Gold makes early gains despite bearish undertone

In the Lead: “Déja Review”

Signs that at least parts of the global economy continue to show a degree of immunity to the unfolding European crisis lifted trading spirits in various asset markets as the first full day of trading for 2012 got underway. Risk appetite made reappearances in gold, crude oil, copper, and assorted equity markets in Asia and Europe. The stronger manufacturing data from the UK, India, Australia and, most importantly, from China, all conspired to augment the bullish betting being made today. However, the IMF still warned that 2012 may yet see it scaling back on global economic growth projections. The institution has already lowered its expectations for the same to 4% on the heels of the aggravating debt situation in the EU. As well, analysts at certain financial firms remain wary about China’s ability to show a decent first quarter of exports and growth.

Chinese Premier Wen underscored such concerns by stating that the country’s business conditions could turn out to be “relatively difficult” due to slackening overseas demand and still-too-high internal inflation levels. Elsewhere in Asia, it was reported yesterday, the Singaporean economy shrank for the second time in three quarters with a notable 4.9% decline in its GDP. Over in Europe, albeit German joblessness levels fell more than anticipated, the region is far from being out of the debt crisis’ woods just yet. The US level of manufacturing activity on the other hand rose at the fastest pace in six months in December, with the reading of 53.9 on the closely-watched ISM factory index. Such growth levels and improving employment conditions might make any QE3 offers by the Fed a very distant -if not moot- probability.

The euro recaptured the pivotal $1.30 mark this morning mainly due to the aforementioned optimism and following oversold conditions that had brought it to more than an eleven month low against the US dollar. Regional leaders remain very much aware of the fact that the debt debacle is still far from being over. While experts say that 2012 is bound to be better than 2011 was, there are plenty of as yet unclear situations and asset valuations to be dealt with in coming months (among them, the fate of gold prices).

All of this brings us to the New York markets’ opening this morning, where the precious metals’ complex had a good day for a change – at least in the initial hour of trading action. We could very well have just cut/pasted the first paragraph of the first article we wrote in 2011 here this morning and note that “New Year’s Eve (likely) champagne-induced cheer morphed into unimpaired optimism as the first financial market sessions of 2011 opened for trading overnight and this morning. The apparent “resolutions” among investors, at least at this early stage of the annual yield-chasing game, are ones of…adding weight – to the profit side of their asset books that is.” In other words: been there, done that, seen that.

Spot gold started the abbreviated business week with a gain of more than $20 and it once again approached resistance levels thought to be residing from the $1,588 up to the $1,600 value zones. Silver added from 75 to 85 cents per ounce and traded near the $28.75 up to $29.00 markers. Platinum and palladium each rose $8 to touch $1,403 and $662 respectively, while rhodium opened at $1,350 with no change in quoted bid prices. US auto sales in December were the best in five years and have placed the industry on track to perhaps record annualized sales levels of near 13.4 million – very near the November metric running at 13.6 million in annual sales. In the background, the US dollar fell 0.50 on the trade-weighted index to touch 79.75 while crude oil (WTI) added an impressive $3.75 to reach $102.50 per barrel following more Iranian sabre rattling on the subject of sanctions and its intentions related to the Straits of Hormuz.

As if December (after the 9th) had not been bad enough, the historically positive in-between holidays period for gold last week was a brutal one for its fans. The yellow metal has experienced nothing but gains in eight out of nine such year-end periods since 2002. Ironically, some of the same sources that had not allowed for any correction in gold prices as recently as its most recent price pinnacle, have now offered the “wisdom” that gold’s precipitous fall was “inevitable.” On the other hand, some notable names in the business have expressed similar, more intense shall we say – views – much earlier on and are now restating them.

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