|
Good Afternoon,
Gold gave up a promising early morning gain of 1.5% and pared it to only 0.25% by the early afternoon, despite a continuing (albeit not as large) rise in crude oil, and despite the still slipping dollar. For the third day, although recording small gains on the sessions, gold remains characterized by a heavy and somewhat fatigued feel. The metal is content to take the lead from oil and does not appear to have internal drivers pushing it with any significant energy. Market participants appear to be treating several asset classes as short-term trades at least until next Tuesday, when the workforce is expected to return more or less in full.
Shifting winds of various types created an amalgam of background conditions that pushed gold prices higher initially today, and the dollar lower overnight. Hurricane Gustav's winds were still unpredictable as regards their ultimate destination, but were of sufficient concern to raise oil prices back above $117 as the day started and as the trade speculates about a possible impact on places such as Galveston TX, or parts of Louisiana or Alabama. The last thing the area needs is a replay of Katrina on any scale. Markets will continue to ride on storm news for the next several days.
The euro did not manage to make much headway today, either. Not while economic conditions are slipping in Europe, and despite an ECB council member said today that he does not see justification for a rate cut based on current economic conditions. European policy makers still see inflation as public enemy #1. Today's numbers however, might reveal that inflation moderated in Germany this month. Thus, no urgent need to hike rates either.
As a result, currency markets witnessed the greenback first giving back a whopping .51 on the index to fall to 76.74 but then rising to 77.10 on the back of much better-than-anticipated durable goods orders which rose 1.3% in July (mainly due to exports). The Dow welcomed the durable goods orders news with a...(thus far) durable rally of over 100 points on the day. Background worries were pitted against each other as one set rose due to the 117 banks now on the FDIC's watch-list, while another declined in the wake of "Frannie" rising for a third day after calls that their imminent demise or recapitalization needs were premature.
As mentioned, Spot gold gave up about $11 of its early $13 gain and was last quoted at $826.40 per ounce, up $2.30 on the day. Silver turned negative and dropped to $13.49 and was thus far the only losing metal in the complex today. Platinum still managed a $30 jump to $1425 while palladium added $6 to $289 per ounce. Gold encountered first level resistance near $835 and appears to have rescheduled its attempt to testing the $855 area. However, a decisive push above $870 is still required before traders conclude that the worst is over correction-wise. In the interim, the risks pointed out over the last two days are part of the market's fabric.
Speaking of the worst being over or still down the road, commodity market observers and traders are still at odds with one another as regards a verdict. Analysts are looking for the slightest signs that a trend is forming, often focusing on minute details in order to glean what may be happening. Nothing unusual, this. It happens in every market that is undergoing such dramatic shifts and it makes for lively debate. We bring you now the unofficial diagnoses of several such participants, as presented by Bloomberg's Madelene Pearson in an exclusive piece:
"Corn and soybeans have rebounded as reduced crop yields push U.S. stockpiles to near five-year lows. Oil has reversed on U.S.-Russian tensions. Nickel has turned after Xstrata Plc closed a Dominican Republic plant.
The worst rout in the history of commodities may be ending, signaling a replay of the 2006 tumble that preceded a doubling of prices in the next 17 months as measured by the Standard & Poor's GSCI index. Only this time, the driver is supply cuts rather than increasing demand. Supply constraints are "coming more and more to the fore'' and that "will separate the performance of individual commodities," said Alan Heap, global commodity analyst at Citigroup Inc. in Sydney. "We're still looking for higher prices next year and in some cases the year after."
Commodities are in their seventh year of gains, fueled by demand led by China and India and disruptions to mine and farm supplies. A rebound in raw materials from four-month lows may boost profits at BHP Billiton Ltd., raise costs at Nestle SA and stoke inflation, limiting the ability of central bankers Ben S. Bernanke and Jean-Claude Trichet to cut interest rates and revive growth in the U.S. and Europe.
