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Maybe We Should Pay Greece With Bitcoin?

Monday October 24, 2011 09:37 AM

Due to Jon Nadler's travel schedule, there will be no commentary updates for today (Oct 25). We will return tomorrow morning.

Despite assurances to the contrary, holed-up EU leaders were seen preparing another less-than-comprehensive package that intends to address the seemingly interminable European debt crisis. While only halfway through the lengthy meeting, the region’s financial and political managers offered some hope that markets might be presented with something to bite into in terms of proposals and solutions by the middle of this week. On the other hand, the teams also made it clear that the ECB’s resources (read; its balance sheet) would not be called into “duty” insofar as the expansion of the EFSF is concerned. The IMF’s resources (and perhaps China’s) might yet be needed to be tapped, depending on what is ascertained at the next such working meeting.

Another thing that was also made fairly clear by meeting participants as of this morning is that Mr. Berlusconi was handed something during the meeting; a friendly little “note” from Ms. Merkel that in effect warned him that Italy cannot count on mountains of money from its friends unless it pedals hard to do something about debt levels near 120% of GDP. Little mounds of money, perhaps, but not unlimited piles of same. No, go home and tighten that Gucci belt, Signore.

The summit that commenced this weekend is now the thirteenth time some of these various folks have gotten together to try to estimate, contain, and resolve the mushrooming of the deterioration of Greek (and certain other) debt and the region’s banking sector. True-blue Euro-friend China once again expressed confidence that (perhaps for its own sake as well) a solution or five might be found at the conclusion of this gathering. Let’s see if thirteen can be a lucky number.

Meanwhile, China’s Premier Wen has once again come out and urged his countrymen and women to combat rising food and housing prices in order to sustain growth and social stability. Recent reports placed China’s growth at the 9.1% level; the slowest since 2009. Inflation, meanwhile, was still above the 6% mark in September. Social “stability” on the other hand, might be a tough nut to deal with for Mr. Wen. Bloomberg reports that in a stunning reversal of one of the core principles of the Communist Revolution, in which Mao Zedong won the hearts of the masses by redistributing land from rich landlords to penniless peasants, powerful local officials are snatching [that land] back, sometimes violently, to make way for luxury apartment blocks, malls and sports complexes in a debt-fueled building binge.”

The euro initially fell as traders were less than pleased with the mention of the ECB not playing a role in the yet-to-be-announced plan, but then, later during the course of last night, optimism prevailed as at least something that the markets might find meaningful will be unveiled by Wednesday. If it manages to hold on to its gains, the common currency will complete five days of gains. Gold on the other hand, might complete two of the same at the end of today. Bullion lost nearly 3% last week as uncertainties continued to unsettle specs and investors and buffeted the commodities’ space.

Commodity prices rose this morning along with the levels of optimism surrounding the Euro-debt summit and along with the region’s common currency. Gold and the euro have been BFFs of late, so the yellow metal also gained in value in the back of the warm/fuzzies that were seen emanating from the crisis meeting. The irony that gold would gain because a Greek default or European banking sector “accident” would be averted is not lost of some traders. It is one thing for industrial metals to pick up value as perceptions that an economic contraction might not take place if debt solutions are found; it is another, for a so-called “crisis hedge” to also rise because a crisis…might not happen.

Monday’s New York spot metals’ dealings opened with assorted gains that ranged from a strong 3.7% for copper to about a tenth of that for silver. Gold was bid at $1,656 and showed a gain of $14.20 per ounce while the white metal climbed one dime to reach $31.51 the ounce. Those initial gains in gold moderated somewhat after the first hour of trading action. The noble metals advanced more robustly, with platinum rising $21 to the $1,532 level and with palladium gaining $17 to reach $629 the ounce. No changes were reported in rhodium which was still bid at $1,625 this morning.

The much-touted (by various newsletter vendors) upcoming Indian festival season may end up letting down those who look to such calendar-related gold demand to boost the market. The Gulf Times reports that gold “love trade,” i.e., purchases by locals motivated by the festival calendar, have been forecasted to come in at the “moderate” level as opposed to the “spectacular” one as high gold prices continue to be reflected in the price tags visible in India’s jewellery showrooms.

