The new trading week (and what a week it might yet be!) opened with mixed showings in the precious metals’ complex. Spot gold fell about $5 to the $1,730 bid area, while spot silver eased by 13 cents to near $33.55 per ounce. Standard Bank (SA) commodity analysts believe that gold is pricing in a Fed QE of as much as half a trillion dollars(!). Anything less than that figure is seen as having the potential to push gold prices lower late in the week.
No mention is being made of what happens if the Fed simply extends rate guidance or if it defers handing out free money until November, or even next year. Also not mentioned is how gold might add another 11% to reach last year’s high if in fact the $500 billion QE already is baked into this market cookie. We once again have a uni-dimensional gold (and silver) market on our hands; one that needs to be treated with the respect speculators should have acquired after several bouts of previous Fed-induced disappointment.
Veteran market analyst Ned Schmidt’s latest Gold Thoughts (Sep. 6) encapsulates the current market paradigm quite neatly. First, Mr. Schmidt cautions that, “The recent Gold rally, and the purely speculative run in Silver, have [both] been built on the expectation that an all-in, massive monetization of US government debt would occur. If that is not the case and the stealth approach is chosen (whereby the Fed sets small, open-ended regular bond purchases as the preferred course to an all-out QE3), part of the rally, perhaps a significant part, will be given up.”
So, what about the day after the Fed? Mr. Schmidt advises that, “Without an immediate ‘collapse’ of the dollar on 13 September, the current rally of Gold will be extremely vulnerable. As most of the Gold ‘bought’ in the past few months has been really Gold derivatives, not physical metal, the vulnerability is high. Buyers of those futures are not going to take delivery. Now is not the time to be chasing the fantasies of the Street. Was not Facebook enough of a lesson on that? Gold has been the ‘game of the month,’ and Silver has been the speculators’ play toy. Do not confuse a short-term game of fantasy speculation in the derivatives markets with investment.”
The New York opening this morning saw platinum advance by $5 to $1,593 and palladium gain an equal amount, to touch the $657 mark. Rhodium remained unchanged at $1,150.00 the ounce. The Standard Bank team notes, “While the platinum industry is waiting to see how many workers return to Lonmin for work, media reports indicate that Impala workers are now demanding another 10% wage hike following their deal negotiated just a few months ago. Impala’s workers embarked on a six-week long strike around March/April this year, which saw production halted at Impala Platinum during this time.”
Thus, the group says, “We reiterate our view on platinum and palladium — we do not believe that it is worth being short platinum and palladium at this time even though demand is weak and despite the strong rally witnessed over the past few weeks.” In the other, background markets, the US dollar was ahead by 0.12% on the index (at 80.34) while crude oil fell 0.27% and copper rose by almost one percent. Stock index futures pointed to a lower opening on account of Chinese economic developments.
China and its emergent economic slowdown recaptured the weekend’s news headlines, now that the European situation and the Fed are considered baked-in ingredients in the markets’ cake. Premier Wen recently remarked that the headwinds being faced by the world’s second largest economy are nothing trivial and that a lot of work needs to be done to restore targeted growth patterns. A recently conducted Bloomberg News poll reveals that global investors are fast losing their confidence in China and that they expect that nation to be among the bottom-performing ones in the coming year (with the US being seen as the best).
Rewind to 2009: Investors worldwide had but one economic darling to sing their praises over – China. However, the Chinese leadership’s lack of success in controlling inflation, curbing the runaway property market, and the impact of a fast-shrinking EU export market have yielded a situation where 33% of poll respondents believe that a hard runway incident is in store for China. ING Senior Economist Tim Condon says that not only will 2012 be a “write-off” year for China but that his firm expects a “hard landing this year.”
Mr. Condon also cautions that, if and when any monetary easing by China’s central bank does come about, the country’s leadership must be extra careful not the have the money end up in the hands of corrupt officials and thus in shoddy buildings, crooked railway lines, about-to-collapse bridges, etc. Such developments could not come at a more inauspicious time; the current leadership hands over the reins to incoming teams next month. As such, hardly anyone expects radical moves or programs to be offered by the outgoing group before the handing over of the relay baton.
In the latest news from the Chinese economic front, the revelation that imports fell by 2.6% from one year ago levels sent additional shivers through the overnight markets. The figures come on the heels of August metrics that showed factory output declining to a three-year low. China’s manufacturing is contracting at the fastest pace since March of 2009 at this point. At this juncture, it is not thought that a projection for a Chinese GDP growth level at the 7.5% level for the year is something outlandish or unfathomable.
Do bear in mind that China has not been growing at that level since around 1990. President Hu Jintao remarked yesterday that subpar exports and uneven domestic growth present persistent challenges to his country’s economy. No mention was made of the inflation rate rising to 2% in the latest reported period; a development that makes rate-cutting by the PBOC a tad…tricky at this time. The take-away from the weekend’s news: China was sweet but it might be turning…sour.
All of the above brings us to the wonderful (and wacky) world of commodities and their related billion-dollar (make that $1.13 billion in raw materials for example) bets. In the wake of slowdown-related news from China and from Europe, and in the wake of subpar US labor market statistics, hedge funds…boosted their wagers on “stuff” — go figure.
Hardly anyone across the river seemed to pay any attention to one New Jersey-based money manager who noted, “We are witnessing a dramatic slowdown in economies like China and Europe, and that is bad news for commodities. The anticipation and expectations about stimulus are very high, which [stimulus] may or may not materialize. The inability of central banks’ activity to stimulate growth is becoming more and more pronounced.” No, in today’s algorithm and Fedspectations-driven world, bad news is…good news.
Then again, we are now being urged by untold numbers of hard money publishers not to hesitate and to jump “all-in” on the gold bandwagon because none other than illustrious Russian Chief Vladimir Putin (who is reportedly already worth $40 billion) is heavily into “stacking” his own stockpile of the yellow metal.
Last year, Mr. P called the Bernanke team a bunch of “hooligans” (oh, the irony!) and the US a “parasite” (one whose debt he is not loath to buying in mass quantities, however). In reality, far from betting on the end of US supremacy and the advent of rubles as the next reserve currency, Mr. Putin has either been watching too many Glenn Beck infomercials, or is simply joining the long list of gold-crazy and just plain crazy dictators who precede him in the history books: Ceausescu, Qaddafi, Marcos, Amin, Hoxha, etc.
The “cover” of the story is all about Russia augmenting its central bank holdings, but it, of course, fails to mention that Mr. Putin’s previous “colleagues” had gutted the central’s bank’s gold vaults to the bare walls after the Communist regime came to a timely end in 1989.
Until later this week,