Oil is up 3 percent from a more-than-three month low after gaining 10 percent on concern supply may be disrupted by tension between Russia and the U.S. over Georgia and Poland's missile shield. OPEC may consider output cuts at its Sept. 9 meeting, Venezuela Energy and Oil Minister Rafael Ramirez has said, and U.S. gasoline stockpiles are dropping. Oil ended at $114.59 a barrel Aug. 22, down 22 percent from its record $147.27 July 11, and traded up 0.5 percent at $115.20 today.
Investor Jim Rogers, who in April 2006 correctly predicted oil would reach $100 a barrel and gold $1,000 an ounce, said Aug. 23 that crude oil prices will climb. "Over the course of time, it's a bull market," Rogers, 65, chairman of Rogers Holdings, said after an investor conference in Kuala Lumpur. While oil could fall to $75 or rise to $175, prices will appreciate during the next 10 years, he said.
Copper, after plunging as much as 20 percent from its $8,940 a ton record on July 2, has rebounded from a six-month low as output fell at BHP Billiton, the world's biggest mining company, and Chile's Codelco, the largest producer. Aluminum may gain as power shortages force producers in China to curtail output, said Barclays Capital, the securities unit of London- based Barclays Plc. Xstrata, the fourth-largest nickel refiner, said Aug. 19 the suspension of its Falcondo operations in the Dominican Republic may last four months. The operations produce 29,000 tons of nickel a year, or about 2 percent of world primary nickel production.
Corn and soybeans, down as much as 37 percent from their peaks, gained the past two weeks as delayed plantings threaten to reduce U.S. yields and on concern export tax protests may disrupt supplies from Argentina, the second-largest exporter of corn and third-largest of soybeans. That would strain world cereal stockpiles that the United Nations' Food and Agriculture Organization says are near a 30-year low.
"I don't think the commodity boom has ended at all," Malcolm Southwood, a Melbourne-based commodities analyst with Goldman Sachs JBWere Pty, said Aug. 21. "We've got a little bit of a cyclical downturn in a longer-term bull market, and the structural fundamentals are very much intact."
Commodities, as measured by the Standard & Poor's GSCI index of 24 raw materials, had their fastest 30-day decline to Aug. 15, slumping 21 percent, after peaking July 3.
Not all investors are so optimistic.
"The whole cycle that began around the turn of this century ended," said Michael Aronstein, chief investment strategist at Oscar Gruss & Son Inc. in New York, who returned 15 percent a year in the 1990s managing commodity investments. "Human ingenuity creates productivity, and the real price of almost everything that's extracted or manufactured goes down over time. That's the nature of human progress."
Federal Reserve Chairman Bernanke signaled last week that the central bank expects the commodity rally to ease. The Fed is keeping its target for interest rates "relatively low" because of "our expectation that the prices of oil and other commodities would ultimately stabilize, in part as a result of slowing global growth," Bernanke said Aug. 22 at the Kansas City Fed annual conference in Jackson Hole, Wyoming.
"We've seen the end to the upward trend" for commodities, Nicholas Sargen, chief investment officer of Fort Washington Investment Advisors Inc. in Cincinnati, said in a Bloomberg Radio interview Aug. 22. "The global economy is weakening, not just the U.S. economy. All the evidence coming out of Europe is that the economy now is stagnating. Japan and parts of Asia are weakening as well. That's just too powerful to be overcome."
Countries that make up half the world's economy face a recession, Goldman Sachs Group Inc. said Aug. 21. The U.S., Japan, the 15-nation euro area and the U.K. are "either in recession or face significant recession risks in the months ahead," Goldman's London-based international economist Binit Patel said in a report. A year since the U.S. housing slump sparked about $500 billion in credit market losses for banks globally, the world's largest economies are now stumbling as rising borrowing costs combine with high commodity prices."
From the big picture, we turn to the daily action. Storm-watch is on top of everyone's agenda. Whether tropical, financial, or geopolitical, storms are the market drivers of the late days of August. It's just a question of where they hit, and how much or little damage they inflict. The financial Katrina has now placed the first candle on its birthday cake.
Happy Trading.
Jon Nadler
Senior Analyst
Kitco Bullion Dealers Montreal
****
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco 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 Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
|
