Gold and silver prices headed lower this morning while platinum and palladium extended their Tuesday rally with fairly hefty additional gains. Gold retreated towards the $1,750 area while silver fell back to near the $34 level as profit-takers moved in following yesterday’s Sino-Euro-news-induced euphoria. Platinum vaulted to the $1,721 mark on the offer side and narrowed its gap with gold to $70 while palladium advanced $10 to rise to the $723 figure on the offered side of spot prices.
Crude oil gave back only 40 cents of Tuesday’s advance this morning and it traded at $105.74 per barrel while the US dollar advanced 0.24 to 79.29 on the trade-weighted index. The Dow was still orbiting within striking distance of the 13K pivot point this morning but European stocks suffered a second session of setback as the post-Greek rescue hangover began to take its toll. Existing US home sales climbed by more than 4% last month.
US-based bullion dealers we polled over the past week report “quiet” conditions and only “sporadic” telephone call and transaction volumes, with would-be buyers of gold and silver only making an appearance in the wake of substantial rallies and not really buying on the dips. Premiums on several types of gold and silver bullion are only ½% above, or at, or under, melting values in the wholesale market. Meanwhile, last week’s comments on gold versus what he terms “productive” assets continue to reverberate in various forums and have engendered scathing — to put it mildly — responses from some commenters. Business Insider’s Joe Weisenthal wonders why this (shooting the messenger) must be the case.
Other background gold market news indicates that India’s 2012 gold imports could suffer a 35% setback in the wake of moderating inflation and a recovery in local equity markets. "The stabilisation of basic macroeconomic conditions at home is expected to curtail the demand for imported gold to be held as an asset by Indian households," C. Rangarajan, chairman of Prime Minister Manmohan Singh's economic advisory council said, presenting the panel's report on the Indian economy. In recent weeks, the importation of large amounts of gold into the country has been identified as the prime culprit in the spiking of India’s current account deficit, and this has prompted the government to make moves aimed at tempering such intake.
Notwithstanding the recent ascent in prices that is making investors take notice, a setback of another kind is currently occurring in the platinum/palladium demand sector. The commodities team at Standard Bank (SA) mentioned yesterday that Chinese demand data in PGMs remains on the soft side. This morning, they have corroborating evidence with the findings contained in the Swiss PGM export data.
To wit, “Switzerland turned [into a] net exporter of platinum in January. However, only a net of 2,737 ozs. of platinum were exported, well below the 2011 average of 37,622 ozs. Net exports from Switzerland to China fell to 56,919 ozs. compared to 74,493 ozs. in December. The lack of exports to these traditional automotive centres (Germany, Japan, and USA) and the slowdown in Chinese imports underscores our view that industrial demand for platinum is not strong enough to push prices above $1,650 on a sustainable basis just yet.”
Well, it turns out that upon closer ‘inspection’ by global investors, the very same factors that gave rise to yesterday’s optimism and buying spree in various assets, were judged to be still full of uncertainties and potential pitfalls and thus they contributed to scaled back enthusiasm levels this morning. News from Europe and China helped propel commodities on Tuesday but fresh(er) news from the same places conspired to ignite a bit of a sell-off as the midweek sessions got underway in New York this morning. Specifically, manufacturing statistics came in on the weak side in both the Old World and in China. In addition, the Greek rescue package’s approval has raised more questions than perhaps appeared to be answered just one day ago.
Notwithstanding the Eurogroup’s assistance to Greece, Fitch’s ratings agency cut that country’s sovereign debt rating to “C” and stressed that the odds of a default remain “highly likely in the near term.” Fitch’s is most preoccupied by the idea that private creditors of Greece could be forced to settle for a debt swap with the country – a situation which could, de facto, be termed as a technical default, even though it would wear the label of a “distressed debt exchange.” One of Germany’s top economists, Hans-Werner Sinn, has characterized the Greek rescue as “illusory” as it imposes a nasty deflationary paradigm on the country.
This forced acceptance, or subordination of private investors is what prompted Marketwatch’s contributor Todd Harrison to conclude that “Investors presumably choose fixed-income strategies in an effort to guarantee safety in exchange for upside gains. If that safety is deemed arbitrary — if a central bank is able to subordinate other investors of that very same security — then that, my friends, is a default regardless of snazzy semantics or promises that it’s an isolated situation. You don’t need a law degree to understand this; you only need to have an unbiased lens.”
At the end of the day, many observers correctly view the Greek rescue deal as not one that actually sends euros in the direction of Athens at all, but, rather, into the coffers of the European banks that threw caution to the wind back when they loaded up on more Greek debt than was possibly advisable when considering that country’s repayment capabilities. Thus, the seven-month-in-the-making ‘sigh’ of relief heard on Tuesday may be no more than the initial salvo of real troubles yet to come in Europe. Lost in the news flows or recent weeks was any mention of Italy, Spain or Portugal and their debt predicaments. As of this morning, Italian bonds are already under ‘pressure’ and their yields are edging higher…
And, yet, none of the above should yet be construed as the beginning of the end of the euro. As Chancellor Merkel has repeatedly pointed out over the past seven months, the ‘stakes’ are too high. As billionaire investor and philanthropist George Soros see it “the euro cannot fall apart because, if it did, the consequences would be catastrophic, because financial assets are intermingled based on a common currency. And if they became separated and had different values, you wouldn’t know whether your counter-party was bankrupt or not. So it would be a dislocation that would be out of control.”
Something else that edged higher was the gauge of Chinese manufacturing activity for this month. Good as that news might sound at first blush, the reality is that China’s flash PMI (provided by HSBC) remains under the pivotal 50 mark on the scale and continues to indicate contraction. As such, the number may only reflect the re-starting of factory operations following the Lunar New Year festivities and it might not be reason enough to begin cheering yet. The Beijing government’s official figures on manufacturing PMI levels will be released on March 1.
Still seeking safety? Do not let it come as a shock to learn that the safest banking sector in the world (sorry Switzerland) continues to be located in…Canada. Yup. The Great White North can really boast about this one. “Canada’s banks were named the soundest in the world for the fourth consecutive year in 2011 by the World Economic Forum, and Bank of Canada Governor Mark Carney was chosen in November by leaders of the Group of 20 nations to head the Financial Stability Board. The board is charged with overseeing efforts to write new rules for international finance to help avoid another global credit crunch.”
Jon Nadler is a Senior Metals Analyst at Kitco Metals Inc. North America