Monday's action in the metals/commodities/stock and currency markets was as turbulent and as divergent as one could possibly imagine, although some may not have wanted to imagine a sharp drop in crude oil (off by over $4 on the stronger dollar and recession fears), an equally nasty fall in the Dow (off 270 points on bank credit-loss jitters and poor leading economic indicators), and a euro falling beneath $1.29 against the dollar. Copper dropped the most in two months. Another 'green shoots' rally that was anything but.
On the other hand, some did want to imagine (and actually got) a near 2.00% rise in gold (on the above-mentioned jitters), a 21-cent gain in silver, and a pop in the greenback to $86.70 on the index. Badly mauled, platinum; it lost $48 in a blowout of major proportions (down to $1158 per ounce). Spec funds anyone? Palladium got bruised, losing $8 to $224 per ounce. Job cuts at GM (are there any left to cut, save the legal department?) were cited. This was one rally that we (and a few others, like traders at Heraeus) told you was smellier than a skunk farm.
BofA reported first quarter results that outshone what it was able to accomplish during the entire year in 2008. Its sparkly performance on the quarter was promptly offset by news that it was adding $6.4 billion to reserves, for bad loans. Wait a minute! We thought that making loans (good, or bad) had crawled to a complete standstill. Quick, fire those loan officers! Citi's credit losses are also seen as mounting. We are not clear what they are mounting, but we would scurry fast, were we that horse.
Bank stress-test findings may finally make it to the light of day in a couple of weeks. Can you spell 'pacemaker implant advised?' Finally, a phenomenon rarely seen of late -M&A- made a reappearance today, and it was among the few bright spots in the news: Oracle was after Sun Micro, Glaxo was courting Stiefel Labs, and PepsiCo was seen fishing for some bottlers.
New York bullion trading continued with a $16 gain in gold as the afternoon progressed, brining the metal up to $885.00 per ounce. Gold may rise on the week, and, indeed, it really needs to do so, as the next week or so offers one of the year's two best shots at Indian buyers going to their stockists to...stock up on dowry goodies.
The so-called 'summer doldrums' are lurking ahead, otherwise. We'll see. One problem that has refused to go away for gold continues to be scrap sales. The first quarter of this year saw 500 tonnes of bullion make its way into induction furnaces around the world.
Let's put this into perspective, folks. Normally, it takes an entire year to record that amount of secondary supply sales. Or, viewed from another angle, about half or more of what investment demand took away from the market last year, was given back over the last three months by existing holders, in the face of four-digit gold values. This is as epic a tug-of-war as we have ever witnessed in the market. It is absolutely fair to call this market as one in disarray.
The next medium-term step in price patterns is thus, as obscure as a shadow behind a Shoji screen. If nothing else, the massive flows of scrap gold raise the question of sellers viewing four-digit gold as unsustainable, and that of the 'rainy day' (financially speaking) having arrived for many - they now absolutely need to raise cash. The very purpose they bought the metal, to begin with. For the time being (if micro-gyrations are your focus) it looks like a 'sell' into the $885/$895 area (and more so into the $900-$920 zone, IF achieved again) and a 'modest buy' should values sag towards $860 and to $845 beyond that.
Much of any of the above, of course, depends on which way the pendulum ends up swinging, now that it may have seen the bottom of the arc. We could care less about price and about price performance - as we told Al Korelin on his live show this past Saturday. It's the percentage of ownership that matters. Even if we come to look back upon the last couple of year as 'the good old days of Nearly the End." Marketwatch's David Marsh, let's have the top ten reasons why the other side of the mountain is really no different. Except for the terminology (oh, and the charts):
In 1962, Richard Nixon summed up the predicament of hangdogs and scapegoats through the ages. Bowing out of the battle for the governorship of California, he told reporters just how much they would miss him. "You won't have Nixon to kick around any more," he said. Could it be we will soon start to feel the same about the economic crisis? If the bears really are in disarray and the bulls are back in the driving seat, we could be all kissing goodbye to gloom and doom soon. And boy, are we going to miss not having that darned crisis to kick around. Here are 10 reasons why:
1.) Loading all the blame for the mess on to George W. Bush has been great fun. Once the upswing starts, Barack Obama will take all the credit. It may start to go to his head. There'll be a G20 summit every three months in Washington just so that world leaders can queue up to thank him.
2.) The gloomsters have become household names. The Cassandras have been curiously comforting. Now we will have to get used to the optimists again. Unlike the prophets of doom, they wear smart suits, not sackcloth. A much more perfidious bunch of people.
3.) Seeing bankers publicly vilified and joining the dole queues has been good for the spirits. Once they start repaying government money, cashing in their bonuses and getting uppity again, everyone will feel a lot less cheerful.
4.) The jargon of recovery is even worse than the words we've got used to in the downturn. "Quantitative Easing" was bad enough. As the central banks prepare to sell their enormous stocks of government bonds to drive up interest rates, we'll have to learn about "Quantitative Firming."
5.) Didn't we always want prices to fall back to the level of the Swinging Sixties? Now everything -- from Kiwi fruit to Cadillacs -- will be going up. And then there's the Great Inflation, just round the corner. Bring back deflation, all is forgiven!
6.) Social responsibility has been on the rise. Boys and girls have wanted to become eco-farmers, not real estate brokers. Once the upswing returns, greed will be back big time on the college curriculum.
7.) During the recession, people ate less and walked more. Haven't you noticed how there's been a lot less fat people around?
In the next two years, corpulence will grow in line with GDP. Obesity will be back, as though it's never been away.
8.) The recession has been good for service. Waitresses wait, doormen open doors, taxi-drivers smile at just a few crumpled dollar bills, air hostesses glide through empty planes like models on a catwalk. Recovery will bring crowded restaurants, downgraded quality and general grumpiness.
9.) Reining in the Russians will be more difficult when the oil price starts to push through $100 a barrel. Do you think the Cold War would have ended if the oil price had not been down to $10 a barrel 20 years ago? That nice President Medvedev could turn distinctly tetchy. And please don't even think how the Iranians will start to act.
10.) Recovery will help China as its export motor again goes into overdrive. The dollar will plummet so fast that dealers will run out of currencies to sell it against. Forget the SDR! The central bankers' new official currency: the renminbi. And with it, the green shoots of a really new crisis. They get bigger and better all the time."
Kitco Bullion Dealers Montreal
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