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The Fallout of the Doleout

By Jon Nadler       Printer Friendly Version Bookmark and Share
Apr 3 2009 4:24PM

Good Afternoon,

Gold bullion suffered a second weekly setback with Friday's 1.5% decline in prices. The metal has experienced London afternoon fixes under the $900 level only four times since January 30th. At this juncture, the support that has held up so well during Q1, might well give way and usher in a range of from $850 to $895. If one is to look under the hoods of some of these markets, the reasons for the easing up of safe-haven gold (and to some extent dollar) quests is directly attributable to a series of very obvious factors. The stock market's various indices have just had their best rebound since the 1930's, the G-20 had a productive meeting replete with concrete 'to do' lists, the IMF has embarked on that which has been shelved for the past year, and risk appetite has made an unmistakable return.

All of this, in the wake of the visible signs that the measures (and money) thrown at this crisis since six months ago by various governments, are actually starting to yield results. Some find it hard to let go of the possibility that the world as we know it will not experience the Mother of All Meltdowns. We would too, should our commercial agenda be impacted by such improvements in the news flows. As is, we only have one agenda: to bring you the oft-censored stories in the festival of Doom arena. Oh, and a small...detail in the ointment: India - traditionally, the world's single largest importer of gold, has turned an exporter of same.

Albeit some clarification emerged today as to the foundational aspects of the impending IMF gold sales, namely, that -for now- no fresh amounts beyond the original 403 tonnes earmarked for mobilization will be considered, the market did not react as expected and right itself back to the $925-945 range. In fact, The Asian Age warns that:

"Gold prices are expected to slump by five per cent before the end of this month to $855 per ounce as leaders of G-20 nations agreed on Thursday that the International Monetary Fund should sell gold from its reserve to help stimulate the world economy. Analysts say the prices may dip further by June once the supply of the precious metal rises due to sale by the IMF. The IMF can sell up to 403.3 tonnes, which is the equivalent of one-eighth of its holdings. Already, spot prices of gold at the London Metal Exchange fell to $902.5 per ounce, down by 0.17 per cent from the previous close, due to the announcement by the G-20.

"We have started to see impact of the decision and the fall will continue. I expect the prices to come down to $855 an ounce before the end of April and it may dip further to $810 on or before June," said Mr Ashok Mittal, the vice-president and country head (India) of Karvy Comtrade. "Gold prices will suffer as there is no consumer demand in India but only investment-side demand. If the supply rises and demand remains low, the prices will slump," he said.

In a communique, the G-20 said: "Additional resources from agreed sales of IMF gold will be used, together with the surplus income, to provide $6 billion additional concessional and flexible finance for the poorest countries over the next 2-3 years." Demand for gold in India, the largest importer of the precious metal, has taken a knock, evident from the fact that the country has not purchased gold from the overseas market in the last two months. Gold prices in the spot market tumbled by Rs 350 per ten gm to nearly one-and-a-half month low of Rs 14,900 in the Delhi bullion market on stockist selling triggered by the announcement.

Nonetheless, almost three-quarters of the sources surveyed by Bloomberg expect a bounce in gold prices for next week. Of course, these last two weeks were supposed to have recorded a similarly expected rise in values. Hulbert's surveyed hard money newsletter crowd had promised as much to its readership. Darn manipulators, they just cannot seem to get enough. Well, neither can the misguided souls still writing sci-fi dissertations about the "evil short bullion banks" sitting on the gold and silver price, and the so-called NY Crimex. We suggest Sudoku. It is much more rewarding.

Friday's news and market radar traces were mostly about the US jobs numbers (unemployment rose to a 25-year high of 8.5%), the ECB's buying time before activating 'other' measure to pull Europe out of its downward economic spiral, and about N. Korea's Mr. Kim and his surrogate phallic symbol that could soon be taking to the skies. Wait, it's a...communications satellite. Yes, sure. Whatever it is that he is trying to communicate. Maybe it will be a weekend event. The possible sanctions coming Mr. Kim's way should he go on with the show, well, they might last longer than a weekend. So much for geopolitics. Next week's calendar and news will be focusing on the results of the 'stress test' as applied to 19 of the largest US banks. That should make for quite a show, provided the results are made public.

Many a market went into resting mode for the last day of the week, following a couple of days that witnessed value realignments of a significant size. As we mentioned, equities put in their best performance in 70 years recently. Most did not notice, as they were preoccupied with words of wisdom from various officials this past quarter. But, numbers are numbers: the NASDAQ gained 4% on the week, for example. Friday's stock markets paused (which also says something about its mood, on a day when pretty poor economic news hit the deck) the dollar recovered some lost ground, and gold continued to track lower, mainly to the minus side of the $900 marker.

New York spot gold dealings were showing losses of $11.50 per ounce at last check, and were quoted at $892.50 per ounce. Oil prices also took a breather this Friday, showing only a modest drop to $52.25 per barrel, while remaining fairly buoyant as recovery hopes work their way into speculators' perceptions. Silver fell 19 cents, to end near $12.72 per ounce, while noble metals went nowhere fast, with platinum unchanged at $1155 and palladium falling $3 to $218 per ounce, showing no change.

Got money? Good. Got money in, say, Gibraltar? Liechtenstein? Costa Rica? That, may not be so good. The times, they are a-changin' sang Mr. Dylan, some 45 years ago. Now, they are a-changin' for the worse if you happen to be bent on hiding your stash offshore. Don't say you did not see this one coming? The BBC says this morning that:

"The Organisation for Economic Cooperation and Development (OECD) has published its blacklist of non-cooperative tax havens. Costa Rica, Malaysia, the Philippines and Uruguay are the countries listed as not having agreed to tax standards. The list is part of efforts agreed at the G20 summit to clamp down on havens.

There is also a list of 38 places that have agreed to improve standards but not yet done so, such as Gibraltar, Liechtenstein, Andorra and San Marino. On Thursday, G20 leaders agreed to take sanctions against tax havens using the OECD list as its basis. In their communique, they agreed, "to take action against non-cooperative jurisdictions, including tax havens".

"We stand ready to deploy sanctions to protect our public finances and financial systems. The era of banking secrecy is over." Angel Gurria, secretary general of the OECD, said that the G20 summit had helped to focus minds on the issue of tax havens. "We've had more progress in the last two weeks on this matter than we've had in the last 10 or 12 years," he told the BBC. He added that the progress had come despite the leaders not specifying what sanctions they would take.

"[Non-cooperating countries] will move because they know the question of sanctions, however ill-defined that was, is going to affect them somehow." The Philippines is already reported to be taking steps to remove itself from the blacklist. "The Philippine government would take the necessary steps to ensure we meet their expectations," Trade Secretary Peter Favila told the Associated Press news agency. "It is really up to us to prove them wrong."

We won't stress our IT department out with another posting of the complete list of the countries in question, but you can find them all, in all of their gory glory, in this morning's comment.

For now, we wish you all a wonderful weekend, and hope to have you back here bright and early on Monday morning. In the interim, clear your mind and focus on things other than markets. Keep your telescopes handy. Or, watch "Team America" instead. There is a lovely show tune being sung by Mr. Kim in there.

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.