Gold opens quarter up, but weighted by physical demand

In the Lead: “Factoring in China’s Factories”

Market players in New York pushed silver higher by 14 cents to the $32.42 mark, platinum to $1,640 per ounce, and palladium to the $658 level. Speculative net length in silver fell dramatically in the latest CFTC reporting period; by nearly 530 tonnes. Albeit silver-based ETFs added 22.6 tonnes to their holdings, the futures market remains unconvinced about silver’s near-term price prospects. A similar lack of confidence appears to be on display in the platinum market, judging by the sharp decline in the metal’s net speculative length in the week ending last Thursday.

Copper advanced by 0.20% but other base metals recorded modest declines despite a better reading this morning in China’s manufacturing activity for March. CFTC market metrics show that hedge funds and money managers cut their net long positions in commodities by nearly 2% last week based on Chinese-related demand concerns. Goldman Sachs, last Wednesday, cut its short-term recommendations on raw materials. Market observers opined that they do “not buy today’s move [in bellwether copper] as the beginning of a bullish phase because the Chinese economy is still slowing and at the same time the central bank is not yet willing to cut interest rates.” Thus, the improved reading coming from China went over largely ignored by the markets (Hong Kong equities fell once again).

The improved reading in Chinese manufacturing showed that the country’s exporters are still struggling and that a hard landing in the economy will likely be unavoidable lest the PBOC loosens policy and tilts towards stimulus of one type or another. Consider for a moment one internal “sign” that not all is well in China; the nations’ Mercedes dealers are offering hitherto unprecedented discounts on their swanky automobiles. Any takers? Prices of Chinese new apartments fell in 45 out of 70 cities being tracked by the government in February. Any takers?

Some analysts have characterized the PMI data as being a “seasonal” aberration and they point to Europe as constituting about 40% of China’s final exports’ destination. There is a sufficient amount of conflicting data in the Chinese economic metrics (those offered by the government versus those compiled by HSBC) of late to give headaches to market observers, however. Meanwhile, similar metrics from Europe were showing that region’s manufacturing activity having shrunk for the eighth consecutive month.

Not only that, but European unemployment surged to the highest level in 14 years (10.8%) and the figure is raising serious doubts about the region’s ability to consumer ‘stuff’ going forward. Market participants then awaited US ISM data and hoped that at least that set of numbers might confirm on-going stabilization and/or growth in the American economic environment. They did, inasmuch as the ISM reading came in at 53.4% (as against a forecasted 53.5%) and the dollar remained buoyant in the wake of the news release.

Thus, the US, for the time being, appears to offer pretty much the sole bright spot for economic conditions. Recent regional reports have shown the Empire State area’s factories surging ahead at the best clip since mid-2010, the Philly region’s expansion coming in at the best rate since a year ago, and important gauges such as job creation, consumer confidence and, more importantly, consumer spending (on autos for example) exhibiting some impressive rebounds. Tomorrow’s auto sales data is anticipated to possibly tally an annualized sales rate approaching 15 million units.

Based on the above conditions it might not be a stretch to perceive the dollar as being poised not only not to crumble and disappear, but to actually attract a fair amount of bullish interest after having suffered a 1.5% setback in Q1. Certain market trends in play since last October in the Aussie, Canadian, and US dollar(s) appear to be at pivotal chart points at this juncture. The greenback seems to be in a position to break higher against the two commodity currencies as both of them are largely at the mercy of Chinese demand for materials. Crude oil also appears to be in the process of breaking (see below) both its long-term and short-term bullish trends after having closed out Q1 with a better than 4% gain.

Nadler Oil Chart

Until Wednesday,

About the Author
Jon Nadler

Jon Nadler is senior metals analyst with Kitco Metals Inc. in Montreal.

Comments
comments powered by Disqus