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Counting Down to Doomsday? Hold That Thought.

By Jon Nadler       Printer Friendly Version
Mar 26 2008 9:17AM

Good Morning,

Precious metals prices added to yesterday's gains overnight as difficulties by Clear Channel Communications to complete its LBO due to reluctance among banks brought credit issues back to the forefront in the markets. Investors were also apprehensive about the US durable goods orders and new home sales data due in the pipeline today.

The US dollar thus headed back down, breaching 72 on the index, while oil and metals started to receive additional speculative inflows. In a knee-jerk reaction, Indian gold demand slackened once again as locals' willingness to purchase the metal dipped when gold was once again bid away by hedge funds plays. Gold ran into resistance at $950.00 per ounce, but chances of the test of $960/$965 still appear quite reasonable as no one really expects surprises on the economic front.

New York spot gold trading opened at $944.50 bid, with a $6.00 gain as participants geared up for the statistics coming their way and as stock index futures showed a probable down day on Wall Street. Silver opened flat, trading at $17.91 after a brief overnight stint above $18 while the noble metals added small gains with platinum rising $7 to $1995 and palladium gaining $5 to $456 per ounce respectively. Crude oil was up $1.37  early on, to $102.60 per barrel and the greenback was down .50 to 71.71 on the index. More Fed and/or other central bank posturing are the motivators that the currency would need in order to resume its recently attempted ascent.

In the interim, a mirror-image play is unfolding between the words and actions of Mr. Bernanke and the ECB's Mr. Trichet. The former (and his colleagues) continue to jawbone about the desirability of a strong dollar while cutting rates at every meeting they have, while the latter speaks of the dangers of an overly strong euro but keeps rates at practically twice those of the dollar at the same time. Mr.Trichet's latest words? Reuters has them:

"In the present current circumstances we are concerned about excessive exchange rate moves," Trichet told a hearing of the European Parliament's Economic and Monetary Affairs Committee. "Excessive volatility and disorderly movements in exchanges rate are undesirable for economic growth," he added."

Reuters also bring us the latest in Armageddon countdown news. Namely, that they are overblown:

"Maybe, just maybe, the financial world is not about to implode. Such is the level of disaster mongering surrounding the latest phase of the eight-month-old credit crisis that you could be forgiven for thinking we will all soon be hoarding food and reverting to a barter economy. At the very least, some market pricing and financial commentary has invoked a systemic collapse akin to 1929's stock market crash and the Great Depression that followed.

So what could be the circuit breaker?

First, bankers and investors need to be able to see some timescale for the crisis. Otherwise they will continue to hunker down in safe havens of cash and gold and perpetuate the cycle. One important development this month -- drowned out by panic surrounding the Bear Stearns rescue -- was that credit rating firm Standard & Poors said the end was in sight for writedowns of the subprime mortgage assets that sparked the crisis.

Putting total writedowns at some $285 billion, it said the banking sector had already written off the majority of its distressed assets and more than $150 billion was already declared. First quarter writedowns at three Wall St firms that reported last week -- Goldman Sachs, Lehman Brothers and Morgan Stanley -- were indeed much less than analysts had feared."

In the meantime, more nervousness. The durable goods orders are out and February shows an 'unexpected' 1.7% drop. Get ready for a deja vu kind of day. Even if you might not get ready for a replay of 1929 just yet.

Happy Trading.

Jon Nadler
Senior Analyst
Kitco Bullion Dealers Montreal



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