Some of what was reported by the Labor Dept. this morning did validate Fed Chairman Bernanke’s defense of his institution’s policies in remarks he made to US lawmakers yesterday. However, we must note that the Fed’s chief strongly rejected GOP Representative Paul Ryan’s suggestion that the task of job creation is taking precedence over his vigilance against the potentially higher inflation level that might arise out of the current easy money policies. In Mr. Bernanke’s own words: "We are not seeking higher inflation, we do not want higher inflation and we're not tolerating higher inflation."
However, even the interest rate policies in question are seen as little more than “largely guesswork” by at least one non-voting Fed official – Mr. Fisher of the Dallas Fed. He believes that the FOMC’s recent rate forecasts are “not binding commitments” nor are they anything remotely close to being written in cement, when one looks out over the longer term. He also noted that allowing inflation to rise in the short-term by no means guarantees jobs growth. One of his colleagues, Mr. Plosser remarked the other day that the markets have misinterpreted the Fed’s rate projections as firm pledges and that rates might in fact need to be raised, perhaps as early as this year, or the next one.
Meanwhile, PIMCO’s Bill Gross sees the advent of a new era of “austerity” and credit destruction (as opposed to the creation of same) in the wake of the Fed’s near-zero rate policies. In Mr. Gross’ view the assumption that cheap and “abundant central bank credit is always a positive dynamic” is as misplaced as can be. He goes one step further and alerts us to the idea that near-zero rates will not translate into investors buying more risk assets and that they might opt to sit on the cash instead.
Spot gold dealings opened flat, near the $1,759 bid level but it then fell by $25 to near the $1,735 area shortly after the release of the jobs statistics and then the ISM services index and factory orders numbers this morning. Recent advances (7.4% on the 30-day chart) in the value of the yellow metal had already prompted contrarian calls (based on the readings of gold newsletter sentiment data) for caution, and then some. So long as gold does not manage a close above the $1,803 area (according to EW analysis) the metal has the potential to turn lower after the current rally runs out of steam.
First level support in gold is thought to reside near $1,746 and then at $1,733 per ounce in gold. Both of those were touched this morning. Silver traded from 22 to 35 cents lower and was basically seen trying to maintain above the $34 per ounce mark, but not managing to do so very well (last quote indicated it at $33.50 down 5 cents). Platinum fell $15 while palladium slipped by $2; the quotes came in at $1,613 and at $704 respectively. Rhodium remained bid at $1,450 the ounce.
South African producer Impala Platinum (the second largest global platinum producer) fired 13,000 striking workers yesterday. The disruption is resulting in more than 3,000 ounces of lost platinum output per day at the firm. Such conditions and the improvements in US auto sales have narrowed gold’s (unusual) premium to platinum to $100-$125 recently and have been supporting the PGMs in general. In the background, the US dollar made some upside progress after the raft of positive US economic statistics; it was 0.20 higher at 79.21 on the trade-weighted index.
The Dow, unsurprisingly, added 145 points in the wake of the aforementioned numbers being released. What’s this we have here today? A day on which stocks advance, the dollar rises, and gold falls $22? You mean such correlations can still manifest themselves? What is this market world coming to? What happened to the ‘buy everything’ syndrome? Let’s just wait until Monday. There’s always hope.
Have a pleasant weekend. Only six more wintry ones left, according to the groundhog…
Jon Nadler is a Senior Metals Analyst at Kitco Metals Inc. North America