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Who's On First?

By Jon Nadler       Printer Friendly Version
Feb 19 2009 4:33PM

www.kitco.com

Good Afternoon,

Gold prices spent the day on the defensive for a change, recording lows near $968 per ounce, but the overall tenor of the market remained firm. Little in the way of equity market progress was made (in fact, the Dow succumbed to under the 7500 level), and the dollar slipped a bit against the euro. The latter took a small step higher, following indications that German Chancellor Angela Merkel might live up to her first namesake and start possible sovereign bailouts among its unfortunate neighbours. We still do not know what German 'financial support' for the IMF means in terms of size and source of funds when infusion time begins, but we will keep tuned.

Some analysts see the European common currency rebounding to $1.35 as a result of such potential actions. Then again, some see it a last-ditch German-led effort to save the experiment that the euro might still turn out to be. In any case, the hairline fracture that started under some overvalued McMansion in a Las Vegas suburb a couple of years ago, has widened into a Grand Canyon-sized chasm. In the process, it took neighborhoods, jobs, small businesses, large businesses, retail chains, industries, banks, certain states, and now, nearly entire countries down into the precipice.

New York spot gold dealings were showing a near one percent loss in late afternoon trading, quoted at bid of $974 per ounce. Some difficulties were seen in overcoming the $985 per ounce area as participants prepared for book-squaring and options expiry. Analysts expect a choppy week ahead. Silver fell 36 cents and returned to the high $13s per ounce, while platinum dropped $36 to $1063 per ounce. Palladium slipped $4 to $214 per ounce. Gold fell in tandem with the greenback this Thursday (what?), and was still seen as subject to profit-taking sales despite the rising certainty of the $1K summit being scaled -and soon- among gold pundits. 

Oil climbed a massive $4.27 per barrel, to just under $39.00 - mainly on account of a surprise drop in US inventories. Are people dusting off their purposeless Hummers just as the nameplate (finally!) bites the dust? Automaker SAAB meanwhile, became a sad saab story, following its being orphaned by GM and the failure of the Swedish government to inject capital into the firm. Gasp! Will one of my favorite cars be no longer? What is the world coming to?

US continuing jobless claims reached 4.98 million, PC sales were starting to look like car sales of late, China offered to help Western telecom operators who find it hard to borrow money elsewhere, and Japanese authorities are expanding the rate of flow at the liquidity pumps following the 12.7% rate of economic contraction revealed this week. The Philly Fed's manufacturing index hit an 18-year low today. Just another day at the office, for the world of today.

Or, so it would appear. Just when you thought the news could not contain any more bad developments, small beeps were being hear underneath the global rubble. One, the US leading economic indicators appeared to have notched a small gain last month. Two, the rise in money supply as tracked by M2 shows a weather vane turning to the "R" direction for recovery. Maybe even by year-end. Wouldn't that be a change. Were such fragile echoes to become more meaningful heartbeats, one may look back at the winter of '09 as the depths of the nightmare, and not the beginning of the end of the world as we know it.

Therefore, from now on, the money game starts to get really interesting. With the Dow at lows not seen since 2002, and under a number that some saw as its Maginot Line, the US dollar flirting with the double-eight on the index, and gold still within a $25 whispering distance of $1K, the conundrum of what represents value, what is next to pop (higher, or as in a bubble popping, both apply here), and where to park one's funds becomes a task as appealing as opening one's e-mail inbox after a month-long vacation.

One place that is sure to attract far fewer, if any, slices of the global investment money pie is the formerly known money fortress known as Switzerland. The way we see it, it is pretty easy to explain the recent urgency with which some of the well-to-do in some countries have been looking at physical gold: it has now taken over the mantle of privacy, safety, and anonymity that Swiss banks were previously known to offer. But, as pondered below, such a move may have its own perils. As for Switzerland, well, there will always be watches, skiing, and chocolate.

The end of an era, this. So, it turns out that some of the ugliest things were going on in the world's prettiest country. Thanks to one, Raoul Weil - who will eventually become known as the man to have brought down the time-honored Swiss banking system. You want gold confiscation? You just got it. If you were among those 250 to 17,000 -wait- make that 52,000 (!!!) individuals (and that's just from the US!) who tried to be smart and evade taxes in your jurisdiction and then found it smarter still to bury your ill-gotten profits into gold kilos you may have bought from UBS, the gig may be up. Nothing will be safe from the prying hands of Uncle Sam. Nothing.

As for gold, well, it has slowly taken on the features or a chicken. Or, maybe, those of an egg. UBS analyst John Reade (wish he would just be quoted as "London analyst") feels that given current conditions, a further rise in gold prices can only occur if investment demand rises. Or, is it that: investment demand will only rise if the gold price goes higher? It certainly seemed to be the case over the last month. Perhaps it is not about chickens and eggs. But it could be a tale of a dog and its tail.

Until tomorrow,

Happy Trading.

Jon Nadler
Senior Analyst
Kitco Bullion Dealers Montreal

 

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