US dollar fell to the 78.25 figure on the trade-weighted index while crude oil hovered a few pennies under the century mark per barrel. Copper slipped modestly lower losing half a percent.

Yes, today’s title has been used once before, but…yesterday’s central bank action-based market euphoria dissipated just a tad overnight and this morning, though you would not know it from looking at certain metrics such as the Hang Seng Index having jumped the most since 2009 and a very impressive leap in the Aussie All Ordinaries. The heady vapors of the central bank action (some say ‘intervention’ by any other label) floated over into Asia but the warm afterglow of Wednesday’s asset buying orgy was not manifest in Europe this morning any longer. The same can be said for the US, where the Dow slipped nearer to the 12,000 mark after a tepid opening.

Contributing to the resurfacing malaise in Europe was the fact that Spain’s borrowing costs surged anew this morning with a notable leap in some three-year instruments which climbed from 3.6% in October to 5.18% this morning. This is not quite reflective of the levels of calm and confidence that the CCBA was seen as finally having induced in investors’ minds one day ago. That said, the auction managed to sell $5 billion worth of bonds due from 2015 to 2017 as investors are starting to perceive that ‘someone out there’ won’t leave them in the cold.

Just one day after what was thought to be a much longer-lasting paradigm of support from the official sector, European equities slipped, along with the common currency. The reason given for the turn-around was the fact that ECB chief “Super” Mario Draghi issued some quite caution-laden comment on the region’s economic prospects and its utterly dysfunctional bond markets. Mr. Draghi also appeared to underline the continuing independence of his institution (read: Don’t count on us to fire up the printing press, capisci?).

Surely, Mr. Draghi might have been aware of certain realities when he made his market-tempering comments today. One such reality is the fact that Europe’s manufacturing sector shrank even faster than previously during November. The Markit Index, in fact, fell to a 28-month low last month and came in with a reading of 46.4-clearly in contraction territory. Declines in manufacturing activity and similar readings under the pivotal 50 figure were noted in the core of the region, in Germany and in France – the two nations upon which the union is so heavily dependent of late (and not just for economic growth).

On the other hand, the market players out in force yesterday very likely paid attention to another set of activity readings as well as they placed various bets this morning. The readings we are referring to came from China and they indicate a factory sector that is shrinking. Weakening demand in the wake of the European crisis resulted in the official PMI figure falling to 49 last month – also a number underscoring negative growth.

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