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Good Afternoon,
A nice roller-coaster ride was the order of the day on Thursday, as market after market dipped below psychological levels only to bounce in the afternoon hours. Don't ask why. Just go along with the flow. Way back in early 2003, we saw the Dow at just under 8,000. We saw it there again, today. But, could it close at near 8,700 anyway? Could it add 587 points on a day when there was first a total eclipse in the making? Sure it could. After all, jobless claims hit a seven-year high, GM is convulsing in the ICU, US foreign trade declined sharply, and the federal deficit soared to $237 billion. Good reasons to run out and buy some crude oil, (itself having tapped a 22-month low of $54.67), stocks, and gold (which dipped to $698.50 during the day), right?
Most of the action in New York bullion prices mirrored the disoriented trading patterns so much in evidence elsewhere. Gold rose, then fell, then rose again. And, as of this writing, our morning target of $732 looked attainable once more. Let's see someone stick their neck out and declare this a day of bottoms in any particular market. Silver broke under $9 for the second time in a month, and then recovered to about $9.38 per ounce, while platinum gave up most of its gains but was still ahead by $22 at $833 per ounce in the afternoon. Palladium stalled at $210, losing a whole buck.
Today's quantum of solace for the precious metals markets was found in Japan, where sales of platinum bars rose to a record in the wake of sub-$1K values, and in a Morgan Stanley forecast for gold to reach $1K...in 2011 on falling mine supply. What happens in the interim, we were not told. Oh, and in case you missed it, Kitco's product page once again has gold and silver coins and bars for sale, at close to normal premiums. Because, you know, products are nowhere to be found, at any price, and because the sinister mints are trying to prevent you from acquiring any of their profitable small investment items. While we cannot estimate how long the current supply will remain up for sale, it is safe to say that the pipeline for such products shows all of the signs that it is not broken, frozen, or dry. Caveat Ebay and various other 'auctions' emptor...
So, where are we on the eve of what could turn out to be a historic G-20 summit? The one where free-market capitalism may make its last stand? What is on the menu of crisis-solving offerings? Well, a bit more of...more of the same. Except, of course, if you happen to subscribe to the lunatic fringe view that the G-20 is about to set the gold price at $10K (not a typo) and exchange your current paper money for 1/12th of a new/improved version. Probably on the same day they finally reveal the body of the aliens collected in Roswell...
Here is what Bloomberg's Simon Kennedy found could be the internationally-flavored hors d'ouevres at the BIG meeting this weekend:
"U.S. officials predicted leaders from the world's most powerful economies will take specific steps to fight the financial turmoil and global recession at crisis talks this week. In advance of the unprecedented summit in Washington of leaders from the Group of 20, President George W. Bush's international economics adviser, Dan Price, played down differences that have emerged among the governments over how best to protect growth and avoid a repeat of the credit crunch.
"We expect that leaders will want to come to an agreement on an action plan identifying specific implementation measures,'' Price told reporters today in Washington. "There is a lot more common ground among countries who will be around the table than the rhetoric might suggest."
The G-20 accounts for almost 90 percent of global gross domestic product, and its leaders are convening to coordinate responses to the worst financial crisis since the Great Depression and seek ways of cushioning the world economy from its deepest downturn in almost three decades. Splits over the best course of action and the coming end to Bush's administration have led analysts to predict little likelihood of concrete policies from the talks. Bush will tomorrow deliver a speech on financial markets and the world economy in New York.
"There's very limited ambitions in terms of actual policy change," said Steve Schrage, a former trade and economic adviser in Bush's administration now at the Center for Strategic and International Studies in Washington.
Under debate are policies ranging from raising bank-capital standards and regulating hedge funds to what role the International Monetary Fund should play and whether governments should be easing fiscal policy more aggressively. European leaders including French President Nicolas Sarkozy and German Chancellor Angela Merkel are demanding greater government control of markets and investors following a crisis they blame on the U.S.'s backing of unfettered capitalism.
"We don't want to move from an absence of regulation to too much regulation, but we want to change the rules of the game," Sarkozy said on Nov. 7. Bush's speech tomorrow will include a defense of free market capitalism as "the best system to create economic growth."
"We should fix the problems we have rather than dismantle a system that has improved the lives of hundreds of millions of people around the world," Bush will say, according to a White House statement. While Price again dismissed the likelihood the leaders willendorse a "single global regulator," he acknowledged the growing interconnectedness of international markets demands changes to how they are overseen.
"Regulations are historically national, but we certainly recognize the need to collaborate as much as possible and whenever possible to ensure our regulations are aligned," U.S. Treasury Undersecretary David McCormick told reporters.
Other steps that the G-20 may take could include forcing credit rating agencies to meet a "higher standard" when grading companies and having accounting rules aligned to a common global standard, he said. Financial institutions may be pushed to include more of their activities on their balance sheets and ways will be sought to provide greater transparency in the markets for derivatives such as credit default swaps, he said.
McCormick also agreed with U.K. Prime Minister Gordon Brown that the IMF may need more resources to let it support emerging markets through the crisis. "We need to be thinking constructively about all the international financial institutions to make sure they have the resources and the focus that we need to have to respond to what we're seeing around the world," he said.
Japanese Prime Minister Taro Aso will announce a plan at the meeting to provide as much as 10 trillion yen ($105 billion) to the IMF for emergency loans to emerging countries, two government officials close to the matter said today.
The conference may also agree on a pledge to avoid erecting trade barriers, which historians blame for deepening the depression of the 1930s. ``Protectionist rhetoric about walling off markets or companies does not help stabilize markets, but in fact leads to greater uncertainty," Price said.
Brazilian President Luiz Inacio Lula da Silva said today he will use the summit to urge reopening the Doha round of world trade talks. They collapsed on July 29 after India and the U.S. disagreed over how poor nations could increase duties to protect their economies from surging farm imports.
With Bush leaving office in little more than two months and the issue of regulation too complicated to be addressed in a weekend, G-20 officials are signaling more talks are likely for soon after President-elect Barack Obama is inaugurated. U.S. Treasury Secretary Henry Paulson told reporters today that "this weekend provides an opportunity for nations to take an important step, but only one step, on the necessary path to reform."
Nothing too radical, but note the words 'coordination' / 'interconnectedness' / 'global' and 'common ground.' If nothing else, the emerging pattern of swift, synchronized policy moves is a noteworthy development in a world where a careless home loan made in Stockton, robs a careful truck driver in Stockholm of his job. Let's hum along:
It's a world of laughter, A world of tears.
It's a world of hopes, And a world of fears.
There's so much that we share,
That it's time we're aware,
It's a small world after all.
Jon Nadler
Senior Analyst
Kitco Bullion Dealers Montreal
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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.
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