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Kitco Precious Metals and Economic Review – Week Ending May 2, 2008
May 3, 2008 – 7 PM ET
Gold
Gold, along with platinum, silver, and palladium, had continued to weaken. As I had mentioned in last week’s review, the overall performance of the metals during the second quarter over the past nine years had given us the indication that a downturn was likely to start up in April. The performance of the metals so far had confirmed expectations as given by the historical data.
The metals had also been affected by the U.S. dollar’s marginal gain against a basket of six major trading currencies. Gold’s London PM Fix had fallen by 3.5% from the week prior and posted an average price of $873 per ounce. Even with the week on week decline, real annual gains remained strong. Gold’s London PM for the week sat 26% higher from the same week one year ago.
Silver
Silver’s London Fix performed similarly to that of gold, slipping 5% from the week prior to post an average of $16.62 per ounce. So far the metal is performing true to expectations for the second quarter. Even with the weakness we observed last week, real annual gains remain strong at 21%.
Platinum Group Metals
Platinum and palladium’s London PM Fix followed a very similar price path as gold. Platinum had fallen by 3.6% from the previous week. Its average of $1,926 per ounce would only post higher than its 120-day (6-month) moving average of $1,776 per ounce. Despite the losses, real annual gains remain the highest out the metals at 46%.
Palladium’s London PM Fix had fallen by 5.4% from the week prior, the largest percentage fall out of the metals. Its average would post at $422 per ounce, still higher than its 120-day moving average. Real annual gains posted 11% for the week.
Unlike the other metals, rhodium remained on the upbeat. Overall, rhodium had gained slightly less than one-half of a percent, $37.50 per ounce, from the week prior. Its average would post at $9,162.50 per ounce, higher than its 10-day to 120-day moving average. Real annual gains are now the highest among the metals reviewed with an average price 50% higher from a year ago.
Well, this wraps up this weekly review. Until next time, take care and I wish you all a very good week.
Wendy
Additional Details on Metal Performance
Expectations regarding the metals’ performance were confirmed this week. We observed all the typical correlations between gold, silver, platinum, and palladium against the currencies listed below, WTI crude oil, and the S&P 500.
Gold, silver, platinum, and palladium moved closely through the course of the week. The metals’ performance also ran in a similar direction as the value of the various currencies. With the metals priced in U.S. dollars, the mild softening of currencies against the dollar had further dampened precious metal demand. Furthermore, with equities on an upbeat, it comes to no surprise that the metals would perform counter to them. A list of equities and their performance over the course of the past week can be found at the end of this article.
The relationship between lease rates for selected terms to gold and silver’s spot price was particularly strong last week. Overall, lease rates edged down through the course of the week as did the metals. The fall in the rates resulted from relatively stronger sentiment in the futures markets for the metals compared to that of U.S. dollar as given by the USD BBA LIBOR. Both the LIBOR and the metals’ forward rates had edged down over the course of the week, but the data indicated that the forward fell by less than the LIBOR for all terms considered in the review.
U.S. Brief Statistical Update
Data from last week pointed to flat growth in the overall U.S. economy. The updates revealed much better scenario than many expected, which helped in part to boost investor confidence in equities as well as deflect some interest in the metals.
The Federal Reserve had reduced the target federal funds and discount rates by the expected 25 basis points during the Federal Open Market Committee meeting last week. The U.S. key interest rates are now among the lowest in the world, second to Japan’s rate of 0.5%. Analysts and foreign exchange market participants expect this to be the last of the interest rate reductions, especially with additional liquidity measures taken by the Federal Reserve in adjunct with the Swiss National Bank and European Central Bank to help ease credit market strain. This expectation helped to support the dollar’s marginal 1.3% gain against a basket of six major trading currencies last week. A stronger dollar dampened interest in commodities priced in U.S. dollars, including gold and oil.
It comes to no surprise that inflation remains a concern. Overall personal consumption expenditures price index came in 3.2% (preliminary) higher than a year ago.
Real gross domestic product, GDP, was unchanged from the fourth quarter of 2007, posting a 0.6% (advanced estimate) increase in the first quarter of 2008. The advanced estimate came in higher than many expected, as there was speculation that the onset of the recession would occur in the first months of 2008.
Month on month change in factory orders came in higher than expected, posting a 1.4% increase in March versus the 1.3% fall in February.
April’s employment situation continues to be weak, but had posted better than expected results. The unemployment rate came in one percentage point less than March at 5% while nonfarm payroll employment dropped by 20,000, an improvement from March’s fall of 81,000.
Initial unemployment insurance claims for the week ending April 25 edged up to 380,000 from 342,000 in the week prior.
Equities
In contrast to gold, silver, platinum, and palladium, equities lifted for the week on economic data results indicating that the U.S. economy is more resilient than anticipated. First quarter real GPD, factory orders for March, and data on the U.S. employment situation for April came in better than expected. These results coupled with enhanced liquidity measures to ease financial market strain coordinated by the Federal Reserve, the Swiss National Bank, and the European Central Bank would boost investor confidence and yield good overall performance in the selected indexes.
Enhanced Liquidity Measures: Federal Reserve, European Central Bank, and Swiss National Bank announce an expansion of liquidity measures
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