Spare cash with which to buy baubles is fairly scarce this year as India’s buyers are struggling with inflation in fuel and food costs. Current gold buying patterns are being labeled as “sporadic and indifferent’ and they follow an estimated 540 tonnes of bullion having been bought in the first half of the year. Since then, many a local has turned not only price-sensitive (and who wouldn’t be in the wake of $1,900+ bullion not that long ago?) but somewhat skeptical as well and is perhaps awaiting further corrections in the price of the yellow metal. One jeweller in Hyderabad estimates demand to be down 50% from what he witnessed in 2010.

Meanwhile, CFTC data indicates that gold speculators (you know, the so-called “paper gold” aficionados) are exhibiting some caution about bullion’s short-term prospects. The same applies to silver specs; their net speculative length in the white metal now stands at a fresh low for the current year as bearishness rules. Shorts in copper appear to be a looming threat to prices despite the notable gains the orange metals has achieved over the past couple of trading sessions.

One niche where the speculative positioning appears to indicate a bit more positive sentiment in the making is in the platinum-group metals’ space. Palladium appears to be drawing net speculative length and there has been some addition to ETF balances over the past week. The dip to under the $600 mark in the noble metal appears to have had a short half-life, thus far.

The US dollar was very slow to move this morning; it lost 0.04 then gained 0.04, and it traded at 76.45 to 76.52 on the index while crude oil was also showing some signs of apathy; it advanced half a dollar to $87.90 per barrel. US stock futures showed only that investors were preparing for another day of digesting news out of Europe and acting based on such developments rather than taking the lead.

Investors remain uncertain about growth in Europe as well as in the US. Hardly anyone can blame them for being less than enthusiastic about such matters; not at a time when Mr. Dudley (he of the NY Fed) comes out (this morning) and opines that the US is facing sluggish growth and persistent “headwinds”, and that Fed monetary policy is not “all powerful.”

Perhaps the Fed has done all it can, and perhaps not. Officials seem to indicate that there are still arrows left in the Fed’s quiver to use if the need arises. However, the US central bank will first try…talking before acting. At the upcoming November (1st and 2nd) FOMC meeting the Fed’s team will “give greater guidance” to the markets about its interest rate policy and will refrain from injecting any QE3 type of liquid into the US economy unless the latter shows signs of crumbling away in a speedy fashion. Further assets purchases (mortgage-backed securities, etc.) have been mentioned as possibilities and some Fed officials have expressed alarm at what are visibly tightening credit conditions in the US.

Some “newspeak” was also used in connection with describing current US economic conditions: we do not have a “recession” in the US economy – we have a “growth recession.” Hmmm…How we reconcile that label with the latest indications on third-quarter US economic performance remains a bit of a mystery, for now. If the forecasts turn out to be correct, QIII US growth might come in at the 2.8% level; more than double that of QII. Yes, that is some distance away from the 4% growth pace that is needed in order to call the “all clear” but it does not seem like a “growth recession.”

Don’t look now but there is a major currency crash already under way. No, we have not suddenly turned into alarmist newsletter scribes here. The fiat currency Armageddon we are referring to is taking place in the same space that others have tried their hand in and failed previously; the creation of alternative money. Remember Beenz? Remember Flooz? Neither do we. Remember Bitcoin? You won’t, soon.

The recently invented “encrypted monetary unit” that is more complex that the design of the Mayan calendar was supposed to take the world by storm. Forget the greenback when you can swear by Bitcoin. Aha. Whereas the latest in alternative cash once traded as high as $33 (hey, near gold standard status!) it is now changing hands at under $3 and it might soon vanish altogether. Some have called it nothing short of a “screwball scheme to bypass the system.” You know; the “IRS and taxes” kind of system. So, do not be shocked if you get “called in” by Uncle Sam for a friendly audit, or to soon read that “Bitcoin…bit the dust.”

In the meantime, we do take “regular” greenbacks and loonies here.

Until tomorrow,

Jon Nadler
Senior Metals Analyst – Kitco Metals

*****

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

Week of October 24, 2011

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