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I Love The Smell of Fear in the Morning

By Jon Nadler       Printer Friendly Version Bookmark and Share
Mar 13 2009 4:22PM

Good Afternoon,

Gold prices tried for, and enjoyed a continued rally for most of the final session of the week, reaching highs of near $940 per ounce. At the end of the day (literally) however, the metal was unable to remain at those levels, or try to knock down the $950 barrier. Mildly rising stock markets diverted some would-be safe-haven buyers today. The precious metal thus finished down on the week, marking its third weekly drop -the longest such declining period since October's lows. Strong gains and the second highest monthly average price on record defined the month of February.

A late price check showed New York spot gold trading nearly $10 lower than its $937.30 per ounce morning opening price. Fund buying started the day off nicely, but book-squaring and waning interest eventually called the shots. Silver rose 23 cents to $13.18 and maintained most of its Friday gains. The noble metals finally eked out small gains as well. Platinum and palladium gained $4 and $3 per ounce respectively, and were quoted at $1055 and $199 per ounce. The US trade gap shrank faster in January than the kids in 'that' movie - to a level not seen in seven years.

Meanwhile, the world keeps changing as fast as the financial media can keep up with it. News that would have seemed unfit for print in all but the comics section of a kiosk, now makes for routine headlines. Switzerland, Austria, and Luxembourg relax banking secrecy standards. Switzerland actively pushes its franc lower. Switzerland's gold holdings surpassed by the GLD (okay, by some 50,000 ounces). Cramer drawn, quartered, skewered, and grilled on the Daily Show:

US household wealth has fallen 20% since two years ago. Not surprisingly, the occupants of the households in question have taken to becoming aggressive savers. The US dollar was stalled at 87.38 on the index, while crude oil lost nearly one dollar, easing to $46 per barrel. An increasing number of sources indicate that OPEC will likely stand pat on production levels following this weekend's meeting. Another meeting - that of the G-20 - has news writers Twittering from various spots in Brighton (UK) about all that will be on the 'to do' plate this weekend.

The meeting's participants will be sitting down amid growing tensions about how to tackle the issues of the day in the global economy. Granted, this will be a dress-rehearsal for next month's G-20 summit in London, but when you come to the meeting after just having shot most of your ammo on internal stimuli (US, China), weakening your currency (Switzerland), or trying to remain uncommitted (Euroland), the seating arrangement teams could have their hands full.

China's overt expression of 'concern' about US dollar-denominated assets was quickly translated by the gold radicals as a prelude to the country somehow running out to buy truckloads of gold. Make that, "gold will go to the moon." Sound familiar? Let's just ignore the fact that the gold markets are way too small to take care of anything but a tiny portion of the reserves, and are volatile to boot.

Buying yen or euro-denominated debt does not appear to yield any higher liquidity or better safety either. Then there is the small matter of Treasuries having returned 14% last year (vs. gold at 5.5%). Thus, the Wall Street Journal opines that China can do little more than worry about the issue. As can the rest of us. That, and convince President Obama to get the US marching once again. By whatever means.

Mr. Obama did respond, and rather quickly - through a spokeswoman. He might as well have picked up the phone and called Mr. Wen with the reply"

"The U.S. Treasury market remains the deepest and most liquid market in the world,? said Heather Wong, Treasury spokesperson. “President Obama is committed to taking the steps necessary to restore growth and put this country on the path of fiscal sustainability, including cutting the long-term deficit in half over the next four years.? The remarks were a response to comments earlier today by Chinese Premier Wen Jiabao, who said he is “worried? about his country’s holdings of U.S. government debt." - courtesy

As for what the best solution may be on the home front, the debate (and offering of solutions) continues at a high level. Today's economic diagnosis and prescribed treatment for the patient came from former Harvard President Lawrence Summers. He is now President Obama's Director of the National Economic Council. Here are highlights of what he had to say, courtesy of the Associated Press:

  • Consumer spending in the United States appears to have "stabilized," business leaders should show "more optimism and more confidence" in their investment decisions.

  • The $787 billion economic stimulus package that Obama signed into law last month is starting to have an impact, saving thousands of jobs, providing continued unemployment insurance and health benefits to several hundred thousand workers and initiating tens of billions of dollars worth of infrastructure projects.

  • The Obama administration aims not only to start an economic recovery but to build a more sustainable foundation for future economic expansion. People who are focusing solely on the recovery are setting their sights too low. Americans should take advantage of the bargains available now because of reduced prices brought on by recession in many sectors of the economy.

  • Our single most important priority is bringing about economic recovery and ensuring that the next economic expansion, unlike its recent predecessors, is fundamentally sound and not driven by financial excess," There is "one ineluctable lesson of the history of financial crises: They all end."

  • President Obama made a similar point after a meeting at the White House today with Paul A. Volcker, chairman of his Economic Recovery Advisory Board, and other advisers: "It is very important, even as we're focused on the financial system and the credit markets, that we are laying a foundation for what I'm calling a post-bubble economic growth model," Mr. Obama told reporters.

  • "The days when we are going to be able to grow this economy just on an overheated housing market or people spending -- maxing out on their credit cards -- those days are over. What we need to do is go back to fundamentals."

  • Summers said the administration is confident that "we will restore economic growth, regain financial stability and find opportunity in this moment of crisis to assure that our future prosperity rests on a sound and sustainable foundation."

  • Invoking President Franklin D. Roosevelt's dictum during the Great Depression that "the only thing we have to fear is fear itself," Summers described the growth of a bubble economy in recent years and the subsequent bursting of the bubble as vicious cycles of greed and fear:

  • "An abundance of greed and an absence of fear led some to make investments not based on the real value of assets but on the faith that there would be another who would pay more for those assets," he said. "Bubbles were born. And in these moments, greed begets greed, and the bubble grows." After the process eventually stops and reverses, however, "greed gives way to fear, and this fear begets fear," he added.

  • "This is the paradox at the heart of financial crisis," he said. "If, in the last few years, we've seen too much greed and too little fear, too much spending and not enough saving, too much borrowing and not enough worrying, today our problem is very different. It is this transition from an excess of greed to an excess of fear that President Roosevelt had in mind. . . . It is this transition that has happened in the United States today." Now, the challenge is to "create confidence without its leading to unstable complacency."

Turning points happen when they are least expected.

Enjoy your free time.

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.